Executive Summary: ISG Provider Lens™ Manufacturing Industry Services and Solutions - North America 2023
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The manufacturing industry is undergoing a major shift in the usage of technologies across the value chain
The manufacturing industry has undergone a dramatic transformation over the years and more so recently. Rising inflation, regional conflicts, supply chain issues and talent management (attracting and retaining
employees) are some pressing issues the industry faces. Thus, companies are looking to embrace digital transformation initiatives in smart manufacturing, supply chain and aftermarket services. A recent ISG study on smart manufacturing reveals that productivity improvements, cost savings and supply chain resilience are the biggest motivators for starting smart manufacturing initiatives. Modern manufacturing firms also need a well-defined aftermarket sales and service strategy to drive CX and operational efficiency by integrating aftermarket offerings into core business processes.
Manufacturing companies continue to look at technology investments in AI, AR, VR, cloud, digital twin, blockchain and others to reshape key operations and business processes. Post-COVID-19, companies are also looking to shift their manufacturing base closer to home (nearshoring and reshoring) to reduce supply chain issues and drive competitive advantage.
Furthermore, global manufacturing will likely make sustainability and net zero the key focus areas for 2023 and beyond. Stakeholders and consumers increasingly challenge manufacturers to adopt more sustainable and environment-friendly manufacturing practices across their value chain.
ISG notes the following trends in the global manufacturing industry for 2023–24:
Smart manufacturing and product lifecycle management (PLM)
With connected operations powered by AI and ML, further facilitated by cloud and 5G networks to move information to the edge, today’s factories will likely be transformed into the plants of the future, revolutionizing the manufacturing ecosystem. The transformation will facilitate end-to-end real-time supply chain planning and network optimization, shopfloor visibility, predictive asset maintenance, product portfolio optimization and demand forecasting. Companies have moved from IT/ OT to IT-OT-ET convergence, signifying the need for engineering capabilities to drive factory automation. As manufacturing companies
drive digital transformation initiatives, PLM will play a key role in enabling the outcomes. PLM will help companies innovate, create more resilient products and supply chains, promote sustainability practices and drive the use of data analytics for better decision-making.
The rise of digital twin
A digital twin is a virtual representation of a physical process or product to drive real-world simulation and decrease future anomalies. It’s a setup where data connects the hardware and software. Companies increasingly integrate virtual models and digital twins to drive effective operations and product innovation
cycles. Digital twins are becoming important for discrete and process manufacturing companies to enable better designs, optimize processes and speed up engineering. Companies like Siemens and Schneider Electric are driving the adoption of digital twins, and service providers are collaborating with them to expand their
offerings. One of the key challenges companies face is the management of digital twins, as the model is retained and updated for later stages of the product’s lifecycle, such as inspection and maintenance. This requires a close integration with PLM software.
Continued supply chain challenges
COVID-19 presented the world with various critical challenges around supply chains. Manufacturers and their suppliers are looking to diversify their supply chain to mitigate vulnerabilities that emerged through the
pandemic. While the supply chain issues concerning critical parts and chips have come down significantly compared to last year, the need for global cooperation and interdependence between countries has become critical as geopolitical tensions such as the ongoing Russia-Ukraine war have impacted the supply chain. To curb the supply chain challenges, India and several ASEAN countries are also increasingly looking to attract
manufacturers with incentives, enhancing trade relationships with allies and exploring self-sufficiency in supply, procurement and manufacturing. Cybersecurity and sustainability are other challenges that providers assist companies with, as supply chain vulnerabilities can lead to a cyberattack, disrupting warehouse and manufacturing operations and sites.
Sustainability and reverse logistics
Increasing government and investor pressures have forced companies to consider sustainability across the manufacturing value chain. Global financial institutions and banks want to see their portfolios aligned with
manufacturing organizations that take their sustainability and ESG (environmental, social and governance) goals seriously. Industrial technology is the biggest contributor from end-user devices and peripheral’s energy
consumption perspective, which is a critical component for companies to meet their sustainability goals. As products reach the end of life, the need for recycling and safe disposal becomes critical, and companies are looking to invest in creating a robust reverse logistics framework to address the issue. Moreover, as energy efficiency, circular economy, smart manufacturing technologies and optimization of plant design and operations become critical, integration with sustainability and environment goals is fast becoming the need of the hour.
Nearshoring and reshoring
One of the major consequences of supply chain challenges faced by the manufacturing industry is the resurgence of nearshoring or onshoring operations or bringing them in-house. While many valid reasons exist for investing close to major markets, geopolitical uncertainty raises the possibility of a divided global economy. Nearshoring is prominent in key manufacturing industries such as automotive, electronics and other OEMs. North American companies are looking to reshore to Mexico, Canada, or Central America to save time and costs. Per the latest survey by Kearney, “96 percent of CEOs are evaluating reshoring their operations, have decided to reshore, or already reshored, an increase from 78 percent in 2022.” However, the nearshoring trend has led to a labor shortage in some instances. Technology is a key component of the reshoring and nearshoring strategy, and manufacturers are looking at automation, robotics and digitalization to make reshoring viable and competitive.
Servitization
Many OEMs now witness declining sales due to chip shortages, inflation, rising geopolitical tensions, non-availability of spare parts and saturated markets. Servitization is vital to overcoming these challenges. From
large automobile and heavy equipment manufacturing companies to electrical and electronics companies making gadgets, the need to diversify the revenue stream through service is becoming increasingly
mainstream. Business models such as pay-per-use, as-a-service and subscription are fast catching up with companies across the manufacturing value chain, helping companies increase their revenue potential, CX and CSAT. Some examples of servitization include Electrolux offering appliances under a monthly subscription that covers installation, maintenance and repairs in Sweden and Signify offering Lighting as a Service (LaaS) to
help companies save on energy costs in the Netherlands.
Workforce quality
Many manufacturers increasingly cite the inability to attract and retain employees as their primary challenge. The lack of skilled labor in the market is also forcing manufacturers to work with technology companies around automation and robotics. Post the COVID-19 pandemic, manufacturers have increased their
number of automated processes to save on large capital expenses and machine operator shortages. Another issue affecting assetintensive industries, particularly manufacturing, is the aging workforce. For example, per
Randstad estimates, approximately one in four manufacturing workers in the U.S. and 22 percent of workers in the Canadian industrial sector are aged 55 and over.
Aftermarket services becoming mainstream
Aftersales servicing, repairs and condition monitoring are manufacturers’ key focus areas, which help them maintain assets, drive predictive maintenance, and increase product life cycle. The maintenance of a product
provides an ongoing source of revenue for manufacturers. With the advent of data and connectivity, technology will play a vital role in developing aftermarket services. Technologies such as AI, digital twin, AR, VR, additive manufacturing and analytics will potentially drive the aftermarket services market with their
application across various industry use cases, such as maintenance cycles’ optimization, reduction in delays, salesforce effectiveness and spare parts pricing mechanisms.
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