Executive Summary: ISG Provider Lens™ Manufacturing Industry Services and Solutions - North America 2024
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By harnessing AI, manufacturers can enhance CX, optimize operations and develop innovative products
The manufacturing industry is undergoing a period of significant transformation, driven by a confluence of technological advancements, economic shifts and evolving consumer expectations.
The industry is being impacted in areas such as smart manufacturing, supply chain optimization, aftermarket services and sustainability. Manufacturers are leveraging technologies such as IoT, AI, ML, digital twins, AR, VR and cloud to optimize production processes, improve quality and enhance efficiency. They are also implementing digital solutions to streamline supply chain operations, reduce costs and improve visibility. Aftermarket services are being placed at the forefront and integrated into core business processes to drive customer satisfaction and revenue.
The manufacturing industry is challenged by talent shortages, rising costs, the need to ensure regulatory compliance and cybersecurity threats. Attracting and retaining skilled workers to support digital transformation initiatives and meet evolving workforce needs continue to remain a challenge, especially as rising costs for raw materials and energy impact profitability. Navigating complex regulatory environments, particularly in areas such as environmental sustainability, cybersecurity and data privacy, also remains difficult as companies seek to harness data for AI and
generative AI (GenAI) applications.
To successfully navigate these trends and challenges, manufacturing companies must adopt a strategic approach prioritizing innovation, sustainability and customer centricity. By embracing digital transformation, investing in advanced technologies and fostering a culture of continuous improvement, manufacturers can position themselves for long-term success in a rapidly changing industry.
ISG notes the following trends in the global manufacturing industry for 2024-25:
Factory of the future initiatives
With connected operations powered by AI and ML, further facilitated by cloud and 5G networks to move information to the edge, today’s factories are likely to be transformed into the plants of the future, revolutionizing the manufacturing ecosystem. The concept of the Factory of the Future includes intelligent, interconnected systems that optimize production processes, enhance efficiency and drive innovation. This transformation will facilitate end-to-end real-time suppl
y chain planning and network optimization, shopfloor visibility, predictive asset maintenance, product
portfolio optimization and demand forecasting. Manufacturers and providers will work together to harness AI to automate process control and optimize demand fluctuations, leverage data analytics to drive quality control and
maintenance and continue to bring digital twins to the mainstream to increase supply chain visibility and identify vulnerabilities to mitigate risks. As manufacturing companies drive digital transformation initiatives, product lifecycle management (PLM) will play a key role in enabling these outcomes.
Engineering-focused acquisitions to expand product design and development capabilities
Companies such as Infosys and Cognizant have made acquisitions to bolster their engineering capabilities. The shortage of digital engineering skills required to drive scaled deployments continues to challenge the industry. Companies have moved from IT/OT to IT-OT-ET convergence, signifying the need for engineering capabilities to drive factory automation. Manufacturers are under constant pressure to reduce the time it takes to bring new products to market, which requires efficient design processes and rapid prototyping. As products become more sophisticated, the complexity of design increases, necessitating advanced tools and expertise to manage intricate design specifications and integrations. Thus, the knowledge and skills required to incorporate emerging technologies, such as IoT, AI and
digital twins, into product designs can be challenging but are essential to staying competitive. OEMs are challenged by the need to identify and establish capable engineering suppliers that can take ownership of the work, codevelop and coinvest in the domain and technology through a risk-sharing model.
The rise of Industrial AI
The lack of insights into shop floor productivity caused by disconnected systems leads to strained operations and bottlenecks. Thus, there is a need to develop a robust road map to connect manufacturing machines, systems and the workforce to transform them into an Intelligent Industrial Enterprise, which will be led by Industrial AI. Industrial AI uses ML, deep learning and computer vision to analyze large amounts of data generated by industrial equipment and sensors. The output can help manufacturers in areas such as predictive maintenance, quality control, supply chain
optimization, energy efficiency and process optimization.
Data and GenAI
Many companies struggle with data silos, making it difficult to leverage valuable insights. Digital transformation and AI integration offer a solution. By harnessing AI and ML, businesses can enhance CX, optimize operations and develop innovative products. Companies are leveraging these technologies for predictive maintenance and preventive maintenance, among other applications. GenAI tools such as ChatGPT and Midjourney are accelerating product development by streamlining design processes and fostering creativity. Unutilized data, despite investments in IoT enablement, disparate data sources and technical architecture, along with a lack of visibility into distributed equipment, sites, customers and service personnel, can hamper digital transformation. AI is being used to enhance
customer experiences in the aftermarket, optimize internal processes and enable new business models and innovations.
OT and cybersecurity
Cybersecurity, data privacy and OT security are emerging as significant challenges as equipment become more connected and integrated. Manufacturers need to invest heavily in advanced cybersecurity solutions to protect against sophisticated threats, ensure data privacy and comply with global and regional regulations. In North America, the emphasis is on cybersecurity for critical infrastructure and compliance with data privacy laws. Most OT systems are outdated and lack built-in security features. It is also difficult to monitor and manage OT networks due to their complexity and the diversity of devices involved. Thus, OT security is crucial for safeguarding industrial control systems (ICS) and critical infrastructure. It involves protecting hardware, software and networks that manage physical processes in sectors such as manufacturing, energy and transportation.
Supply chain resiliency and transparency
Industries such as automotive, electronics and pharmaceuticals are heavily impacted by global supply chain disruptions caused by geopolitical tensions, pandemics and natural disasters, making resilience and agility critical yet challenging to achieve. Navigating these challenges requires a delicate balance of advanced technology integration, proactive risk management and adherence to evolving environmental and trade regulations. The complexity of multitier supply chains exacerbates these issues, making it difficult to achieve transparency and traceability. Building
resilient, agile supply chains powered by digital technologies such as AI and ML is becoming a need for manufacturing companies. These technologies can increase supply network visibility and improve control and coordination. The supply chain-as-a-service (SCaaS) model is gaining popularity, allowing companies to outsource parts of their supply chain to specialized providers, which enhances flexibility and scalability.
Servitization or new business models
Traditional manufacturing models are facing challenges due to factors such as chip shortages, inflation and geopolitical tensions. To overcome these obstacles, many companies are adopting a service-oriented model known as servitization. It involves offering services alongside or instead of products. This could include pay-per-use models, subscription services or asset-as-a-service offerings. By embracing servitization, manufacturers can adapt to changing market conditions, increase revenue and strengthen their competitive position.
Aftermarket services entering the mainstream
Aftersales servicing, repairs and condition monitoring are manufacturers’ key focus areas, which help them maintain assets, drive predictive maintenance and extend the product life cycle. Industries such as aerospace, automotive and electronics face significant challenges in managing aftermarket services, particularly maintaining consistency and quality across global operations. The implementation of circular economy practices, including refurbishment and reverse logistics, is complex and resource intensive. Meeting the growing demand for faster, more personalized
aftermarket services is challenging, particularly in the automotive and electronics industries, where customer expectations are high and product complexity is increasing.
Sustainability as a competitive advantage
Industrial technology, especially end-user devices and peripherals, is a major contributor to energy consumption. This has significant implications for businesses aiming to achieve sustainability goals. The convergence of IT and OT and the adoption of digital twins and connected systems can help optimize energy usage. Circular economy practices, such as recycling and remanufacturing, are gaining traction to minimize waste and resource consumption. North American companies are increasingly focusing on corporate sustainability reporting and green supply chains due to regulatory pressures and investor demands. Global financial institutions are prioritizing sustainability and ESG factors when considering investment opportunities. Companies are investing in robust reverse logistics frameworks, energyefficient technologies and smart manufacturing solutions to meet these challenges. By integrating sustainability and environmental goals into their operations, businesses can contribute to a more sustainable future.
Nearshoring and reshoring
Manufacturers are increasingly adopting nearshoring and onshoring strategies to bolster supply chain resilience. By sourcing inputs from nearby regions, companies can reduce lead times and mitigate risks associated with global disruptions. This shift is particularly evident in industries such as automotive and electronics. North American companies are actively reshoring to countries such as Mexico and Canada, as well as Central America, to optimize costs and delivery times. While nearshoring offers several benefits, it can lead to labor shortages in certain regions. To address this challenge and enhance efficiency, manufacturers are leveraging automation, robotics and digital technologies. This strategic move toward nearshoring aligns with the growing trend of regionalizing supply chains and reducing reliance on distant suppliers. By bringing production closer to home markets, companies aim to improve control, visibility and responsiveness in their supply chains.
Workforce quality
The manufacturing industry is facing significant challenges in attracting, retaining, and upskilling talent. The digital transformation of manufacturing necessitates a skilled workforce capable of adapting to new technologies and processes. A major hurdle is the shortage of skilled labor, particularly in North America. This has led to increased reliance on automation and robotics to optimize operations. Additionally, aging workforces pose challenges as experienced workers retire, leaving a knowledge gap. To address these issues, manufacturers must invest in AI, generative AI (GenAI) technologies, employee training and development programs to upskill their workforce. By fostering a culture of continuous learning and innovation, companies can attract and retain top talent. Additionally, collaboration with technology providers can help implement automation solutions and bridge the skills gap.
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