Can you guess the sector that’s contrarian to the widely held view that business should shelter funds amid economic uncertainty? Hint: It’s not ChatGPT, but it is fundamental to our gross domestic product (GDP.)
If you said manufacturing, you’re correct. The manufacturing sector stands as a bellwether for optimism because the industry is going through a Cambrian explosion. Governments around the globe are doubling down on investments in the sector, hoping to spur re-globalization efforts and prevent the level of supply-chain disruptions experienced during the Covid-19 pandemic. Examples of such investments in the U.S. include the Inflation Reduction Act, CHIP and Science Act, and the Infrastructure and Investment Act.
In support of this burgeoning growth, the IDC InfoBrief, 2023 State of Manufacturing Technology Survey Results, shows that from the manufacturers’ viewpoint the future looks bright. They’re investing in technology that is laying the groundwork for growth, valuable business intelligence, and continued turn-on-a-dime responsiveness.
This survey allows us to peer into the minds of manufacturers, as it captures their top concerns, ongoing challenges, perspectives on trends, and high-tech priorities. The brief summarizes key findings, but it also functions as a valuable benchmark against which manufacturers can compare their own strategies to those being deployed by their peers.
The results depict industry leaders who’ve overcome many recent hardships and cloud-adoption barriers, and now they’re turning the page to a new chapter of investment and modernization. IT and business leaders are represented in the study, and both groups are ready to take the next steps forward as illustrated by these key takeaways:
1. Connecting a comprehensive signal chain
To date, digital transformation efforts have mostly occurred around the front office, for example in Customer Relationship Management (CRM) solutions, where orders and interactions are digitally tracked. Manufacturers have worked hard to simplify the customers’ buying processes. Even in the industrial machinery market, customers can place orders online, digitally receive invoices, transmit electronic payments, and have equipment conveniently transported to their designated locations. This sellers’ side of the business is making good use of bits of information — or the digital signals — to help them move their finished industrial products to customers.
In the survey, manufacturers admit that they need to further optimize the buy side — their supply chains and supplier collaboration — with 32.2% saying this is a top priority. And another 28.9% say they also want to improve production performance. Once all these digital dots are connected via a cloud platform — e.g., Salesforce, Azure, or AWS — manufacturers will be able to tune into all the signals that indicate shifts in the market, and they’ll be able to respond by making appropriate downstream modifications.
For example, manufacturers may receive signals that there’s a disruption in raw materials from an international supplier, or that a salesperson has received an extremely large order. With this information, they’ll be able to adjust production plans or source or reshore suppliers. As we saw during the pandemic, manufacturers might have to make a complete shift in production lines, such as dramatically reducing the production of a particular machine, bringing a new machine to market, or manufacturing the same equipment but in a completely different way due to supply shortages.
2. Heightened double-digit IT spending
Industry analysts might expect manufacturers to make moves that protect their margins, but what the survey actually shows is that three-quarters of respondents (75.2%) have plans to boost tech spending over the next 12 months, with more than one-third (37.8%) planning on double-digit increases. Industrial machine manufacturers are aligned with this approach, anticipating an average 11% increase in their IT spending over the same period.
3. Data visibility across their value chain
Manufacturers were asked what they feared most if they failed to progress in their digital transformation journeys. The top worry is that they will not be able to leverage the data they have, as it’s currently trapped in disconnected sources and siloes.
The catch-22 is they cannot optimize their efficiency and profit margins unless they have a clear view of their entire operations. A modern cloud platform provides the type of enterprise-wide connectivity that manufacturers need to establish their comprehensive signal chain. The result is they’re able to access data from every area of the company — including customers, sales, operations, supply chain, inventory, and more.
On these platforms, they’re prioritizing the deployment of cloud applications, like Enterprise Resource Planning (ERP) solutions, which can serve as the centralized hub for processing data and digital signals. In the survey, about 66.7% of manufacturers said they are already using some form of cloud ERP, while 28.9% said they’re planning to make this shift in the next 12 months. That leaves less than 5% as either having no plans to move to the cloud or not understanding the need for it – manufacturers don’t want to be among this lagging group.
4. Complementing staff with automation and intelligence.
In manufacturing, labor shortages continue to be an ongoing challenge, especially with older employees retiring and younger workers having little interest or inadequate skills to replace them.
In response to this problem, survey respondents understand that they need to leverage technology to improve the efficiency and productivity of their staff. Manufacturers are concerned that outdated technology will create barriers to teams being able to collaborate (37.4%) and that legacy systems cannot provide the data that teams need to make sound business decisions (33.7%).
In addition, leaders worry that existing staff lack the skills and knowledge to support the solutions they want to deploy. Toward this challenge, manufacturers should look for solution providers that offer extensive training and enablement programs to help foster success with their systems.
5. Digital transformation that supports monetization
What’s clear from the survey is that manufacturers have made significant strides in digitally transforming their core processes – about 57.7% believe they are either slightly ahead or far ahead of their peers. But they’re not resting. Instead, industrial manufacturers want to see improvements in their ability to facilitate growth (33.3%) and offer new services (28.9%).
One option that’s enabling them to meet both objectives is turning to a recurring-revenue model. With this approach, the fulfillment of an order becomes just the beginning of a company’s relationship with the customer. Once a machine is sold, manufacturers can then offer extended services to help maintain and repair those machines.
For instance, if a manufacturer sells diagnostic imaging equipment to hospitals, it may also offer regular servicing to ensure the equipment keeps running, as this machine serves as a vital component in the hospital’s operations.
These days, tracking whether machines require upkeep, new parts, or software updates can easily be done remotely via the cloud. Platforms receive digital signals from connected systems and IoT sensors. The ERP centralizes the data from the field, helping to support the move to a managed services model.
Tuning in to digital signals
Manufacturers have overcome many challenges during the pandemic. Today, they’re boarding a new train, and they’ve built a comprehensive signal chain as the track that they’ll ride into the future. Cloud platforms are fueling the way forward, and cloud ERP is the engine empowering them with one dynamic source of truth.
On the horizon, manufacturers have their sights on artificial intelligence (AI), machine learning (ML), predictive analytics, and the Internet of Things (IoT). The companies at the leading edge are already reaping rewards in the form of improved margins, thanks largely to their signal chains. Early alerts are helping them adapt and succeed in an accelerated fashion. They’re well equipped to thrive in today’s fast-changing market and less likely to be left in the dust.
It’s time to ride the signal chain train.
Raj Badarinath is Chief Product Officer at Rootstock Software. Contact him through LinkedIn.
