|New and complex challenges are influencing the future success of today’s manufacturing environment. Recognizing the broader impact of economic volatility, job losses, skills shortages and rapidly changing technologies will forge great resilience and first-mover agility to capitalize. Organizational leaders need to take strategic steps now and leverage the competitive advantage of Industry 4.0: Lead a culture change, develop new leadership skill sets, strategize allocations of capital, resource and align business portfolios, and, finally, drive the strategy at the right pace.|
Over a fifth of the world’s workforce – including 128.9 million people in China and 16.4 million Americans – are employed in manufacturing1. The sector accounts for roughly 16% of the world’s aggregated economic activity2, and 27% of China’s GDP. From its roots in Europe’s 18th century Industrial Revolution, to China’s industrialization from the 1980s, and into production methodologies incorporating Lean and continuous improvement thinking, manufacturing has always been changing. Now, on the cusp of its next evolution, Industry 4.0 – embracing the Internet-of-Things (IoT) and digitization’s next leap – people who work in and lead production environments must face new and complex challenges.
Converging factors – global megatrends as well as economic volatility and flux within individual countries and regions – are transforming all aspects of life and impacting manufacturing companies and their workforces. Management teams, from the C-Suite to factory-floor shop stewards, will need to adopt change management skills in re-engineering workforces and maintaining tight strategic alignment in the context of rising geopolitical and economic uncertainty, and volatility in consumer- and capital markets.
Tailwinds shifting to headwinds?
Burgeoning middle-class growth in China and emerging nations including India and Indonesia is spurring demand for manufactured products. Global manufacturing output grew 3.6% in 2018. But this represents a slowdown from 2017’s 3.8% increase. Trade disputes and tariff impositions, led by the Trump administration but involving China, Canada, Mexico and the EU, have dampened recent manufacturing investment conditions.
Uncertainty is also evident in the US’s manufacturing sector’s weaker job growth numbers for May, at just 75,000. For the first five months of 2019, the average monthly manufacturing job expansion is 155,000, significantly lower than 2018’s average of 223,000.
The pace and seismic scale of technological change is the most significant factor impacting manufacturing. Continuous innovation is being unleashed in products, materials, process capabilities, production equipment and machinery – and the convergence or interoperability of many of these technologies and their applications:
- Advances in robotics will escalate the degree of automation in factories
- Artificial intelligence (AI) or cognitive computing will deepen analytical insights from big data, and rapidly execute advanced decision-making across networked machinery and plants and sense and shaping demand in real time
- Augmented reality (AR) — the overlaying of virtual reality on the real world — will liberate product testing in manufacturing environments
- Nanotechnologies will hasten the development of new, faster processes
- 3D printing will alter norms involving minimum runs, warehousing locations, and the carrying of spare parts for all but the most complex of machines
- Blockchain and other cloud-computing systems will embed tracking and enable real-time information-sharing across manufacturers’ entire value chains
Industry 4.0 – and its march towards 5.0 – will transform industrial and manufacturing workplaces, and is projected to leverage global GDP 14% by 2030, the equivalent of nearly $15 trillion in present value terms3.
Implications extend deep into companies
Grappling holistically with change, and recognizing its broader impacts, will forge greater resilience, and first-mover agility to capitalize.
Understand and mitigate the effects on people. A fifth of all jobs are threatened by automation this decade, rising to 30% by 2030. These figures will be higher for the manufacturing sector, as industrial robot applications are highly suited to rote or repetitive assembly-line tasks, and operational and information technologies will increasingly converge on factory floors and into sales and marketing, finance, and planning departments.
Overall, technology leaps generate productivity increases, which contribute to expanding incomes and increases in aggregate consumer demand. In turn this boosts job creation4. But the timeframe is not necessarily short, and will result in jobs being lost in their current scope and definition. People who work in manufacturing organizations will need to upskill their abilities not just to use the technologies, but to embrace a new paradigm of productivity and efficiency these tools can unlock (see below, Lead a culture change).
Product innovation is ramped up. Production inputs, outputs and processes are already changing in diverse ways. Greenfields projects are intent on the next disruptive innovation, in every sphere of manufacturing enterprise.
The automotive industry is an example of rapid, far-reaching technology shifts in parallel to plants and factories – but affecting them, massively. Ford will have cut 7,000 jobs, or 10%, from its worldwide staffing complement by August 2019, and a further plant closure in Wales next year will see another 1,200 jobs trimmed. Ford points to the need to create a sustainable manufacturing model based on the changing automobile market, necessitating restructuring to save $11 billion. But all automotive manufacturers are redesigning their plants to create engines for cars of the near future: electric vehicles.
Globalisation is intertwined with technological change. In decisions such as Ford’s, infrastructure costs are a key consideration, and its announcement reflects the tightening of the company’s worldwide value networks – a symbol of the globe’s increasing economic integration. Where factories or workers are based will increasingly become less relevant to manufacturing operations; instead, where costs can be reduced and production processes made ever leaner, will drive plant locations and supply chain links.
Talent is still a crisis. In the US, despite significant recent economic uptick and near-historic employment rates, 89% of manufacturing companies claim to be leaving vacancies unfilled, representing some 500,000 available manufacturing sector jobs.
The critical skills shortage in the US is projected to escalate such that there will be 2.4 million vacant manufacturing jobs in the next 10 years, with a cumulative cost to the sector of $2.5 trillion in lost productivity to 2028.
Indeed, in almost all regions of the world, the shortage of skilled manufacturing workers is identified as a major barrier to firms’ competitiveness. And the situation is likely to worsen: the nature of manufacturing’s technological evolution requires Science, Technology, Engineering, and Mathematics (STEM) learning disciplines, which fall short even in well-structured educational and vocational systems such as Germany’s. Imminently, production plants will require labor skilled in new areas of digital expertise, able to program new generations of equipment software or utilize tools to interface with automated machines. Training for these skills and talent attributes will be vital, starting now.
Strategic steps to take, now
Leveraging the competitive advantages of Industry 4.0 requires initiatives and programs focused in four key areas.
In any organization, culture is often the biggest barrier to transformation. This holds true in manufacturing environments: Digital evolution, even revolution, is about getting the capex and technology investments right – but managing people may involve more complexity.
In a truly lean enterprise, employees are trained – and empowered – to seek continuous improvement, and the techniques and tools available to them are embedded within the company’s culture. In the decade ahead, manufacturers wishing to attain world-class performance levels and gain competitive advantages will need to foster a vision of symbiotic human-robot work streams towards this form of “learning organization”.
Leaders of manufacturing enterprises will require new skills to drive the required changes within their companies.
CEOs will need to cultivate a spectrum of knowledge bridging technical savvy with people-orientated empathy. COOs will be immersed in smoothing the challenges of a hybrid human-AI-robot workforce. Disruption will extend beyond the factory floor; indeed, it will penetrate all the way to the C-Suite’s top floor, and boards may soon welcome members with titles such as Robotics Team Chief, Technology Ethics Director or Head of Technology & Learning.
The pace of change will require leaders to work more closely with one another, in something of a C-Suite symphony. This will be especially important to manage shareholder expectations, guiding from short-term profit to longer-term value creation. Consistent, stable decision-making will increasingly be confounded by uncertainty and ambiguity, but profits with principles must be the beacon.
Investments into new technologies, and related R&D, should not be pended. Revisit three- to five-year strategies and plans, and consider budget reweighting towards mission-critical investments to build Industry 4.0 capabilities.
Monolith General Electric, for instance, has recently embarked on what some analysts consider a drastic streamlining, divesting $20 billion of divisional assets, representing 30% of group revenues, in the last two years. Its vision, now, is to focus on power and aviation. Current fiscal restructuring is designed to save $500 million, which the company intends “to invest for the future and lead in innovative technology like additive manufacturing and digitization to lead the next wave of industrial productivity.”
Even corporations with established lean systems do not leverage technology as consistently as they should. To map an appropriate path to next-level maturity, the key is to remain focused on maintaining operational efficiencies. Gartner’s “Hype Cycle for Manufacturing Operations Strategy” recommends a phased, incremental approach to smooth rather than stutter the transition to higher technological and innovations maturity.
Some have a vision of future factories in which there are no people
These may well arise. But they will not be owned by world-class companies; rather, leading manufacturing plants in 2030 will be places which hum with the sound of machines in synch with human creativity.
To capitalize on – and take maximum competitive advantage from – Industry 4.0, perhaps the crucial starting point is to master Lean. Manufacturing leaders of the future will be those best-poised to transform now, and Lean principles and a continuous improvement mission are the springboard.
1 https://www.brookings.edu/research/global-manufacturing-scorecard-how-the-us-compares-to-18-other-nations/ [Table 2]
2 World Bank, 2018, ‘Manufacturing, value add as % of GDP’ (16%)
3 ‘Global Digital Operations Study 2018’, Strategy& (PwC), p8
4 ‘Technology and the Future of Work’, International Monetary Fund, September 2018 figure 2, page 7
‘Global manufacturing scorecard: How the US compares to 18 other nations’, Brookings Institute, 10 July 2018
‘Beyond innovation by shotgun’, by Khalid Kark, Bill Briggs, Minu Puranik, CIO Insider, Deloitte Insights, 26 April 2019
‘The future of work in manufacturing: What will jobs look like in the digital era?’, Deloitte Insights, 1 October 2018
‘2018 Deloitte skills gap and the future of work in manufacturing’, Deloitte Development LLC, 2018
‘2018 Deloitte and The Manufacturing Institute skills gap and future of work study’, Deloitte Development LLC, November 2018.
‘State of the Global Workplace – 2017 Report’, Gallup, 2018
‘Hype Cycle for Manufacturing Operations Strategy, 2018’, Gartner, 28 July 2018
‘Technology and the Future of Work,’ Working Paper WP/18/207, by Adrian Peralta-Alva and Agustin Roitman, International Monetary Fund, September 2018
‘Making change stick: encoding change management in organisational DNA’, Alex Holmes, Commercial Director, Mahle Behr, presentation to TRACC & POMS Conference, Cape Town, May 2019
‘The future of manufacturing’ (podcast), McKinsey, March 2019 [www.mckinsey.com]
‘A Learning Organisation’, Erik Smuts, Group Executive, Nampak Bevcan, presentation to TRACC & POMS Conference, Cape Town, May 2019
‘Global Digital Operations Study 2018: Digital Champions’, Strategy& (PwC Network), 2018
‘Industrial Manufacturing Trends 2018-2019’, Strategy& (PwC Network), 2018
‘How Robots Will Transform the C-Suite’, by Stephanie Hyde and Wilson Chow, Strategy+Business, Issue 94, Spring 2019 www.wsj.com
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