Supply chain snarls, talent churn, risk management, and skills gaps are among the manufacturing industry’s challenges. Read on to learn how industry leaders are reacting to current conditions—and how they can best position themselves for future success.
Companies that derive their revenue from the manufacturing of products and goods are understandably weary of supply-chain snarls and the talent-churn roller coaster ride. At the same time, manufacturers have shown impressive resiliency in the past few years—with 84% saying they’re very confident or confident in their growth prospects through 2025, a KPMG survey found.
Meanwhile, the major forces transforming the manufacturing industry are only heating up. In particular, these are the technological drivers of “Industry 4.0”—the so-called Fourth Industrial Revolution—such as artificial intelligence (AI), machine learning (ML), cloud technology, and automation. These innovations are evolving every day and driving key discussions across the business world, such as which roles will be automated and which skills gaps need to be filled to prepare for the jobs of tomorrow.
As manufacturing executives look to the future—and ways to mitigate operational and strategic risks—they’ll need to drive bold changes across their businesses, according to industry experts and leaders. Among the most critical: shortening supply chains, prioritizing the worker experience, making smart technology investments, and prioritizing employee upskilling.
And the ability to drive these changes largely depends on a company’s appetite for digital transformation. “Any company that moves faster than its peers will have an edge, so they fear missing out on the opportunities if they don’t accelerate their technology investments,” says Vinod Ramachandran, global head of industry 4.0 at KPMG International.
Let’s take a closer look at four changes driving the manufacturing industry.
Manufacturers won’t soon forget a major lesson from the last few years: Globalized supply chains can be perilously fragile. Old assumptions about the value of lowest-cost options and just-in-time inventory have been rethought as material and labor shortages cropped up. These production approaches revealed their vulnerability to shutdowns and other disruptions stemming from the pandemic, the war in Ukraine, and global economic instability. Geopolitical risks such as trade tensions and rising energy and shipping costs are prompting many manufacturers to revisit their global footprint strategy.
A huge swath (84%) of manufacturing CEOs say they are nearshoring or onshoring operations or bringing them in-house, according to KPMG’s “Global Manufacturing Prospects 2023” report. And more than one-fourth (28%) of manufacturers report that they plan to move business out of China over the next 12 to 18 months, according to PwC’s 2022 Pulse Survey.
The nearshoring shift now underway in the manufacturing industry, however, isn’t about deglobalization. Think of it as a new stage of globalization more focused on regional networks and diversified supply chains.
Specific to Europe, a supply chain study among executives, conducted by ABB in 2022, found that 74% of European companies plan to re- or nearshore their business to make their supply chain more resilient in the face of labor shortages, increased focus on sustainability, and global uncertainties. To achieve this, they’re planning to increase investment in robotics and automation.
And in the U.S., manufacturers procured chemicals, construction materials, and other goods from six times as many suppliers in Mexico as they did in 2020. The number of Chinese suppliers receiving procurement bids that year dropped by 9%.
Here’s where the right tech investments can make a big difference. Consider that evolving supply chains (and production facilities and footprints) in optimal ways is tough without expansive data visibility across the entire enterprise, something many manufacturers lack. Many also heavily rely on manual—and time-consuming—processes to gather supply chain data. Even more problematic? That data is then often kept trapped in static spreadsheets.
To have true visibility into their supply chains and other operations, manufacturers must digitize their data-gathering and planning processes. Automating more of these tasks can shorten planning and reporting cycles by as much as 50% to 70%, a Workday study found, allowing manufacturers to react more nimbly to disruptive events.
Fortunately, many leaders recognize the importance of digital transformation, and two-thirds feel confident that their aggressive digital transformation strategy will allow them to reach first-mover or fast-follower status, per KPMG.
74% of European companies plan to re- or nearshore their business to make their supply chain more resilient in the face of labor shortages, increased focus on sustainability, and global uncertainties.
It’s no secret that the manufacturing industry has a people problem. Deloitte predicts that by 2030, 2.1 million manufacturing jobs could go unfilled, and a Workday survey found that nearly half of manufacturing leaders today are reporting worker turnover that’s higher than the historical average.
Adding pressure to this talent crunch is that factories hit a 14-year production high point in September 2022, according to the Federal Reserve. Chances for business growth exist, but 45% of manufacturers say they’ve had to turn down business opportunities due to a lack of workers, per Deloitte.
What’s going on here? For one, manufacturing companies are facing more heated competition for skilled workers from sectors such as energy, healthcare, and technology, Deloitte notes. Manufacturing workers are also the most likely to leave for higher pay or a career change, making them ripe for being wooed away by competitors or other industries. And while the message around pay has been received—the manufacturing industry is among the most likely to have bumped up pay in the last two years—compensation isn’t the only sticking point for workers.
Workers across all sectors, and all ages, want more flexibility in their work lives. In manufacturing—an industry that often has a reputation for long, inconvenient work hours—that’s especially critical. Digital tools such as employee-first scheduling and optimization leverage AI to match workers’ qualifications, availability, and work preferences to fill scheduling needs. These tools can help give employers more flexibility and convenience. Employers who use employee-first scheduling tools with their frontline workforce are less likely to report higher-than-historical-average turnover, a boon for helping to keep soaring overtime costs under control.
The manufacturing industry is also facing a career perception problem. Fifty-eight percent of respondents in a Deloitte survey feel manufacturing jobs have limited career prospects. In response, human resources (HR) leaders at Swiss-based medical supply company Alcon are exploring how AI- and ML-backed automation tools can help them identify their workers’ skills and capabilities to help them “build their career journey,” said Dina Protomastro, Alcon’s vice president and head of global HR operations, at Workday Rising in 2022.
Indeed, 80% of manufacturing workers said they might be interested in roles with enhanced training and clear career paths. Unfortunately, just 18% of manufacturers have introduced formal learning and development programs to frontline workers in the past two years, Workday found. Those that have, though, are already seeing results in warding off high attrition and bolstering business prospects.
“We’re really focused on the philosophy that if we treat our employees well, if we give them a great employee experience, they, in turn, will give our customers a great experience, which is just naturally great for business,” says General Electric’s head of people operations.
Risk management has always been a key ingredient in successful businesses. But in the years ahead, manufacturers’ ability to proactively mitigate risks will increasingly track digital transformation efforts.
“It’s no longer about planning for the unpredictable and having a Plan B,” said Peter Van Manen, former managing director at McLaren Electronics, at Workday Rising EMEA last year. “You need to have a Plan D and the data to spot challenges, but also the opportunities.”
Creating accessible and usable data from many disparate sources is the key to driving a more efficient supply chain, identifying risk, and planning for what’s next. Making decisions becomes easier when manufacturers can see the big picture with a single source of data. Sharper insights into manufacturing supply and production chains can help manufacturers adapt to changing markets, product needs, customer demand, and sales channels by SKU, region, and channel—helping build local capacity and increasing redundancies in supply chains.
The fastest route to this crucial capability is clear: investing in advanced digital technologies. For example, nearly three-quarters of manufacturing executives say critical material shortages and supply chain disruptions will present the biggest uncertainty for their industry in 2023, Deloitte reports.
The efficiency benefits of going digital are becoming clearer and clearer—84% of manufacturing executives expect digital transformation to accelerate through 2030, a Manufacturing Leadership Council survey found. At the same time, there’s clearly room for improvement—more than 80% of respondents in a recent Gartner study say their organizations have insufficient supply chain visibility.
For some in the industry, mergers and acquisition (M&A) activity will serve as a workaround for shoring up supply chain weaknesses. More than half of manufacturing chief executives report a healthy appetite for M&A that will significantly impact their companies, KPMG reports. Along with strengthening supply chains, M&A remains an important way for manufacturers to reinforce core operations, divest of higher-risk assets, and accelerate growth.
“The economic environment is a bit less predictable than before because of rising interest rates and the possibility of an economic slowdown, but M&A is an important way to rationalize the portfolio and shift toward higher growth opportunities,” says Claudia Saran, national sector leader for industrial manufacturing at KPMG U.S.
Simply making M&A moves, however, isn’t enough. Manufacturing leaders with a true leg-up on the competition will be those who ensure a smooth integration through the use of cloud-based systems that offer full visibility into combined workforces. A report by Workday and MGI Research found that organizations with the most successful M&A stories are those that improve cross-functional alignment.
Regardless of whether M&A activity is on the table, manufacturers will need to prioritize integrated cloud-based systems that support continuous planning. Disruptive economic and societal changes are simply happening too quickly to maintain static planning processes. Access to real-time data helps produce rolling forecasts, gets everyone in the organization involved in planning, and enables the use of multiple scenario planning to view the impacts of different models across your business.
84% of manufacturing executives expect digital transformation to accelerate through 2030, a Manufacturing Leadership Council survey found.
The business impact of the pandemic, in particular its effect on supply chains and labor, stressed the need for further innovation and digitalization in the manufacturing industry.
While the digitalization of how enterprises design and produce products, and manage both operations and workforces, offers exciting opportunities, it also risks exacerbating skills gaps. Manufacturers need workers who have experience with the industry and physical tools, such as welding and machining, but also who understand transformational digital technology—AI, automation, analytics, and robotics.
Already, 74% of manufacturing leaders say the skills needed for manufacturing jobs are changing rapidly, an EY survey found. And two-thirds (65%) say their organizations struggle to fill job vacancies because of quickly changing must-have skills.
Waiting for the right people to apply to a role, however, is not a winning talent strategy. Not when new skills and job descriptions are emerging all the time. That’s why manufacturers will be increasingly focused on upskilling—a solution to both turning the high turnover tide and evolving enterprises for the new advanced manufacturing age.
Schneider Electric, for one, embraced a completely new upskilling approach, mindful that nearly half of its workforce attrition involved workers who struggled to see growth opportunities for themselves in the company. Executives ditched traditional career maps, and instead created an internal opportunity marketplace that guides workers to upskilling and reskilling projects aligned with their purpose and goals. The results have been massive, said Pascal Occean, national leader of human capital at Deloitte Canada, referring to client Schneider Electric at Workday Rising in 2022. Workers say they now see opportunities at the company they couldn’t have imagined a decade ago.
74% of manufacturing leaders say the skills needed for manufacturing jobs are changing rapidly, according to an EY survey.
Democratizing HR data will be critical to helping organizational leaders—and workers—ensure they have the skills to succeed in an evolving workplace. At global company Topcon, with functions in the healthcare, agriculture, and infrastructure spaces, that means giving workers more HR functionality.
“Employees themselves can update their information, adding training they’ve completed and new qualifications they’ve earned, showcasing their uplifted capabilities—and managers can see those updates immediately,” says Kazuto Yamada, an HR senior manager at Topcon. “HR can also check on where skills are insufficient or where they are more than adequate and assign people accordingly—not only in Japan but overseas. This has helped us to boost sales and profits. It’s a big step forward.”
As the digital manufacturing age marches forward, the urgency of upskilling will soar. Workers will need to embrace a growth mindset—and employers will need to help them cultivate it. In this sense, retraining efforts are about more than just acquiring skills—workers must feel assured they are being set up for success.
“When you’re doing something that is very new and very big, people are excited, but they also get scared sometimes,” said Van Manen of McLaren Electronics. “An important part of managing that is being able to say to them, ‘Look, we’re good enough for this. We’re going to deliver.’”
To learn how Workday can help your manufacturing organization manage disruptions and improve efficiency with a skilled and engaged workforce, visit our website.
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