What are the biggest challenges facing manufacturers and suppliers today in 2023? Navigating economic headwinds, supply chain instability, sustainable manufacturing, and the workforce skills gap are poised to top the list. These are just some of the business issues that are making headlines and affecting the bottom line for the manufacturing industry.
Our outlook for the remainder of 2023 spotlights the key challenges – and associated opportunities. Learn more about the top manufacturing challenges today, along with strategies to address each of the following:
- Tackle Inflation and Margin Pressure
- Mitigate Supply Chain Disruption
- Make Sustainability a Pilar of your Business
- Calibrate your Talent Management Strategy
- Streamline Procurement and Sourcing
- Strengthen your Digital Thread (Digitalization)
- Prioritize Innovation Initiatives
1) Tackle Inflation and Margin Pressure
Business leaders and economists tend to agree that inflation will continue but have vastly different projections regarding the duration and impact of higher prices for goods and services. Here’s how some manufacturing industry executives are responding to maintain competitiveness.
Address Cost During Design
Leading manufacturing companies are increasingly adopting a design-to-cost (DTC) methodology to address cost throughout the new product development process. A recent report finds that the successful application of DTC can save 15%-40% in product development time and material costs. This includes costly late-stage redesigns and engineering change orders (ECOs).
DTC requires seamless collaboration among all functional areas of the product development team. For instance, cost and design engineering alignment is critical to meet NPI cost targets. And sourcing teams involved early in the design process can provide important input regarding material availability or other considerations.
Increase Margins for Existing Products
To address growing costs (and material scarcity), consider making non-invasive design modifications to control sourcing expenses. Engineering teams can evaluate a range of product designs with different materials and manufacturing processes. Design for manufacturing (DFM) guidance could identify risks –such as wall sections that are too thin or thick to be manufactured economically or inaccessible areas that require specialized tooling or additional steps to produce. Teams can then compare all options and determine the next steps.
And use regional cost data – including labor, overhead, and tool-shop rates – as a foundation to model costs and evaluate country-specific manufacturing costs accurately.
Assess Design and Manufacturability Alternatives
A digital factory is a digital representation of a physical factory. It has the key elements you would find if you walked into any production facility including thousands of different machines and types of materials as well as labor and overhead costs – all that you’d find with a physical factory.
Digital factories provide manufacturing feasibility analysis, process optimization, and costing feedback to help product development stakeholders improve DFM, reduce change orders (ECOs), and get products to market faster. Sourcing teams also use digital factories to compare production environments across extensive manufacturing criteria to inform site or supplier selection and production costs. Digital factories can help to identify cheaper manufacturing processes that offer faster cycle times and compare different materials for cost and manufacturability.
2) Mitigate Supply Chain Disruption
The energy shortage across the EU and continued ongoing COVID-19 outbreaks in China are keeping factories idle and companies scrambling to find suitable alternatives. To that end, The Harvard Business Review recently proclaimed that the era of “far-flung global supply chains is probably over” and that manufacturers are shifting to a regional sourcing and production model. Here’s how manufacturers can respond.
Extend Supply Chain Visibility
Cost and production capacity insights only tell part of the story. By analyzing your supplier base, you may identify an overreliance on material sourcing or production in a specific geography. To reduce risk, production teams may select a supplier in an alternative region with different manufacturing methods. (This could require a hole to be machined instead of punched.) Manufacturing companies may need to optimize some designs for a new factory site.
Additionally, provide suppliers and distributors with material requirements based on annual production volume – not just orders for the next quarter. Sharing this level of manufacturing detail can help to mitigate risk.
Reshore Manufacturing to Mitigate Risk
Reshoring is becoming central to supply chain resiliency strategies.
But how do you evaluate offshore vs. reshore decisions? The effective analysis includes determining material availability in a reshored region. And to gauge production capacity, manufacturing teams simulate production runs in targeted reshored geographies – including their factories and suppliers’ production facilities. Teams then review these results to compare factories and regions based on costs, capacity, and production speed (based on machine cycle times).
Manufacturing companies can implement technological advances such as automation, robotics, the Internet of Things (IoT), and artificial intelligence (AI) to accelerate production. Smart manufacturing initiatives can offset the impact of labor shortages and higher wages often associated with reshoring.
Strengthen Supplier Collaboration
Manufacturers are increasingly drawing on suppliers’ expertise and resources to help reach their goals. A successful manufacturing brand/buyer-supplier partnership model requires high transparency regarding new capabilities in development, resources (and limitations), and costs. Execution depends on each party’s ability to collaborate on product specifications and related data. It also requires data collaboration to streamline processes and a partnership framework that eliminates costly delays that can be inherent in buyer-supplier relationships.
To mitigate risks – such as a steep increase in material costs or a component shortage – manufacturing brands and suppliers need an intuitive way to communicate changes and feedback and manage collaboration and tasks in a secure environment. And to increase responsiveness while reducing administrative overhead, consider automating tasks and providing time-saving features such as self-service capabilities.
3) Make Sustainability a Pillar of your Business
Forward-thinking companies are already making sustainability a core business focus. A true business shift requires corporate leadership to tie their environmental, social, and governance (ESG) pledges to measurable goals across procurement, IT, manufacturing, and other operations.
Measurable sustainability improvements can be good for business and the environment. The largest U.S. firms (S&P 500 companies) see a multi-trillion-dollar opportunity in the shift to products and services for the low-carbon economy, according to survey results from CDP. American firms surveyed project the financial benefits to be 15 times higher than the risks associated with not transitioning business practices to decarbonization.
Those risks include losing customers to environmentally focused competitors. Three-quarters of the G20 nations have instituted some mandatory corporate reporting for climate-related risks and opportunities. And the U.S. is finalizing its environmental reporting mandates. For large, publicly traded companies, the question is when – not if – they will be required to provide environmental disclosure.
Move from Intent to Impact
Despite commitments at the board level to cut CO2e emissions, many companies struggle with execution. According to IBM, nearly half of the CEOs surveyed say that increasing sustainability is a top priority. Notably, 44% of respondents also said they lack sustainability data to take meaningful action. And only 23% of executives are implementing sustainability strategies across their entire organization.
Consulting firm McKinsey found that the majority of product managers surveyed don’t have the tools or framework to define a sustainable product – or meet regulatory reporting mandates. And none of the McKinsey survey participants are using Greenhouse Gas Protocol Scope 3 emissions to monitor carbon output. This is a critical gap because Scope 3 includes all indirect emissions throughout the reporting company’s value chain. (Scope 3 includes upstream and downstream emissions.) Scope 2 includes indirect emissions from purchased energy generated. And Scope 1 addresses direct emissions from owned or controlled sources.
Successful manufacturers are incorporating sustainability into their overarching DFM/design for excellence (DFX) benchmarks and processes. This enables manufacturers to understand a product’s CO2 impact during early design phases and then evaluate opportunities to reduce a product’s carbon footprint. Importantly, teams can evaluate design alternatives using different materials and manufacturing processes to meet CO2 emissions, cost, and performance targets.
A sustainable future can be achievable, successful, profitable, and quantifiable. But it requires collaboration across all departments and the ability to evaluate product cost, sustainability, and profitability holistically. And the ability to conduct “what-if” simulations to understand how trade-offs in materials or manufacturing location can impact the overall design.
4) Calibrate your Talent Management Strategy
The shortage of knowledge workers can impede manufacturing sector growth. Here’s how some companies are taking a fresh approach to build their workforce.
Attract and Retain your Skilled Workforce
Nearly half of CEOs surveyed agree that it is “very difficult to find and hire the right kind of people for our business,” according to Gartner. This skills gap could result in more than two million unfilled manufacturing jobs in the U.S. by 2030, according to the Manufacturing Institute. And the U.S. Bureau of Labor Statistics estimates that there will be more than 125,000 software engineering openings on average annually through 2030. Similarly, the European Union (EU) reports “shortages of high magnitude” for software and IT positions.
And keeping employees engaged and productive once they are onboarded is an ongoing priority for product manufacturers. “Quiet quitting” is a new term for an age-old problem of disengaged workers doing the bare minimum at their current job while looking for more fulfilling opportunities. This follows the “great resignation” of employees leaving the workforce due to burnout, early retirement, or a reassessment of work-life priorities.
How can manufacturers mitigate labor shortages, provide upskilling opportunities, and improve attraction and retention rates?
Use New Technologies to Boost Productivity & Engagement
Technology investments can have a dual impact on operations and employee satisfaction. Manufacturing employees feel that the technology they use is central to a positive work experience, according to a Deloitte survey. More skilled workers expect training opportunities to expand their skills, particularly by using new technologies.
Manufacturers that invest in their employees and nurture their career growth tend to attract and retain workers. Specifically, manufacturers are using technology to reach beyond traditional upskilling and retraining programs. This includes embedding tasks and workflows within automated processes, using applications that provide real-time guidance, and connecting teams through collaboration.
One example is automated product design analysis for DFX (cost, manufacturability, and sustainability). DFX applications from aPriori and others can provide design feedback to reduce cost and accelerate manufacturing that might not be obvious.
This actionable guidance can empower junior staff to work on more critical and complex projects. Providing junior design engineers with clear design recommendations can free senior product development team members to focus on other tasks or evolve their roles to direct less experienced colleagues.
5) Streamline Procurement and Sourcing
Manufacturing brands and suppliers want to accelerate sourcing and procurement. But they are held back because relevant data is spread across disconnected system silos — such as email and spreadsheets — or in the hands of a few internal experts. That’s according to aPriori’s “State of Manufacturing Procurement” report conducted by IndustryWeek.
IndustryWeek surveyed 345 manufacturing brands and suppliers in North America, Europe, and Asia for the report. Only 4% of organizations can complete sourcing for a typical component within one week (from initial specifications delivery to quote acceptance). Twenty percent of respondents complete this task within two weeks, while the majority place the timeframe at a month or more. By contrast, 79% of survey participants say it would be ideal to complete the process between 24 hours to two weeks.
Remove Procurement Barriers
What will it take for manufacturing organizations to speed up sourcing and procurement? Survey participants say that a standardized approach to information sharing during the quoting and design processes and self-service quoting capabilities are the top ways to improve collaboration. For example, complex bid packages that include multiple requirements are the primary reason for delayed supplier responses to a request for quote (RFQ). Both suppliers and OEMs agree that the inability to collect information rapidly — and a lack of transparency — are key hurdles to accelerating the RFQ responses.
Although OEMs and suppliers show a shared interest in increased collaboration, there are divergent views on how to achieve this goal. Notably, suppliers are less interested in regular should cost analysis and standardizing data than their customers. This is likely due to supplier concerns that OEMs may try to erode their margins. And to underscore this point, nearly one-quarter of suppliers want visibility into evaluation criteria to ensure that cost isn’t the only factor in OEM decision-making.
These issues delay the RFQ process, especially for complex design specifications. They also limit transparency and the ability to adjust to extenuating factors. This slow, opaque process often fosters mistrust around costing and margins, which hurts collaboration and causes further delays.
The good news is that manufacturers and suppliers both want to expedite sourcing and procurement, increase visibility into the process, and ultimately improve trusted partnerships. Survey respondents said the best ways to achieve these goals are through greater visibility, collaboration during the quoting and design processes, and self-service quoting capabilities. Learn more about the Zero RFQ process.
Read the full “State of Manufacturing Procurement” report.
6) Strengthen your Digital Thread (Digitalization)
Manufacturers are adopting digital transformation (DX) to develop new capabilities and integrate critical information previously locked in separate systems. The digital thread ties together product design (digital twin) and manufacturing operations so that teams can make more informed decisions throughout the product development lifecycle.
Collaborate and Automate
A typical 3D CAD (digital twin) development process provides a limited amount of information needed for a product launch. But it is easily augmented with data from the physical world. It’s common for manufacturers to simulate product performance during the design phase using the digital twin to conduct finite element analysis (FEA) or computational fluid dynamics (CFD).
But simulating product performance doesn’t address cost, manufacturing speed, or a product’s carbon footprint. To save time and increase efficiency, simulate real-world conditions of the manufacturing process first. All stakeholders across the product lifecycle can view digital twin simulation results based on the actual manufacturing operation options available. Manufacturing insights enable teams to pinpoint potential problems and recommend optimal design improvements.
Centralize and Streamline
The digital thread establishes a “single source of truth” for all product design information. And this information is typically stored in a product lifecycle management (PLM) system. Establishing a single point for product information — combined with automation and collaboration capabilities — can eliminate costly late-stage design changes.
The digital thread breaks down siloes and ensures that all players in the product lifecycle – from design engineers and cost experts to sourcing and executive teams – can work more effectively, share data quickly and accurately, and optimize costs, product design, and manufacturability.
7) Prioritize Innovation Initiatives
Only nine percent of organizations create enough capacity to support the growth and innovation opportunities they pursue, according to Gartner. Ongoing economic tremors have many executives focused on cutting cost and addressing short-term needs at the expense of investing in new opportunities.
However, companies that commit to innovation during an economic downturn tend to outperform their peers when the economy shifts into growth mode. According to research, businesses that maintained their innovation focus during the 2009 financial crisis outperformed the market average by more than 30% during the subsequent three to five years.
Correlate Real-Time Decision-making and Profit
Profitable innovation requires companies to operate quickly and efficiently to achieve first-mover status. Speed is a critical element of business success. To remain competitive, companies are eliminating siloed information, enabling real-time collaboration across departments, and re-imagining partnerships without traditional hurdles.
In addition to reducing the product development lifecycle, Accenture reports that fast-moving companies (“speedsters”) that it analyzed gain a distinct advantage by adopting technologies including cloud collaboration, digital twins/digitalization, and agile engineering.
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Value Driven Solutions is an end-to-end supply chain and operations consulting firm that helps private equity firms and middle-market companies improve business processes and enhance shareholder value. Our clients often seek rapid improvements to operational performance. We work across the supply chain and operations spectrum, from strategy to execution, to deliver substantial gains to profitability and working capital.
