Resiliency - a core competency in the new reality. Emerging from the pandemic, continued success requires rapid response to uncertain and continuously changing environments. The results of KPMG’s annual manufacturing outlook report suggest that the world must be re-imagined following the pandemic.
“The economy and the workplace will be very different from what they were previously and organisations are listening to their customers, suppliers, and workforce as they move forward,” said KPMG in its Global Manufacturing Outlook 2020: COVID-19 Special Edition.
Key Emerging Themes
- Risk reduction and re-balancing of supply chains
- Technology and innovation
- Talent and a new working reality
Being the most serious threat to global public health in the last century, COVID-19 has changed and affected many lives, as well as jolting many global manufacturers in a way that KPMG states is “likely to reverberate well into the future.”
Key findings from KPMG’s survey of 300 executives from the industrial manufacturing industry revealed that companies in the sector are striving as quickly as possible to become more resilient by adapting to the drastic changes in the value chains.
“Agility in the face of extreme adversity often leads to opportunity,” adds KPMG. As such, CEOs are constantly looking for competitive advantages, stepping up their search in the face of sudden, widespread disruption.
CEOs have had to adapt rapidly to the challenges of COVID-19 to protect their employees, deepen their relationships with vendors and customers, and redefine what success looks like. It is expected that the industry will continue to change in unforeseen well after the pandemic is over.
“Manufacturers are being tested as never before. The enterprises that do best in these severely adverse conditions will likely be the ones that are most agile across a wide range of endeavours: new ways of working, accelerated digitalization, stronger supply chain, as well as mergers and acquisitions and divestments of non-core businesses,” said Stéphane Souchet, Global Head of Industrial Manufacturing at KPMG International.
Flexible Supply Chains
“The greatest threat to manufacturers’ growth over the next 3 years, apart from the pandemic, is risk to the supply chain,” discovered KMPG.
In response to changing risks, 66% of CEOs report that they have had to re-think their approach to supply chains in order to become more agile, as well as bringing production closer to home and making their supply chain more robust.
COVID-19 has shifted manufacturers’ thoughts on their suppliers. Previously some manufacturers knew very little about the location of their suppliers below Tier 1. Today companies are considering diversifying their supply sources, as well as relying on suppliers close to home.
“Despite the rise of economic nationalism in the short term, these trends are unlikely to lead to a long-term ‘buy where you make’ approach to the supply chain,” says KPMG.
“Companies will continue to look very closely at the cost of inputs, so they will still rely on cost-competitive suppliers. But the reduction of risk will likely be important as well, resulting in some rebalancing of the supply chain to create a value framework that also considers supply alternatives and channel simplification,” added Grant McDonald, Global Sector Leader, Aerospace & Defense, at KPMG International.
To increase visibility and accountability in the supply chain, manufacturers are using advanced technologies such as blockchain and data analytics.
Not only are manufacturers using technologies to make their supply chain more flexible, but they are also being invested in to further the fourth industrial revolution (Industry 4.0).
96% of CEOs in the manufacturing industry stated that their progress to digitalise their operations has accelerated following the outbreak.
“A message of the survey is that to remain competitive, many companies that have sped up their digital transformation efforts need to move even faster, and those that have not done so need to catch up quickly or face being left behind,” says Grant McDonald.
The report specifically identifies the significance of 5G wireless networks for improved data speed, latency, efficiency, reliability, capacity and security benefits. The technology is expected to support a wide range of solutions including the internet of things (IoT), artificial intelligence (AI), autonomous operations, virtual reality (VR), and drones.
Another key technology emerging is additive manufacturing (3D printing), specifically for aerospace, as well as for prototypes and low rate production.
New Ways of Working
“The focus on digitisation is clearly reflected in executives’ strategic choices,” said KPMG. 72% of CEOs in manufacturing are prioritising investments in new technology, while 28% are prioritising investment in workforce skills.
“This picture might exaggerate the disparity in priorities, in part because workers will need to be trained in how to use the new technology. But there is no doubt that executives are concerned about the impact of the pandemic on the workforce,2 added KPMG.
For manufacturers, talent risk is seen as one of the key threats to growth over the next three years, with remote working making it harder to address the risk when it comes to attracting talent (often in short supply).
“It is difficult to evaluate job candidates through online videos and to train people remotely. For most manufacturers, there are severe limits to the ability to work from home, because factory workers need to be on the production line and R&D teams need access to equipment and laboratories to develop new products. It is also difficult to instil the company’s values,” commented KPMG.
86% of CEOs commented that remote working has led to significant changes in policies that nurture the company culture.
COVID-19 is causing manufacturing CEOs to reassess the risks that affect the management of their workforce, the supply chain, the customers, and the operational strategy.
Such events like COVID-19 tend to open the minds of executives to consider new approaches for the business.
“COVID-19 is not the only threat manufacturers face to their market position. In fact, it has jolted them into considering the way threats are interconnected and caused them to adopt a broader strategy to enhance their competitive advantage. This encompasses the supply chain, operations, finance, and stakeholders. Technology is just one tool, albeit a very important one, to strengthen resilience. By taking a more agile and flexible approach, they will be ready for any future disruptions. The implication is clear. A stronger, better prepared and more resilient organisation is likely to thrive, once the pandemic has passed,” concluded Souchet.
To read the full report, click here.
- PwC’s survey shows Middle East CEOs remain upbeat on growthLeadership & Strategy
- CEOs expect fall in global economic growth, says PwC surveyLeadership & Strategy
- Why now is the time for a Chief Transformation OfficerLeadership & Strategy
- How CFOs are primed to lead business in uncertain timesCorporate Finance