As we settle into 2020, the year ahead has many opportunities for the manufacturing industry — but also many challenges.
In 2019, global economic conditions left the manufacturing industry exposed to more risk to business. Ongoing trade conflicts and policy decisions have created disruptions to the global supply chain. More than 50 countries cut interest rates in 2019. Business investments declined. In Canada, business insolvencies increased for the first time in two decades.
With all of this going on, how can manufacturers protect their business and manage risk? Moreover, how can manufacturers find growth and more success?
Despite the challenges, several trends are paving a path forward.
The Deloitte 2020 Manufacturing Industry Outlook recently analyzed key trends for the year that show how manufacturers are preparing for change and taking strategic action.
Here is what they found:
- Manufacturers are doubling down on their core portfolio
While diversification can bring rewards, going into 2020 more industrial companies are focusing on “getting their houses into order” through streamlining operations and realigning around key markets or customer segments.
Some have turned to mergers or acquisitions to accomplish this. However, more are moving to divestitures. Deloitte reported that the industry observed 13 deals of $500+ million between January and August of 2019.
More manufacturing businesses are looking to lean into what they do best and provides the most value for their core customer base. This involves making strategic decisions to drive change.
- Manufacturers are building “digital muscle”
The current business climate isn’t turning manufacturers away from digital investment – in fact, it’s highlighting a greater need for it.
Many manufacturers are looking at digital projects that promote scalability and agility, particularly in the supply chain. If something shifts in the market, businesses will be able to respond quickly — both to threats and opportunities.
Deloitte called this “digital muscle building.” It includes applying artificial intelligence, cloud computing, advanced analytics, robotics, and additive manufacturing that increases visibility and transparency. These projects help mitigate risk while also building flexibility and finding efficiencies.
One example of the need for digital muscle that Deloitte highlighted is a shift in sourcing. In the first eight months of 2019, U.S. imports from China were down 12.7%. In the same period, imports from Mexico and Vietnam rose.
As manufacturers seek more tariff-friendly combinations, digital technology allows them to execute precise lead times and customer approvals.
- Manufacturers are seeking out more partnerships to build digital capabilities
Business doesn’t work in a silo. Many manufacturers are finding that they need support — to cultivate a strong ecosystem, as Deloitte put it.
Partnerships with suppliers, channels, and customers are driving higher productivity and output and increasing customer retention.
According to Deloitte, digital front-runners pursue partnerships to create new business models at five times the rate of others and to create new value for customers at two times the rate of others. Approximately one in four deals in the manufacturing space over the past two years can be linked to companies with digital value propositions.
In 2020, more manufacturers may embrace partnerships and joint ventures, rather than outright acquisitions.
Read the full Deloitte 2020 Manufacturing Industry Outlook here: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-2020-manufacturing-outlook.pdf
While 2020 may bring with it challenges, it is also an important time to take action. Manufacturers that take a proactive stance and embrace digital technology can find a way through the difficult economic conditions to forge a stronger business — for the year ahead, and the future.
Staying stagnant won’t help build a better business. Instead, take deliberate, strategic action through assessing the potential for strengthening the core portfolio, building digital muscle, and forming powerful partnerships.
What do you think 2020 will bring for the manufacturing industry? How does your business intend to weather the storm — and potentially come out stronger on the other side? Share with us on social media. SHEA Global is on Twitter, Facebook, and LinkedIn.
SHEA’s team of experts works with manufacturers to take strategic action. Reach out to us today for a free consultation about how to create business better for 2020 and beyond.