A fourth industrial revolution? It is only just starting
BY MARK FAGAN
MOORE’S GLOBAL LEADER, MANUFACTURING & DISTRIBUTION
The digital transformation we are witnessing in manufacturing and distribution has been likened to a fourth industrial revolution and the rate of innovation will accelerate in 2024.
Organisations are increasingly aware of the impact AI tools can have on accurately anticipating customer behaviours, predicting industry trends and modelling multiple “what if” scenarios. The most switched-on leaders also know the digital tools needed to grow and scale manufacturing organisations have never been more accessible than they are today – but only with the right investment in place.
Companies reporting the highest returns from AI are nearly three times more likely than other organisations to use a variety of programmes to develop employees’ technical skills and capabilities. They have realised the benefits only flow when data is available in real time and accessible to everyone in an organisation, rather than a few technocrats in the IT department.
Harnessed correctly, AI can simplify the process of establishing key performance indicators to make pivotal business decisions. Powerful analytics and data visualisation tools can combine spreadsheets and statistics from multiple sources to provide a staggering level of operational insight. That leads to more accurate sales forecasting and better optimisation of production.
However, organisations that put their faith in technology have to understand that the integrity of the data they are collecting – and the way it is presented – becomes critical. If particular metrics on a dashboard become the fulcrum around which a business model turns, it has to be 100% accurate.
Implementing new systems and data strategies demands resources, time and investment: there are no short cuts. However, investment budgets are tight, partly as current interest rates make the cost of borrowing more expensive. Consequently, we are seeing ambitious organisations innovating and outsourcing certain functions either in the short-term, until these capabilities can be developed, or long-term if the skills required are outside their core activities.
They have recognised that taking no action will allow their competition to leap ahead.
Operating in an environment where the cost of money is higher than it has been for 15 years creates challenges for many companies. While the talk at the start of 2024 among economists is all about interest rates coming down, the threat of further economic slowdown or recession still hangs in the air.
While the borrowing environment may ease in the spring, the focus for many finance directors is still firmly on reducing cash cycles and working capital requirements.
It has been over a decade since these disciplines tipped the scale in running companies’ finances more efficiently. Maximising accounts receivable and inventory turnover, as well as extending vendor terms and improved budgeting and analysis, can help relieve margin pressures and higher costs of capital.
This is especially important for companies that are part of, or rely on, long and complex supply chains. The rips and tears in the global spider’s web of manufacturing and distribution caused by Covid may have been mended but continued geographic instability reinforces the belief that the just-in-time model that has dominated manufacturing for 40 years is no longer the norm. Attacks on shipping in the Red Sea have led to a quadrupling of container costs and added 10 days to delivery schedules.
In the big Western economies repatriating manufacturing operations or finding alternatives closer to home is the new reality. Real manufacturing construction spending in the US has doubled since the end of 2021, spurred by large contributions from the Infrastructure Investment and Jobs Act (IIJA). Europe is responding with its own incentives to build factories and other countries will beef up their packages to lure investment.
Major shifts are taking place in terms of manufacturing locations. That trend is precipitating both factory closures and openings as businesses increasingly choose to make products closer to the consumers who will buy them.
For leaders, this poses challenges of embracing and anticipating change. In this turbulent environment, management teams may be tempted to double down and stick with the approaches that have worked for them in the past and saw them through Covid. However, that increasingly looks like a losing strategy: instead, those that are nimble and brave, and prepared to change the way they lead will be the big winners.