Manufacturing Success

www.thinkbiggrowfast.net/manufacturingsuccess
August 2014
Manufacturing Success: August 2014
2014 looks set to be a turning point for the UK
manufacturing sector with the EEF forecasting
that the sector will grow by 2.7% in 2014 compared
to 2.4% for the economy overall. Against this
positive growth backdrop, UK manufacturing is
grappling with increasing customer complexity,
emerging technologies such as 3D printing, supply
chain disruption and the challenges that a multi-
generational workforce creates.
The Manufacturing Success report is an annual
review of key trends in the UK manufacturing
sector. In 2013, Manufacturing Success reported
that the siege mentality and focus on survival
amongst UK manufacturers was beginning to
recede as manufacturers became increasingly
confdent about their growth prospects. In 2014, the
Manufacturing Success report evolves to highlight
the factors that will serve to accelerate growth
amongst UK manufacturers.
Manufacturing Success 2014 introduces the
concept of the connected manufacturer. The report
discusses the importance of interconnectedness as
a driver for success as we move towards 2020.
Specifcally, the report focuses on three types of
interconnectedness:
. Connections between people (internal
collaboration and knowledge sharing)
. Connections between businesses (relationships
across the supply chain to include suppliers,
partners and customers)
. Connections between things (use of smart
components to connect products)
Whilst all three types of interconnectedness are
considered highly important to drive future success
for manufacturing, the extent to which manufacturers
are ready and capable to capitalise on the
opportunities that such connections can bring varies
widely and highlights the need for manufacturers to
focus on strengthening their interconnectedness to
help realise their growth ambitions.
Executive summary
The Manufacturing Success report
is an annual review of key trends in
the UK manufacturing sector.
High tech
Industrial components
Automotive
Oil and gas
Chemicals
Mining
Aerospace
Building materials
Fabricated metal products
Primary metals
Other
Figure A: Manufacturing sector
page 3
33%
38%
25%
4%
100 million to 249 million
250 million to 499 million
500 million to 1 billion
Over 1 billion
Figure B: Company turnover
The report discusses the importance of interconnectedness
as a driver for success as we move towards 2020
Manufacturing Success: August 2014
The key fndings discussed in the report include:
The connected manufacturer
. 78% of UK manufacturers are optimistic about their
business prospects over the next 12 months - 27%
of UK manufacturers are Accelerators (looking to
grow at a faster rate than their competitors)
. 56% of companies are only able to efectively
plan up to a year ahead - 61% have difculty
balancing robust, long term planning with the
fexibility to respond quickly to changing market
conditions / requirements
. Less than half of companies are able to capitalise
on the opportunities that connections between
people (48%), businesses (47%) and things (37%)
can bring, despite seeing this as important in
driving future growth
Connecting people: Multi-generational workforces
. Currently 1 in 7 manufacturing workers is over 55
years, whilst 1 in 6 is aged under 24
. 52% say they have difculties ofering the kind
of fexibility that younger workers are looking
for, 45% report difculties retaining and 43%
attracting younger workers into the organisation
. 71% think the manufacturing industry needs to
improve its image generally to attract new recruits
Connecting businesses: Customer-centric manufacturing
. 80% think that as an organisation they could be
more customer-centric
. 58% think the lines between manufacturing and
service economies are blurring
. The biggest shifts expected in customers over
the next two years are demand for added-
value services (67%), involvement in product
development (49%), interest in customised
products (45%) and demand for supply chain
transparency (45%)
. Manufacturers currently experience some level
of difculty in understanding the needs of their
customers customer (55%), identifying potential
new customers (55%), understanding how
customers use their products (54%) and tracking
customers from pitch to sale (52%)
Connecting businesses: Supply chain resilience
. 60% of manufacturers say that supply chain
issues have negatively impacted company
revenue or proftability in the last 12 months
. 47% of manufacturers have experienced
signifcant disruption to their supply chain in the
last 12 months. Amongst these, the top causes
of disruption are IT security events (39%),
unplanned telecoms / IT outages (38%), volatile
currency exchange rates (32%) and extreme
weather conditions (31%)
. 74% admit they could have better visibility into
disruptions across their supply chain
. Manufacturers are focused on improving supply
chain resilience through identifying / eliminating
supply chain bottlenecks (49%), improved
visibility, alert and warning systems (46%), better
forecasting to predict demand volatility (44%)
and improved information sharing across the
supply chain (40%)
A
c
c
e
l
e
r
a
t
o
r
s
Growth is not important to us
Growth is important, but we are not concerned if
we go faster or slower than our competitors / the
industry standard
Growth is important to us and we seek to grow in
line with our competitors / the industry standard
Growth is important to us and we seek to grow
at a faster rate than our competitors / the
industry standard
Figure C: Appetite for growth
page 5
Connecting things: Disruptive manufacturing
. By the end of 2015, manufacturers think that
the following will transform / disrupt business
processes in their organisations inclusion of
smart components in products (89%), predictive
analytics (89%), development of mobile
applications (87%) and additive manufacturing /
3D printing (78%)
. 94% of manufacturers see 3D printing as an
opportunity rather than a threat with longer term
impacts seen as quicker time to market (48%),
cost savings (45%) and a greater fexibility to
build a wider range of products (41%)
Manufacturing Success 2014 highlights a number
of areas where manufacturers need to focus to
make the most of the opportunity for growth that is
now palpable. Accelerators, those who are focused
on growing more quickly than the competition,
are currently better placed to capitalise on the
opportunities that improved interconnectedness
brings, whether this be through greater customer
centricity, better collaboration across the supply
chain or ofering the kind of fexible working that
younger workers are looking for.
Agility, resilience and customer focus emerge as
the key watchwords for 2014 for manufacturing
organisations looking to exploit new growth
opportunities.
Research methodology
209 senior business decision makers in UK
manufacturing organisations with a turnover of
100m+ completed an interview during May 2014.
Research was conducted by Loudhouse, an
independent research agency based in London.
60% of manufacturers say that supply chain issues have
negatively impacted company revenue or proftability in
the last 12 months
Manufacturing Success: August 2014
The speed at which organisations are trying to
grow varies, some choosing to grow in line with
the market generally whilst others, known as
Accelerators, looking to outpace their competitors.
One in four (27%) of UK manufacturers are
Accelerators in 2014.
Businesses must plan ahead to ensure they have
the right resources in place to help support growth.
However, an increasing number of businesses
admit they are only able to efectively plan for the
short-term. In fact, over half of businesses (56%)
are only able to efectively plan up to a year ahead,
a signifcant rise from 40% in 2013 (see fgure 1).
Long term planning is only part of the story as agility
becomes more important to organisations. 78%
think success in manufacturing is all about reacting
faster to business changes rather than scale, an
attitude held more strongly by Accelerators (86%).
Yet, 61% of UK manufacturers say they have
difculty balancing robust, long term planning with
the fexibility to respond quickly to changing market
conditions. With the sector evolving at an increasing
rate, this fgure is only set to rise.
If manufacturers are to become more responsive,
they must become more connected. Developing
a greater level of interconnectedness between
employees, the supply chain and the tools used
day-to-day is likely to increase an organisations
understanding of the market, and in turn, enhance
its ability to react to it. However, less than half
of companies are able to fully capitalise on the
opportunities that connections between people
(48%), businesses (47%) and things (37%) bring.
2014 sees UK manufacturers in
confdent mood, with over three-
quarters (78%) optimistic about
their business prospects over the
next 12 months
The connected manufacturer
2013
2014
Figure 1: How far ahead manufacturers are able to
efectively plan
page 7
Accelerators are better placed to capitalise
on the opportunities brought about by
interconnectedness. Indeed, 63% are ready to take
advantage of the connections between businesses
and 52% between things (see fgure 2), highlighting
the role of interconnectedness in driving growth for
UK manufacturers today.
People
Businesses
Things
All manufacturers Accelerators
Figure 2: % of manufacturers currently able to fully
capitalise on connections between people, businesses
and things
Manufacturing Success: August 2014
Currently 1 in 7 manufacturing workers is over
55 years (15%) whilst 1 in 6 is aged under 24
years (17%) (see fgure 3). Manufacturers now
must address how they efectively lead a high
performance team made up of very diferent
motivational forces, pressures and preferences.
Collaboration comes to the fore, with the need for
younger generations to mentor their elders on the
use of new technologies while, in return, learning
from their general life experiences. Technology
itself, for example 3D printing, is also set to change
the skills landscape with 44% seeing this increasing
the demand for skilled workers and 34% envisaging
the creation of completely new roles.
Yet, against this backdrop, there are evident issues
with the attraction and retention of the young
people who are so critical for manufacturers
wanting to capitalise on digital opportunities,
close existing skills gaps and future-proof their
organisations as the older generation retires.
52% of manufacturers say they have difculties
ofering the kind of fexibility that younger workers
are looking for, 45% report difculties retaining
and 43% attracting younger workers into the
organisation (see fgure 4). Apprenticeships help
to some extent, with 79% saying they present
a valuable solution to flling the skills gap in
manufacturing. But issues with the image of the
manufacturing sector persist and 71% think the
manufacturing industry needs to improve its image
generally to attract new recruits.
Currently manufacturers are divided as to whether
a multi-generational workforce represents a wider
diversity trend that will drive innovation (51%,
increasing to 57% amongst Accelerators) or
create stress / culture clashes (49%). Refective
of a diverse customer base, multi-generational
workforces can, if efectively managed, result in
improved, more relevant customer experiences that
ultimately will drive growth.
Connecting people:
Multi-generational
workforces
We have diculties oering the kind of exible
working that younger workers are looking for
We have diculties retaining younger
workers in our organisation
We have diculties attracting younger
workers into the organisation
Figure 4: HR challenges with millennial generation
17% Under 24 years
33% 25 34 years
35% 35 55 years
15% Over 55 years
Figure 3: Current workforce age breakdown
The manufacturing sector, like
others today, is characterised by
a multi-generational workforce
with three, if not four, generations
working side-by-side.
page 9
Traditionally most supply chains were designed
from the factory outwards and focused on
optimising supplier operations, particularly in terms
of cost and efciency. The rules of competition
are changing though customers are more
demanding, products are more easily copied and
markets are commoditised. The biggest shifts that
manufacturers expect to see in customers over the
next two years are demand for added-value services
(67%), involvement in product development (49%),
interest in customised products (45%) and demand
for supply chain transparency (45%) (see fgure 5).
With these shifts in the balance of power, it is clear
that supply chains now need to be designed with
the customer at their heart. Yet, manufacturers
are struggling with this - 80% admit that as
an organisation they could be more customer-
centric. By creating whole new systems of value
for customers that will help secure long term
relationships and provide competitive diferentiation,
over half (58%) now see the lines between
manufacturing and service industries blurring.
If manufacturers are to efectively serve their
consumers beyond the core products they ofer, they
must look to build a better understanding of their
customer-base. However, manufacturers currently
experience some level of difculty in understanding
the needs of their customers customer (55%),
identifying potential new customers (55%),
understanding how customers use their products
(54%) and tracking customers from pitch to sale
(52%) (see fgure 6). These difculties are less
marked amongst Accelerators. 48% see identifying
potential new customers as a difculty compared
to 55% amongst all manufacturers. Furthermore,
just 45% of Accelerators experience some difculty
in understanding the needs of their customers
customer compared to 55% amongst all businesses.
Connecting businesses:
Customer-centric
manufacturing
Figure 5: Buyer characteristics over the next two years
Demand for added-value services beyond
just the core products we oer
Interest in getting involved in the product development
/ design process e.g. co-creation / crowdsourcing
Increased demand for customised /
non-standard products
Demand for more transparency around
supply chain credentials / authenticity
More savvy / placing less value on
direct contact with sales reps
Approaching investments with
more caution and ROI focus
Figure 6: % of manufacturers experiencing difculties
in customer activities
Understand needs of our customers customers
Identify potential new customers based on
prole of existing best customers
Understand how customers use our products
Track customers from pitch to sale
Track customer engagement with marketing activities
Generate accurate sales forecasts
Enable sales teams to provide updates / access
customer info via mobile devices
Identify most protable products
Identify most protable customers
Track from order to delivery
It is clear that supply chains now
need to be designed with the
customer at their heart
Manufacturing Success: August 2014
As supply chains extend and diversify, so they
become more complex and vulnerable. The
consequences of one incident can soon build and
spread throughout the supply chain. Notably, 60%
of manufacturers admit that supply chain issues
have negatively impacted company revenue or
proftability in the last 12 months.
Nearly half of all manufacturers (47%) have
experienced signifcant disruption to their supply
chain over the last year. Amongst those who have
experienced disruption, the key causes are IT
security events (39%), unplanned telecoms / IT
outages (38%), volatile currency exchange rates
(32%) and extreme weather conditions (31%) (see
fgure 7).
Complex supply chains need sophisticated,
connected tools to identify risks, predict disruption
and ensure recovery is as quick as possible. Yet,
nearly three-quarters (74%) of manufacturers
admit they could have better visibility into
disruptions across their supply chain.
Improving the connections across the supply chain
is key to understanding and minimising potential
disruption. With greater visibility, businesses are in
a stronger position to improve their supply chain
resilience. Manufacturers are primarily focused on
identifying and eliminating bottlenecks (49%), with
Accelerators more likely to emphasise this (57%).
Other areas of improvement include improving
visibility, alert and warning systems (46%) and
forecasting (44%) (see fgure 8).
Connecting businesses:
Supply chain resilience
Nearly half of all manufacturers
(47%) have experienced signifcant
disruption to their supply chain over
the last year
Figure 7: Supply chain disruptions in last 12 months
amongst those experiencing disruption
IT security incidents (e.g. cyber attacks, data breaches)
Unplanned telecoms / IT outage
Volatile currency exchange rates
Extreme weather conditions (e.g. oods)
Failure / issue with outsourcer service
Business failure / liquidation of supply chain partner
Product quality issues
Disruptions within transport network
Natural disasters (e.g. earthquake, tsunami)
Lack of available credit / funding
Regulatory changes
Loss of talent / skills
page 11
Identify / eliminate supply chain bottlenecks
Improve visibility, alert and warning systems
Better forecasting to try and predict demand volatility
Improve information sharing across the supply chain
Secure Board level commitments to managing supply chain
Instil a culture of risk management across suppliers
Conduct crisis simulation exercises
Other
None of the above
Figure 8: Steps to improve supply chain resilience over
next 12 months
Manufacturing Success: August 2014
Connecting things:
Disruptive manufacturing
The digital economy is rapidly
changing the manufacturing
landscape. New technologies are
creating new opportunities, but not
without initial discomfort
By the end of 2015, it is believed that smart
components in products (89%), predictive
analytics (89%), the development of mobile
applications (87%) and additive manufacturing
/ 3D printing (78%) will all disrupt traditional
business manufacturing processes within
organisations (see fgure 9).
It is important how manufacturers react to this
change. The traditional supply-based model of
produce then consume has been replaced by
a scalable, fexible and reactive model which
responds to the individual needs of the customer.
Additive manufacturing, or 3D printing, in particular
highlights the advent of on-demand manufacturing
with 94% of manufacturers seeing 3D printing as
an opportunity rather than a threat.
A model which is more in tune with needs of
the consumer makes sense in a manufacturing
ecosystem more focused than ever on reducing
waste and increasing customer satisfaction.
Manufacturers readily identify the longer term
impacts of 3D printing as quicker time to market
(48%), cost saving (45%, rising to 54% amongst
Accelerators) and a greater fexibility to build
a wider range of products (41%, rising to 48%
amongst Accelerators) (see fgure 10).
Although initially disruptive, manufacturing
businesses stand to beneft from the digital
evolution. However, this will depend on
manufacturers having the right culture, process,
skills and technologies in place to capitalise on the
opportunities that digital brings.
page 13
The traditional supply-based model of produce then consume
has been replaced by a scalable, fexible and reactive model
which responds to the individual needs of the customer.
Figure 10: Longer term impacts of 3D printing
Quicker time to market for manufacturers
Cost savings for manufacturers
More demand for skilled workers e.g. industrial designers
Greater exibility to build a wider range of products
Creation of completely new manufacturing roles
Creation of more manufacturing jobs locally
Less waste and emissions, more sustainable
More competition with new market entrants
Threatens low wage / unskilled manufacturing jobs
Blurring of lines between manufacturing, product
development and retail
Greater need for Government regulation
None of the above
Figure 9: Timeline for manufacturing disruption
By the end of 2015...
89% think the inclusion of smart components in products
89% think predictive analytics
87% think the development of mobile applications
78% think additive manufacturing / 3D printing
...will transform / disrupt manufacturing business
processes in their organisations
Manufacturing Success: August 2014
Conclusion
2014 sees UK manufacturers in
optimistic mood. And with the
economy showing long awaited
signs of recovery, businesses are
fxing their sights on growth.
Long term planning is proving difcult in a climate
characterised by change and disruption and the
focus is now shifting to marrying long term planning
with the ability to react quickly to changes in the
market. The traditional production-led manufacturer
is recognising that ultimately customers dictate how
they operate and as such, is focused on improving its
customer insight, creating value-added services and
becoming more customer-centric in how it operates.
This objective, however, is made more challenging
by the increasing complexity within manufacturing
supply chains. Disruption is a common problem
whether through security breaches, IT outages
or the weather and supply chain resilience is an
area that most manufacturers are focused on this
year. Improved visibility emerges as the common
denominator in delivering customer excellence and
supply chain resilience.
The emergence of new technologies, such as
3D printing and smart products, look set to
fundamentally alter the manufacturing landscape.
Not only will these result in new competitors, but
they also create the need for new skills. Young
people, as digital natives, are fundamental to
manufacturing success as we move towards 2020
but manufacturers need to consider carefully how
best to attract and retain this demographic if they
are to capitalise on their potential.
Improved interconnectedness holds the key to
fulflling growth ambitions. Culture, processes, skills
and technology must align to help deliver greater
customer centricity, supply chain resilience and a high
performing workforce that spans the generations.
page 15
For further information contact
Sujatha Jayagopal:
+44 (0) 791 727 7491
Sujatha.Jayagopal@cognizant.com
www.cognizant.com