/ Insights / Manufacturing: Building Resiliency to Navigate Market Volatility Insights Manufacturing: Building Resiliency to Navigate Market Volatility March 2, 2023 ConcurrencyHow Manufacturers Can Thrive in a Challenging Economy Manufacturers have navigated a turbulent environment for several years. Some unlocked exponential growth opportunities due to surging demand while others struggled to stay afloat. Now, most manufacturers are bracing for a recession. In the U.S., 62% of manufacturers expect a recession to start in 2023,[1] anticipating several months of contraction followed by growth. U.S. manufacturers expect to increase revenues by year-end an average of 5.5%, down from 9.3% in 2022.[2] So, what’s top of mind for manufacturers this year, and how can they create resilience and agility for what’s next? While it can be tempting to retrench and focus only on survival, those companies that lean into economic challenges and create new competencies will outperform those that don’t. Fortunately, with integrated data, analytics, advanced technology from Microsoft, and targeted partner expertise, manufacturers can address their most pressing issues and reap near-term ROI on their investments. 30%+ growth: Across industries, those firms that invested in innovation during the 2008-2009 recession outperformed peers by 10% during the crisis and 30% in the years after.[3] 7 Trends for Manufacturing This Year Amidst economic uncertainty, manufacturer priorities are changing. Top trends for this year include: Trading one-time cost cuts for operational improvements: Most manufacturers are facing rising material and labor costs at the same time customer demand is diminishing. That makes containing costs a top priority. However, it’s important to focus cost-cutting on the right areas. According to Gartner, fewer than half of leaders across all industries fail to achieve the savings they anticipated in the first year of cost reductions.[4] The reason why? They set unrealistic goals. To avoid this trap, manufacturers can invest in initiatives that accomplish strategic business goals and provide measurable cost reductions over time. A Deloitte survey found that manufacturers are spending on multiple technologies over the next 12 months to increase operational efficiency. They include robotics and automation (62%), data analytics (60%), Internet of Things platforms (39%), cloud computing (32%), and artificial intelligence and machine learning (26%), among others.[5] With better insights and automated processes, manufacturers can optimize across multiple areas of their operation, increasing margins. And when market conditions change, manufacturers will have multiple levers they can push to respond,[6] making the most of short-term changes, such as sudden surges in customer demand, or longer-term growth opportunities. Reducing risks with predictive capabilities: Fast-changing market conditions due to the pandemic turned every manufacturing firm into a risk manager. Leaders are now analyzing all aspects of their business to identify and reduce risks and threats. This means developing contingency plans for demand volatility, raw material shortages, logistics issues, changing trade tariffs, increasing regulations, workforce hiring and reskilling, knowledge management, and cybersecurity attacks, to name just a few. To aid this process, manufacturers need to pivot and start making business decisions in real-time. They can do so by developing predictive analytics capabilities that harness data flows across the organization to provide rich insights for decision making. Manufacturers can develop predictive capabilities by using Microsoft Azure Machine Learning (ML) and Kubernetes Services to build, train, and deploy models across multi-cloud environments. Manufacturers can also unify data, analytics and AI in Databricks, creating an open and reliable data foundation and applying a common security and governance approach across data and cloud platforms. Finally, Microsoft Power BI provides rich visualization tools that empower teams with meaningful insights they can use to make decisions and drive the business forward. As just one example, manufacturers can use advanced techniques such as time series forecasting and anomaly detection to understand customer demand trends. They can then use Azure cloud services to build data pipelines and models that enable them to monitor customer demand in real-time, as well as quickly identify potential issues and react accordingly. This way, manufacturers can optimize their Capex investments, reduce their inventory levels, and align increased production with real demand. Optimizing supply chains with sense-and-respond processes: Just-in-time manufacturing processes met their match during the pandemic, leaving many manufacturers with incomplete products, under- and overstocks, or merchandise marooned at ports. Manufacturers want to create dynamic supply chains that use sense-and-respond processes to flexibly adapt processes to changing market and customer dynamics. That means connecting devices with sensors, creating predictive capabilities, automating processes, using cloud infrastructure for greater scalability, and integrating business processes with partners via APIs. To date, only 25% of supply chains are digitally networked and autonomous, meaning that there is work to be done.[7] The Microsoft Azure platform for manufacturing provides secure cloud technology that manufacturers can use to integrate IT and operational technology, enable new use cases, and scale and shrink with demand changes. Developing new apps to create modern processes: Manufacturers want to accelerate innovation and push out new capabilities to employees and customers. They’d like to empower developers to easily spin up new instances, use agile processes to create code, improve quality, and automate deployments. By accelerating the pace of software development, manufacturers can accomplish goals such as digitizing more of the customer experience. Similarly, manufacturing leaders would like to empower business users to create their own simple apps, using low-code and no-code platforms. A good place to start is with digitizing paper-based processes, such as quality and safety checks. Manufacturers gain faster access to data, improve outcomes, and enhance sustainability outcomes with paper-free processes. Azure supports both types of users. Azure DevOps is the fastest and easiest way for teams to plan, build, and deploy software across a variety of platforms. It enables software developers to get up and running in minutes, provides agile tools that foster collaboration and enable faster cycles, and strengthens quality control with powerful code reviews. Teams can also use Azure tools to automate software deployments. Business users can use Power Apps to rapidly build low-code apps that modernize processes and provide fast value. Then, developers can extend app capabilities using Azure Function and custom connectors to create end-to-end business solutions. Thinking smaller with smart factory innovations: The promise of the smart factory, with highly automated processes that orchestrate operations, is alluring to many manufacturers. Yet, these Capex-intensive initiatives are challenging to undertake and deliver, especially in capital-constrained environments. As a result, two-thirds (73%) of manufacturers have less than two years of smart factory experience, and nearly all of this group (70%) say they’re making slow progress.[8] Manufacturers can craft either a top-down or bottom-up approach to retool and gain cloud capabilities. They can break smart factory goals into a series of discrete initiatives that target the most pressing pain points – such as enabling modern production processes, improving compliance, and enhancing security – and provide rapid value. Manufacturers can lift and shift mainframes to Microsoft Azure, keeping business processes and data intact. Or they can retool to connect IT and operational technology, gaining unprecedented insights into operations that teams can use to identify improvement opportunities. Manufacturers can lock down business applications and data in a private cloud that creates greater flexibility and agility and increases security. Manufacturers also want to make progress with sustainability but align spending to efforts that can improve efficiency. Microsoft Sustainability Manager helps team create visibility into their operations, providing business intelligence firms can use to improve compliance; increase operational efficiency; and share results with customers, partners, and shareholders. Creating new intellectual property: With advanced technology, it’s never been easier to create intellectual property (IP). Manufacturers that create their own IP are at a competitive advantage in the marketplace, positioning their firms effectively for mergers, acquisitions, and partnerships. Manufacturers can use partner solutions and Microsoft technology to rapidly deploy new capabilities in areas as various as demand and inventory forecasting, automated sales quoting, product picking, smart product development, cycle counting, quality management, and predictive maintenance. As just one example, deploying a demand and inventory forecasting solution based on Microsoft and Databricks technology enables manufacturers to reduce overstocked inventory by 10-20%, reduce inter-location shipping by 10-20%, and improve warehouse efficiency by 10-50%.[9] Getting ready for M&A opportunities: Economic downturns create buying opportunities, enabling manufacturers with cash at the ready to pick up companies that offer adjacent capabilities and access to new markets. Manufacturers will likely be looking to pick up smaller deals and distressed companies to grow faster. In a PWC survey, 63% of industrial manufacturing and automotive leaders said they don’t plan to delay deal-making due to the economic climate.[10] Manufacturers need support to execute mergers, acquisitions, and spinoffs and achieve desired synergies. They’re typically seeking to create repeatable processes they can use across future deals. A typical pain point is how to merge two technology infrastructures that include solutions like Microsoft Office 365, Microsoft Azure, and identity solutions. A partner can support M&A efforts by developing a playbook with repeatable processes and leveraging standard process to map Office 365 and Azure to the shared tenant. In addition, a partner can convert on-premises applications to the cloud, to provide the expanded business with greater flexibility and scalability. Harness These 7 Trends to Grow This Year As manufacturers look to do more with less this year, they can harness these seven trends to place the right bets and reap the most from their technology investments. Concurrency is a business management and IT consulting firm that has partnered with manufacturers across North America to drive innovation and operational efficiency. We help manufacturers develop and implement technology and data management strategies, design and deploy optimized process models, implement best practices in cybersecurity, and leverage cloud computing and analytics to accelerate their desired outcomes. As a Microsoft Gold Partner, Concurrency has deep expertise in the Microsoft stack, including Azure, Azure DevOps, Dynamics 365, the Power Platform, Windows 10, Office 365, and more. We have developed frameworks, IP, and best practices across hundreds of engagements that manufacturers can put to work, reducing risks and costs. Concurrency offers a business outcomes workshop, where we work with customers to define their goals and outcomes, prioritize them, and develop a recommended transformation roadmap. Focus investments on the right innovation and operational efficiency initiatives this year. Increase business agility, drive cost savings, and increase revenue with new capabilities. Contact Concurrency to learn more about our business outcomes workshop. Footnote: [1] “Manufacturers Concerned of Recession Threat in 2023,” article, EC&M, January 9, 2023, https://www.ecmweb.com/construction/business-management/article/21257642/manufacturers-concerned-of-recession-threat-in-2023 [2] “Manufacturers predict revenue & profit growth in 2023,” article, EPSNews, December 15, 2022, https://epsnews.com/2022/12/15/manufacturing-sector-predicts-revenue-profit-growth-in-2023/ [3] Jordan Bar Am, Laura Furstenthal, Felicitas Jorge, and Erik Roth, “Innovation in a crisis: Why it’s more critical than ever,” article, McKinsey, June 17, 2020, https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/innovation-in-a-crisis-why-it-is-more-critical-than-ever [4] Randeep Rathindran and Jackie Wiles, “7 Cost Reduction Mistakes to Avoid,” article, Gartner, August 17, 2022, https://www.gartner.com/smarterwithgartner/7-cost-reduction-mistakes-to-avoid [5] 2023 manufacturing industry outlook, Deloitte, report, page 4, undated, https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/manufacturing-industry-outlook.html [6] “2023 manufacturing industry outlook,” ibid. [7] “Is your future-ready supply chain still actually a “chain”?” eBook, page 3, E&Y, https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/webcast/ey-is-your-future-ready-supply-chain-really-a-chain.pdf?download [8] “Most companies still new to smart manufacturing and struggling with adoption, ISG survey finds,” The Manufacturer, April 22, 2022, https://www.themanufacturer.com/articles/most-companies-still-new-to-smart-manufacturing-and-struggling-with-adoption-isg-survey-finds/ [9] “Manufacturing IP solutions,” webpage, Concurrency, undated, https://www.concurrency.com/digital-transformation/manufacturing-ip-solutions [10] Global M&A Industry Trends: 2023 Outlook, interactive website, PWC, undated, https://www.pwc.com/gx/en/services/deals/trends.html
