We all know that we are living in unprecedented times: among other indicators, the fact that the manufacturing industry is growing, undeterred by the headwinds it confronts, such as labour shortages, supply chain challenges, and ongoing risks related to the pandemic and the global political issues.
It’s unusual to see positive economic indicators paired with such a context, yet the manufacturing industry is building back fast emerging from the pandemic, eyeing growth despite the turbulences with a positive trajectory for 2022. The worldwide recovery gained momentum last year, and following the rising demand, industrial production and capacity utilization surpassed pre-pandemic levels midyear, with strong increases in new orders for all major subsectors signalling growth continuing in 2022.
The projections Deloitte published in its report, based on the Oxford Economic Model (OEM), anticipate GDP growth in manufacturing of 4.1% for 2022. Companies may be generally encouraged by a combination of high business valuations, strong earnings, and low-cost debt to increase their capital expenditures adding technology capabilities, shares, and expanding in new markets through M&As; governmental policy initiatives and infrastructure investments could also contribute to manufacturing’s recovery.
Let’s deep-dive in the manufacturing industry trends to watch identified in this report.
Preparing for the future of work
Record numbers of unfilled jobs could be a limit to higher productivity and growth in 2022: a shortfall of 2.1 million skilled jobs is estimated by 2030. As digitalization transforms manufacturing work, it could help to mitigate some of the labour shortage’s impact. But more than anything, organizations will need to “pull forward” future-of-work strategies such as re-architecting work, rethinking the composition and capabilities of the workforce, or adopting flexible and innovative workplace strategies.
To attract and retain talent, manufacturers need to pair strategies such as reskilling with a revision of their employment brand, making manufacturing jobs a more desirable entry point in the eyes of the young workforce. Reputational harm from episodes of moving to lower cost regions or outsourcing remains a challenge to overcome for some manufacturers. Therefore, the industry may need to deploy creative solutions to improve workforce perception and experience: placing a spotlight on modern facilities, advanced technologies, career mobility, well-being, and purpose can further attract new entrants, re-entrants, and those reconsidering employment changes.
As partnerships, workforce development programs, and reskilling all remain important, efforts for diversity, equity, and inclusion (DEI) are increasingly a business imperative. Executives may need to balance goals for retention, culture, and innovation. Organizations that can manage through workforce shortages and a rapid pace of change today can come out ahead.
Rethinking supply chains
Supply chain resilience has been a thread through the last years, and the challenges are there, still unfolding: manufacturers face near-continuous disruptions globally that add costs and test their abilities to adapt. A combination of high demand, rising costs of raw materials and freight, and slow deliveries continues to cause systemwide complications. Without trying to address the root causes, let’s focus on some ways to adapt to this context. Data integration for supply/demand visibility and planning is likely to continue its growth, integrating operational data for more transparency and insight in operations. Digital supply networks and data analytics can be powerful enablers for more flexible, multitiered responses to disruptions. The risks coming from not “connecting the dots” through available data can be significant: it is foreseen that the lack of supply chain integration could stall smart factory initiatives for 3 in 5 manufacturers by 2025.
Beyond the data, reshoring of components or even final assemblies is likely to continue, as global sourcing and low-inventory models keep diverging. The current transportation costs make nearshoring or onshoring more competitive globally, with many companies considering moving operations closer to end customers in 2022. Some manufacturers already in the process of localizing supplier networks in response to tariffs may redouble efforts. Along with trade, policymakers and technological leaps may further enhance the will to develop domestic supply chains.
Smart factory initiatives
Embracing digital capabilities from corporate functions to the factory floor, with an all-encompassing acceleration in digital technology adoption, could bring operational efficiencies to scale, helping manufacturers capture growth and protect long-term profitability.
More and more organizations are making progress and seeing results from increasingly connected, reliable, efficient, and predictive processes at the plant. In 2022, 45% of manufacturing executives surveyed for the report expect further increases in operational efficiency from investments in industrial Internet of Things (IIoT) that connect machines and automate processes. Half of the executives surveyed expect to increase operational efficiency through investments in robots and cobots. Investment in artificial intelligence technologies is also expected to see a compound annual growth rate (CAGR) above 20% through 2025. Industrial 5G deployment may also expand in 2022 with advances in technology and use cases.
Cybersecurity
High-profile cyber attacks across industries and governments in the past year have elevated cybersecurity as a risk management essential for most companies. Eighty-two percent of those surveyed will invest more in cybersecurity in 2022, with nearly one quarter budgeting at least 10% more than in 2021. This increase is due to an expanding attack surface, coming from the connection of operational technology (OT), information technology (IT), external networks, and remote work vulnerabilities, which requires more controls. Legacy systems and technology were not purpose-fit for today’s sophisticated network challenges.
Cybercriminals can now compromise both safety as well as productivity. Zero-trust security measures requiring authentication and limiting access can be part of prevention. Vigilance requires retooling, employee training, and oversight within and across departments. Manufacturers should look not only at their cyber defences, but also at the resiliency of their business in the event of a cyberattack. Eighty-five percent of executives who participated in the survey expect their organizations will invest more in prevention in 2022, while 56% of those surveyed anticipate more for detection and 29% plan to allocate more for areas of response.
Environmental, Social e Governance Sustainability
The fast rise of environmental, social, and governance factors is redefining and elevating the importance of sustainability in manufacturing as never before. As investors, boards, customers, employees, and policymakers continue to focus on ESG, more attention on industry actions and reporting is expected in 2022. Ninety-five percent of manufacturing executives surveyed expect their organizations will invest more in ESG areas in 2022 than in 2021.
Along with the focus on reporting on performance, as with earnings, manufacturers are likely to continue to increase engagement with a wider set of stakeholders through disclosures. For instance, the social factor—with emphasis on the organization’s role in community engagement, workers’ health and safety, and equity, among others—has seen momentum recently. Expectations for reporting on DEI metrics in manufacturing will likely continue to rise. Environmental accountability is also increasingly a focus: to develop and deliver against net-zero or carbon-neutral goals, more organizations are dedicating or redesigning sustainability roles and initiatives and quantifying efforts and results around energy consumption.
It is clear that adapting strategies for the future of work, supply chain resilience, and digital maturity can help manufacturers keep pace and drive performance amid strong economic demand. Bold moves may further shape the competitive landscape, as a positive outlook for a new year leads some companies to think big. But our collective recent experience should also remind manufacturers of the importance of executing with agility, including efforts that start small and scale fast to create value. To maintain margins and capture growth, manufacturers should navigate elevated risks near term while advancing sustainability priorities for the longer term. In many cases, the here-and-now challenges can create an advantage tomorrow. The extraordinary levels of business uncertainty in the past couple of years may have honed instincts to expect the unexpected, but we, as manufacturers, have also acquired greater resiliency to sustain momentum and competitiveness.
