Manufacturers are entering into a new era of ‘disruptive complexity’ which is fundamentally changing the way manufacturers compete and succeed, according to the KPMG’s 2014 Global Manufacturing Outlook (GMO), which surveyed 460 senior executives across six industrial sectors split equally among the Americas; Europe, Middle East and Africa; and Asia-Pacific.
“Over the past few years, manufacturers have seen an explosion of new technologies and innovative developments in material science, advanced manufacturing and synergistic operating models. With this accelerating pace of change, manufacturers the world over are now starting to take stock of the more complex world that they are operating in, and are using that insight to redefine ‘the art of the possible’,” said Jeff Dobbs, Global Chair, Industrial Manufacturing and a Partner with KPMG in the US.
In an attempt to capitalise on this environment, manufacturers are planning to dramatically increase spending in R&D, pursue new collaborative business models and integrate new technologies to analyse and stimulate profitable growth.
“Innovation has been a major theme for manufacturers in the emerging markets. But, whereas much of the focus was once on product innovation (particularly in creating global products with local flavour), today’s manufacturers are now looking at innovation across other management spheres such as cost optimisation, feature addition and partnership value programs which aim to generate innovative ideas in collaboration with suppliers and business partners. In India, for example, companies are keenly focused on collaborating with supply chain and logistics providers to improve reliability, enhance capacity and reduce costs by identifying and maximizing process and business practice innovation,” added Richard Rekhy, Chief Executive Officer, KPMG in India.
A focus on understanding profitability
This year’s GMO reveals that only 12% of manufacturers would categorise themselves as being ‘very effective’ at determining product profitability. Further, 85% of respondents said they plan to make either ‘moderate’ to ‘substantial’ investments into systems for product or service cost improvement over the next 12-24 months.
“This is not simply about mining data and building spreadsheets; it’s about accessing the appropriate information, at the right level of granularity and – maybe most importantly – with the right speed and frequency to generate timely insights that help people make better business decisions,” noted Jim Scalise, a Management Consulting Partner with KPMG in the US.
Growth through innovation and collaboration
According to the KPMG’s 2014 GMO, almost half of manufacturers plan to double R&D spending in product development over the next 12-24 months. There are also signs that breakthrough innovation is gaining importance as a strategy for 39% of industrial manufacturers, up 8 percentage points from KPMG’s 2013 GMO, representing a 25% increase in companies pursuing such strategies.
“The manufacturing world is in an era of hyper-innovation. Ultimately, those organisations that do not balance investment in ‘incremental innovation’ with investment in ‘breakthrough innovation’ may find themselves left behind competitively,” said Dobbs.
“Innovation is becoming a key success driver for every organisation worldwide and India will be no different. Innovation is likely to move from the traditional product innovations to other sphere of management such as cost optimisation, feature addition etc. ‘Partnership Value Program’, which aims to generate innovative ideas in collaboration with the suppliers and business partners for cost compression and quality enhancement will gather momentum in the coming years,” added S V Sukumar, Partner and Head of Operation and Supply Chain, KPMG in India on the subject of ‘Collaboration to innovate in India’.
Manufacturers in Germany appear set to lead in breakthrough innovation with 77% citing it as their primary R&D strategy for product development. Among the industrial sectors included in the survey, 50% of respondents from the conglomerates sector say breakthrough innovation will be their primary R&D strategy.
In terms of business models, 88% of respondents say partnerships over in-house efforts will shape manufacturers’ approach to innovation, up significantly from 51% in KPMG’s 2013 GMO. Additionally, 68% say they are adopting more collaborative business models with suppliers and customers. In EMEA, respondents were overwhelmingly in strong agreement with adopting more collaborative models (82%).
Improving supply chain visibility
This year’s GMO reveals that limited visibility across the supply chain remains a growing concern for manufacturers, even though many have made notable progress towards improving transparency.
Forty percent – versus 20% in KPMG’s 2013 GMO – say they lack information and material visibility across their supply base. Thirty eight percent say they lack critical details on supplier performance, and 36% lack adequate supply chain IT systems. According to half of respondents, the biggest obstacle to achieving more visibility is a lack of mature technology, followed by lack of governance (19%) and lack of strategy (14%).
Despite those challenges, visibility has improved over the past twelve months with 22% of respondents now claiming to have complete visibility (up from just 9% in 2013). For the most part, these gains in visibility have resulted from stronger relationships between manufacturers and their top tier suppliers. More than three quarters of respondents say that their relationship with top tier suppliers is now strong enough for them to share real-time capacity and demand data.
On integrating the supply chain Sukumar said, “In India, planning has always been the weakest link for quite some years now. Given many unpredictable factors associated, planning will have to be even more robust. The successful integration and hence the visibility of the entire Supply Chain will call for a significant change in the way organizations manage their ‘Planning and execution’. Apart from leveraging ‘technology’ for managing complex planning process, the organisations may need to change the ‘Philosophies, assumptions and rules of the planning & execution’ appropriate to the market they serve.”
Dobbs added, “The upward trend is promising given the fact that almost three quarters of our respondents think they can achieve a globally integrated supply chain within the next five years. However, we believe there is still much work to be done around trusted relationships, transparency, and technology enablement to foster these types of collaborative business models.”
“Over the past few years, manufacturers have seen an explosion of new technologies and innovative developments in material science, advanced manufacturing and synergistic operating models. With this accelerating pace of change, manufacturers the world over are now starting to take stock of the more complex world that they are operating in, and are using that insight to redefine ‘the art of the possible’,” said Jeff Dobbs, Global Chair, Industrial Manufacturing and a Partner with KPMG in the US.
In an attempt to capitalise on this environment, manufacturers are planning to dramatically increase spending in R&D, pursue new collaborative business models and integrate new technologies to analyse and stimulate profitable growth.
“Innovation has been a major theme for manufacturers in the emerging markets. But, whereas much of the focus was once on product innovation (particularly in creating global products with local flavour), today’s manufacturers are now looking at innovation across other management spheres such as cost optimisation, feature addition and partnership value programs which aim to generate innovative ideas in collaboration with suppliers and business partners. In India, for example, companies are keenly focused on collaborating with supply chain and logistics providers to improve reliability, enhance capacity and reduce costs by identifying and maximizing process and business practice innovation,” added Richard Rekhy, Chief Executive Officer, KPMG in India.
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A focus on understanding profitability
This year’s GMO reveals that only 12% of manufacturers would categorise themselves as being ‘very effective’ at determining product profitability. Further, 85% of respondents said they plan to make either ‘moderate’ to ‘substantial’ investments into systems for product or service cost improvement over the next 12-24 months.
“This is not simply about mining data and building spreadsheets; it’s about accessing the appropriate information, at the right level of granularity and – maybe most importantly – with the right speed and frequency to generate timely insights that help people make better business decisions,” noted Jim Scalise, a Management Consulting Partner with KPMG in the US.
Growth through innovation and collaboration
According to the KPMG’s 2014 GMO, almost half of manufacturers plan to double R&D spending in product development over the next 12-24 months. There are also signs that breakthrough innovation is gaining importance as a strategy for 39% of industrial manufacturers, up 8 percentage points from KPMG’s 2013 GMO, representing a 25% increase in companies pursuing such strategies.
“The manufacturing world is in an era of hyper-innovation. Ultimately, those organisations that do not balance investment in ‘incremental innovation’ with investment in ‘breakthrough innovation’ may find themselves left behind competitively,” said Dobbs.
“Innovation is becoming a key success driver for every organisation worldwide and India will be no different. Innovation is likely to move from the traditional product innovations to other sphere of management such as cost optimisation, feature addition etc. ‘Partnership Value Program’, which aims to generate innovative ideas in collaboration with the suppliers and business partners for cost compression and quality enhancement will gather momentum in the coming years,” added S V Sukumar, Partner and Head of Operation and Supply Chain, KPMG in India on the subject of ‘Collaboration to innovate in India’.
Manufacturers in Germany appear set to lead in breakthrough innovation with 77% citing it as their primary R&D strategy for product development. Among the industrial sectors included in the survey, 50% of respondents from the conglomerates sector say breakthrough innovation will be their primary R&D strategy.
In terms of business models, 88% of respondents say partnerships over in-house efforts will shape manufacturers’ approach to innovation, up significantly from 51% in KPMG’s 2013 GMO. Additionally, 68% say they are adopting more collaborative business models with suppliers and customers. In EMEA, respondents were overwhelmingly in strong agreement with adopting more collaborative models (82%).
Improving supply chain visibility
This year’s GMO reveals that limited visibility across the supply chain remains a growing concern for manufacturers, even though many have made notable progress towards improving transparency.
Forty percent – versus 20% in KPMG’s 2013 GMO – say they lack information and material visibility across their supply base. Thirty eight percent say they lack critical details on supplier performance, and 36% lack adequate supply chain IT systems. According to half of respondents, the biggest obstacle to achieving more visibility is a lack of mature technology, followed by lack of governance (19%) and lack of strategy (14%).
Despite those challenges, visibility has improved over the past twelve months with 22% of respondents now claiming to have complete visibility (up from just 9% in 2013). For the most part, these gains in visibility have resulted from stronger relationships between manufacturers and their top tier suppliers. More than three quarters of respondents say that their relationship with top tier suppliers is now strong enough for them to share real-time capacity and demand data.
On integrating the supply chain Sukumar said, “In India, planning has always been the weakest link for quite some years now. Given many unpredictable factors associated, planning will have to be even more robust. The successful integration and hence the visibility of the entire Supply Chain will call for a significant change in the way organizations manage their ‘Planning and execution’. Apart from leveraging ‘technology’ for managing complex planning process, the organisations may need to change the ‘Philosophies, assumptions and rules of the planning & execution’ appropriate to the market they serve.”
Dobbs added, “The upward trend is promising given the fact that almost three quarters of our respondents think they can achieve a globally integrated supply chain within the next five years. However, we believe there is still much work to be done around trusted relationships, transparency, and technology enablement to foster these types of collaborative business models.”