KPMG

Manufacturers entering ‘new era of disruptive complexity’, according to KPMG outlook

Manufacturers are entering into a new era of ‘disruptive complexity’, which is fundamentally changing the way manufacturers compete and succeed, according to KPMG’s 2014 Global Manufacturing Outlook (GMO).

Jeff Dobbs, global chair of industrial manufacturing and a partner with KPMG in the US, said: ‘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”.’

In an attempt to capitalise on this environment, manufacturers say they will dramatically increase spending in R&D, pursue new collaborative business models and integrate new technologies to analyse and stimulate profitable growth.

This fifth annual GMO, ‘Performance in the Crosshairs’, was completed in early 2014 and surveyed 460 senior executives across six industrial sectors split equally among the Americas; Europe, the Middle East and Africa (EMEA); and the Asia-Pacific.

This year’s GMO reveals that only 12 per cent of manufacturers would categorise themselves as being ‘very effective’ at determining product profitability. Further, 85 per cent of respondents said they plan to make ‘moderate’ to ‘substantial’ investments into systems for product or service cost improvement over the next 12–24 months.

Jim Scalise, managing consulting partner with KPMG in the US, said: ‘This isn’t 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.’

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 per cent of industrial manufacturers, up eight percentage points from KPMG’s 2013 GMO, representing a 25 per cent increase in companies pursuing such strategies.

Dobbs said: ‘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.’

Manufacturers in Germany appear set to lead in breakthrough innovation, with 77 per cent citing it as their primary R&D strategy for product development. Among the industrial sectors included in the survey, 50 per cent of respondents from the conglomerates sector say breakthrough innovation will be their primary R&D strategy.

In terms of business models, 88 per cent of respondents say partnerships over in-house efforts will shape manufacturers’ approach to innovation, up significantly from 51 per cent in KPMG’s 2013 GMO.

Additionally, 68 per cent 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 per cent).

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 per cent — versus 20 per cent in KPMG’s 2013 GMO — say they lack information and material visibility across their supply base. Thirty-eight per cent say they lack critical details on supplier performance and 36 per cent 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 per cent) and lack of strategy (14 per cent).

Despite those challenges, visibility has improved over the past 12 months, with 22 per cent of respondents now claiming to have complete visibility (up from just nine per cent 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.

Dobbs said: ‘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.’

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