Racing to Innovate
Industry 4.0 is inevitable, but manufacturers’ digital journeys will diverge.
As more manufacturers adopt digital tools and solutions, it will be increasingly critical for all companies to invest in Industry 4.0 capabilities to keep pace with competitors and differentiate themselves. Speed is key to coming out on top in this dynamic environment.
While most manufacturers are investing in Industry 4.0, there are differences in digital priorities for 2022. The 2022 BDO Manufacturing CFO Outlook Survey polled 100 manufacturing CFOs to dig into their Industry 4.0 plans, including the specific initiatives they’re betting on to gain a competitive advantage.
We’ve identified two types of manufacturers:
(Re)Born in Digital, which are either newer companies that integrated Industry 4.0 technologies throughout their operations from their founding or incumbent organizations that have embraced Industry 4.0.
Legacy manufacturers haven’t yet started implementing Industry 4.0 and are behind the curve in technology adoption compared to their peers.
In 2022, (Re)Born in Digital manufacturers will focus their Industry 4.0 investments in supply chain and customer experience, enabling them to serve their customers more efficiently, at a more competitive cost and with higher quality service. These investments will help build the digital thread through all elements of the manufacturing lifecycle to provide real-time visibility into supply chain operations.
Legacy manufacturers will focus on catching up to their digitally advanced peers through IT investments. They have high hopes for their upcoming investments and expect strong ROI from back-end enhancements, with more than half predicting they’ll be thriving one year from now.
BDO Insight
Legacy Manufacturers' Digital Hopes are Misplaced
No manufacturer is intentionally neglecting their customers, but 40% of Legacy manufacturers may see their customer service levels drop if they move forward with decreasing their digital investments in supply chain. A high-performing supply chain is essential to quality customer service. Despite Legacy manufacturers’ optimistic projections for their businesses’ performance, the gap in digital maturity and business performance between the two cohorts will continue to widen if this group deprioritizes customer experience and supply chain in their digital transformation strategy.
Minimizing digital investments in supply chain will also make Legacy manufacturers more susceptible to disruption. Businesses that can spot delays, shortages or other kinds of risk in real time are able to respond and mitigate the damage faster. Companies that don’t have a digitally advanced supply chain will be slower to react.
They may also find it difficult to capitalize on the digital thread, a communication framework for sharing information between stakeholders across the entire supply chain. The end-to-end visibility it provides will enable those involved to spot disruption or demand signals in real time. Sharing data with customers and vendors can improve efficiency and transparency, which can increase revenues and strengthen customer relationships. Only 33% of Legacy manufacturers will focus on collaborative partnerships in 2022 — which are necessary to fuel the digital thread — compared to 51% of (Re)Born in Digital manufacturers. Legacy manufacturers might be at a competitive disadvantage by missing out on the benefits of those partnerships. (Re)Born in Digital manufacturers are planning to leverage their existing Industry 4.0 capabilities to join these partnerships and reap the benefits, while many Legacy manufacturers are still catching up.
The Most Innovative (Re)born in Digital Manufacturers Will Break Away From the Pack
(Re)Born in Digital manufacturers are strategically focusing on Industry 4.0 investments in the supply chain and customer experience. Focusing on these areas, including participating in the digital thread, will help improve efficiency, customer acquisition and retention, as well as deepen existing customer relationships to increase wallet share. In addition to these external-facing innovations, 57% of (Re)Born in Digital manufacturers will also focus on internal process innovations in 2022. Internal improvements should lead to increases in operational and cost efficiency and boost overall organizational agility, which is critical for pivoting fast and capitalizing on new opportunities. Enhancing operational efficiencies and streamlining processes helps to address the prevalent worker shortage while also laying the groundwork to fund growth. Taking strategic steps to anticipate what’s next will have an impact on the top and bottom lines, if executed effectively.
Although (Re)Born in Digital manufacturers are ahead of Legacy manufacturers in terms of digital maturity and business performance, they can’t afford to sit still. Competition among the most digitally advanced manufacturers will heat up over the next 12 months, making it vital that (Re)Born in Digital manufacturers continually innovate, iterate and reevaluate their digital and business strategies. Strategic decisions will need to be made more quickly and frequently to create value, gain a competitive edge and capture new opportunities.
To succeed in this environment, (Re)Born in Digital manufacturers will need to ensure their Industry 4.0 roadmaps are aligned with a cohesive growth strategy that expands existing capabilities along a profitable path and provides greater value to the customer. Digital investments made in a silo will not enable broader business transformation. The manufacturers that develop capacity to innovate across their organizations might be best positioned to achieve outsized growth. Over the next 12 months, winners will emerge as the most successful (Re)Born in Digital manufacturers accelerate growth and break away from the pack.
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MAURICE LIDDELL |
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Methodology
BDO’s 2022 Manufacturing CFO Outlook Survey polled 100 manufacturing industry CFOs with revenues ranging from $250 million to $3 billion in October 2021. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.
