Manufacturing and Distribution Industry Perspectives - May 2017 | Protiviti - Australia

Manufacturing and Distribution Industry Perspectives - May 2017

Manufacturing and Distribution

Manufacturing and Distribution Industry Perspectives - May 2017

Manufacturers Must Focus on Workforce Planning to Accelerate Digital Transformation Efforts

Global manufacturing has been expanding, new orders are up, and the sector is experiencing an uptick in job growth. Even U.S. manufacturing appears to be on the rebound; in March, the industry posted its strongest two-month advance in three years. Leading the way in output were manufacturers of fabricated metals, machinery and plastics, paper, and rubber production.

Despite this growth, employment in the U.S. manufacturing sector remains far below the heights seen during the latter half of the 20th century. Technology advancements are a factor, of course. Some of the manufacturing segments mentioned above are among those that have been greatly expanding their use of robotics to enhance productivity, for instance.

While robotics, artificial intelligence and other advancements are making manufacturing companies less reliant on human workers for certain tasks, they are also creating new jobs that require specialised skills. Robotics engineers, big data analysts, 3D printing specialists and cybersecurity experts are just some examples of new positions in the modern manufacturing workforce. Many companies are also now seeking workers to help “teach” robots how to collaborate safely and effectively on the factory floor.

Demographic Trends, Succession Challenges Creating New Risks

Demand and competition for workers with advanced technical and specialised skills, such as programming, analytics and problem-solving, will only increase as manufacturers accelerate their efforts to automate and digitise. Skilled production roles, such as machinists and technicians, will also remain difficult to fill. And as manufacturers seek to recruit, train and retain qualified talent for both new and more traditional roles, two demographic trends are challenging those efforts:

  • Baby boomer retirements: These workers are leaving the manufacturing workforce in greater numbers and taking decades of hard-to-replace knowledge and skills with them. (Pension freezing and the decline in other retirement offerings have helped to hasten the exit for many.) Even though a lot of the expertise baby boomer workers possess will not be relevant in the next wave of the Industrial Revolution, companies will still suffer from losing people who have a deep understanding of the business and industry that can only be learned over time.
  • The new generation’s lack of interest in manufacturing jobs: Many millennials simply cannot visualise a career path in an industry that they associate with monotonous assembly lines, low-paying and less-skilled jobs, and lack of innovation. Some leading companies are working hard to change the millennial mindset about manufacturing. They’re using high-tech and high-touch approaches to showcase just how rewarding manufacturing careers can be — and that talented, tech-minded millennial workers are, in fact, eager to work in the industry. GE’s multimillion-dollar campaign to rebrand itself as a 21st century “digital industrial” company is one well-known initiative. However, these efforts alone cannot solve a labour problem decades in the making.

To be sure, new business models, changing demographics and the persistent supply-and-demand problem in the hiring market contribute to the high number of open jobs in manufacturing and widening talent gaps in many companies. Manufacturers must also recognise how their own workforce planning practices can exacerbate these problems. Lack of attention to succession planning is a prime example.

In fact, many manufacturers have already started to realise that minimising — or completely overlooking — the importance of succession planning in the past is creating risk for them today as well as for the future. Industry executives who took part in the latest Executive Perspectives on Top Risks Survey from Protiviti and North Carolina State University’s ERM Initiative cited the following as a top risk for their businesses in 2017: Our organisation's succession challenges and the ability to attract and retain top talent may limit our ability to achieve operational targets.

Learning From the Past

As manufacturers seek to modernise their operations so they can compete in Industry 4.0, they face the risk of not being able to meet their objectives due to a shortage of skilled labour. Now is the time for companies to acknowledge potential missteps in workforce planning and adopt leading practices. If they don’t, they risk not being able to align the talent they need to succeed in an Internet of Things world.

Manufacturers should move swiftly to preserve remaining institutional knowledge by establishing mentoring programs that pair baby boomer employees with both Generation X and millennial workers. Identify areas in the organisation where succession planning is critical, and create formal programs with milestones and performance measurements. Provide internships that will allow students to learn firsthand about career opportunities in modern manufacturing, and help the company position itself as an employer of choice with up-and-coming talent.

Also, be sure to promote these initiatives internally and externally. Study how peers in the industry — and in other sectors facing serious talent shortages like IT and healthcare — use outlets such as social media to shine a light on their culture, workforce and operations. Showing that the company actively invests in the development of its workforce and values its talent can help the organisation retain existing employees with valuable skills sets and experience, as well as improve its chances of recruiting the highly skilled professionals it needs to succeed in the future.

No More Waiting Game for Manufacturers: Industry 4.0 Is Already Here

The term “Industry 4.0” isn’t new to manufacturers. What is new, for many of these businesses, is the recognition that the next wave of the Industrial Revolution is already breaking. There is no more time for “Let’s wait and see what this means for our business.” No manufacturer can afford to sit on the sidelines and watch as their industry is transformed by major innovations in digital technology — from cloud computing to big data analytics to advanced robotics to the Internet of Things (IoT). They must be in the game. And to be in it, they must transform their operations digitally.

Embracing big data analytics is an important step on the path to smart manufacturing. It has the potential to affect every step of the manufacturing process. Ultimately, advances in big data analytics are expected to augment the interconnectivity of equipment on the factory floor as part of a larger movement toward the IoT and greater manufacturing intelligence.

That’s a pretty big deal. Yet manufacturers, generally, have been slow to adopt big data analytics, especially in manufacturing operations. This is not necessarily due to lack of interest, or worry about costs, privacy, security or even change itself. The real hindrance is a combination of several significant roadblocks that many manufacturers must overcome before they can implement and execute big data analytics successfully.

These common barriers include:

  • Unwieldy data and processes — Manufacturers facing this problem can take comfort in knowing it’s an issue that plagues most any company pursuing digital transformation. Certainly, there is no shortage of data being produced by the business. The challenge is figuring out how exactly to bring together that ever-ballooning volume of raw data from different systems and sources so it can be analysed and turned into actionable insights for the business.
  • Disparate systems — This barrier relates to the one above, obviously. Integrating data is complicated by inaccessibility. It is often the case that a business’s legacy technologies have not been designed to facilitate open access to data. The complexity of a typical IT ecosystem makes it very difficult to mine quality data and convert it into a workable format for analysis.
  • Expertise shortage — Finding specialised talent to work with big data — especially professionals with knowledge of the manufacturer’s business and industry — can be a tremendous hurdle. Manufacturers are finding that talent is in very short supply, and extremely competitive to recruit and retain. Over time, as the industry becomes more digitised, manufacturers are likely to face talent shortages in even more areas of their business.

Again, these are just some of the roadblocks manufacturers face. They are not trivial, and companies will find that some are quite persistent. But a manufacturer that wants to be a relevant player in Industry 4.0 must address them sooner than later.

Make sure big data projects have a purpose

As manufacturers work to overcome big data analytics obstacles they must not forget an important aspect of their effort: keeping their business strategy in focus. I will come back to this subject and offer a few tips for success in this area in a future post, but the one I want to mention here is extremely important: Identify a specific use case.

Manufacturers should not just “do” big data analytics because they are under pressure to evolve their operations. Any big data initiative should have a clear purpose. Lack of purpose is often the root cause of a company’s struggles to harness its data effectively and turn it into meaningful insights.

Some may consider it an upside that the manufacturing industry has not moved as quickly as other industries to jump on the big data bandwagon. And it is true that manufacturers that have so far taken a “wait and see” approach with big data analytics and similar digital innovations have the benefit of learning from the missteps of early adopters, and can develop a strategy for success based on lessons learned. But they must make their move now, or they risk falling too far behind the digital curve and becoming obsolete in Industry 4.0.

Developments in the First 100 Days of the Trump Administration that Affect the Pharmaceuticals, Automotive, Shipping and Industrials Industries

In our election implications Flash Report, we suggested there were possible winners and losers across multiple sectors from a Trump presidency. Here is an update of developments during the first 100 days of interest for pharmaceuticals, automotive, shipping and industrials companies.

Possible Winner

Pharmaceuticals

What we said we expected: A more lenient approach to drug pricing than under a Democratic administration, with emphasis on constraining the upward spiral of soaring drug prices, e.g., remove entry barriers for drug providers that offer safe, reliable and cheaper products, give Medicare powers to negotiate drug prices to limit price increases, and “Right to Try” legislation.

 

Developments since inauguration: In January, the president met with CEOs of some of the biggest pharmaceutical companies in the U.S. to emphasise the need for affordability and accessibility of prescription medicines, a less rigorous approval process, less regulation, and bringing more drug manufacturing into the country. During the meeting, the president questioned policies that enabled other countries to pay less than Americans for the same drugs. But specifics were not discussed. In March, the president tweeted, “I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!” This tweet underscores his campaign promise to use the government’s bargaining power to drive down drug prices.

In March, the president nominated Scott Gottlieb to run the Food and Drug Administration (FDA). Approved for confirmation on April 27, Gottlieb has a history of calling for faster approvals and greater regulatory transparency, and realigning the balance of power between the FDA and doctors. Having previously served as deputy commissioner at the FDA during the George W. Bush administration and on boards for several pharmaceutical companies, he is expected to focus on lowering drug prices by easing regulation over generic drugs, eliminating back-end rebates, speeding up clinical trials, and directing more regulatory emphasis on higher-risk products, not low-risk ones.

Possible Losers

Automotive

What we said we expected: Withdrawal from NAFTA and border tariffs impact carmakers that import parts or have factories in Mexico. Japanese carmakers will be hard hit if the yen strengthens relative to U.S. dollar.

 

Developments since inauguration: In January and March, the president met with automotive executives to encourage them to hire and build in America, ending the “assault on the American auto industry.” Throughout the first 100 days, signals have been made to make clear the administration’s intent to renegotiate NAFTA (as well as the other 13 U.S. free trade agreements), but specifics have yet to be articulated. In issuing two executive orders in March, the president authorised a comprehensive review of the source of U.S. trade deficits and issued a directive aimed at increasing the collection of duties from countries whose companies are engaging in “dumping” practices, i.e., selling products in the U.S. below their cost of production. Some view these orders as a sign of the administration softening its stance on NAFTA, leading to retention of major components of the deal, enhancing duty collections, and enforcing antidumping and other violations of trade and customs laws, rather than abandoning the pact altogether.

Notwithstanding what happens with NAFTA, tax and regulatory reform will play a significant role in providing the necessary economic incentives to encourage automakers to “hire and build American.”

Shipping

What we said we expected: Shipping could be adversely affected by trade policy if it spawns a wave of protectionism and unwinds the decades-long trend toward globalisation.

 

Developments since inauguration: Again, trade policy rears its head with the need to understand policy specifics to better understand the industry implications, if any.

Mixed

Industrials

What we said we expected: Renovating the inner cities and rebuilding highways, bridges, tunnels and other infrastructure (including the border wall) is expected to benefit materials and heavy equipment manufacturers. Fair trade is a priority and offshoring is to be targeted. Global supply chains of U.S. industrials may also be affected.

 

Developments since inauguration: The president has proposed $1 trillion in infrastructure improvements, but offered few specifics as to the source of funding. In early March, the heads of 16 federal agencies met in the White House to map out a six-part strategy to reinvigorate the nation’s bridges, railways and sewers. The strategy would solicit new projects, expedite existing projects, examine new funding streams, and explore sweeping policy and regulatory changes. Administration officials view infrastructure spending as a rare opportunity to join forces with congressional Democrats, but it remains to be seen whether a bipartisan infrastructure package is feasible.

The president has signed orders directing the Department of Commerce to streamline the manufacturing permitting process and giving the department 180 days to maximise the use of U.S. steel in the Keystone XL and Dakota Access pipelines. Trade policy is also an open question for the various manufacturing and distribution industry sectors.

The administration’s emphasis on deregulation is also important. A recent study found that 94 percent of manufacturers surveyed reported that the regulatory burden has increased over the last five years, with 72 percent indicating “significantly higher.” More importantly, 87 percent of manufacturers surveyed indicated that if compliance costs were reduced permanently and significantly, they would invest the savings in hiring, increased salaries and wages, more R&D, or capital replacement. This opportunity is certainly not lost on the administration. For example, the EPA’s regulatory reform task force’s pending 30-day public comment period is intended to gather input on which Obama era regulations the administration should roll back. Industrials may benefit from such rollbacks.

CATEGORY TOPIC:
CATEGORY INDUSTRY:
Click here to access all series