The Era of Accelerated Disruption
We’re in an era of accelerated disruption and a “new normal” characterised by continuous volatility and heightened uncertainty. In such times, with surging customer demand, faltering supply, an intensifying war for talent and rising inflation, manufacturers need to deal with the immediate challenges but also not lose sight of the long term.
To thrive in this environment, they must maintain a balance and, as IDC says, “have their hands in the now and their eyes on the future”.
The good news is that escalating energy and raw material costs, regulatory requirements, employee expectations and customer demand are finally bringing sustainability to the forefront. We are increasingly seeing manufacturers tapping into the opportunity these disruptions have created and committing to building sustainable manufacturing processes.
Manufacturers’ Business Priorities Must Embed Green
Ensuring environment-focused regulatory compliance will be an ongoing priority for manufacturing organisations, primarily to avoid any risks related to costs or brand damage and lost customer trust. As Mark Carney, former governor of the Bank of Canada, once said, “Trust arrives on foot but leaves in a Ferrari.” Manufacturers need to move away from a reactive (regulatory-driven) to a proactive (value-add) approach and prove their green claims to turn sustainability investments into competitive advantage.
IDC’s latest research shows that European manufacturers’ top strategic business priorities include high-value customer experience, product and service innovation, smart operations, supply chain transformation, new ways of working and ecosystems of innovation. Sustainability or green business was, until recently, an independent area of focus. But that was then — now it is evolving rapidly through every part of the business.
Let’s look at some of the key business priorities for manufacturers and how “green” is increasingly becoming central to their business.
High-Value Customer Experience
High-value customer experience means rethinking the whole business from the end customer’s perspective and being able to deliver value that goes beyond the physical product. The COVID-19 pandemic has had a huge impact on consumers’ habits and has made them more sustainability conscious.
Manufacturing organisations should be able to provide full transparency on their sustainability credentials — shifting from greenwashing to genuine sustainability outcomes. Emissions are a key part of this — when manufacturers track, report and improve on their Scope 1 and 2 emissions, their customers can directly improve their Scope 3 emissions.
For many new projects — building a new factory or new stadium, for example — manufacturers need to provide sustainability data. Only manufacturers that can provide this verified or audited information can bid for projects or partner with other manufacturers.
Product and Service Innovation
Sustainability must become a key pillar of innovation that supports business growth and minimises environmental damage. It should encourage manufacturers to rethink and transform their business models by looking at products, services and processes in an innovative and sustainable way.
Manufacturers can reduce waste by designing for sustainability in the product design phase — they should account for the sustainability of materials, manufacturing processes, shipping and product life cycle. For circular processes, manufacturers should also consider designing for remanufacturing processes and look at the recyclability and end of life — products should be retired sustainably rather than being disposed of.
Manufacturers must look at customer-value-driven innovations to gain a competitive advantage — for instance, by making services more predictive and remote, avoiding a service visit can lead to more sustainable operations.
Smart Operations
Operations are the heart of a manufacturing organisation. Factories should be “green”, and optimising energy usage in the industrial and commercial sectors has long been a goal for many manufacturers, mainly to reduce energy costs but more recently to improve sustainability metrics.
This creates pressure to innovate the factory technology stack. This has been facilitated by having a lot of technologies extensively proven in POCs and early-learner implementations and now finding their way to scale.
A sustainable business must run with sustainability principles in mind. Reducing energy consumption, material waste rework and reverse logistic costs caused by quality issues, and fixing suboptimal supply chain networks, all contribute to higher business performance and greener operations at the same time. Manufacturers are striving to turn industrial data into business value, establishing “shop floor to boardroom” data streams.
This means collecting, aggregating, contextualising, analysing and distributing data and information to achieve real-time visibility in the most granular way. When this level of granularity is available, manufacturers can better understand their operations, control costs, achieve optimisation and manage it more sustainably and efficiently.
Supply Chain Transformation
The past couple of years have not been easy for the supply chain. With disruption occurring across the supply chain, this is likely to continue throughout 2022 and beyond.
Supply chains’ key role is to support seamless delivery and fulfilment to ensure the highest levels of customer experience. This requires resilient supply chains that are transparent, intelligent and agile.
Manufacturing organisations must align the need to stay competitive, foster supply chain resilience and achieve sustainability outcomes within an operating ecosystem. To do this they need a clear picture of the sustainability performance of their suppliers, beyond tier 1, and to use that information when sourcing goods or materials as they work to achieve their sustainability outcomes, such as Scope 3 emissions.
To integrate these suppliers into the business systems, procurement teams will play a key role in processing a vast amount of data in an automated manner. In doing so, manufacturers can achieve dual business and sustainability benefits that extend to the supply chain, including differentiation from competitors and increased market share or revenue.
New Ways of Working
Employee experience is increasingly tied to customer experience. Manufacturers therefore are not just looking at enabling new ways of remote and hybrid working but also at the right mix of human skillsets and technology.
Almost 50% of European manufacturers in a recent IDC survey said COVID-19 has exacerbated their talent and labour issues. They also said that while operations and R&D have been impacted for a long time, the importance of IT has risen significantly over the past two years.
The tech-savvy next-generation workforce entering the manufacturing sector increasingly want to work for purpose-driven organisations. Being able to align with the organisation’s purpose is a core motivator for them, especially for millennials. To attract this talent, manufacturing organisations need to be transparent not just about their sustainability goals but also about their actions and the impact of those actions.
Ecosystems of Innovation
According to IDC research, 57% of manufacturers worldwide will prioritise investments in cloud-based industry ecosystems over the next couple of years to ensure long-term resilience and business success. Sustainable manufacturers can also strengthen their market position by catering to more demanding end markets and becoming part of sustainability-driven value chains.
While addressing sustainability topics may not be a top reason for engaging in industry ecosystems, or a benefit, IDC research shows that manufacturers that engage in such ecosystems are increasingly looking to implement joint initiatives related to sustainability.
In addition to accelerated product innovation, manufacturers can also exchange sustainability-related data through closer collaboration with their partners, suppliers, vendors and customers. What can’t be measured can’t be improved, so this data exchange with the broader ecosystem also enables manufacturers to further their own sustainability goals.
Technology Is a Key Enabler of Sustainability
Despite recognising the value of sustainability, many manufacturing organisations with expansive operations are struggling to set targets and measure and report on their performance. This challenge can be addressed by using the digital technologies and tools available today. IDC refers to this as Green.O. Simply put, it refers to environmental excellence, which goes beyond Industry 4.0.
Industry 4.0 does not amplify the sustainability aspect to a sufficient extent, even if it covers technologies enabling decision-making capabilities and real-time operational visibility. The focus for Industry 4.0 has primarily been on automation or productivity improvements in the manufacturing space but not necessarily improving sustainability. Now, with sustainability coming to the forefront, the same technologies under 4.0 can also support sustainability efforts. That’s why IDC has started to address this as “from Industry.O to Green.O” — a mindset shift from digital transformation to sustainable transformation.
It’s worth noting that the technologies that enable companies to be sustainable can also improve cost efficiency. For instance, energy efficiency systems provide the granularity of data to address both carbon and energy consumption footprint issues in an automated way, enabling companies to become more sustainable and more efficient at the same time.
A genuine and authentic approach towards integrating sustainability as part of business strategy will differentiate those manufacturers that survive in the future from those that thrive.
IDC’s European Manufacturing Summit 2022 is the perfect opportunity for manufacturing executives to discuss key challenges, share lessons learned and network with their peers. It also provides an opportunity for manufacturing organisations and technology providers to discuss how they can thrive in an increasingly digital and sustainable but also uncertain, volatile and complex economy.
IDC’s Technology for Sustainability and Social Impact (TSSI) Practice covers a range of sustainability-related topics, including the circular economy, energy efficiency, regulations and financial value.