In advance of IDC’s European Manufacturing Summit in November we have been discussing some of the key topics and challenges with the IDC Advisory Board.
Some of the current challenges in the manufacturing industry relate to the ongoing supply chain disruptions, exacerbated by the Russia-Ukraine War and the resurgence of COVID-19 in China, which continue to cause supply shortages, a lack of skills to pursue digital transformation, and most importantly a lack of IT skills to develop smart and connected products to enable new business models, ensure cybersecurity and embed sustainability targets into operations.
Cybersecurity: Increasing Awareness at the Board Level
The Russia-Ukraine War has raised awareness of cybersecurity solutions, even at the board level. IT is now more than ever being asked to support cybersecurity specialists as they look at ways to thwart potential cyberattacks.
Awareness levels have been rising in areas such as water and chemicals supply, where production plants and infrastructures are considered critical. Security of operations is key to supporting new digital business areas, where IP (such as algorithms) must be protected. New technologies, such as non-fungible tokens (NFTs), will need to be scrutinised to protect IP.
Lack of Skills: The Challenge of Globally Allocating the Right Skills
In the manufacturing industry, there are two reasons for the skills shortage.
On one hand, products are becoming increasingly intelligent and connected. The higher the share of connected products and the more IoT and cloud are used, the higher the requirements for related IT capabilities.
Large manufacturers and automotive OEMs typically have the skills on board or can attract the skills they need. But for small and medium-sized businesses, attracting the right skills is more challenging. If not addressed properly, this could be a serious problem for them.
In tightly connected supply chains such as the automotive industry, lack of skills could become a key issue for smaller tier 2 or tier 3 suppliers and their customers — the tier 1 suppliers or automotive OEMs.
Many local or regional initiatives, such as the German government’s Plattform Industrie 4.0 initiative, are aimed at helping SMBs to attract the right skills.
On the other hand, the digital transformation of operations on the shop floor, in the warehouse, in supply chains or in product development and engineering, for example, also requires the right IT skills. When it comes to these skills, it no longer matters where people live. Remote work has enabled opportunities to reach where the talent is.
This has been supported by increasing adoption of collaboration tools during the pandemic, enabling organisations to onboard skills remotely. But this might not be the best option for every organisation, such as SMBs, and there will still be job profiles that require physical relocation to Europe. This will remain a major challenge.
Supply Chain Challenges: From Disruptions to Production Shutdowns
After two years of continuous supply chain disruptions during the pandemic, we’re still seeing a shortage of key components such as microchips. The Russia-Ukraine War is also having a severe impact on supply chains, with key components being sourced from the two countries.
Ukraine, for example, is a major supplier of wiring harnesses for the automotive industry, as well as neon gas, which is used in microchip production. The lack of harnesses has forced a number of automotive OEMs to temporarily close their production sites.
Russia, meanwhile, is a main supplier of nails used in “Euro” pallets. The sanctions against Russia prohibit the shipment of these nails — meaning there are no pallets and no deliveries.
COVID-19 is still around, too. China is fighting a new outbreak with new lockdowns, and at the start of April 2022, more than 140 vessels were waiting outside the Port of Shanghai, the busiest harbour in the world, to be unloaded. This is having a severe impact on the availability of key components.
Many manufacturers have taken measures to avoid production standstills, such as increasing stock levels and safety stock. Deliberate evaluations, enabled by comprehensive analysis of warehouse data by production planning and production execution systems, will be required to determine the optimal cost-benefit ratios of higher stock levels.
Measures to engage suppliers closer to factories (rather than ordering supplies from low-cost countries, with the inherent risks that come with long transportation routes) are also failing now that production sites are looking to temporary shutdowns due to skyrocketing energy prices.
Sustainability: From Pure Necessity to Core Value
Besides needing to embed sustainability targets into their operations, manufacturers are increasingly going a step further to make sustainability and sustainable growth part of their core values and targets. Some even see it as their main focus for the foreseeable future.
Many manufacturers are focused on becoming fully circular, meaning they get their products in a circular process to reduce waste by reusing recycled components and using alternative renewable carbon.
Sustainability is putting pressure on the automotive industry in particular. The challenge here is that automotive suppliers’ requirements from OEM customers are quite heterogenous in that suppliers have to deal with different requirements from their OEM customers. For some components, automotive OEMs limit the use of recycled materials for quality reasons. A supplier might therefore end up telling an OEM customer that it is using no more than 20% recycled material, while telling another OEM customer that it can supply parts with a minimum of 20% recycled material. For each customer, suppliers have to prove the share of recycled material.
To do this, certain applications are needed, and ERP providers, for example, then need to ensure they have sustainability-ready applications.
While sustainability for some manufacturing industries is mainly about reporting, it’s also about replacing key components in the production process with more environmentally friendly components for others. This impacts supply chain operations, such as sourcing and procurement, and potentially production processes if new alternative raw materials or supplies require a change to production parameters.
We have discussed many other topics with our Advisory Board and will discuss these with you as we approach the summit. These topics include developing and strengthening digital sales channels, investing in data management and data analytics, and implementing hybrid work concepts and collaboration tools.
Automation, IT-OT integration, digital twins and secure edge-to-cloud solutions are also key technologies for manufacturing organisations. Manufacturers should also have 5G, 3D printing, augmented reality (AR), automated guided vehicles (AGVs) and NFTs on their radar as they digitally transform their operations and business models. Another issue is how to manage shadow IT and support citizen IT, and how IT can best support the lines of businesses including OT.
IDC’s European Manufacturing Summit 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.
IT executives and senior decision makers can register here for the summit.
For more information, please contact Stefanie Naujoks or Gunjan Bassi, or head over to https://www.idc.com/eu