Global         Manufacturing             Outlook:     Fostering Growth   through InnovationGlobal research commissioned by...
Interviewees                         We would like to thank all of the executives who participated in the                 ...
About the surveyA total of 241 senior manufacturing executives participated in the survey, which wasconducted in February ...
Foreword                                                                                 An era of transformation for manu...
Contents                                                                                  Executive summary 2             ...
Executive summary                                      The global economic recovery faltered during 2011. The euro zone lu...
Some of the key findings emerging from our research include:                                          •  	 Profitable grow...
The business                                                                                outlook:                      ...
The profitable growth agendaAs in previous low-growth environments,manufacturers are trying to find ways                  ...
Cost control vital for bottom-line growth                                                                                 ...
KPMG Sector Perspective                                Marty Phillips                                KPMG Global Head of A...
A new wave of                                                                                 collaborative innovation    ...
Global manufacturers focus on advanced solutions                                                                          ...
Collaboration becomes crucial     Another key finding of this year’s survey                                         by Hen...
KPMG Regional Perspective                                 Dr. Gerhard Dauner                                 European Lead...
Only 16 percent of North American     respondents either agreed or strongly                                               ...
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
Global manufacturing outlook: Fostering growth through innovation
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Global manufacturing outlook: Fostering growth through innovation

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The global economic recovery faltered during 2011. The euro zone lurched from one debt crisis to another, geopolitical tensions affected the oil market and volatile commodity prices posed new levels of supply chain challenges—all threatening the vitality of the global economy. These macroeconomic uncertainties, coupled with high levels of household debt across the developed world, reduced the growth rate of world manufacturing output to 4.2 percent in the fourth quarter of 2011 against the same period the previous year. This represented the lowest quarterly growth rate in 2011.
However, as Global Manufacturing Outlook 2012: Fostering Growth through Innovation, an Economist Intelligence Unit report sponsored by KPMG, reveals, global manufacturers worldwide remain optimistic about the near-term outlook for their businesses. They are using the low-growth environment to become leaner and more efficient. Since 2011, manufacturers have become slightly more bullish that an upswing in the global economy is imminent. Thus they are ramping up their innovation activity, finding ways to increase efficiency (for example, by improving the ways they manage costs and optimize their supply chains), and add value to their offerings simultaneously

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Transcript of "Global manufacturing outlook: Fostering growth through innovation"

  1. 1. Global Manufacturing Outlook: Fostering Growth through InnovationGlobal research commissioned by KPMG International from the Economist Intelligence Unit
  2. 2. Interviewees We would like to thank all of the executives who participated in the survey and interviews for their valuable time and insight. Patrick Ammerlaan Professor Siegfried Russwurm President of Metals, Boliden Chief Executive Officer, Industry Sector, Siemens Mike Crawford Country Service Manager, A senior executive ABB Mahindra & Mahindra David Fischer Chief Executive Officer, Greif© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  3. 3. About the surveyA total of 241 senior manufacturing executives participated in the survey, which wasconducted in February 2012. All respondents are responsible for, or significantly involvedin, finance, supply chain, procurement or strategic development. Respondents representthe aerospace and defense, metals, engineering and industrial products sectors,including industrial conglomerates. All participants represent companies with morethan US$1 billion in annual revenue; 33 percent hail from organizations with more thanUS$10 billion in revenue. Nearly half (41 percent) of respondents are C-suite executivesor board members. They are geographically split among Western Europe (29 percent),North America (23 percent), Asia-Pacific (28 percent), Middle East and Africa (10 percent)and Latin America (10 percent).1. What are your organization’s global annual 2. Which of the following best describes your title? revenues in US dollars? 2% Head of department 2% Other C-level executive CFO/Treasurer/Comptroller $1bn to $5bn 4% 18% 21% Head of business unit 7% $6bn to $10bn SVP/VP/Director $11bn to $25bn Manager 15% 54% More than $25bn CEO/President/Managing 15% 17% director/Executive director COO 15% 14% CIO/Technology director 16%3. In which region are you personally based? 4. What is your primary industry? 1% 10% Western Europe Engineering and industrial 19% products (including 10% 29% Asia-Pacific 34% industrial electronics) North America Conglomerate (e.g. Middle East and Africa multi-industry organization) Latin America 23% 23% Metals Eastern Europe Aerospace and defense 28% 24%Source: Economist Intelligence Survey, 2012Note: Graphs may not add up to 100% due to rounding.© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  4. 4. Foreword An era of transformation for manufacturing All signs point to a manufacturing sector that is entering a transformative period, characterized by sustained but modest growth, a renewed focus on product and process innovation, and unprecedented collaboration across the value chain. Further, while the volatility of global economic events creates new challenges on a daily basis, manufacturers have developed frameworks and tools to improve transparency and mitigate risk across the supply chain as well as the global enterprise. Finally, manufacturers continue to focus on more competitive cost structures as they align their business models with changing market dynamics. As evidenced by the findings of our survey, it seems that manufacturers are in the early stages of major product innovation. Today they are keenly aware that while shrewd cost management will always be near the top of the agenda, their top-line and bottom-line growth objectives can only be met with innovative, market leading products and related services. In this regard, we are beginning to see interesting developments in the alliances companies are forming to explore and commercialize their collective intellectual property and product development capabilities. Another predominant theme this year is the continuing shift towards increased customer and supplier collaboration, from the earliest stages of product development to after-market support and services. This inclusive approach to innovation helps to share potential risks, costs, and rewards throughout the supply chain while accelerating speed to market. It also allows manufacturers to better understand the needs of their end-users, strengthen customer relationships, add value to their products, and build confidence that they are placing the right bets on the right products for the right markets. It may be impossible to predict commodity price fluctuations, natural disasters, or debt crises, but industrial manufacturers are demanding more of technology to improve supply chain transparency and agility. We continue to see manufacturers strategically moving their operations and supply base closer to their end markets to reduce both costs and risks. Manufacturers are also taking a hard look at their business models, flattening their regional and global organizations, and leveraging geographic and product advantages across multiple businesses or product lines. They are clearly focused on what they do best and exiting businesses that are not core to their long-term success. I hope you find this year’s report compelling and thought provoking. It seems clear that we are embarking on a new era for manufacturing. Understanding the priorities and expectations of your peers will hopefully provide insight into this next chapter. Jeff Dobbs KPMG Global Head of Diversified Industrialsiv © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  5. 5. Contents Executive summary 2 The business outlook – 4 readying for growth A new wave of collaborative 8 innovation Business models that bring the 16 customer closer Conclusion 26 1© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  6. 6. Executive summary The global economic recovery faltered during 2011. The euro zone lurched from one debt crisis to another, geopolitical tensions affected the oil market and volatile commodity prices posed new levels of supply chain challenges—all threatening the vitality of the global economy. These macroeconomic uncertainties, coupled with high levels of household debt across the developed world, reduced the growth rate of world manufacturing output to 4.2 percent in the fourth quarter of 2011 against the same period the previous year. This represented the lowest quarterly growth rate in 2011.1 However, as Global Manufacturing Outlook 2012: Fostering Growth through Innovation, an Economist Intelligence Unit report sponsored by KPMG, reveals, global manufacturers worldwide remain optimistic about the near-term outlook for their businesses. They are using the low-growth environment to become leaner and more efficient. Since 2011, manufacturers have become slightly more bullish that an upswing in the global economy is imminent. Thus they are ramping up their innovation activity, finding ways to increase efficiency (for example, by improving the ways they manage costs and optimize their supply chains), and add value to their offerings simultaneously. 1 United Nations Industrial Development Organization, “World Manufacturing Statistics for Quarter IV, 2011”, 1 March 20122 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  7. 7. Some of the key findings emerging from our research include: •  Profitable growth is the new manufacturing mantra. Since 2011, the proportion of survey respondents worldwide for whom top-line growth is a priority has doubled. Yet an even higher proportion of respondents are prioritizing the bottom line, so as to become – and remain – as lean as possible. Manufacturers are confident of a near-term upswing in their own businesses, but are also still concerned about costs. Input cost volatility is their leading concern, as it was in 2011, and 57 percent believe the cost structure of their business models will need to change over the next 12 to 24 months. They also continue to rationalize their operations. Indeed, 54 percent of respondents say that “exiting unprofitable product lines and/or geographies” will become more important for them over the same period. “The downturn has given our most sophisticated customers a zero-waste mentality, says David Fischer, CEO ” of US firm Greif, the world’s largest manufacturer of rigid industrial packaging. “ a result, they will have a much As greater advantage as the recovery builds.” • A new wave of transformational innovation has begun, based on closer collaboration across the supply chain. Seventy-two percent of respondents worldwide believe transformational innovation has either begun or will do so within 12 to 24 months. In line with the profitable growth agenda, they are adopting a two-pronged approach to innovation: working to extend and enhance their product lines while cutting costs via process innovation. Survey respondents show less enthusiasm for the classic open innovation model2 of shared development and exploitation of intellectual property. However, when asked about the importance of intellectual property (IP) ownership versus exploitation of IP notable regional , differences emerge. Yet respondents are clear on the need for greater collaboration with external parties, especially suppliers and customers. Indeed, 61 percent believe “supply chain collaboration and transparency” will make a “significant” or “very significant” contribution to their profits over the next 12 to 24 months. • Manufacturers are moving even closer to the customer via supply chain reorganization and value- added services. By altering their business models, manufacturers are finding synergies at the intersection between cost and growth strategies. For example, they are increasingly moving manufacturing facilities and sources of supply closer to end-markets – not only to manage costs better but also to localize their product offerings appropriately with greater speed, agility, and accuracy. Forty-six percent of respondents expect this trend of nearshoring to increase over the next 12 to 24 months. Meanwhile, value-added services continue to rise, as manufacturers find ways to sell high-margin services in areas such as maintenance, performance optimization, and product lifecycle management. “There is a definite trend toward the introduction of advanced services to optimize process performance and deliver operational excellence, says Mike Crawford, country service manager for the UK at ABB, the US$40 billion Swiss provider ” of power and automation technologies. While the general economic outlook remains uncertain, devising new value-added services also represents a comparatively low-cost and low-risk way to expand offerings and boost revenues. Sixty-three percent of respondents expect new/enhanced customer services to make a “significant” or “very significant” contribution to profits in the next 12 to 24 months – a rise of nine percentage points over the equivalent figure for the past 12 to 24 months. 2 Open Innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external “ paths to market, as the firms look to advance their technology,” Henry Chesbrough, Open Innovation: The New Imperative (Harvard Business School Press, 2003). KPMG Global Manufacturing Outlook: Fostering Growth through Innovation 3© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  8. 8. The business outlook: readying for growth While manufacturers are confident zone debt crisis, which survey that renewed growth in their sector respondents rank as the biggest is imminent, the highly competitive obstacle to global growth, continues and volatile business environment to hamper investment as this report Manufacturers renders cost-cutting a necessity. goes to press. Yet 75 percent of are ramping up They are ramping up their innovation efforts to improve their offerings in manufacturers are either optimistic or very optimistic about the outlook their innovation anticipation of extra orders and to make themselves even leaner. Manufacturers’ for their business over the next 12 to 24 months. They are confident efforts to improve business models are changing as a result, with value-added services that their own businesses are in a good position to return to healthy their offerings in becoming a more important source of revenue and nearshoring yielding levels of growth, even though they cannot be certain that the wider anticipation of numerous benefits. These are the economy will do the same. As David key findings of Global Manufacturing Fischer, CEO of US firm Greif, puts extra orders and to Outlook 2012: Fostering Growth it, “I think the recovery has grabbed make themselves through Innovation. The global economic recovery is hold, but I don’t think it will prove to be quick. I think the global economy will even leaner. proving to be fraught with false starts, take two or three years to crawl back to healthy levels of growth. ” market volatility, and macroeconomic uncertainty. For example, the euro4 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  9. 9. The profitable growth agendaAs in previous low-growth environments,manufacturers are trying to find ways period. In other words, manufacturers are preparing not just for imminent 43 percentto use idle resources and preserveshareholder value. Sixty-two percent growth but for high-margin growth. The types of innovation they are conducting of surveyof respondents say they are improving and the ways in which they are altering respondentsthe efficiency of their processes, while their business models are critical to the47 percent say they are “refocusing success of this two-pronged strategy. worldwide see thethe business on its core offerings andcapabilities. These two activities, ” The demand for this high-margin business will come from some US as a key sourceregarded as the most important bysome margin, reflect the second area predictable places. Forty-three percent of demand for of survey respondents worldwide seeof strategic focus mentioned above –maintaining lean operations. Indeed, the the US as a key source of demand for top-line growthgrowth picture is still uncertain enoughfor 54 percent of respondents to predict top-line growth over the next 12 to 24 months and another 41 percent as over the nextthat “exiting unprofitable product lines a key source of bottom-line growth for their organizations. The next most popular 12 to 24 monthsand/or geographies” will become moreimportant over the next 12 to 24 months. locales are more than 10 percentage points behind. Yet among respondents and anotherYet 45 percent of respondents say theyare prioritizing top-line growth on a 12 to from emerging markets, the US lead is less pronounced – here it is cited by 41 percent as a key24 months horizon – more than double 38 percent of respondents, followed source of bottom-the proportion who said so last year. closely by China (35 percent), IndiaMore strikingly, 47 percent are prioritizing (29 percent), Brazil (19 percent) and line growth forbottom-line growth over the same Singapore (12 percent). their organizations. KPMG Global Manufacturing Outlook: Fostering Growth through Innovation 5© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  10. 10. Cost control vital for bottom-line growth Forty-four percent of respondents in energy and transport costs, and less Respondents worldwide believe input cost volatility than 15 percent anticipate decreases in say “cost is the biggest challenge facing their business over a 12 to 24 months horizon – skilled labor and raw materials costs. The remaining respondents are fairly evenly management” is the same proportion as in 2011. And this concern is supported by external data. split between flat or increased costs. Learning how to deal with variable input the area of their The ISM Prices Index, for example, which gauges cost inputs for US costs can be a way to build competitive business in which manufacturers, reached 61.5 percent in February 2012, up six percentage advantage. “We work across many industries, all with different economies they expect to points against the previous month. Yet and challenges, but the one thing all our customers have in common is that the Economist Intelligence Unit predicts invest and/or in its Global Outlook Forecasts that the they want a reliable plant and a non- disruptive life-cycle performance, says ” expand most over price of industrial raw materials will fall on average by 12.8 percent in 2012 while Mr. Crawford at ABB. “They are therefore very interested in advanced solutions for the coming that of crude oil will rise by 3.6 percent. preventive and predictive maintenance, With such a mixed picture, it’s not to overcome skills shortages, and reduce 12 to 24 months. surprising that respondents say “cost the need for costly in-depth human management” is the area of their business diagnosis and repairs. Furthermore, ” in which they expect to invest and/ Professor Siegfried Russwurm, CEO, or expand most over the coming 12 to Industry Sector, at Siemens, the German 24 months. Manufacturers also say electronics and electrical engineering that cost structure is the area of their company, believes greater resource business model that will be subject to the efficiency and productivity can be achieved greatest change over the same period. provided one takes a holistic approach to In addition, respondents do not expect production that takes in the “entire value cost pressures to abate over the next chain” and deploys the right technologies 12 to 24 months: less than 10 percent of in the right way (see textbox below). survey respondents expect decreases Case study Siemens vision of the factory of the future The factory of the future will be one in which “every step of with no restrictions – for example, no controller asking, the production process is optimized using innovative software ‘What do you want a second control system for?’” With the systems, says Professor Siegfried Russwurm, CEO, Industry ” latest PLM software, they can develop and control “not only Sector, at Siemens, the German electronics and electrical particular production processes on a single machine but entire engineering company. Many of the necessary technologies factories. Link these technologies together using the latest ” already exist, he says, but few companies have been able to IT and automation standards, and you have a factory that can integrate them all. “The key to success, he says, “is the fusion ” be adjusted on the fly to accommodate design variants and of the digital product-lifecycle-management [PLM] world with improvements with maximum speed and efficiency. the real world of production. ” He adds, “It doesn’t matter if you’re talking about the The latest industrial software enables products, processes, automotive industry, the consumer goods industry or and even the layouts of entire production lines to be the machine-building industry. When product design and simulated on computers before a single physical component production planning function simultaneously, time-to-market is touched, Professor Russwurm explains. With virtual can be shortened drastically. It’s a paradigm shift for the whole prototyping, engineers can “design multiple solutions to a manufacturing sector.” problem, compare them, and analyze their performance,6 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  11. 11. KPMG Sector Perspective Marty Phillips KPMG Global Head of Aerospace Defense seGood ideas from hard timesAusterity, fluctuating business cycles, and new markets can stimulate innovative solutionsThe aerospace and defense (AD) industry has long been accustomed to economic uncertainty, often due to sudden and dramaticswings in government spending or consumer demand. Yet throughout the past few decades, its main players have managed toremain largely profitable, thanks to the ability to adapt nimbly to changing conditions – a skill that could translate well across thewider global manufacturing sector.Cost Constraints Breed Innovation Openness to New Business ModelsOne example of innovation that arose from pressure on Many AD firms have transformed their business models indefense budgets is the emergence of unmanned aerial search of new revenue streams by offering leasing or ‘pay-as-you-vehicles (UAV’s), a positive by-product from the last economic use’, also known as ‘power by the hour’, agreements that givedownturn; AD companies had to find a way to produce a clients an alternative to expensive purchases. Another avenuedefense product that was cheaper and easier to maintain than for incremental revenue, after-market services, provides a waytraditional defense aircraft. Similarly, the expected declining to generate additional income with lower asset and manageddemand from developed economies is forcing businesses labor input than that required for new product development, forfrom all sectors to look further afield to new geographies, example. However, the industrial sector can again learn frombut the differing local requirements mean existing products the early experience of aero manufacturers, some of whommay not be applicable, particularly in emerging countries made costly ventures into fleet servicing by underestimatingwhere budgets are tighter. This has become a stimulus to the demands of their customers. Before entering into servicedesign and produce more cost-effective models, making contracts, it is therefore vital to have a detailed understanding ofuse of new technologies related to alternative materials the customer’s expectations and potential usage and factor thisand energy-efficient processes. into the pricing and terms and conditions. KPMG Global Manufacturing Outlook: Fostering Growth through Innovation 7© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  12. 12. A new wave of collaborative innovation 72 percent of Since the Industrial Revolution, economic downturns have been followed by surges begin in 12 to 24 months. And when asked about their expectations for activity levels respondents of innovation. Lean times call for frugality, which for corporations – especially in different types of innovation, a majority said they expect either an increase or a worldwide believe manufacturers – means cutting costs and striving to operate more efficiently. These significant increase in 12 to 24 months. the “next wave of measures tend to lead to growth fuelled As expected, the most popular categories were incremental innovation (ie, the by innovation. transformational The current economic recovery, fragile expansion or enhancement of existing product lines) and process innovation – innovation” in though it is, promises to produce an even greater surge of innovation as the pace both of which are believed to be lower-cost and lower-risk activities than other types manufacturing is of technological change accelerates and of innovation. In each of these categories, different technologies are combined more more than 70 percent of respondents either under way frequently in novel ways. In manufacturing, said they expect to see an increase or a for example, advances in materials science significant increase in activity. However, or will begin in and electronics have combined to create there was also a strong appetite shown 12 to 24 months. nanotechnology: the manipulation of matter on the billionth-of-a-meter scale. for radical innovation (ie, the development of new product lines), for which the equivalent figure was 59 percent; and even This year’s survey found that 72 percent of for fundamental research (ie, research respondents worldwide believe the “next with no immediate practical or commercial wave of transformational innovation” in application but that may yield opportunities manufacturing is either under way or will in the long term), at 54 percent.8 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  13. 13. Global manufacturers focus on advanced solutions As the cost ofThis strong commitment to long- buy a 3D printer for a little more thanterm innovation will be vital to global one percent of its costs against seven manufacturingmanufacturers going forward, as thecost of manufacturing technology years ago. To differentiate themselves against new technologycontinues to fall and barriers to entryare lowered for smaller players. market entrants, global manufacturers continues to fall, may need to provide more advancedComponent manufacturers, for example,are increasingly seeing their business solutions. Of course, the more the barriers to entryeroded by 3D printing – a relativelynew but rapidly developing technique sophisticated the offering, the more closely manufacturers will need to work are lowered forfor manufacturing physical objects with their customers, to fully understand their needs and support them as they smaller players.from digital design files. A 3D printer take advantage of more powerful,composes physical objects by building but more complex, systems. As we’llthem up in layers, usually from rapidly explore later in the report, this is not onlysetting polymers. It therefore offers leading to greater collaboration from ana low-cost way to recreate simple innovation perspective but to the shiftingproducts, such as components, in of manufacturing business models tosmall batches without the need for include more value-added services.expensive production lines. One can nowKPMG Insight A tipping point in innovation – collaboration is key After several challenging years that forced many benefits, as manufacturers can disperse risks manufacturers to hold off on investing in RD, and costs throughout the supply chain and take we’re now witnessing a ramp-up in spending on advantage of opportunities to leverage existing innovation. I believe, many industries are reaching partner expertise and capabilities. a tipping point in design, with huge potential One of the primary partnership arrangements for disruptive innovation in certain segments, I am seeing emerge is between manufacturersDoug Gates not just derivative solutions. I believe one factor and their customers. In the not-too-distant past,KPMG Principal, contributing to this leap in innovation is that I believe companies relied too heavily on theirBusiness manufacturers are re-evaluating and re-toolingEffectiveness own internal understanding of the customer their processes to better manage their innovationAdvisory instead of letting the customer experience portfolios, helping them make quick but informedKPMG in the drive the business and play a greater role in decisions on where to place their bets.US innovation. By working collaboratively with their In the past, the quest for breakthrough innovation customers – especially in the early stages of may have meant that companies threw everything product development – I find manufacturers they had at RD; today, they want to make sure now becoming better attuned to their pressures they’re being wise in their RD investments. They and expectations. Through such collaboration are still tightly controlling spending, performing the manufacturers are better placed to identify new due diligence necessary to make decisions with opportunities and anticipate customer needs, long-term benefits, and looking to collaborate with thereby creating products that have the right the best partners. This new, inclusive approach features, functions, and price-points – overall, a to collaboration also offers unique cost-saving winning proposition. KPMG Global Manufacturing Outlook: Fostering Growth through Innovation 9© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  14. 14. Collaboration becomes crucial Another key finding of this year’s survey by Henry Chesbrough, a professor at the was that collaboration is becoming more University of California, Berkeley. One important to global manufacturers where of Professor Chesbrough’s key points innovation is concerned. A majority of was that it was no longer possible or respondents plan greater or much greater desirable for the RD department of collaboration on a 12 to 24 months a single firm to attempt to monopolize horizon with partner companies, key the knowledge, expertise, and IP of customers, and suppliers. its industry. Rather, he suggested, innovations should be allowed to flow in In the developed world, leading and out of organizations to where they companies have long recognized can be best handled at each stage of that collaboration on certain types of their development. innovation can reduce costs, spread risk and get products to market faster Collaboration on RD calls into question than would otherwise be possible. whether companies are looking to own IP Such practices date from the 1960s or simply access or exploit it. When asked but arguably entered the mainstream whether respondents agreed with the in 2003, with the publication of Open following statement: “It is more important Innovation: The new imperative for to be able to extract value from IP than to creating and profiting from technology, own it, responses varied by region. ” Do you intend to collaborate in innovation more or less with the following external groups over the next 12 to 24 months? 1% Key customers (e.g. for bespoke product development) 61% 31% 8% 2% Suppliers (e.g. to co-operate on product design) 60% 32% 6% 2% Partner companies (e.g. to provide a 50% 41% 6% combined product/service) 2% Technology providers (e.g. IT or plant specialists) 46% 46% 6% Governments/Public-sector organizations 41% 46% 8% 5% Academic institutions 39% 46% 10% 4% Competitors (e.g. to reduce costs, benefit from 24% 56% 12% 8% complementary skills and spread the risks of development) Much greater/greater Same level of Much less/less No collaboration collaboration collaboration collaboration Source: Economist Intelligence Survey, 2012 Note: Graphs may not add up to 100% due to rounding.10 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  15. 15. KPMG Regional Perspective Dr. Gerhard Dauner European Leader for Diversified Industrials, KPMG in GermanyEuropean manufacturers: managing costs, improving profitability,and spurring on innovationHaving cut costs and tightened up budgets during the recession, European industrial businesses are keento keep these efficiencies embedded, especially given the ongoing uncertainties of the euro zone crisis. Asan upside to the last downturn, many European manufacturers are operating more efficiently now and havefunds in reserve to finance strategic priorities thus reducing their dependency on banks.In a continued effort to manage costs, companies in the shift their emphasis from pure RD to the commercialregion are seeking to increase their flexibility through exploitation of intellectual property.adopting a multidimensional rather than single-track To better enable this transition, research is increasingly beingapproach. Measures might include: shared across a wider network of partners, including not only•  optimizing their working capital to ‘free up’ funds; suppliers and key customers, but also academia, industry, and entrepreneurs. These parties are essentially willing to ‘trade’•    nalyzing their supply chains in search of cost-saving  a IP to foster greater collaboration on product and process opportunities; or development in a bid to remain competitive and grow sales.•    educing the number of suppliers and collaborating more  r I believe that we can expect globalization to lead to more open closely with them. innovation, which is accelerating knowledge and skills transfers between diverse stakeholders. Rather than companiesTo improve their profitability, many European manufacturers individually placing all the emphasis on a single product offering,are revisiting their business models, seeking to exit certain they are beginning to emphasize partnerships to build totallow-margin businesses or moving into or enhancing service solutions.and maintenance offerings, either organically or by partneringwith existing providers of after-market services. Furthermore, they are gaining competitive advantage and achieving additional innovation in sustainability and energyDespite elements of austerity in the marketplace, European efficiency. I think this is absolutely vital not only to enhancecompanies understand that growth must remain on the brand reputation and satisfy tougher regulatory demands onagenda to be successful, and, to that end, innovation is a emissions going forward but also to reduce costs and ensureparticular priority. Given the speed of change in technology their longer-term viability.and customer tastes, I am seeing many European companies KPMG Global Manufacturing Outlook: Fostering Growth through Innovation 11© 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  16. 16. Only 16 percent of North American respondents either agreed or strongly also maintain a close relationship with key customers, and respond quickly to 60 percent of agreed with the statement, compared with 36 percent and 55 percent of their needs no matter what the general economic circumstances. “When respondents respondents from Europe and Asia-Pacific, respectively. demand for their products or services is down, their focus is generally on predict greater Nevertheless, most survey respondents reducing the unit cost of production,” or much greater Mr. Crawford explains. “When the recognize the benefit of working more closely with key suppliers and market is buoyant, their focus is collaboration with key customers. Sixty percent of respondents predict greater or much generally on enhancing productivity and maximizing up-time. ” key suppliers and greater collaboration with these two At Greif, meanwhile, Mr. Fischer key customers. groups. “Collaboration in our innovation says that collaboration is “absolutely efforts is essential to ensure that we becoming more essential” where new- understand the challenges faced by product development is concerned our customers, says Mr. Crawford. ” because of the number of sustainability ABB has just opened a new facility in regulations being introduced in Aberdeen, Scotland – the center of the its various markets. “When your UK’s oil industry – that enables oil and customers need to make changes, you gas customers to monitor offshore rigs, may need to change your product base develop, and refine control systems in and you may need extra support from a simulated environment and control rig your suppliers to make this happen, he ” machinery remotely. In this way ABB is says. “So in our supply chain we need able to work with operators to maximize complete forward-and-aft integration. ” production and rig reliability. They can Case study Greif: “NexDrum” cuts costs while adding value Collaborating in the right way with the right partners can One of the products this cadre of partners has helped Greif to yield many benefits. At Greif, a US industrial packaging develop in recent months is what Mr. Fischer refers to as the manufacturer, these benefits include not only new “NexDrum. Traditionally, he explains, large plastic drums have ” product development and increased efficiency but also been blow-molded in a certain way, from one piece of material. a strengthening of key customer relationships and the The NexDrum, by contrast, is built using an extrusion process potential for value-added services. for the body and injection-molding for the top and bottom, all of which are sonically welded together. “We can more precisely CEO David Fischer explains that Greif works with a select control the geometric dimensions of the walls, he says, “and ” group of key customers to “beta test” new products. “These take around 3 lbs of plastic out of a typical 18-20 lb drum while are typically large, global chemical companies that are forward- achieving the same performance of a blow-molded design. ” thinking in their packaging needs, he says. “They have a ” can-do mentality and, although they’re still demanding The increased cost of manufacture of the NexDrum is offset partners, they don’t get hung up about the inevitable setbacks by savings on transit costs, since the resulting containers we experience during the innovation process. ” weight considerably less – another benefit that supports the sustainability agenda of both Greif and its collaboration Respondents to the Economist Intelligence Unit survey partners. Greif is increasingly selling services to its customers say the following factors are most critical for selecting related to sustainability compliance. Thus the NexDrum another organization with which to collaborate on innovation: provides a tangible example of how innovation in products can financial stability (cited by 46 percent), the availability of skills support business models that are increasingly service-oriented. (41 percent), and processes and technology (40 percent).12 KPMG Global Manufacturing Outlook: Fostering Growth through Innovation © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

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