Cognizant SAP Manufacturing Success Report 2014

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Cognizant SAP Manufacturing Success Report 2014

  1. 1. Manufacturing Success www.thinkbiggrowfast.net/manufacturingsuccess August 2014
  2. 2. Manufacturing Success: August 2014 2014 looks set to be a turning point for the UK manufacturing sector with the EEF forecasting that the sector will grow by 2.7% in 2014 compared to 2.4% for the economy overall. Against this positive growth backdrop, UK manufacturing is grappling with increasing customer complexity, emerging technologies such as 3D printing, supply chain disruption and the challenges that a multi- generational workforce creates. The Manufacturing Success report is an annual review of key trends in the UK manufacturing sector. In 2013, Manufacturing Success reported that the siege mentality and focus on survival amongst UK manufacturers was beginning to recede as manufacturers became increasingly confident about their growth prospects. In 2014, the Manufacturing Success report evolves to highlight the factors that will serve to accelerate growth amongst UK manufacturers. Manufacturing Success 2014 introduces the concept of the connected manufacturer. The report discusses the importance of interconnectedness as a driver for success as we move towards 2020. Specifically, the report focuses on three types of interconnectedness: .. Connections between people (internal collaboration and knowledge sharing) .. Connections between businesses (relationships across the supply chain to include suppliers, partners and customers) .. Connections between things (use of smart components to connect products) Whilst all three types of interconnectedness are considered highly important to drive future success for manufacturing, the extent to which manufacturers are ready and capable to capitalise on the opportunities that such connections can bring varies widely and highlights the need for manufacturers to focus on strengthening their interconnectedness to help realise their growth ambitions. Executivesummary The Manufacturing Success report is an annual review of key trends in the UK manufacturing sector. High tech Industrial components Automotive Oil and gas Chemicals Mining Aerospace Building materials Fabricated metal products Primary metals Other Figure A: Manufacturing sector
  3. 3. page 3 33% 38% 25% 4% £100 million to £249 million £250 million to £499 million £500 million to £1 billion Over £1 billion Figure B: Company turnover The report discusses the importance of interconnectedness as a driver for success as we move towards 2020
  4. 4. Manufacturing Success: August 2014 The key findings discussed in the report include: The connected manufacturer .. 78% of UK manufacturers are optimistic about their business prospects over the next 12 months - 27% of UK manufacturers are“Accelerators”(looking to grow at a faster rate than their competitors) .. 56% of companies are only able to effectively plan up to a year ahead - 61% have difficulty balancing robust, long term planning with the flexibility to respond quickly to changing market conditions / requirements .. Less than half of companies are able to capitalise on the opportunities that connections between people (48%), businesses (47%) and things (37%) can bring, despite seeing this as important in driving future growth Connecting people: Multi-generational workforces .. Currently 1 in 7 manufacturing workers is over 55 years, whilst 1 in 6 is aged under 24 .. 52% say they have difficulties offering the kind of flexibility that younger workers are looking for, 45% report difficulties retaining and 43% attracting younger workers into the organisation .. 71% think the manufacturing industry needs to improve its image generally to attract new recruits Connecting businesses: Customer-centric manufacturing .. 80% think that as an organisation they could be more customer-centric .. 58% think the lines between manufacturing and service economies are blurring .. The biggest shifts expected in customers over the next two years are demand for added- value services (67%), involvement in product development (49%), interest in customised products (45%) and demand for supply chain transparency (45%) .. Manufacturers currently experience some level of difficulty in understanding the needs of their customers’ customer (55%), identifying potential new customers (55%), understanding how customers use their products (54%) and tracking customers from pitch to sale (52%) Connecting businesses: Supply chain resilience .. 60% of manufacturers say that supply chain issues have negatively impacted company revenue or profitability in the last 12 months .. 47% of manufacturers have experienced significant disruption to their supply chain in the last 12 months. Amongst these, the top causes of disruption are IT security events (39%), unplanned telecoms / IT outages (38%), volatile currency exchange rates (32%) and extreme weather conditions (31%) .. 74% admit they could have better visibility into disruptions across their supply chain .. Manufacturers are focused on improving supply chain resilience through identifying / eliminating supply chain bottlenecks (49%), improved visibility, alert and warning systems (46%), better forecasting to predict demand volatility (44%) and improved information sharing across the supply chain (40%) Accelerators Growth is not important to us Growth is important, but we are not concerned if we go faster or slower than our competitors / the industry standard Growth is important to us and we seek to grow in line with our competitors / the industry standard Growth is important to us and we seek to grow at a faster rate than our competitors / the industry standard Figure C: Appetite for growth
  5. 5. page 5 Connecting things: Disruptive manufacturing .. By the end of 2015, manufacturers think that the following will transform / disrupt business processes in their organisations – inclusion of smart components in products (89%), predictive analytics (89%), development of mobile applications (87%) and additive manufacturing / 3D printing (78%) .. 94% of manufacturers see 3D printing as an opportunity rather than a threat with longer term impacts seen as quicker time to market (48%), cost savings (45%) and a greater flexibility to build a wider range of products (41%) Manufacturing Success 2014 highlights a number of areas where manufacturers need to focus to make the most of the opportunity for growth that is now palpable. Accelerators, those who are focused on growing more quickly than the competition, are currently better placed to capitalise on the opportunities that improved interconnectedness brings, whether this be through greater customer centricity, better collaboration across the supply chain or offering the kind of flexible working that younger workers are looking for. Agility, resilience and customer focus emerge as the key watchwords for 2014 for manufacturing organisations looking to exploit new growth opportunities. Research methodology 209 senior business decision makers in UK manufacturing organisations with a turnover of £100m+ completed an interview during May 2014. Research was conducted by Loudhouse, an independent research agency based in London. 60% of manufacturers say that supply chain issues have negatively impacted company revenue or profitability in the last 12 months
  6. 6. Manufacturing Success: August 2014 The speed at which organisations are trying to grow varies, some choosing to grow in line with the market generally whilst others, known as Accelerators, looking to outpace their competitors. One in four (27%) of UK manufacturers are Accelerators in 2014. Businesses must plan ahead to ensure they have the right resources in place to help support growth. However, an increasing number of businesses admit they are only able to effectively plan for the short-term. In fact, over half of businesses (56%) are only able to effectively plan up to a year ahead, a significant rise from 40% in 2013 (see figure 1). Long term planning is only part of the story as agility becomes more important to organisations. 78% think success in manufacturing is all about reacting faster to business changes rather than scale, an attitude held more strongly by Accelerators (86%). Yet, 61% of UK manufacturers say they have difficulty balancing robust, long term planning with the flexibility to respond quickly to changing market conditions. With the sector evolving at an increasing rate, this figure is only set to rise. If manufacturers are to become more responsive, they must become more connected. Developing a greater level of interconnectedness between employees, the supply chain and the tools used day-to-day is likely to increase an organisation’s understanding of the market, and in turn, enhance its ability to react to it. However, less than half of companies are able to fully capitalise on the opportunities that connections between people (48%), businesses (47%) and things (37%) bring. 2014 sees UK manufacturers in confident mood, with over three- quarters (78%) optimistic about their business prospects over the next 12 months Theconnectedmanufacturer 2013 2014 Figure 1: How far ahead manufacturers are able to effectively plan
  7. 7. page 7 Accelerators are better placed to capitalise on the opportunities brought about by interconnectedness. Indeed, 63% are ready to take advantage of the connections between businesses and 52% between things (see figure 2), highlighting the role of interconnectedness in driving growth for UK manufacturers today. People Businesses Things All manufacturers Accelerators Figure 2: % of manufacturers currently able to fully capitalise on connections between people, businesses and things
  8. 8. Manufacturing Success: August 2014 Currently 1 in 7 manufacturing workers is over 55 years (15%) whilst 1 in 6 is aged under 24 years (17%) (see figure 3). Manufacturers now must address how they effectively lead a high performance team made up of very different motivational forces, pressures and preferences. Collaboration comes to the fore, with the need for younger generations to mentor their elders on the use of new technologies while, in return, learning from their general life experiences. Technology itself, for example 3D printing, is also set to change the skills landscape with 44% seeing this increasing the demand for skilled workers and 34% envisaging the creation of completely new roles. Yet, against this backdrop, there are evident issues with the attraction and retention of the young people who are so critical for manufacturers wanting to capitalise on digital opportunities, close existing skills gaps and future-proof their organisations as the older generation retires. 52% of manufacturers say they have difficulties offering the kind of flexibility that younger workers are looking for, 45% report difficulties retaining and 43% attracting younger workers into the organisation (see figure 4). Apprenticeships help to some extent, with 79% saying they present a valuable solution to filling the skills gap in manufacturing. But issues with the image of the manufacturing sector persist and 71% think the manufacturing industry needs to improve its image generally to attract new recruits. Currently manufacturers are divided as to whether a multi-generational workforce represents a wider diversity trend that will drive innovation (51%, increasing to 57% amongst Accelerators) or create stress / culture clashes (49%). Reflective of a diverse customer base, multi-generational workforces can, if effectively managed, result in improved, more relevant customer experiences that ultimately will drive growth. Connectingpeople: Multi-generational workforces We have difficulties offering the kind of flexible working that younger workers are looking for We have difficulties retaining younger workers in our organisation We have difficulties attracting younger workers into the organisation Figure 4: HR challenges with millennial generation 17% Under 24 years 33% 25 – 34 years 35% 35 – 55 years 15% Over 55 years Figure 3: Current workforce age breakdown The manufacturing sector, like others today, is characterised by a multi-generational workforce with three, if not four, generations working side-by-side.
  9. 9. page 9 Traditionally most supply chains were designed from the factory outwards and focused on optimising supplier operations, particularly in terms of cost and efficiency. The rules of competition are changing though – customers are more demanding, products are more easily copied and markets are commoditised. The biggest shifts that manufacturers expect to see in customers over the next two years are demand for added-value services (67%), involvement in product development (49%), interest in customised products (45%) and demand for supply chain transparency (45%) (see figure 5). With these shifts in the balance of power, it is clear that supply chains now need to be designed with the customer at their heart.Yet, manufacturers are struggling with this - 80% admit that as an organisation they could be more customer- centric. By creating whole new systems of value for customers that will help secure long term relationships and provide competitive differentiation, over half (58%) now see the lines between manufacturing and service industries blurring. If manufacturers are to effectively serve their consumers beyond the core products they offer, they must look to build a better understanding of their customer-base. However, manufacturers currently experience some level of difficulty in understanding the needs of their customers’ customer (55%), identifying potential new customers (55%), understanding how customers use their products (54%) and tracking customers from pitch to sale (52%) (see figure 6). These difficulties are less marked amongst Accelerators. 48% see identifying potential new customers as a difficulty compared to 55% amongst all manufacturers. Furthermore, just 45% of Accelerators experience some difficulty in understanding the needs of their customers’ customer compared to 55% amongst all businesses. Connectingbusinesses: Customer-centric manufacturing Figure 5: Buyer characteristics over the next two years Demand for added-value services beyond just the core products we offer Interest in getting involved in the product development / design process e.g. co-creation / crowdsourcing Increased demand for customised / non-standard products Demand for more transparency around supply chain credentials / authenticity More savvy / placing less value on direct contact with sales reps Approaching investments with more caution and ROI focus Figure 6: % of manufacturers experiencing difficulties in customer activities Understand needs of our customers’ customers Identify potential new customers based on profile of existing best customers Understand how customers use our products Track customers from pitch to sale Track customer engagement with marketing activities Generate accurate sales forecasts Enable sales teams to provide updates / access customer info via mobile devices Identify most profitable products Identify most profitable customers Track from order to delivery It is clear that supply chains now need to be designed with the customer at their heart
  10. 10. Manufacturing Success: August 2014 As supply chains extend and diversify, so they become more complex and vulnerable. The consequences of one incident can soon build and spread throughout the supply chain. Notably, 60% of manufacturers admit that supply chain issues have negatively impacted company revenue or profitability in the last 12 months. Nearly half of all manufacturers (47%) have experienced significant disruption to their supply chain over the last year. Amongst those who have experienced disruption, the key causes are IT security events (39%), unplanned telecoms / IT outages (38%), volatile currency exchange rates (32%) and extreme weather conditions (31%) (see figure 7). Complex supply chains need sophisticated, connected tools to identify risks, predict disruption and ensure recovery is as quick as possible. Yet, nearly three-quarters (74%) of manufacturers admit they could have better visibility into disruptions across their supply chain. Improving the connections across the supply chain is key to understanding and minimising potential disruption. With greater visibility, businesses are in a stronger position to improve their supply chain resilience. Manufacturers are primarily focused on identifying and eliminating bottlenecks (49%), with Accelerators more likely to emphasise this (57%). Other areas of improvement include improving visibility, alert and warning systems (46%) and forecasting (44%) (see figure 8). Connectingbusinesses: Supplychainresilience Nearly half of all manufacturers (47%) have experienced significant disruption to their supply chain over the last year Figure 7: Supply chain disruptions in last 12 months amongst those experiencing disruption IT security incidents (e.g. cyber attacks, data breaches) Unplanned telecoms / IT outage Volatile currency exchange rates Extreme weather conditions (e.g. floods) Failure / issue with outsourcer service Business failure / liquidation of supply chain partner Product quality issues Disruptions within transport network Natural disasters (e.g. earthquake, tsunami) Lack of available credit / funding Regulatory changes Loss of talent / skills
  11. 11. page 11 Identify / eliminate supply chain bottlenecks Improve visibility, alert and warning systems Better forecasting to try and predict demand volatility Improve information sharing across the supply chain Secure Board level commitments to managing supply chain Instil a culture of risk management across suppliers Conduct crisis simulation exercises Other None of the above Figure 8: Steps to improve supply chain resilience over next 12 months
  12. 12. Manufacturing Success: August 2014 Connectingthings: Disruptivemanufacturing The digital economy is rapidly changing the manufacturing landscape. New technologies are creating new opportunities, but not without initial discomfort By the end of 2015, it is believed that smart components in products (89%), predictive analytics (89%), the development of mobile applications (87%) and additive manufacturing / 3D printing (78%) will all disrupt traditional business manufacturing processes within organisations (see figure 9). It is important how manufacturers react to this change. The traditional supply-based model of ‘produce then consume’ has been replaced by a scalable, flexible and reactive model which responds to the individual needs of the customer. Additive manufacturing, or 3D printing, in particular highlights the advent of on-demand manufacturing with 94% of manufacturers seeing 3D printing as an opportunity rather than a threat. A model which is more in tune with needs of the consumer makes sense in a manufacturing ecosystem more focused than ever on reducing waste and increasing customer satisfaction. Manufacturers readily identify the longer term impacts of 3D printing as quicker time to market (48%), cost saving (45%, rising to 54% amongst Accelerators) and a greater flexibility to build a wider range of products (41%, rising to 48% amongst Accelerators) (see figure 10). Although initially disruptive, manufacturing businesses stand to benefit from the digital evolution. However, this will depend on manufacturers having the right culture, process, skills and technologies in place to capitalise on the opportunities that digital brings.
  13. 13. page 13 The traditional supply-based model of ‘produce then consume’ has been replaced by a scalable, flexible and reactive model which responds to the individual needs of the customer. Figure 10: Longer term impacts of 3D printing Quicker time to market for manufacturers Cost savings for manufacturers More demand for skilled workers e.g. industrial designers Greater flexibility to build a wider range of products Creation of completely new manufacturing roles Creation of more manufacturing jobs locally Less waste and emissions, more sustainable More competition with new market entrants Threatens low wage / unskilled manufacturing jobs Blurring of lines between manufacturing, product development and retail Greater need for Government regulation None of the above Figure 9: Timeline for manufacturing disruption By the end of 2015... 89% think the inclusion of smart components in products 89% think predictive analytics 87% think the development of mobile applications 78% think additive manufacturing / 3D printing ...will transform / disrupt manufacturing business processes in their organisations
  14. 14. Manufacturing Success: August 2014 Conclusion 2014 sees UK manufacturers in optimistic mood. And with the economy showing long awaited signs of recovery, businesses are fixing their sights on growth. Long term planning is proving difficult in a climate characterised by change and disruption and the focus is now shifting to marrying long term planning with the ability to react quickly to changes in the market.The traditional production-led manufacturer is recognising that ultimately customers dictate how they operate and as such, is focused on improving its customer insight, creating value-added services and becoming more customer-centric in how it operates. This objective, however, is made more challenging by the increasing complexity within manufacturing supply chains. Disruption is a common problem whether through security breaches, IT outages or the weather and supply chain resilience is an area that most manufacturers are focused on this year. Improved visibility emerges as the common denominator in delivering customer excellence and supply chain resilience. The emergence of new technologies, such as 3D printing and smart products, look set to fundamentally alter the manufacturing landscape. Not only will these result in new competitors, but they also create the need for new skills. Young people, as digital natives, are fundamental to manufacturing success as we move towards 2020 but manufacturers need to consider carefully how best to attract and retain this demographic if they are to capitalise on their potential. Improved interconnectedness holds the key to fulfilling growth ambitions. Culture, processes, skills and technology must align to help deliver greater customer centricity, supply chain resilience and a high performing workforce that spans the generations.
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  16. 16. For further information contact Sujatha Jayagopal: +44 (0) 791 727 7491 Sujatha.Jayagopal@cognizant.com www.cognizant.com

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