The accounting and consulting firm of Grant Thornton LLP recently surveyed more than 375 U.S. manufacturers. The goal was to uncover the major forces that are disrupting their industries today. In this conversation, excerpted from an episode of The SupplyChainBrain Podcast, we speak with Jeff French, Grant Thornton’s national managing partner for consumer and industry products. Based on the firm’s research, he lays out four critical priorities for manufacturers today, as well as their number-one concern for the future. And he discusses both the political and technological factors that promise to radically transform manufacturing in the years ahead.
Q: What’s the history behind this latest report by Grant Thornton? Do you do this on a regular basis?
French: This is a brand new initiative on our part. We’re trying to look at the future of manufacturing, and the unique things that are happening, to give people a perspective on what we’re seeing in a four-, five- or six-year time horizon.
Q: What kinds of questions did you ask?
French: We started out with the typical question: Are you optimistic with where things are at? Most of them are. Then we asked what difficulties or uncertainties they’re experiencing, and trying to adapt to. From there, we asked about the things they’re doing to better respond to these concerns, and to prepare for what they see coming in the future.
Q: What was the number-one concern that they were relating to you?
French: It’s a time of change, which seems to be coming at all companies more rapidly than it used to. As a result, they’ve got to be more responsive. Companies are trying to feel their way in that regard, and find out how they can adapt to the changes that are going on.
Q: What are some of the political uncertainties that they’re telling you about?
French: What we’re hearing is that, with the political environment here in the U.S., people are optimistic. They want to see lower tax rates, in order to compete globally. But they’re also concerned about other things that have been proposed. How might a border adjustment tax impact companies that import into the U.S.? Companies are very concerned about that. They’re comfortable with where we seem to be going in reducing regulation, but on the other side of that, they’re worried about trade wars. They don’t want to see anything that would inhibit their ability to access markets.
Q: Did they cite the failure of the Trans-Pacific Partnership, and the dire outlook for additional multilateral trade agreements, as an area of concern?
French: We didn’t go into that specifically, but you can definitely generalize when they’re talking about trade issues. Those are good examples of areas of concern. Obviously, manufacturers have supported those trade agreements, and were really promoting them. So I think that the failure of the TPP set them back a little bit.
Q: I would imagine that one of the things bothering them the most would be the uncertainty of our trade policy at this point, with the Administration not really clarifying how it intends to proceed.
French: Yes, absolutely. Take for example the border adjustment tax. If you’re going to not allow companies to deduct the imported cost of goods, that could have a huge impact on their supply chains, and where they’re going to source product from. They hear these things thrown out there, but they don’t know what the probability is of something like that passing. Anytime we have unstable information with which to make investment decisions, that’s not a good environment for business.
Q: In addition to the political landscape, it seems as though as the very nature of manufacturing itself has changed quite a bit over the last decade or so. A single item might be manufactured in multiple locations. How are manufacturers adjusting to that, and how does it change the whole notion of what it is to be a manufacturer today?
French: We found out from respondents that new technologies are definitely something they’re worried about. Changing customer demands are making business more complex. Manufacturing one product over several locations, or making the same product with variations in a number of markets, adds a lot of complexity to manufacturing.
It was interesting to find that the respondents who had experienced earnings growth of at least 20 percent in the past year had invested pretty significantly in new technology, such as the Internet of Things, robotics, additive manufacturing, artificial intelligence and supply-chain automation.
Q: The term “technological disruption” is not necessarily a negative thing. It seems like a lot of these companies are actively seeking it out.
French: Right. Based on my experience over the last 30 years, companies have adopted a lot of technology. We’re just seeing the continuation of that trend, although the pace is increasing a bit more. For cost and customization reasons, they’ve had to move to new technology.
Q: Did you get a sense of employment trends in manufacturing? The move toward greater automation means fewer bodies in the plant.
French: They are telling us that, but a number of respondents to the survey said that when you’re making customized products, a lot of times you need skilled people to develop and refine those products. What they’re looking at is automation working side by side with people in the plant. While we expect their numbers to change, hopefully that will be offset by the need for different types of work, as a lot of manufacturers move into services.
Q: What kinds of services are you talking about?
French: The one we see a lot is routine maintenance. It’s working with companies to make sure they’re getting optimal performance from a piece of equipment — monitoring it, reading the sensors, suggesting adjustments and making repairs. There’s a host of other things that companies could do as well, and if they’re selling B2B, it may involve more customer interaction.
Q: In the U.S., we’re hearing about a possible talent gap in the area of high-skilled jobs relating to manufacturing — engineers, designers and the like. Do manufacturers tell you that’s happening?
French: One of their four areas of biggest concern is talent. The skills they need are changing, and their ability to find the right people is a challenge. Companies are having to partner in a number of ways — for example, with local technical colleges. They’re doing internships, co-ops, apprenticeships — anything to find those people.
I.T. is another area where people are concerned. As you bring more technology into the plant, it takes a lot of I.T. skills, and they’re having trouble in that area, too. We do not expect that to change in the next few years.
Q: You said there were four areas of greatest concern. Could you sum those up?
French: The critical priorities that manufacturers described were building a digital supply chain, anticipating shifting customer needs, building transparency, and finding talent for the smart manufacturing age.
Q: How would you define the “digital supply chain” for manufacturing?
French: We got responses that were across the board. The definition varies from company to company, and from response to response. Some of the things that we heard were around using technology to get a better view of customer demand. Or using technology to share information with suppliers, and understand what their capacity is. These are ways in which digital technology can be used to share information. People also mentioned things like advanced robotics, 3D printing, and A.I.
Q: Forty-four percent cited supply-chain complexity and inefficiencies as their top issue. What kind of inefficiencies are they talking about? Where are the gaps?
French: When you get a complex supply chain, especially if it’s global, you get inefficiencies when demand changes and you need a particular product. How do you get it quickly if it’s being produced in Asia? Instead of waiting for a boat, you might have to fly your stuff in, and that becomes cost-prohibitive. If you’re not getting good data on what the demand is going to be, you might produce something that you don’t need, and have to put on the shelf.
Q: What about the issue of reshoring and relocating manufacturing facilities from China? Did they talk about that?
French: One of the common views we heard is that short supply chains are better, and add less complexity. Manufacturers want to source close to where they’re going to sell. Whether they’re producing in Asia or in the U.S., they want those supply chains to be as local as possible. As companies look at the total cost to procure, they’re finding that having shorter supply chains can definitely be an advantage. When it comes to customizing product and meeting new customer demands, it helps to have a shorter supply line that can be more reactive.
Q: Does that suggest that in the future, we might see more smaller production facilities? Might the days of the Foxconns of the world, with tens of thousands of workers in a single location, might be on its way out?
French: That’s a good thought. Before, you might not have gotten the cost efficiencies out of having a bunch of small locations. But with new technology that brings you those efficiencies, it might make a lot of sense to head down that path.
Q: You mentioned additive manufacturing, or 3D printing. Is that an important element in the sourcing shift?
French: Absolutely. The first advent of 3D printing was a lot of prototyping. Now we’re starting to see it used actively in production. Boeing has been producing large parts through 3D printing. The advent of powdered metals and composite materials has made that possible. People are using it to make component parts early in the production process.
Q: Again to the issue of reshoring — is manufacturing coming back to the U.S.?
French: It is. There are a number of examples. There will be more work [domestically], as people move supply chains closer to the markets they’re serving.
Q: I would imagine that all of these factors would keep executives up at night. Yet you say that on balance, they’re optimistic. Is that the case? And if so, why?
French: They see business opportunities. If you’re a company that is going to adopt new technologies, you’re getting closer to your customer. If lower tax rates and some of the other things that we’ve talked about come to fruition, people see that their businesses can grow, and that’s what makes them optimistic. But attitudes can change pretty quickly. Right now, people are anxious to see where this is going. Hopefully, it will mean more growth for companies, especially those based in the U.S.
Q: Where you at all surprised by what you found in conducting this survey?
French: I don’t think so. Our findings were what we had been hearing and seeing. The whole issue of understanding customers is an area that’s going to be very important. With all of the volatility in politics around the world, customers’ desires are going to shift a lot, and quickly. The big issue is staying close to your customers, and to what’s happening in the industry. That’s an area that’s very important for companies right now.
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