Manufacturers Must Make Digitization a Top Strategic Priority

And while digitization offers great benefits, it’s also engaging manufacturers in virtually every aspect of their operations, from customer demand and distribution to production, supply chain and warehousing. Manufacturers need a clear strategy for how they’ll face this dramatically-changing landscape.

A report by L.E.K. Consulting, “New Imperatives: Why Global Industrials Must Shift Strategic Priorities,” highlights how organizations are feeling the effect of disruptive powers in the digital economy. Evolving technologies such as IoT, data analytics, and the web’s impact on the customer experience are offering opportunities to boost efficiency, while also causing shifts in customer relationships, and affecting the distribution of profits. It says Industry 4.0, which includes IoT and links between the digital and physical worlds, has the potential to turn the manufacturing industry inside-out.

The report said levels of “unprecedented change” have far-reaching implications for businesses across the industrial landscape. Manufacturers will have to respond with reduced costs and increased productivity to face the changing market demands and sustained margin pressure. “In the face of strong headwinds, industrial businesses are making fundamental changes,” said report author and L.E.K. Consulting senior partner John Goddard.

Goddard said industrial organizations need to shift strategies to evaluate and redefine many parts of their operations. This sales model transformation may require them to differentiate themselves by tailoring products and pricing to exact customer specifications. Manufacturers also will need to re-evaluate and optimize their value chain participation. And they’ll need a strategy to fully leverage IoT devices that can create smart factories and consistently identify potential for improvements.

“Some manufacturers are successfully evolving their business models with greater product customization paired with solutions. Others are partnering and outsourcing to enhance their capabilities,” said the report.

Manufactures also may need to develop a “match fit” organization and simplify their structures to boost their agility and ability to respond in a rapidly changing business environment. They’ll also need to develop new capabilities in their established workforces while retaining scarce skills. This will be especially challenging, as The Manufacturing Institute said the industry will face 2 million unfilled positions by the year 2020.

McKinsey also said industrial organizations will need to ground themselves in a digital dialogue that gives a “clear view of the competitive landscape.” In addition, they must leverage digitization to simplify the tailoring of products, brands and pricing for multiple global markets. Behind the scenes, McKinsey said, the largest and most successful companies have been building platforms to manage suppliers, connect to customers, and enable communication and data sharing.

“Business models built for 20th-Century globalization may not hold up as digitization gains ground,” McKinsey said.