Highlighting five manufacturing trends that emerged or accelerated this year.
‘Truth, like gold, is to be obtained not by its growth, but by washing away from it all that is not gold,’ wrote Leo Tolstoy. To a tool maker, this must sound a lot like machining, and rightly so. The same rule should apply to doing a trend analysis report such as this one. Therefore, we have gleaned the following five trends through the process of chipping away all the detectable media hype and bias surrounding them and others, and checking closely to see if they have enough inertia in them to persist into the future.
Presenting to you, our list of emerging trends in the manufacturing industry:
Work from Wherever Feasible
There is no doubt that Covid-19 has dramatically altered the workplace. A Global Workplace Analytics survey done across sectors, including manufacturing, in March-April this year found out that 88 percent of office workers worked from home on a regular basis during the pandemic. As importantly, 76 percent of global employees wanted to continue working from home even after Covid-19 (see figure: Work from home during the pandemic).
However, manufacturing, like healthcare and retail, is among the sectors where remote working is the hardest to implement, given the fact that not all factory operations can be run remotely. Therefore, the perceptible trend in manufacturing is to adopt a hybrid work model i.e. make remote working possible wherever feasible and reasonable. Some of the world’s largest manufacturers have shown the way by adopting this policy both for this pandemic and beyond. Siemens, for example, established mobile working as a core component of its ‘new normal’ way of working. Effective July this year, the new model has been made applicable to more than 140,000 of the company’s employees at over 125 locations in 43 countries. That makes about half of its total employee strength. Other such manufacturing leaders include Hitachi and Honeywell. According to Business Insider, Hitachi has committed to having 70 percent of its employees work from home permanently.
Clearly, most jobs that qualify for remote working at present are white-collar jobs, benefitting the accounting, sales, marketing, human-resources and legal professionals. For shop floor workers, the trend has been to allow them to adopt a hybrid version: come to work some days of the week, and remotely access certain machines and equipment on the others. As more and more plant data get digitized and the availability of cloud-based enterprise systems like ERP, QMS and PLM gets better for the SMEs, the idea of a hybrid work model in the factory is likely to catch on further. Further, ideas like ‘lights out’ machining – unstaffed working hours, mostly during the night (that is why the prefix ‘lights out’) when the machines can be run unattended – will gain momentum.
The year 2020 marked a paradigm shift in approach of industrial leaders to managing plant operations. We must be prepared to see an accelerated transition toward a work culture that is both more productive and less physically demanding.
The Miracle of Light
Takuo Aoyagi, a Japanese engineer, passed away this year at the age of 84. This was also the year when Mr. Aoyagi’s invention, the Pulse Oximeter, became a vital tool in the fight against the novel coronavirus. Patented in the 70s, this device, that uses red and infrared wavelengths of light to measure blood oxygen levels, replaced a cumbersome invasive process that required blood sampling. Another example of the use of photonics in the war against the virus is the use of UV-C disinfection systems being used in public places like London’s tube network and retail stores in Germany and the US for the purpose. Speaking of which, it was the UV disinfection systems that has made the concept of drinking germfree water a trendy thing at every Indian middleclass home.
This are just two recent examples of how photonics – the science of light – is transforming our world (Figure: Application space for ultra-wideband next generation photonics and PIC). The pre-millennial generation, that is, those born in the 80s and before would know the dramatic improvement that LED lights that ushered in, over incandescent bulbs and CFLs, with their positive impact on the environment, cost of electricity, and our city nightscapes.
Likewise, optical technology including solid-state Lidar (Light Detection and Ranging) and LWIR and 3D cameras are making autonomous driving possible. McKinsey predicts that up to 15 percent of new cars sold in 2030 could be fully autonomous. French strategy consulting firm Yole Développement predicts that cameras designed for advanced driver assistance systems (ADAS) is emerging as a fast-growing category, that will bring in more than half of the revenue for the imaging technology in the automotive sector by 2021.
A lot of has been written about the growth of laser-cutting industry in India, and how it helped position India as the world’s largest diamond cutting and polishing centre. The other big success story for photonics and laser, particularly in India, has been its use in medical imaging, surgery, and the manufacture of medical equipment like stents.
Similarly, in telecommunications, process of transmitting data by the passage of light through thin, transparent fibres, called fiber optics has made dramatic improvements in media and education. Light is going to further improve telecommunication in the era of 5G with the wider use of Li-Fi (Light Fidelity) technology, which enables transmission of data via LEDs.
The year 2020 strengthened our belief in photonics – the science of light that helped us fight the disease with devices like the Pulse Oximeter and carry on working from safer confines through the technology of fiber optics. Presently, the global optics and photonics industry is reeling from a combined impact of Covid, the US-China-trade war and a fluctuating economy in many parts of the world. Sector leaders like Honeywell International, Alcatel-Lucent and Hamamatsu Photonics have reported losses for the first three quarters of this year. Hamamatsu, the Japanese photonics systems company reported an annual drop in sales of 3.9 percent and in profits by 14.4 percent. As things hopefully normalize in 2021, the optics and photonics industry is going to not only regain its momentum, but its going to expand faster, keeping in view the important role it played, helping people soldier on during the crisis.
India, which already has benefitted from the successes of photonics in hygiene, health care and telecommunication is in a good position to take this technology to the next level.
Towards Self-Sufficiency
It is well evident that the Sino-American trade war and the pandemic prompted major economies and multinational corporations to reduce their dependence on China. Tariffs imposed by USA’s President Trump on $360 billion worth of Chinese goods forced some of the world’s most valuable companies such as Samsung, Apple, Nintendo and Nike to take their manufacturing in full or part to other countries such as Vietnam and Mexico. And more companies are likely to follow suit. A June 2020 Gartner survey revealed that about 33 percent of global supply chain organizations moved their business out of China or plan to do it in the next three years. The USA’s trade deficit in goods with China fell $73.9 billion to $345.6 billion in 2019. This was first such trade deficit fall in the last six years. On their part, U.S. lawmakers are considering putting in billions of dollars of investments into further developing America’s semiconductor industry over the next five to 10 years through the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act.
For Indian manufacturers, there are two important points about this trend to consider: One, is India’s manufacturing industry benefitting from this shift in global supply chains, and two, what can be done to leverage this trend?
The answer to the first question is that, yes, India has benefitted from trade diversion, albeit not so significantly. An UNCTAD research paper released in November last year showed (see figure: Trade Diversion) that Taiwan benefitted the most from the trade diversion – with a $4.2 billion boost in exports to the US. The other big beneficiaries were Mexico, the European Union and Vietnam. In comparison, India benefitted to a lesser extent, gaining $755 million worth of exports to the US during the period, mostly in the sectors of chemicals ($243 million) and electrical machinery ($83 million). Another study, a Nomura report, pointed out that during April-August 2019, out of 56 firms shifting production away from China, 26 went to Vietnam, 11 to Taiwan, 8 to Thailand and only three companies came to India.
The answer to the second point – how India can leverage this trend – is far more, encouraging. A recent measure undertaken by the government of India could prove to be the pivot that India’s manufacturers were looking for. On April 01, 2020, the government introduced a production-linked incentive scheme (PLI) which offers a production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units. The scheme extended an incentive of 4-6 percent on incremental sales (with FY 19-20 as the base year) of electronics goods manufactured in India to eligible companies for a period of five years subsequent to the base year (see figure: Government’s PLI Scheme).
The PLI Scheme received an encouraging response. A total of 22 international and local companies, including assembly partners of Apple and Samsung, applied for the scheme, which will bring an additional 10 percent of global handset production to India in the next five years, as per a Credit Suisse estimate.
Enthused by the response, on 11 November the government approved the scheme for ten more sectors, including automotive, pharma, white goods, textiles, food products and speciality steel, that increased the total outlay to Rs 2 lakh crore for a period of five years. Mahindra Group chairman Anand Mahindra has called the PLI scheme a gamechanger and industry experts largely agree. The government move to incentivise manufacturing has come at the right time to harness the changing dynamics of the global trade.
Go D2C (Direct-to-Consumer)
FMCG brands such as Hindustan Lever, Nestle, ITC and Britannia Industries reported that their share of online retail to total sales volume nearly doubled this year from what it was pre-Covid. Similarly, Flipkart, Amazon and Reliance Digital reported a record surge in sales of WFH-supporting products such as smartphones, white goods, consumer electronics, and kitchen appliances such as dishwashers and robotic vacuums. By all accounts, the pandemic has triggered a major shift in consumer behaviour towards online shopping. An UNCTAD survey titled “Covid-19 and E-commerce” of about 3,700 consumers in nine emerging and developed economies including Brazil, China, South Africa, Switzerland and Turkey revealed that the biggest gainers are ICT/electronics, pharmaceuticals, education, household products and personal care categories (see figure: Covid-19 and E-commerce).
The shift to digital evident across countries and product categories signifies an important strategy imperative for manufacturers: formulate and implement a direct-to-consumer strategy, and this applies to manufacturers of both capital goods and finished goods. The world’s top consumer goods brands have a well-honed D2C strategy that has started to pay rich dividends. Nike, for example, garners more than $9 billion in sales global through the D2C channels. Samsung, LG have ramped up their D2C presence in India, and large Indian OEMs like Maruti Suzuki and Mahindra and Mahindra have strongly integrated their D2C presence into their omnichannel strategy. This is a opportune time for makers and suppliers of components, machine tools, coolants and other products along the value chain to develop a D2C strategy.
An effective D2C action plan has to have the following key elements:
Build an engagement platform: Your D2C website needs to make it easy and exciting for your customers to connect with you. It needs to be much more than a product catalogue: think of it as a way of sharing your brand experience with the consumers. It also serves as platform for delivering a more customized experience. A Deloitte survey says that well-executed personalization can deliver five to ten times the return on investment on marketing spend and lift sales by ten percent or more.
Build a community: D2C offers a unique advantage over traditional sales channels. It offers manufacturers the opportunity to build one-to-one relationships with consumers with regular communication and delivery of relevant content. When this is offered at the right time to the right consumer, they are likely to respond more positively and want a repeat experience. Irrelevant content, or frequent, unsolicited communication, on the other hand, is certain to have the opposite effect.
Sharpen your supply-chain capability: Having a D2C presence means that the customer will consider your fulfilment capabilities like delivery speed, packaging and tracking as a part of your offering. Partner with a well-reviewed logistics service provider to offer a complete D2C experience to your customer.
Diversify Your Product Line
This year, any factory not older than a hundred years, anywhere in the world, faced lockdown restrictions necessitated by a pandemic for the first time ever in a lifetime. Most had to shut down and restart with limited capacity, making sure that all the safety protocols were followed, and service a wildly fluctuating demand. This caused widespread distress in the world of manufacturing. Factories in India, the US and Europe have been hit by one wave after another of the pandemic. Amid all this disruption, some large manufacturers chose to brave it by responding with product line diversification. Indian and international garment manufacturers such as Primark, Delta Apparel, Louis Vuitton, Hugo Boss, Shiva Tex Fab, Shahi Exports started making masks and PPE kits.
The same of was true for the manufacturing of ventilators. Usually the process of designing, manufacturing, and testing ventilators takes years. This year, manufacturers and suppliers from diverse sectors responded to the crisis and made available ventilators in record time. In the U.K., a consortium of major industrial, technology and engineering businesses from across the aerospace, automotive and medical sectors, such as BMW, Airbus and even Formula one motor racing teams came together to produce medical ventilators for the country’s hospitals. It was hailed as a great success with over 14,000 new machines produced in an astonishingly short period of three months. According to the U.K.’s Health and Social Care Secretary Matt Hancock, “The Ventilator Challenge has played a crucial role in ensuring everyone who has needed a ventilator during this pandemic has had access to one.” In the U.S., the government’s invocation of the Federal Defence Production act resulted in a surplus production of ventilators, as manufacturers such as GM, Ford, General Electric and Philips joined hands to deliver more than 90,000 ventilators between March to May this year. Similarly, Germany had Bosch Group and Mercedes-Benz using their innovation centres and production lines to make testing kits, face shields and ventilators.
Companies not only diversified their production line, but they also used alternate supply lines in the wake of disruption of China-linked supply chains. USA-based PCB (printed circuit board) manufacturers preferred to have PCBs installed in Mexico rather than China.
All of this means that those Indian manufacturers who have not done it yet, should look at a diversification strategy for their production lines, which covers diversification of both the plant machinery as well as supply clusters.
Machine tool suppliers in India, for example, have been faced with this tumult over the last few year, as the automotive industry, which provides about 85 percent of their business has been facing headwinds due to regulatory changes and demand uncertainties. Even more, a large part of the automotive clientele comprises only a handful of large companies. All of which means that component manufacturers, machine tool makers and their suppliers continue to be at the mercy of global economic uncertainties and supply chain disruptions such as the one underway.
Therefore, this is a good time for manufacturers to see the writing on the wall and act on it: diversify into more market niches and sectors. For example, a metal finishing company can branch out into medical equipment, electronics, and food processing machinery. Look for markets that do well when your primary market faces a downturn. When the commercial vehicles market is down, the aftersales market picks up, because customers continue with their vehicles for a longer term. But do remember to chart out a well-honed strategy. Diversification is a long-term game.
By Aanand Pandey – Editor in Chief , Dynamic Manufacturing India
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