Margaret Lindquist | Content Strategist | July 28, 2023
Despite labor shortages, continued supply chain disruptions, and ever-fluctuating demand, the manufacturing industry is on the front foot. Production of industrial goods—a category that includes aircraft, automobiles, chemicals, computers, consumer electronics, heavy machinery, oil, and steel—is surpassing prepandemic levels. The industry is making a generational shift from machine-based assembly lines to “smart factories,” using robotics, the Internet of Things (IoT), data analytics, augmented reality (AR), and other cutting-edge technologies.
This movement, commonly known as Industry 4.0, is the next stage in the digitization of manufacturing, driven by advances in automation and connectivity. For example, a manufacturer adopting Industry 4.0 tenets might use drones to deliver parts and simplify assembly-line inspections. Or technicians might use AR headsets during production machine maintenance to call up instructions or schematics.
Industrial manufacturing trends in 2023 and the years to follow will be shaped by technological advances and government initiatives, including the US CHIPS and Science Act, which sets aside $50 billion for the domestic semiconductor industry, and the Infrastructure Investment and Jobs Act, which allocates $1.2 trillion for transportation and infrastructure. Other big trends include the industry’s responses to skilled-labor shortages and supply chain disruptions, which the pandemic intensified, and growing commitments to sustainability. Forward-looking manufacturers are investing in “smart factory” initiatives, incorporating advanced data analysis capabilities to fine-tune planning, speed up design cycles, and gain better visibility into supply chain and manufacturing processes.
The conventional wisdom is that industrial manufacturers that increased their technology investments during the pandemic were better able to weather the downturn and emerge in better shape than those that pulled back tech spending. Leading manufacturers are investing in the following three main technology areas, according to Deloitte’s 2023 outlook survey: robotics and automation, to speed manufacturing, reduce costs, and alleviate the labor shortage (cited by 62% of respondents); data analytics, to improve forecasting and spot supply shortages before they affect the manufacturing line (60%); and IoT, to collect and analyze data from sensors on the factory floor and embedded in industrial equipment to improve manufacturing, supply chain tracking, and product maintenance (39%). The lowest-priority technologies cited in the survey were blockchain (4%) and quantum technology (5%).
The Industrial Internet of Things (IIoT) describes networks of physical objects—machines, devices, cars, appliances, and other “things”—embedded with sensors and software that gather data and exchange it with other systems over the internet for analysis that informs further actions. Automobile manufacturers, for example, use IIoT to monitor factory floor robots and identify maintenance issues before they shut down an assembly line.
Industrial manufacturers use IoT location data to track assets in their supply chains. And they monitor the temperature, humidity, and vibration frequencies of their machines, alerting users to potential failures or uploading software fixes directly to those machines. Such data collection and analysis help manufacturers refine product plans and identify error-prone components. 5G will play a crucial role in Industrial IoT—John Deere and Ford already use the superfast, low-latency wireless networks to connect thousands of sensors. Although about 10% of manufacturers had implemented IIoT by 2020, that percentage will reach about 50% by 2025, according to Grand View Research estimates.
According to an October 2021 survey by IndustryWeek and Oracle, the competitive gap is widening between manufacturers investing in digital capabilities and data-driven processes (so-called digital transformation) and those that aren’t. When asked to rank four areas in order of importance, survey respondents chose digital transformation ahead of smart technology, sustainable practices, and workforce development by a wide margin. Top focus areas for the manufacturers surveyed included improving efficiency (identified as a top priority by 55% of respondents), production development and innovation (53%), responsiveness to market demands (42%), and deepening customer relationships (40%). Half of the respondents said they agree or strongly agree that working in a more virtual environment will be a future requirement for manufacturers.
One example of the industry’s next wave of digital transformation is the microfactory, which is a small, modular, highly automated, and technologically advanced manufacturing structure that can be set up near the customer base to reduce shipping and storage costs and make it easier to build custom products. Highly automated microfactories couldn’t exist without the adoption of IoT and robotics. In fact, the microfactory of the future may even be able to manufacture its own parts. Other industry digital transformation initiatives include automating routine tasks to mitigate the impact of labor shortages and bringing together data from different facilities, assembly lines, and suppliers to provide early visibility into potential disruptions.
The labor shortages facing US industrial manufacturers are expected to only worsen in the coming years, for several reasons. Workers are retiring faster than they can be replaced; they’re leaving for other industries to seek higher pay and more stable employment; and employers are having trouble attracting specialists, especially from younger generations, to maintain and manage the robots, sensors, and software of Industry 4.0 factories. McKinsey predicts that manufacturers’ demand for traditional skills involving physical, hands-on labor will decline by 30% over the next decade while their demand for technical skills will increase by 50%. However, manufacturers still can’t find enough machinists, welders, metalworkers, production supervisors, and other industry stalwarts.
The manufacturing skills shortage in the US could result in 2.1 million unfilled jobs by 2030 and cost the industry $1 trillion in 2030 alone, according to a 2021 study by Deloitte and The Manufacturing Institute. Attracting and retaining workers is a top focus, according to 83% of the US-based manufacturing leaders surveyed. 45% of survey respondents said their employers had recently turned down business opportunities because of a lack of workers.
Manufacturers are addressing this challenge in multiple ways. In a 2022 survey by the National Institute of Manufacturers, nearly three-quarters of respondents said they planned to raise wages an average of 3% in 2022, on top of larger increases in 2021 amid the pandemic. As manufacturing becomes more digitally focused, companies are reskilling their employees and ensuring they understand how their efforts contribute to overall company success. Manufacturers are also developing comprehensive recognition programs. These efforts can pay off. A 2020 survey by The Manufacturing Institute’s Center for Manufacturing Research and the American Psychological Association found that nearly all respondents who feel valued by their employer said they’re highly motivated (97%), satisfied with their job (97%), and would recommend their company to others as a good place to work (96%), while those who don’t feel valued at work were far less positive.
Meanwhile, manufacturers are modernizing their facilities to improve the work environment. For example, they’re introducing robot and drone “workers” to take on dangerous tasks while allowing for hybrid and remote work.
Decades of labor offshoring and outsourcing have damaged the reputation of the manufacturing industry as a source of good, dependable jobs. Industrial manufacturers can combat this perception by showcasing their eagerness to nurture careers and commitment to providing stable, well-paying jobs. Creating an environment of continuous learning is one of the most important steps manufacturers can take to retain their next-generation workforce.
A 2020 study by The Manufacturing Institute’s Center for Manufacturing Research and the American Psychological Association found that young employees are attracted to employers willing to invest in their people. Nearly 70% of manufacturing employees under age 25 said they were staying with their employer because they were given opportunities to develop their skills, and 65% said they were staying because their employer offers career advancement opportunities. Employers should look at a variety of different reskilling programs, including live courses (both online and in-person), recorded video, and those that make use of augmented/virtual reality.
The Institute for Advanced Composites Manufacturing Innovation (IACMI) has started a program called America’s Cutting Edge, with the goal of training people for the machine tools industry. The National Association of Manufacturers and The Manufacturing Institute have a program called Creators Wanted to connect people with training, job openings, and new career pathways. Colleges and universities across the US, such as Northeast Wisconsin Technical College and Northwestern University near Chicago, offer Industry 4.0 study programs covering cybersecurity, the Industrial Internet of Things, and robotics.
Manufacturers are struggling to find entry-level candidates for production positions as well as technically trained people who can work on the increasingly complex systems of the modern factory. To meet this challenge, manufacturers know that they must attract more women and people from underrepresented ethnic groups.
Women currently account for less than one-third of the total manufacturing workforce, and the proportion of Black, Asian, and Latinx employees is only slightly higher at 36%, according to 2022 data from the US Bureau of Labor Statistics. Two national efforts to get those demographic groups more involved in the industry include a Department of Defense-sponsored $6.2 billion initiative to train and reskill the workforce of the future, and a National Association of Manufacturers campaign that provides mentors to women and seeks to change perceptions of the industry.
According to a 2023 US Environmental Protection Agency report, the manufacturing and raw materials industries were responsible for 23% of greenhouse gas emissions in the US. Although the industry has made progress in recent years to reduce those emissions, it still has a long way to go. Manufacturers need to evaluate their entire supply chain and seek opportunities to reduce waste, increase supplier diversity, and prioritize the use of fuel-efficient and electric vehicles on the factory floor and for product delivery.
A 2022 study by consultancy Climate Impact Partners notes that 42% of the companies in the Fortune Global 500 have delivered on a significant climate milestone or have committed to do so by 2030. Carbon neutrality, whereby companies commit to removing as much carbon dioxide from the atmosphere as they emit, is a good first milestone, although climate change experts warn that setting goals around emissions throughout the entire supply chain is the only way companies can meet zero carbon goals. Some manufacturers are investing in “smart building” technologies such as sensor-controlled heating, cooling, and lighting systems. Some are looking to renewable energy sources for their facilities, and they’re using electric vehicles in their factories and for transport of raw materials (taking advantage of clean vehicle tax credits). In a 2021 McKinsey survey, 22% of manufacturer respondents said they generated value from sustainability initiatives over the past five years, and 40% expect to generate value in the next five years. That value includes cost savings related to decreased energy usage and more-engaged customers.
The US Environmental Protection Agency defines corporate social responsibility (CSR) as a form of self-regulation in which a company works to ensure that its activities and practices have a positive impact on the environment, consumers, employees, and communities. CSR efforts, which extend to a manufacturer’s supply chain, generally involve two main areas: environmental sustainability (including recycling, lowering consumption of fossil fuels, and reducing waste) and social progress (including closing the gender wage gap, committing to equitable hiring and promotion practices, paying a living wage, and making workplaces safer).
The actions that manufacturers take in those areas are good for more than just the planet and the people who live on it—they’re good for the bottom line as well. 84% of respondents to a 2022 survey by research firm Lab42 said they’re willing to pay more for products from a company they perceive to be socially responsible.
In 2023, it’s no longer enough for manufacturers to have visibility into the actions of their suppliers and customers. That visibility needs to extend to their suppliers’ suppliers and their customers’ customers. Successful manufacturers will invest in digital supply chain capabilities that can provide better insights into the functions of each stakeholder along the chain and enable each participant to make better decisions about material sourcing and customer demand.
In response to persistent supply chain disruptions over the past several years, industrial manufacturers are reevaluating where they acquire raw materials and build their products. Beginning in the 1960s, manufacturers worldwide started sourcing their materials from lower-cost countries and moving operations there. But they’re beginning to shift back due to increasing labor costs in offshore countries, rising shipping costs, fluctuating exchange rates, and their desire to meet environmental and social sustainability goals.
A 2021 survey by industrial sourcing marketplace Thomas revealed that 83% of North American-based manufacturers said they were likely or extremely likely to “reshore” at least part of their operations, up from 54% a year earlier. But reshoring is only part of a larger movement by manufacturers to diversify their supplier base, for example, by onboarding suppliers from different regions. In fact, in 2021 more than half of manufacturers were looking for alternative or backup suppliers, according to a survey by advisory firm BDO. However, manufacturers need to weigh the benefits of supplier diversification with the added complexity and cost of managing more suppliers.
One of the biggest market opportunities for manufacturers is to offer some version of their products as a service, whereby they charge fixed or usage-based prices, often as a subscription. Car manufacturers, for example, have experimented with vehicles as a service, offering customers usage of recent models for an up-front enrollment fee and a monthly subscription fee. Unlike conventional car lease arrangements, the automaker is typically responsible for registration, taxes, driver insurance, roadside assistance, and maintenance as part of the arrangement, and customers can switch to a new car model once or twice a month, depending on the service agreement. Cloud computing is itself a product as a service, whereby software developers deliver applications, databases, and infrastructure over the internet as a subscription.
Services from other manufacturers can include product installation, monitoring, and maintenance. Under another version of the model, a manufacturer of welding robots might offer customers a certain number of welds for a set price rather than sell the robot itself.
Advantages of the product as a service (also called XaaS, or anything as a service) model for manufacturers include more regular, predictable revenue streams and more cross-selling and upselling opportunities. Another benefit is that manufacturers can gather invaluable data on their customers’ product usage, which they can then use to develop new products and revenue opportunities.
The factory of the future will be highly automated and efficient. Drones will fly above production lines, providing workers with data about inventory levels and machine health. Inaccuracies and human error will decline. As AI, machine learning, IoT, and robotics play a larger role in warehouses and factories, there will be less emphasis on physical labor and more on analytical work. But the foundation of the smart factory will rest on a solid back-office base, with financial, production, and planning software that can handle the vast amounts of data that even the smallest factory produces.
The promise of smart manufacturing, or Industry 4.0, will be realized only by manufacturers that understand which technologies can help them simplify processes; collect accurate financial, production, and other information in real time; and reduce costs. Manufacturers have used enterprise software such as enterprise resource planning (ERP), supply chain management (SCM), and product lifecycle management (PLM) for years, but many are still using legacy systems that lack key features, are difficult to update, and are disconnected from one another. Adding to that complexity is M&A activity, where manufacturers inherit yet another set of ERP, SCM, and PLM systems from acquired companies.
A particularly important technology priority for manufacturers is to modernize and consolidate their ERP systems, in most cases by moving them to cloud services to ensure they have access to regular updates and the latest security controls. Cloud ERP suites also let companies scale their finance, manufacturing, and other individual applications on demand, paying only for what they need. And integrated suites of cloud applications—ERP integrated with SCM integrated with PLM—give manufacturers needed visibility across those functions.
An enormous volume of data can be generated by a single manufacturing system. For example, an offshore oil and natural gas platform can contain 350,000 to 500,000 sensors and generate 1 to 2 terabytes of data each day, according to research from Cisco. Oil companies use the data they collect and analyze to avert oil spills and unplanned stoppages, as well as to protect workers from catastrophic equipment failure.
As the flow of data increases, manufacturers need sophisticated software to analyze and extract insights from that data. 60% of companies surveyed by Deloitte identified analytics software as a top focus for 2023, to improve forecasting and spot shortages of product components and raw materials before they affect the manufacturing line. In a 2023 report by LNS Research, 37% of manufacturers identified data quality issues as their top analytics priority.
Another major decision-making technology for manufacturers is “digital twins,” which are digital representations of manufacturing facilities, processes, and products. Manufacturers use digital twins to simulate the impact of supply and demand fluctuations on assembly line output, the dimensions of a new product, or even a piece of manufacturing equipment to be used on the factory floor, helping business leaders make informed production decisions and assess the quality of the end product before investing in physical assets.
Automation—its benefits include reduced labor costs, improved workplace safety, and increased productivity—isn’t a new manufacturing phenomenon. But adoption rates for robots, cobots (robots designed to work alongside people), drones, and autonomous vehicles are rising. North American orders for workplace robots increased 25% in the second quarter of 2022 compared with a year earlier, according to the robotics trade group Association for Advancing Automation. And although there has been a drop in orders in early 2023, the global market for industrial robots is expected to expand at a compound annual growth rate (CAGR) of 10.5% between 2023 and 2030, according to Grand View Research. The size of the global cobot market, valued at $475 million in 2020, rose to $600 million in 2021 and will reach $8 billion by 2030, according to ABI Research.
One sector at the forefront of automation is agricultural and food production. A report by market analysis firm IMARC predicts that the size of the global agricultural robotics market will increase from $7.6 billion in 2022 to $21.1 billion by 2028, representing a CAGR of 18.4% for that period, with robots expected to eventually handle the entire growing process from planting to weeding and harvesting. In manufacturing more broadly, the trend is moving toward lights-out factories, where human intervention is so minimal that the factory—or more commonly, a manufacturing cell or subset of a factory system—can operate in the dark.
Manufacturers have faced stiff headwinds for the past several years, dealing with major challenges centered on globalization and their supply chain, finances, workforce, and project management. Savvy manufacturers turn to connected cloud applications and next-generation Industry 4.0 technologies for their factories, warehouses, and back offices.
Oracle Cloud for Industrial Manufacturing includes integrated applications for enterprise resource planning, performance management, supply chain management, product lifecycle management, manufacturing, and human capital management. Each of these areas is ripe for further digital transformation. For example, manufacturers implementing cloud-based SCM applications can monitor and respond quickly to supply chain disruptions, and cloud-based HCM makes it possible for manufacturers to automate the mundane parts of the recruitment and onboarding processes to focus on higher-value employee development and engagement activities. Manufacturers can devise new sales models—for example, by offering their product “as a service” so that customers can avoid some of the burdens of ownership. Most important, because the applications are in the cloud, manufacturers can deploy them at their own pace and add new features, such as tracking software, inventory management tools, and advanced logistics, as they’re needed.
Which manufacturing sectors are growing?
Between 2023 and 2028, the fastest-growing US industrial manufacturing segments by revenue will be solar power equipment (compound annual growth rate of 25.5%), 3D printers (24.1%), drones (24.1%), and hybrid and electric vehicles (22%), according to a forecast by research firm IBISWorld.
What is the growth outlook for the manufacturing industry?
Total global manufacturing industry output grew by 3.6% in 2022, according to research from Interact Analysis, but current economic headwinds are likely to constrict manufacturing output as early as 2024. Asia is a bright spot in the firm’s forecasts, which show moderate growth in China due to reductions in COVID lockdown measures, especially in the pharmaceuticals and chemicals sectors.
What are the four types of manufacturing processes?
The four main types of manufacturing processes are shearing and forming, in which an item is either cut into multiple pieces, like fabric or paper, or bent into a specific shape; joining, in which two items are connected, most commonly by welding; casting and molding, in which a substance such as plastic or glass is melted and shot into a mold; and machining, in which a tool cuts, shapes, or removes material from an object, for example by drilling a hole or etching threads onto a metal peg to make a screw.