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Transformation of global manufacturing under way, fueled by innovation and collaboration
KPMG. The prevailing climate of low economic growth is driving global manufacturers to seek new approaches in innovation and collaboration across the value chain, and creating a somewhat surprising shared optimism for expected high-margin growth in the next 12 to 24 months, according to a new survey report from KPMG International.
According to KPMG's 2012 Global Manufacturing Outlook: Fostering Growth through Innovation, 76 percent of respondents globally are optimistic about their business outlook over the next 12 to 24 months. This optimism seems to be buoying expectations that both sales and profitability will be up during the period with nearly half of respondents placing both top-line (43 percent) and bottom-line growth (41 percent) as main priorities.
The US is expected to lead the growth according to 40 percent of respondents, followed by China, India, Brazil and Germany.
"Manufacturers are not just preparing for growth but for 'high-margin growth'," said Jeff Dobbs, KPMG's global head of Diversified Industrials and a partner in the US firm.
Ongoing challenges for manufacturers according to most respondents continue to be price volatility on cost inputs, risk in the supply chain, and uncertain demand.
"Manufacturers have acclimated to a world where volatility is the norm," Mr. Dobbs added. "Today, manufacturers are leaner and more agile, many with strong balance sheets and healthy cash reserves - in a nutshell, they're poised for growth."
Sixty-two percent of respondents say they are performing process improvements and refocusing on core competencies. Just over 50 percent say they are eliminating unprofitable product lines and markets.
Greater innovation through collaboration
Clearly, manufacturers are doing more than scaling back; they're also increasing activities in innovation and collaboration, keeping a longer view of a return to sustainable growth. A majority of respondents (72 percent) believe that transformational innovation is either in full swing or will be so in 12-24 months, with US respondents leading in the view (84 percent) that innovation is or will be well under way.
"After several years of focusing on cutting costs, many manufacturers realize that they have to invest in expanding their product and service offerings in order to remain competitive," commented Mr. Dobbs.
Globally, the highest percentages of manufacturers are looking to improve their processes and existing products over the next 12 to 24 months via increased "process innovation" and "incremental innovation", but "radical innovation" and "fundamental innovation" also ranked highly for increased activity.
Manufacturers from emerging markets outpaced those from developed markets by 10 and 14 percentage points, respectively, in their intent to increase radical and fundamental innovation in the next 12 to 24 months. Additionally, when respondents who planned to increase sourcing activities in China and India in the same period were asked which types of activities they planned to do, more than half selected "R&D" for China, and more than three fourths said "product development/design" for India.
Richard Rekhy, Head of Advisory, KPMG in India said, "As global supply chain patterns have shifted decisively towards Asia to reduce costs, India's comparative advantages in more advanced engineering are driving global players to expand their capacities in India, helping to transform the Indian supplier ecosystem from a fragmented, single-tiered model towards a multi-tiered, more collaborative supplier network."
He further added, "With India's manufacturing sector maturing and moving further up the global value chain, the challenges for both domestic companies and invested global players lie in scaling up to increase volume and developing more sophisticated capabilities here to effectively address local growth, and beyond. I believe those companies that are willing to make the investment now stand to gain a substantial piece of the 'high-growth market' pie in due course."
Innovation is not going to happen in isolation according to the findings, but increasingly in collaborative arrangements over the next 12 to 24 months. Just over 60 percent of respondents globally said they will work more with customers for customized product development and with suppliers for product design.
"There's a decisive shift by manufacturers towards collaboration in the earliest stages of product development," Mr. Dobbs said. "This inclusive approach to innovation not only disperses potential risks, costs and rewards across the supply chain, but it also lets manufacturers focus on what they do best by leveraging the expertise of external partners and accelerating speed to market."
The collaborative environment is also having an impact on manufacturing business models, which are becoming more service-oriented. This may give manufacturers new ways to gain competitive advantage, for example in the provision of development and maintenance contracts and other collaborative services.
Shifts in their value propositions - such as new pricing models - ranked third (49 percent) after cost structure and new sales targets as intended changes respondents plan to make to their business models.
This rise in value-added services is expected to boost profits. Nearly two thirds of respondents predicted new/enhanced customer services will make a significant or very significant contribution to profits in the next 12 to 24 months.
"In an attempt to buffer down-cycles, manufacturers are expanding their product offerings to include value-added services. While this may potentially add to their profit margins, it should also help them strengthen customer relationships and identify future sales opportunities," Mr. Dobbs said.
About the report:
KPMG's 2012 Global Manufacturing Outlook: Fostering Growth through Innovation surveyed 241 senior manufacturing executives in February 2012. Respondents represented the aerospace and defense, metals, engineering and industrial products sectors, including industrial conglomerates. Participants represented companies with more than US$1bn in annual revenue; 33 percent hail from organizations with more than US$10bn in revenue. The companies were geographically split among Western Europe (29 percent), North America (23 percent), Asia-Pacific (28 percent), Middle East and Africa (10 percent) and Latin America (10 percent).
About KPMG:
KPMG is a global network of firms providing professional services. We have 145,000 outstanding professionals working together to deliver value in 153 countries worldwide. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity...Ã Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG in India is the Indian member firm of KPMG International and was established in September 1993. It strives to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and its experience of the Indian business environment. KPMG in India provides services to over 2,700 international and national clients in India and has offices in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata, Chandigarh, Ahmadabad, Pune and Kochi.
Source: http://www.business-standard.com/india/news/transformationglobal-manufacturing-under-way-fueled-by-innovationcollaboration-kpmg/476602/
Image source: http://www.mimifroufrou.com/scentedsalamander/images/Online-Shopping-TSS.jpg
According to KPMG's 2012 Global Manufacturing Outlook: Fostering Growth through Innovation, 76 percent of respondents globally are optimistic about their business outlook over the next 12 to 24 months. This optimism seems to be buoying expectations that both sales and profitability will be up during the period with nearly half of respondents placing both top-line (43 percent) and bottom-line growth (41 percent) as main priorities.
The US is expected to lead the growth according to 40 percent of respondents, followed by China, India, Brazil and Germany.
"Manufacturers are not just preparing for growth but for 'high-margin growth'," said Jeff Dobbs, KPMG's global head of Diversified Industrials and a partner in the US firm.
Ongoing challenges for manufacturers according to most respondents continue to be price volatility on cost inputs, risk in the supply chain, and uncertain demand.
"Manufacturers have acclimated to a world where volatility is the norm," Mr. Dobbs added. "Today, manufacturers are leaner and more agile, many with strong balance sheets and healthy cash reserves - in a nutshell, they're poised for growth."
Sixty-two percent of respondents say they are performing process improvements and refocusing on core competencies. Just over 50 percent say they are eliminating unprofitable product lines and markets.
Greater innovation through collaboration
Clearly, manufacturers are doing more than scaling back; they're also increasing activities in innovation and collaboration, keeping a longer view of a return to sustainable growth. A majority of respondents (72 percent) believe that transformational innovation is either in full swing or will be so in 12-24 months, with US respondents leading in the view (84 percent) that innovation is or will be well under way.
"After several years of focusing on cutting costs, many manufacturers realize that they have to invest in expanding their product and service offerings in order to remain competitive," commented Mr. Dobbs.
Globally, the highest percentages of manufacturers are looking to improve their processes and existing products over the next 12 to 24 months via increased "process innovation" and "incremental innovation", but "radical innovation" and "fundamental innovation" also ranked highly for increased activity.
Manufacturers from emerging markets outpaced those from developed markets by 10 and 14 percentage points, respectively, in their intent to increase radical and fundamental innovation in the next 12 to 24 months. Additionally, when respondents who planned to increase sourcing activities in China and India in the same period were asked which types of activities they planned to do, more than half selected "R&D" for China, and more than three fourths said "product development/design" for India.
Richard Rekhy, Head of Advisory, KPMG in India said, "As global supply chain patterns have shifted decisively towards Asia to reduce costs, India's comparative advantages in more advanced engineering are driving global players to expand their capacities in India, helping to transform the Indian supplier ecosystem from a fragmented, single-tiered model towards a multi-tiered, more collaborative supplier network."
He further added, "With India's manufacturing sector maturing and moving further up the global value chain, the challenges for both domestic companies and invested global players lie in scaling up to increase volume and developing more sophisticated capabilities here to effectively address local growth, and beyond. I believe those companies that are willing to make the investment now stand to gain a substantial piece of the 'high-growth market' pie in due course."
Innovation is not going to happen in isolation according to the findings, but increasingly in collaborative arrangements over the next 12 to 24 months. Just over 60 percent of respondents globally said they will work more with customers for customized product development and with suppliers for product design.
"There's a decisive shift by manufacturers towards collaboration in the earliest stages of product development," Mr. Dobbs said. "This inclusive approach to innovation not only disperses potential risks, costs and rewards across the supply chain, but it also lets manufacturers focus on what they do best by leveraging the expertise of external partners and accelerating speed to market."
The collaborative environment is also having an impact on manufacturing business models, which are becoming more service-oriented. This may give manufacturers new ways to gain competitive advantage, for example in the provision of development and maintenance contracts and other collaborative services.
Shifts in their value propositions - such as new pricing models - ranked third (49 percent) after cost structure and new sales targets as intended changes respondents plan to make to their business models.
This rise in value-added services is expected to boost profits. Nearly two thirds of respondents predicted new/enhanced customer services will make a significant or very significant contribution to profits in the next 12 to 24 months.
"In an attempt to buffer down-cycles, manufacturers are expanding their product offerings to include value-added services. While this may potentially add to their profit margins, it should also help them strengthen customer relationships and identify future sales opportunities," Mr. Dobbs said.
About the report:
KPMG's 2012 Global Manufacturing Outlook: Fostering Growth through Innovation surveyed 241 senior manufacturing executives in February 2012. Respondents represented the aerospace and defense, metals, engineering and industrial products sectors, including industrial conglomerates. Participants represented companies with more than US$1bn in annual revenue; 33 percent hail from organizations with more than US$10bn in revenue. The companies were geographically split among Western Europe (29 percent), North America (23 percent), Asia-Pacific (28 percent), Middle East and Africa (10 percent) and Latin America (10 percent).
About KPMG:
KPMG is a global network of firms providing professional services. We have 145,000 outstanding professionals working together to deliver value in 153 countries worldwide. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity...Ã Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG in India is the Indian member firm of KPMG International and was established in September 1993. It strives to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and its experience of the Indian business environment. KPMG in India provides services to over 2,700 international and national clients in India and has offices in Mumbai, Delhi, Bangalore, Chennai, Hyderabad, Kolkata, Chandigarh, Ahmadabad, Pune and Kochi.
Source: http://www.business-standard.com/india/news/transformationglobal-manufacturing-under-way-fueled-by-innovationcollaboration-kpmg/476602/
Image source: http://www.mimifroufrou.com/scentedsalamander/images/Online-Shopping-TSS.jpg