Manufacturing software – key trends and challenges in 2024 and beyond

As industries are impacted by, and respond to, changes in the global economy, the software providers that serve them also need to respond to market dynamics. For many years Cambashi has measured manufacturing software sales by product, country, and industry, and used a combination of GDP and ‘value added’ in key industries to predict growth.

So, what are the key challenges and trends affecting these industrial software providers in 2024 and beyond?

Global economic trends

Globally, Oxford Economics expects GDP growth in 2023 to be 2.5%. World growth in 2024 is, at 2%, expected to be the weakest since the global financial crisis, but is expected to pick up in 2025, for which the baseline forecast is 2.9%.

The chart below shows how manufacturing software sales to different industries have fared in recent years as economic conditions have changed. Unsurprisingly, sales to the manufacturing life sciences industry fared well during the pandemic, and still show good growth. High Tech also did well, as this includes semiconductors and computer devices which were heavily in demand. Aerospace, Automotive and Machinery industries were badly hit initially but recovered well. Automotive was hit hardest but then recovered to the highest of all growth levels, mainly due to pent-up demand.

The good news is that all sectors are now showing solid growth of between 7 and 15% going forward.

Economic and political drivers

Economic and political drivers impact all software markets covered by our research. For example, aerospace and defense investment increased due to the Russia-Ukraine conflict, which has also impacted global energy and commodity prices and disrupted supply chains. Emerging problems in the Middle East will compound this.

Countries have also responded in different ways to the COVID-19 pandemic and are recovering at different rates. Commercial aerospace was badly hit by the pandemic, and although investment initially fell dramatically, it has subsequently returned to pre-pandemic levels.

Productivity improvements

Skilled labor shortages persist, particularly in manufacturing, engineering construction, healthcare, science, and technology (ICT) occupations. This justifies the need for manufacturing software to boost productivity. Advances in AI (Artificial Intelligence), ML (Machine Learning), AR/VR (Augmented Reality/Virtual reality), and robotics are beginning to improve productivity which will help offset the skill shortages, but we are already seeing a shortfall of people with the right skills – data analysts, scientists, and engineers – that can implement these advanced capabilities.

Opportunities for software providers

In the AEC industry, where most operatives do not use software directly, the immediate opportunity is to use software for planning and managing the workforce in the field (BIM Construct and BIM Operate). Although BIM Design software is already extensively used by architects and engineers, it is still a healthily growing market.

There is a huge opportunity in AEC for ‘front-line’ connected worker software that uses headsets and personal devices combined with Augmented Reality/Virtual Reality (AR/VR) software to connect many of the construction workers and operatives that currently have no access.

In the manufacturing industry, CAD, CAM, PLM, and MOM software is extensively used and is still growing strongly. This has already provided massive productivity improvements, but there is still more potential as providers offer integrated solutions and advanced capabilities such as Machine Learning (ML), AI, Generative Design. AR/VR solutions are emerging for operatives on the front line.

New technologies

All major manufacturing software providers in our research aim to offer integrated systems or platforms that provide design (CAD), analysis (CAE), manufacturing (CAM), and production (MOM) capability, which together make a ‘digital thread’ of information and processes, from design through to manufacture and delivery.

The Internet of Things (IoT) can then be used to connect the real-world product to the design model to form a ‘digital twin’. This expands the providers’ market presence as customers can buy all they need without looking elsewhere.

SaaS (Software as a Service) delivers savings to manufacturing companies in their IT operations by reducing investment in on-premise IT systems and departments. It also increases flexibility by providing ‘work from anywhere’ capability so that project managers can work off-site and manage projects in multiple locations. Companies such as Amazon (with AWS) and Microsoft (with Azure) are the leading providers of SaaS infrastructure in the manufacturing and construction software sectors.

Supply chain issues

These have led to the adoption of supply networks, and re-shoring/near-shoring to build resilience. Global disruption, caused by issues such as the blockage of the Suez Canal, attacks on shipping in the Red Sea, and other political conflicts have stimulated a move away from supply chains and JIT (Just in Time) solutions. These were designed to be ‘lean’, with little slack or inventory, but this makes them vulnerable. The trend now is to increase resilience by moving towards supply networks and alternative supply chains.

Although our research does not cover the full range of Supply Chain Management (SCM) software, most providers covered understand that their customers want to include suppliers in the design and manufacturing processes.

AI (Artificial Intelligence) and ML (Machine Learning)

These have been employed for many years by leading manufacturing software providers to improve productivity. For example, Generative design uses AI to generate a range of designs to meet a set of constraints. Similarly, ML uses AI-based algorithms to improve the performance of a system over time, and the algorithms improve as they are ‘trained’ by exposure to historical data.

Connected Applications (Industrial IoT), AR/VR (Augmented Reality/Virtual reality) and robotics

Many providers offer IIoT/Connected solutions, initially deployed for monitoring devices and production lines. Some have extended this capability to enable digital twins to be created, using IoT sensors to link the real-world object to the digital model in the CAD system. This enables the model and object to be kept in-synch so that, for example, a service technician going out to fix a production line knows exactly what components need to be replaced.

Going one step further, AR/VR applications allow operatives with headsets to superimpose the 3D model onto the physical production line, and to show them the maintenance instructions that they need to follow. Information from the real-world object can be collected and analyzed to improve performance and detect anomalies that could predict a breakdown and then schedule maintenance.

This technology also facilitates the use of COBOTS – robots co-working with humans.

CAE and simulation

Although CAE and Simulation have been around for many years, the technology is advancing rapidly as users realize the value of analysis and simulation capabilities, such as Electro-Magnetic, Fluids (CFD), and Multi-Physics.

Initially, CAE was used only by expert analysts with sophisticated skills, but as businesses have seen the value of making these tools available to a wider audience – such as designers and manufacturing engineers – the market has grown significantly.

Virtual environments

Design (CAD) software allows engineers and designers to create, modify, and analyze product designs in a virtual environment; that enables the exploration of various design options to optimize for sustainability factors like material efficiency, energy consumption, and waste reduction. Generative Design – using AI – can assist in creating optimal designs for sustainability.

Partnering and M&A

Many of the new technologies and sustainability solutions described above were initially developed by start-ups or specialized companies and were acquired by or merged with larger providers through M&A activity.

Most large manufacturing companies, such as OEMs and tier one companies in the automotive supply chain, already have manufacturing systems from one or more of the main providers who will seek to increase their presence by expanding the scope and penetration of their offering. These larger providers may also look to enter new industries and countries, possibly by acquisition.

There are opportunities for up-and-coming providers, particularly in start-ups in the high-tech industry, and in tier two and three suppliers in the automotive and aerospace industries who are not tied-in to one of the powerful incumbents such as those mentioned above.

One effective strategy is to carve out a suite of products that provides a complete solution for a selected type of company. This may be achieved by product development or acquisition.

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