Navigating Digital Transformation in Middle-Market Manufacturing

The Chubb and National Center for the Middle Market 2022 Year-End report cast a ray of sunshine, suggesting a recovery in middle-market economic confidence beginning in 2022, but despite that forecast, middle-market economic confidence has not yet reached the levels seen in 2021. The Chubb report finds that nearly four out of five (79%) middle-market manufacturing firms are reporting revenue growth over a year ago, and more than half (58%) continue to add to their workforce – even in the current tight labor market. Given the uncertain economic climate, middle-market manufacturing executives are using new strategies and technologies to maintain resilience and profitability.

To remain competitive in a market that is evolving at an unprecedented rate, various types of digital transformation have emerged as a critical strategy for middle-market manufacturing businesses in the United States. While some companies have been slow to adopt digital technologies in the past, the COVID-19 pandemic forced organizations to rapidly seek out and implement new tools and processes in response to adjusting to a remote workforce, supply chain disruptions, and shifting consumer demands. Deloitte’s 2023 Manufacturing Industry Outlook reports that manufacturers have steadily increased their investment in identifying and adopting emerging technologies over the past few years. Companies with a higher level of digital maturity and those that accelerated digitalization during the pandemic have proven greater resilience. Engaging in cutting-edge manufacturing technologies can aid in creating the necessary agility to weather unexpected market or economic challenges.

Supply chain management is one area where digital transformation has become crucial. Companies can increase supply chain visibility by using digital technologies such as cloud-based platforms, which enable the consolidation of customer, supplier, and resource management within a single system accessible from anywhere on the globe. A manager can check demand through a single dashboard and quickly identify and resolve potential production disruptions. Additionally, with machine learning and predictive analytics, businesses can now foresee demand accurately and optimize their inventory levels, lowering the likelihood of stockouts or excess inventory.

The factory floor is another place where emerging technologies have brought about a paradigm shift in middle-market manufacturing. Automation of processes has resulted in higher efficiencies and more responsive quality control. Manufacturers can now collect real-time data from machines and equipment sensors connected to what has become known as the Industrial Internet of Things (IIoT), enabling operators to identify inefficiencies and adjust manufacturing procedures to maintain quality. As a result, businesses may experience less downtime, higher-quality products, and greater output.

Digital transformation is a complex process that means different things to different organizations. The digitalization journey requires significant planning, investment, and expertise. Given its complexity, the concept can be intimidating and difficult for middle-market manufacturers to adopt quickly. It requires a clear long-range vision and the willingness to relearn certain aspects of their operations. Despite all of this, the realities of the competitive landscape, and the potential risks of not following industry trends, are too great to ignore.

One of the threshold challenges of digital transformation is developing a clear strategy that aligns with the company’s business goals. Many companies may be tempted to adopt new technologies without a clear plan, leading to failed projects, wasted resources, and a skeptical view of the benefits of digitization. To be successful, companies must take the time to identify their digital priorities, evaluate their existing technology infrastructure, and develop a roadmap for implementation.

An essential part of any such strategy is the commitment of the necessary workforce to execute the plan. Companies must consider the technologies they intend to adopt and ensure they have the correct personnel to manage and implement these new technologies. Any transformative plan should include hiring new talent with skillsets that dovetail with the plan and goals of management and enhancing existing employees through upskilling to create a specialized workforce with the technical expertise to manage the new technologies. Companies will likely experience a minor cultural shift as a side-effect of the transformation, as a fresh wave of skills, innovations, and refinements permeate the organization. Without the right talent in place and consensus on the objective, companies will likely struggle to fully realize the benefits of digital transformation.

Another challenge that companies will encounter when they strike down this path is the sheer number of technologies and solutions available. The breadth, functionality, complexities, and costs can be overwhelming. As a result, it can take time for companies to figure out which technologies are the right fit for their unique needs and goals. Conversely, this makes it easy for an organization to overspend or buy technology that is not the best fit, leaving management questioning the value of the entire transformation initiative. To overcome this challenge, companies should consider working with external resources for an objective assessment of needs, guidance with technology selection, and expertise with implementation. Industry associations, consulting firms, and technology suppliers all provide direction to businesses in order to help them choose the best technologies and implementation plans for their particular requirements.

The resurgence of U.S. manufacturing jobs brought about by the recent trend of reshoring is also causing companies to reexamine their operations and seek tools to increase their efficiencies and enhance profitability. Reshoring refers to the process of bringing back manufacturing jobs that were previously outsourced to other countries. Over the past few years, there has been a significant increase in the reshoring of U.S. manufacturing jobs. This has been driven by a combination of factors, including tax incentives, rising wages in developing nations, and technological advancements that have made it more cost-effective to manufacture goods in the United States.

Reshoring is primarily the result of rising wages in developing nations, particularly China. As wages in China continue to increase, compounded by volatile fuel prices and shipping costs, it has become less cost-effective for companies to manufacture goods in China, only further impacted by its recent “Zero Covid” policies. These factors have prompted manufacturers to consider moving their operations to more favorable locations, including moving manufacturing back to the United States.

Recently implemented tax incentives have also contributed to the resurgence of U.S. manufacturing jobs. In recent years, there have been a number of tax incentives and other policies put in place to encourage companies to bring their manufacturing operations back to the United States. For example, the Tax Cuts and Jobs Act of 2017 lowered the corporate tax rate and provided other incentives for companies to invest in the United States.

Finally, technological advancements have made it more cost-effective to manufacture goods in the United States. Automation and other digital technologies have made it possible to produce goods more efficiently and with fewer workers, reducing labor costs and making it more competitive to manufacture goods in the United States.

Digital transformation is an essential tactic for American middle-market manufacturing businesses to stay competitive in today’s dynamic market and volatile economy. Manufacturers can promote innovation and stay relevant in an increasingly digital world by developing and implementing a well-thought-out transformation plan to strategically integrate new technologies into their operations and acquire the appropriate workforce to execute the plan.?

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