Nuage: 2025 Manufacturing Industry Outlook

It's Day 2 of 2025 and the Manufacturing Industry is poised for significant transformation, driven by digital innovation and the need to address persistent challenges such as talent shortages and supply chain disruptions.

At the end of November, 德勤 released their Annual 2025 Manufacturing Industry Outlook (2025 Manufacturing Industry Outlook | Deloitte Insights). As most expect, manufacturers are expected to continue to face a challenging and uncertain business climate due to a combination of higher costs, potential policy changes following the US and global elections, and geopolitical uncertainty. Here are their top 5 trends (and my very own bonus material on what to expect with policy changes) going into the new year:

1. Talent: Positioning for Renewed Demand and Maintaining a Long-Term Workforce Strategy

Manufacturers are facing persistent challenges in attracting and retaining skilled labor, despite a slight easing in labor market tightness. The Employment Cost Index for total compensation in manufacturing has continued to climb, gaining 3.8% year over year as of September 2024. Additionally, labor participation rates have been declining in the United States for over two decades, due in part to an aging population, and this trend may continue through at least 2030. Manufacturers are focusing on reducing turnover and investing in workforce development to address these challenges. Not factored into the predictions are where the H-1B & immigration policies will ultimately shake out (see #5 Policy for more).

2. Supply Chain: Enhancing Resilience and Performance

Supply chains have shown improvement, with the average delivery time for raw materials dropping to 81 days by October 2024, representing a 2% year-over-year decline. However, they still have not returned to pre-pandemic norms. Manufacturers are investing in digital technologies to gain real-time visibility and proactively manage potential disruptions, ensuring continuity in production schedules. From spikes in cardboard to shipping containers, most executives since Covid (having met with hundreds of Manufacturers in the last 4 years), acknowledge that Demand & Supply Planning need to be modeled beyond a simple spreadsheet.

3. Digital Transformation: Embracing Smart Factories and the Industrial Metaverse

The push towards smart factories and the industrial metaverse is reshaping manufacturing processes. A recent Deloitte study indicated that a striking 86% of surveyed manufacturing executives believe that smart factory solutions will be the primary drivers of competitiveness in the next five years. Manufacturers are adopting ERP, MRP & WMS technologies to enhance efficiency and competitiveness in the market, but we aren't seeing the full-fledged IoT or appetites for Industrial 4.0 technology that is close to being Mid-Market available (2 years).

4. Sustainability: Supporting Environmental Initiatives

Deloitte, predicts an increasing focus on sustainability, as manufacturers are seeking ways to reduce their environmental impact. Investments in clean technology manufacturing are nearly double the commitments made for these sectors throughout 2021, and nearly 20 times the amount allocated in 2019. While Deloitte notes most Manufacturers are leveraging digital tools to facilitate better resource management and tracking, it's very rare that we are seeing traditional green-practices being implemented in the mid-market. I'd argue that with Policy shift going into the new year we should expect a fair amount of deregulation, and Environmental Initiatives not making the list for 2026 Predictions.

5. Policy and Economic Uncertainty: Navigating a Complex Landscape

Manufacturers are expected to continue to face a challenging and uncertain business climate due to a combination of higher costs, potential policy changes following the US and global elections, and geopolitical uncertainty. Surveyed manufacturers in NAM’s 2024 third-quarter outlook expect raw material and other input costs to grow by 2.7% over the next 12 months. Manufacturers are staying agile and informed to navigate these uncertainties effectively.

6. My Take on Domestic Policy

Domestic political developments are poised to significantly influence the U.S. manufacturing sector. The re-election of President Donald Trump introduces a series of policies aimed at reshaping the industrial landscape. These initiatives present both opportunities and challenges for manufacturers nationwide.

Trade Policies and Tariffs

President Trump's administration is expected to implement stringent trade policies, including the reintroduction and expansion of tariffs, particularly targeting imports from China. Proposals suggest imposing a 60% tariff on Chinese goods to encourage domestic production and reduce reliance on foreign manufacturing. While these measures aim to bolster U.S. manufacturing, they may also lead to increased production costs and supply chain disruptions for industries dependent on imported materials.

Tax Incentives and Deregulation

The administration plans to offer substantial tax breaks to companies that establish or expand manufacturing operations within the United States. Coupled with efforts to deregulate certain sectors, these incentives are designed to create a more favorable environment for domestic manufacturing. Industries such as automotive, aerospace, and heavy machinery are anticipated to benefit significantly from these policies.

Reshoring Initiatives

A key component of President Trump's economic agenda is the "Made in America" initiative, which seeks to bring manufacturing jobs back to U.S. soil. By incentivizing domestic production and imposing tariffs on foreign goods, the administration aims to reduce dependency on international supply chains and enhance national economic security. This strategy is expected to create job opportunities and stimulate growth within the manufacturing sector.

Potential Challenges

Despite the potential benefits, these policies may introduce challenges, including:

Supply Chain Disruptions: Tariffs on imported goods could disrupt existing supply chains, necessitating adjustments that may incur additional costs.

Increased Production Costs: While tax incentives aim to offset expenses, the combination of tariffs and regulatory changes could lead to higher production costs for manufacturers.

Global Trade Relations: Aggressive trade policies may strain relationships with key international partners, potentially leading to retaliatory measures that could impact U.S. exports.

Nuage’s Outlook

The manufacturing sector is expected to experience a period of adjustment as major policy changes take effect. Companies that can adapt to the changing landscape by reshoring operations and leveraging available incentives may find new growth opportunities. However, those heavily reliant on international supply chains may face hurdles that require strategic realignment.

Nuage is committed to helping manufacturers not only adapt to the changes anticipated in 2025 but also to thrive in a dynamic industry landscape. By leveraging the best available technology, implemented by the best people -- we'd love an opportunity to show you how we can help your organization thrive!