- Type: Press release
- Date: 5/23/2013
KPMG’s new report provides a comprehensive overview of the global manufacturing sector in 2013.
- Nearly half of global manufacturers claim no visibility past Tier 1 suppliers
- Nearly 50% of large global manufacturers are planning mergers or acquisitions
- 68% of manufacturers will invest in incremental R&D; 31% in breakthrough innovation
- Enhanced collaboration will characterize the future of manufacturing innovation through a supply ‘network’ not a ‘chain’
Ironically though, nearly half of global manufacturers currently do not have visibility of their supply chain beyond Tier 1 suppliers.
Only 9% of the 335 respondents of the KPMG 2013 survey say they have complete visibility of their supply chains, and a similarly small percentage say they are able to assess the impact of an unplanned supply chain disruption within hours; 36% said it would take between 1 and 6 days to address the impact.
“Obtaining real-time visibility across all tiers in the supply chain can significantly increase speed to market, reduce capital expenditures and manage risk,” said Jeff Dobbs, Global Sector Chair, Diversified Industrials and a Partner with KPMG in the US.
“Moving toward a demand-driven supply chain is probably the single most important step a global manufacturer can take today. The winners will be the ones who can network real-time across their entire supply chains, reducing the information lag that costs companies significant time and money.”
44% of respondents overall say they use e-mail, fax and mail as the means to communicate issues about demand in the supply chain. In companies with revenues of US$5 billion and larger, 40% of respondents use web-based partner portals to share information about demand.
“This may not be surprising given that much of the supply chain technology is outdated,” Dobbs commented.
Focus on cost reduction, growth and innovation
As the supply chain takes center stage in the business strategies of global manufacturers, executives continue to eye tepid economic growth with subdued optimism: reducing cost structure (51%) again leads the ranking as a priority, followed by sales growth (36%) and improving risk controls (36%).
To keep costs down, over 40% say they will exit unprofitable product lines or business units. To manage risk, 58% plan to regionalize or localize their supply chains.
China and the US remain the top sourcing locations, but the report shows that many will keep sourcing closer to their major markets over the next 2 years. Nearly 90% of US respondents will increase sourcing in the US followed by Canada (18%) and China tied with the UK at 13%. In China, 85% plan to increase sourcing in China, 32% in Hong Kong and 6% in the US.
On the growth front, a third of all companies, and 47% of larger companies (over US$5 billion in revenue), are looking to mergers and acquisitions; 44% say they will invest in Greenfield opportunities in growth markets.
Manufacturers maintain that investment in R&D is essential for growth: 42% of respondents expect to invest 4% or more of revenue in R&D and innovation over the next 24 months which is 15 percentage points higher than the level being invested currently, according to the findings. 68% of respondents say their R&D will largely be incremental, with a focus on enhancing existing products and lines, 31% plan to invest in breakthrough innovation.
Innovation borne out of the supply ‘network’
The KPMG 2013 report points out that the classic reference to a global manufacturer’s suppliers as a ‘chain’ is giving way to the growing view of a supply ‘network’ where collaboration and innovation can thrive.
“As companies step up investment in innovation, whether in search of breakthrough R&D or incremental improvements to existing products and services, they are increasingly looking to their supply network for ideas,” Dobbs commented.
Just over half of respondents (51%) say that partnerships with suppliers will define the direction of innovation, and over the next 2 years, 57% expect at least 10% of their revenues to come from innovations.
Yet paradoxically, the biggest challenges manufacturers say they have with regard to innovation is aligning it to the business strategy (34%), and the complexity in collaborating with suppliers and partners (32%).
“Supply chain partners will play a critical a role in a manufacturer’s innovation strategy as part of their investment in R&D,” KPMG’s Dobbs said. “Mitigating the challenges of collaborating with partners is complex; close familiarity with who your suppliers are and how they operate will certainly help optimize performance.”
KPMG’s Dobbs said he believes notable shifts in the way companies are redefining and investing is indicative that manufacturing is on the verge of a “hyper-innovation era.”
“The sector may appear to be slowly evolving, but it is on the cusp of explosive change in the next 3 to 5 years. The prolonged stage of intense competition, modest growth and a hyper-focus on cost reduction has made companies exceptionally fit.”
“With new data technologies proliferating to enhance partnering, shared efficiencies and visibility, we’ll start seeing some breakthrough and disruptive innovation in manufacturing – not only to the products but also to the process.”
KPMG’s 2013 Global Manufacturing Outlook, a report from the Economist Intelligence Unit, is based on a survey of 335 senior executives, conducted in November 2012. Executives represented five industries: Aerospace and Defense, Automotive, Conglomerates, Engineering and Industrial Products, and Metals. 46% were C-level, including board members. Respondents came from companies of many different sizes: nearly 30% represent companies with more than US$5bn in annual revenue. Respondents are distributed globally, with nearly a third each from The Americas; Asia; and Europe, the Middle East & Africa.
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