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Insite, An Episerver Company

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Five Manufacturing Disruptors in 2020

It’s without a doubt one of the most important industries in the world. It drives economic growth, creates jobs and paves the way for development. We’re, of course, talking about the manufacturing industry.

Manufacturing is evolving faster than ever. Competition is heating up. There’s a lot of uncertainty. Change and disruption is looming.
Are you keeping up?

Each year, our experts at Insite Software, an Episerver company, author a list of the hottest disruption trends headed for the manufacturing and distribution industries.

For the Five Distribution Disruptors in 2020; Marketplaces, hiring challenges and analytics were a few of the headliners on our list. We’re excited to announce our roundup of manufacturing disruptors.

Before we unpack the biggest forces hitting the manufacturing industry in 2020, let’s review what we saw happen in manufacturing last year:

  • Faced with more channel disruption than ever before, manufacturers were forced to develop strategies for regular assessments of their distribution channels
  • Meeting expectations for Amazon-like experiences caused some major logistics challenges
  • Technology became a major disruptor as smaller entities tried to compete against massive capabilities of bigger competitors
  • As IoT, AI and other technologies emerged to create smarter factories, a new collar workforce emerged with unique needs

Over the last decade, the manufacturing industry has seen its’ fair share of change. The disruption isn’t slowing down anytime soon. Here are the five biggest factors disrupting manufacturing this year and the opportunities that exist for manufacturers who carefully address them.

Disruptor #1

Marketplaces are shaking up B2B selling strategies.

Just as marketplaces kicked off our distribution disruptors, they are also the first on our list of manufacturing disruptors. After transforming the way consumer retail markets bought and sold goods, marketplaces are now transforming the B2B commerce world.

Marketplaces can be a pretty scary thing. But for manufacturers who get them right, marketplaces bring a world of opportunity.

Why this disruptor makes our list

Consumer marketplaces like Amazon have dramatically shaped our expectations for customer experiences. Marketplaces have offered us greater choice, easier product comparisons, the ability to choose lower priced products and less than 48 hour delivery, among other things. We’re bringing these expectations with us into the world of B2B.

Setting the gold standard for B2B customer experiences is Amazon Business. According to June 2018 findings from B2BecNews, roughly 8 in 10 U.S. B2B buyers used Amazon to research and buy B2B products.

It doesn’t end at Amazon either. There is no shortage of other global marketplaces like TradeIndia, IndiaMart and Alibaba, to name a few. Plus, niche marketplaces offer B2B companies competitive advantages and expansion opportunities. B2B marketplaces as a whole are predicted to reach $3.6 trillion in five years. By 2024, that means B2B online marketplaces will account for about 30% of all worldwide online B2B sales, according to Digital Commerce 360.

At Insite, we’ve watched marketplaces evolve for over a decade. They’re not a new phenomenon, though angst about them is higher than ever.

Before diving your organization into marketplaces, you have to consider some of the impacts selling within marketplaces could have on your business.

First, marketplaces can certainly erode margins for manufacturers. In addition, preference data and other information key to selling and developing new products can be lost when working within a marketplace. While manufacturers may find new customers more readily, they’re not always learning as much about these customers as they could. These are just a few of the impacts marketplaces can have on manufacturing. For more, check out our guide to B2B marketplaces.

At the end of the day, you have to measure your exposure to marketplaces to design the right strategy for your business.

How to address this disruptor

So how do you create the right strategy? There’s a chance you’re scared to go all-in on marketplaces. Maybe you don’t want to touch them at all. You may have distribution channel partners who have ran the marketplaces idea by you. There’s a lot of things to consider. Here are a few things we suggest you think about:

  • Create a multi-channel strategy.
    Take a look at your product offering and determine which products you’ll offer direct to your customer. (We’ll dive deeper into going direct to customer in the next disruptor) In addition, determine which of your distributor partners are successfully carrying your products. You don’t want to compete directly with your own channel.
  • Understand your customers.
    If you’re like most manufacturers we’ve worked with, 80% of your revenue is derived from 20% of your customers. Be sure you understand how the majority of your strategic customers want to buy from you and what they need. Think about where marketplaces might bring your customers value. Then, determine which customers are better served through your existing channels.
  • Analyze the level of data you’re getting.
    Marketplaces don’t always provide the type of behavioral data you need to continue to evolve your products. Make sure you’re gathering all the data you can from your current sales channels. Think about the trade-offs between gaining access to a new audience and the loss of data around buying behavior that will occur if you sell through marketplaces. In certain cases it will be worth losing some control. In others it won’t.
  • Determine which products are best suited for marketplaces.
    We recommend starting with lower margin products that are already commoditized. Avoid selling products on marketplaces if they require a significant amount of configuration.
  • Set specific goals.
    As you’re considering marketplaces, you have to think about what business goals they can help you achieve. Are you looking to serve new audiences? Are you looking to build your brand? Maybe you want to find new ways to go direct to consumer.

Remember, there’s not a single right answer for building a strategy around marketplaces. There are a lot of ways you can approach them.

As Insite’s CEO Steve Shaffer says, “Marketplaces actually present a huge opportunity for manufacturers. They force manufacturers to examine how much value they’re deriving from their own data, determine where they can maximize profit and build better customer experiences.”

If you’re still stuck about what to do about marketplaces check out our comprehensive guide to B2B marketplaces.

Disruptor #2

End customers will increasingly prefer to buy direct from their manufacturers.

As technology advances and customer expectations progressively evolve, many manufacturers have been asking the Shakespearean question, to sell direct or not to sell direct?

Why this disruptor makes our list

According to a report by Burke Inc. on Industrial Buying Dynamics, millennials are increasingly favoring placing orders through manufacturers.

Brooke Yamini, VP of global insights for UPS said, “Millennials show a growing preference for buying directly from manufacturers.” This buying experience and preference comes mostly at the expense of distributors who are continuously losing market share to direct-to-consumer plays and marketplaces. And it’s not just millennials. Here’s a story we recently heard from a Gen X’er:

Meet Molly

As a homeowner, I know all the pains and joys of owning my own property. Lawn upkeep, household chores, a sacred place for retreat after a long day.

Recently, one of the lightbulbs in my recessed lighting in the kitchen went out. I bought the fixture from a home improvement store a few months back. I was a bit annoyed when the LED bulb started flickering and eventually went out altogether. I didn’t expect it to burn out so fast. I begrudgingly made my way back to the store to buy a new bulb.

Turns out, they don’t sell the particular model anymore. Well, crap. They sell a new version, but that would require me ripping out the casing part of the lighting as the bulb is different in the new model. Sounds like a lot of work. All I need is a new lightbulb. When the store couldn’t sell it to me, they told me to check the manufacturer’s website. So I did.

I ended up being able to find the lightbulb on the website but had no way to actually place an order. So I made my way over to the contact form thinking, ‘how hard is it to buy a replacement bulb?!’ I sent a note via the contact us form and they never responded.

Finally, I went online and found a distributor of the manufacturer, who happened to be selling it through eBay. Go figure. I had to buy a whole new fixture, take the bulb out of it and install it in my kitchen. What a process!

Think about that story a little bit. An end customer of an electrical manufacturer looking for a simple lightbulb. Think about the opportunities lost there. If that manufacturer would have been able to sell her the lightbulb right on their site, they wouldn’t have lost margin through a marketplace play by a distributor.

The reality is, business customers want the same kind of self-service experience in their professional lives that they have in their personal lives as consumers. This has obviously resulted in pressure on manufacturers to sell direct.

Manufacturers have to get closer than ever to their end customers. They have to use data to bring end customers more value and improve the customer experience.

How to address this disruptor

Is there a way to go direct-to-customer without cannibalizing your primary channel? Absolutely. Don’t say no to eCommerce right away. Challenge the idea that it may threaten your channel. Toss out the mindset that things are fine the way they are. Just because you’ve never done it that way, doesn’t mean it won’t work. Stagnation is no one’s friend. Your answer to selling direct completely depends on your business. Sometimes you have to get a bit creative.

One of our customers, Cleaver-Brooks for example, is a manufacturer of boiler solutions. They don’t sell their $50,000 boilers direct to the end customer. That would be crazy. A sale that big transacts through a distributor, or certified installer, who has become an expert in the selling process. But Cleaver-Brooks hired a VP of Aftermarket Parts, Max King who has built an eCommerce experience that helps them sell boiler parts online. For the field technician doing maintenance on Cleaver-Brooks’ boilers, the eCommerce site is an excellent solution. The site enables the technician to instantly buy a part online if he’s in the field and has diagnosed issues or malfunctions with a particular part of the boiler.

Think about what parts of your business might allow you to go direct. Maybe it’s your overstock. Maybe it’s your deadstock. Regardless, selling direct allows you to improve end customer satisfaction, increase margins and even gather behavioral data.

When it comes to going direct, don’t forget about these added benefits:

Access to analytics to help drive investments in what your customer actually wants

Heightened brand exposure

Lead generation opportunities for both you and your channel

Information that helps arm your sales team

Meeting customers’ expectations for price transparency

Though there are many benefits in terms of greater lead generation, robust branded customer experiences and invaluable data, not all manufacturers will choose to go direct. But next time you think about going direct only to kill the idea, we hope you remember our story about the lightbulb.

Disruptor #3

Manufacturers who embrace AI, IoT and other technologies will be better equipped for the future.

IoT. AI. 3D printing. Machine learning. Technologies like these have a profound impact on the manufacturing industry. You’ve probably heard this before, but in the age of Industry 4.0, you have to be thinking about how you are leveraging these technologies to move into the future. Winning manufacturers will move deeper into digital production systems with fearless and forward-thinking operations. Those who embrace AI and IoT will make progress into the future.

Why this disruptor makes our list

Is it just us, or has IoT and AI made every new “top trends” report over the past few years? We wrote about it in 2018 ourselves. Before you tune this one out, we think there’s good reason for it hitting our list again this year. This disruptor takes a bit of a different form. It’s not happening abruptly. Rather, growth in IoT and AI is happening incrementally. Manufacturing is incredibly robust and complex so it will take time to see changes implemented across the industry.

Is it possible that robots will eventually rule the world? Maybe. But for now, let’s focus on more immediate impacts and unpack why investments in these technologies are worthwhile.

By 2025, Statista Research Department projects that we’ll see 75.44 billion connected devices. Smart devices are a reality of our world. They’re delivering more data than we’ve ever seen. They’re playing an integral part in assisting humans. They’re reshaping businesses as we know it. The impacts? Less downtime, fewer malfunctions, more efficient production and safer settings.

According to McKinsey & Company, the economic impact of IoT applications within the factory environment alone will be between $1.2 to $3.7 trillion by the year 2025.

If planned well, IoT provides a disruption that will not only lower costs and increase efficiencies, but provide manufacturers the ability to enhance the experience of ever customer through a unique, complex buying journey.

Most manufacturers have already started using AI and IoT to their advantage. But how do you take it further? You take the data you are gathering from these futuristic technologies to optimize your entire business.

AI and IoT can be paired with systems like your CRM, eCommerce, ERP and more to create a wholistic data engine. When you take the data from AI and IoT and combine it with the systems you already have in place, you open up a world of opportunity to optimize your entire business – from design to production to order fulfillment, shipping, accounts receivable, accounts payable and beyond. The more you can leverage the data, the better you’ll be able to streamline your operations, anticipate problems, minimize down time and maximize worker productivity.

How to tackle IoT and AI

Technology is revolutionizing the world. It’s changing distribution, procurement, B2B selling, sourcing and of course manufacturing. It’s hard to imagine a future without first understanding what AI and IoT are capable of.

You don’t necessarily need to have complete control over AI and IoT today. But five years from now, you sure need to be ready. It made our list this year and if the trend stays the same we wouldn’t be surprised to see it hit our list again next year. To progress forward with these technologies, you need a technical team and technical partners.

Once you have your highly technical team in place you can start working toward these things over the next few years:

  • IoT
  • Are you thinking about how IoT can impact your processes?
  • Are you monitoring your production lines from the refining process all the way through the final packaging?
  • Are you using IoT in your manufacturing line to understand when parts are malfunctioning?
  • Are IoT sensors collecting your critical production data and turning them into valuable insights about your operations?
  • Are you combining systems and machines to enable real-time asset monitoring for reliability and safety?
  • Are you building a highly digital/connected factory?
  • Are you tracking your inventory by monitoring events across your supply chain?
  • AI/Machine Learning
  • Are you using AI for things like natural language processing around order fulfillment?
  • Are you counting on AI to drive search results within your eCommerce website?
  • Are you relying on machine learning to optimize the design phase of your products?
  • Are you leveraging AI for predictive maintenance?
  • Are you thinking about AI can impact your personnel?
  • Is machine learning on order history enabling you to predict the things you should be buying?

At the end of the day how are you using advanced technologies to build better products, create new products, minimize design flaws and build things faster, more efficiently and with less errors?

AI and IoT provide a wealth of information if you use the data properly. The manufacturers who figure out how to leverage the information they are getting in a way that’s going to make them more efficient and more profitable, will leave everyone else in the dust.

Disruptor #4

The skilled labor shortage is getting worse as more manufacturing jobs sit empty.

Go to University, they said. Get a degree, they said. Sure, do it. Enjoy your coffee shop job, philosophy degree and your $80,000 of debt. More and more, young people are electing to go to 4 year college programs, as endless numbers of high skilled manufacturing jobs are left empty.

Why this disruptor makes our list

Gone are the days when manufacturers could put an ad in the paper or a hang a “Now Hiring” sign on the door and wait for a number of skilled laborers to stroll in. The opposite is true now. Most manufacturers would be happy to hire welders, machinists or other skilled workers on the spot if they walked through the door. There’s an obvious talent shortage in manufacturing.

Research from Deloitte Insights and Manufacturing Institute shows that by 2028, manufacturing will have close to 2.4 million vacant positions. Do you know what could happen if that many jobs are left unfulfilled? For one thing, the U.S. economy could lose $2.5 trillion in GDP according to the National Association of Manufacturers.

It doesn’t help that the unemployment rate is down significantly and has reached a 50-year low at 3.5 percent, according to the U.S. Bureau of Labor Statistics. College graduates are simply no longer interested in taking their careers into manufacturing, it seems. What’s more, there are more jobs opened in the U.S. than there are people unemployed. There are not many people looking for work. The younger generation is not as likely to enter the skilled trades and, of course, there’s a surge of Baby Boomer retirees.

We’re not economists, so we don’t claim to know exactly why the shortage in manufacturing is happening. Some economists argue there’s a skill gap because more jobs today require a college degree. Others argue students’ desires have simply changed and they are no longer interested in a job in the trades.

A 2019 Industry Today article took a stab at addressing why students don’t want to work in manufacturing anymore. Many of the reasons included in the article are points we agree with:

  • Young people have a desire to work in a high-tech environment
  • Factory work is perceived as boring or not where the future is headed
  • There’s a strong preference for white collar jobs
  • Schools, parents, teachers and counselors are influencing the decision to get a college degree
  • Requiring advanced technical training seems to be a barrier to entry

The skilled labor shortage is drastically disrupting the manufacturing industry, in more ways than one. Here are a few ways the labor shortage is impacting manufacturers we’ve been talking to:

Employee burn out

As roles sit empty, manufacturers have to count on the talent they do have. That often means asking workers to put in overtime hours. Longer hours can lead to frustrated and burned out workers, not to mention strained budgets.

Missed business opportunities

As manufacturers notice the strain they are putting on their teams they have to get a bit selective about the projects they take on simply because they don’t have the capacity or man-power to accept them.

Retention problems

Manufacturers are faced with a set of challenges when initially attracting talent, plus you have to continuously convince employees that it’s worth it to build their careers at your company. It’s a candidate’s market out there. Employees will float from company to company accepting the highest paying, best opportunity.

How to address this disruptor

When you’re facing 3% unemployment, manufacturing jobs are going to sit empty. You have to decide if you are going to be proactive about filling the shoes you need to fill, or if you’re going to fall victim to this disruption.

Our first tip for addressing this disruption is to invest in the trades. Consider the following:

  • Partner with trade schools
  • Get involved in local high schools
  • Create apprenticeship programs
  • Partner with the local union to attract skilled workers
  • Create programs at tech schools
  • Build relationships with community organizations like the boys and girls club
  • Encourage underrepresented people like women and minorities to get into trades
  • Help people understand the kinds of salaries they could be making if they choose a career in the trades

Steps to Consider

In addition to investing in the trades you might consider taking some other steps to combat skilled labor shortages:

  1. Raise Wages
    As unemployment continues to go down, you might have to offer more substantial wages to attract skilled workers.
  2. Improve Technology
    As technology rapidly evolves, the best talent wants to work on the most innovative technology.
  3. Make Manufacturing “Sexy” Again
    There’s a clear perception issue happening in manufacturing. Home in on the mission and vision of your company, then blast it all over your marketing materials. It’s an uphill battle to try to convince young people to venture into the manufacturing industry. This is the perfect place to tell your story. Manufacturing built this country. It is the heartbeat of the local community. Pay homage to your history and place within your community. Own your legacy. Employees are looking for authenticity and honesty. People will be attracted to your story.
  4. Get Creative with Recruiting
    Offer referral and sign-on bonuses. Create flexible work schedules. Offer a solid work/life balance. Build creative benefits packages.

We don’t want to see 2.4 million jobs left unfilled. Will you be part of the problem or the solution?

Disruptor #5

Extremely fluid geopolitics are causing uncertainty in manufacturing.

The 2020 election, Brexit, China, Tariffs….we live in very fluid geopolitical times. Uncertainty is looming in manufacturing in 2020 and beyond.

Why this disruptor makes our list

It’s not necessarily the first thing anyone wants to talk about, but geopolitical implications are definitely impacting the manufacturing industry. Major headlines in politics are causing uncertainty.

  • Brexit
    The UK’s departure from the European Union at the end of January 2020 means many implications for manufacturers. Post-Brexit trade barriers will certainly be imposed. Chancellor Michael Gove said, “Businesses need to prepare for significant change with inevitable border checks for almost everybody who imports from the EU.”
  • Current Events in China
    Taiwan is headed to polls next week in what’s considered one of the most significant elections for the island.

    Huawei, the second largest smartphone supplier, is making headlines for the role the company will play in UK 5G. Namely, can the West trust Huawei, or will using its equipment leave communication networks and our own mobile phones vulnerable? 5G is another mini-disruptor itself. We predict we’ll see a lot of buzz this year about how 5G will be rolled out at a larger, global scale and the impact that roll out will have on smart manufacturing.

    The January U.S.-China Phase 1 trade deal cut some U.S. tariffs on Chinese goods in exchange for China to purchase more American farm, energy and manufactured goods. The trade dispute is on everyone’s minds.

  • Tariffs
    Also in January, President Trump signed a proclamation expanding tariffs on steel and aluminum imports from some countries.
  • 2020 U.S. Election
    In November, the U.S. will make a decision that will drastically impact the economy – either moving forward under the leadership of Trump or electing someone extremely different from him. We’re arguably living in the most partisan environment we’ve ever had in this country, which leads to stagnation in terms of legislation.

We could go on and on, but our point is this: there’s a lot of chaos in politics right now. The only thing that’s certain is we’ll experience a whole bunch of uncertainty. And uncertainty makes things pretty hard for manufacturers.

Here’s a few things uncertainty will impact:

Pricing

Uncertainty makes it hard to buy materials. How do you know how much certain raw materials are going to cost a year from now? How do you know how much your products will be able to be sold for?

Exporting and Importing Goods

Trade agreements will make things easier or harder to export and import.

Investments

It is difficult to plan for large capital investments like new factories or new equipment when things are uncertain.

Supply Chain and Logistics

From the suppliers of raw materials or components to the end delivery to the customer, uncertainty as a result of geopolitics impacts every step of the process.

How to address this disruption

One of the worst things you can have in a market is uncertainty. Here’s a few things you can do as you wait to see what unfolds in the political world:

  • Consider opening new sales channels
  • Focus on supply chain logistics and maximizing efficiency within your operations
  • Aim for just-in-time inventory systems, aligning material orders from suppliers directly with production schedules
  • Where you can, do some hedging on certain raw materials
  • Look into contracts with suppliers and see if you can negotiate better terms
  • Be a “harbor in the tempest” for your customers. Inform them about all the changes happening that are outside your control and vow to deliver what you’ve promised in the midst of trying times.
  • Double down on customer service. Incorporate more human touch to all aspects of your business. Customers are more likely to continue working with people they like and trust, even when change is in the air.

Conclusion

So disruption is happening in manufacturing. Now what?

In any industry, disruptive influences can mean challenges for stagnant businesses and opportunity for agile ones. As marketplaces, direct to consumer, AI and IoT, the skilled labor shortage and fluid geopolitics disrupt manufacturing, you have to be ready for anything.

Are you ready to address disruption by transforming your business? Is eCommerce part of your transformation strategy? Consider partnering with Insite Software, An Episerver Company.

We created a tool that many manufacturers have found useful in guiding their eCommerce strategy. We call it the eCommerce assessment. It’s not the most creative name, but it’s a great resource that will help guide your eCommerce decision-making process. It will take you about 30 minutes to complete. Once you’ve finished it, you can use it to evaluate eCommerce vendors like Insite or our competitors.

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