Manufacturing Outlook: Navigating the Next Industrial Transformation

UHY’s 2024 Manufacturing Outlook was hosted live at The Desmond Hotel in Albany, NY and live-streamed for nationwide audiences. Here is a summary of the key themes addressed during the event.

The next industrial transformation will be marked by disruption and rapid change

Disruption is a commonly used term for manufacturers, but the industry is preparing to experience disruption on an unprecedented scale, and that disruption will present ample opportunity for those that embrace it. There are volatile constants like geopolitical tensions, climate shifts and globalization that can cause significant disruption, but now manufacturers are monitoring the labor force, black swan events like COVID-19, supply chain security, developing technology and several elections across the world that threaten efficiency and productivity. Any one of these factors may shape the industry in the short term and have a massive impact on its future. Manufacturers must recognize and seize opportunities caused by disruption to emerge victorious in the next industrial transformation.

The U.S. needs to regain manufacturing productivity to succeed through the next industrial transformation

Manufacturing has been transforming for decades, in the 90s U.S. manufacturing labor output and productivity were on a similar upward trend. By the 2000s that labor output began to level off and even decline as the U.S. became more of a service-based economy. Even as output declined, productivity remained consistent, and we believe that productivity will help the U.S. regain its footing as a manufacturing powerhouse on a global stage to remain competitive with China and other major economies.

We see plenty of opportunities across many sectors of the manufacturing industry going into the future, and though it seems intimidating, this is one of the greatest periods of manufacturing in our history. All these risks and disruptions will create gaps and needs that need to be filled with great success for those who fulfill those needs. Manufacturers of all sizes can seize these chances and be successful in this upcoming industrial transformation by utilizing the following strategy:

• Foster a culture of continuous cost improvement. Tone at the top is a critical starting point.
• Develop a strategy to capitalize on new market or product opportunities. It doesn’t happen overnight.
• Form an operations strategy to be a leader in a high-mix, low-volume environment.
• Gear your labor and technology strategy to build scale.
• Identify and align with capital sources to grow, we expect more government incentives in this space.

Innovation and opportunities for cost savings can be hiding in plain sight and those who are able to adapt, realize cost savings, and capitalize on new markets or products will be the most successful through the next industrial revolution.

Positive near to mid-term economic outlook

All this optimism hinges on economic performance in the next three to five years and after a slow 2024 it would be a welcome sight for manufacturers. Removing any bias, it would appear that the Federal Reserve seems to have been successful in navigating the difficult battle vs inflation while avoiding any serious declines or recessions and we have seen the 50 basis point decrease in September, now we look forward to 2025 and beyond.

Evaluating all the leading indicators and other factors, the forecast GDP for 2025 will amount to near two percent, unemployment will rest near four percent and there will be modest job growth. For manufacturing the forecast GDP will be slightly higher than overall GDP closer to 2.3 percent in 2025 and up to 2.5 percent in 2026. We’re expecting growth in important sectors like automotive, computers and research and development, all over two percent.

We’re also looking at a significant increase in manufacturing jobs in both 2025 and 2026. By all accounts, the future is bright for manufacturing.

Rapid development of AI and its role in success for manufacturers

Theoretically the “concept of AI” technically originated in the 1700s with this idea of “machines acting like humans” but we have come a long, long way. Between then and now we have made significant strides and ChatGPT is likely the most well-known AI platform you may be familiar with, and the rate of adoption for ChatGPT has been astounding to the tune of over 1 million users in five days. The development and emergence of AI solutions can produce immense value for those that choose to utilize them in various capacities.

Manufacturers specifically can use AI to enhance their engineering processes with automation, design optimization, and simulation and testing; procurement in critical supplier selection and risk management functions, inventory management and forecasting, and automated negotiations with suppliers; and in quality control with visual inspections and real-time monitoring.

Keep in mind that AI is not one size fits all, and is not meant to replace your employees, but free them up for value added tasks that AI is not capable of handling. Security and accuracy are also a major concern and governance, and monitoring will be required for anyone taking the leap.

SCRI Manufacturing Pulse

A Siena College Research Institute study surveyed nearly 400 CEOs across the country including roughly 125 CEOs of manufacturing companies. From that data we derived the following insights regarding the manufacturing industry: 

• Cost reduction is the top way that manufacturers plan to enhance profitability.
• “Smart factories” are not considered to be a boon for growth and profitability in the near term.
• Manufacturers plan to invest in fixed assets over the next year to meet growing demand and increase productivity.
• Rising supplier cost is the number one challenge for manufacturers.
• Manufacturers that are planning to increase their workforce do not believe there are enough adequately skilled local workers to fill their needs.
• 85 percent of manufacturers believe labor gaps have made it difficult to be successful.
• Recruiting and retention of semi-skilled and skilled workers continues to be a challenge.

It wasn’t the largest constituency of manufacturing leaders, but the data from the SCRI survey was a microcosm of more broad sentiment.

Collaboration between government and manufacturers is critical to drive the industry forward

Collaboration between the government and the manufacturing industry is crucial for ensuring the industry's long-term success and global competitiveness. Policies that promote investment in innovation, workforce training, and sustainability can provide the foundation for growth and modernization in the sector. Policies should also be geared toward protecting domestic manufacturing and at the same time, lawmakers need to be careful to not harm or hinder the industry with new policy implementation.

By working together, they can address key challenges such as supply chain disruptions, workforce shortages, and the adoption of advanced technologies. Strategic policy frameworks can and should incentivize research and development, foster public-private partnerships, and streamline regulations to enhance productivity, ultimately driving the industry forward in an increasingly complex global market.

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