A recent analysis by KPMG points out that disruptive factors, such as new technologies, increasing competition, and pricing pressures are forcing manufacturers to increase investment in new products and services as they seek to innovate manufacturing capabilities. So what may the future hold for manufacturing overall and pharma specifically?
Of the 360 C-level global manufacturing executives surveyed in the study, including 80 in the US, 39% say over the next two years they will devote a significant amount of R&D towards advanced manufacturing technologies such as robotics with 25% saying they have already invested in artificial intelligence and cognitive computing technologies as well as in 3D printing and additive manufacturing technologies. Is this a paradigm for pharma? DCAT Value Chain Insights examines the future of manufacturing.
"Manufacturers recognize a failure to evolve will leave their organizations in a non-competitive position,” says Doug Gates, KPMG’s global chair of manufacturing, in commenting on the report. “The need to become more digital has never been greater and investments in new technologies are a way to enhance agility, flexibility, and speed to market when launching new products and services, critical elements for manufacturing companies to win in the marketplace.”
Of the respondents indicating plans to change their product range, more than half (56%) say they will make significant investments to launch one or more new products into the market. Thirty-nine percent say they will invest to launch one or more new services. The survey showed that 21% of all global respondents say they expect to spend more than 10% of revenues on research and development (R&D) over the next two years, compared to 15% of US respondents. More than half (56% globally, 53% in the US) say they will spend 4-10% of their revenues on R&D in the next two years.
Additional key findings show that 45% ore respondents globally (42% US) are concerned about the relevance of their products and services. Thirty-eight percent (31% US) are concerned about competitors’ ability to take business away from them, and 44% of respondents globally (42% US) are concerned about customer loyalty.
”Investing in innovation solutions and services is at the top of the agenda for manufacturers,” says Brian Heckler, national sector leader for industrial manufacturing for KPMG in the US. “Whether investing in incremental improvements for existing products or inventing entirely new products and services, it is clear manufacturers recognize the need to increase their investment in innovation.”
Investments in manufacturing and supply chain technologies
In terms of new manufacturing technologies, the survey asked what technologies would respondents be investing in R&D over the next 12 to 24 months. Robotics was the leading area, with 39% of respondents saying that they would definitely be investing in this area, followed by advanced material sciences and material bonding technologies (each 33%), additive manufacturing (i.e., 3D printing) at 31% of respondents, and artificial intelligence/cognitive computing at 30% of respondents. In terms of the areas in which companies have already invested, artificial intelligence/cognitive computing and additive manufacturing (i.e., 3D printing) were the highest with 25% of respondents already investing in each of these areas, followed by advanced materials science and material bonding technologies (each 19%) and robotics (18%).
Supply chain growth was also a top concern for manufacturers. The survey reported that only 13% of respondents said that they have complete visibility past their Tier 1 suppliers and into Tier 2 suppliers and beyond. Approximately two-fifths of respondents said that they had “enhanced” visibility to provide full transparency into Tier 1 suppliers and into some Tier 2 suppliers. Forty-three percent said that they had either limited or not visibility at all into their supply chain.
To improve the performance of their supply chain, the survey said that manufacturers are looking to investment, with 60% of respondents saying that they are looking to invest into demand sensing technologies and capabilities over the next two years. Fifty-six percent are exploring investment in supply chain analytic tools and skills. The area drawing the largest area of investment is the emerging field of IoT (Internet of things). Using a definition from McKinsey and Company, IoT involves using sensors and actuators embedded in physical objects that are linked through wired and wireless networks, often using the same Internet Protocol (IP) that connects the Internet with these networks, which are able to generate large volumes of data that flow to computers for analysis. When objects can both sense the environment and communicate, they become tools for understanding complexity and responding to it swiftly. The key change in IoT is that physical information systems are now beginning to be deployed, and some of them may work largely without human intervention. In the context of the pharmaceutical industry, an example, are pill-shaped microcameras that can be used to examine the human digestive tract and convey related images and related data.
According to the KPMG survey, led by respondents in the US and UK, technologies and tools to support IoT emerged as the top investment priority globally with 26% of respondents saying they will definitely be investing in this area, 36% possibly investing, and 26% already investing in this area. Similarly, when asked the highest digital priority, data and analytics was ranked top, over mobile, cloud, and social technologies. The survey showed that 22% of respondents definitely plan to invest in supply chain analytics over the next 12 to 24 months, 34% are considering investment, and 28% already have invested in this area.
The next largest areas of technology investment in the supply chain are integrated business planning (21% of respondents are planning investment, 33% are considering it, and 29% have already invested) and demand sensing (21% are planning investment, 39% are considering it, and 26% have made investments). This is followed by global demand management (21% are planning investment, 32% are considering it, and 32% have already made investments) and procurement systems (21% are planning investment, 29% are considering it, and 36% have already invested.
With respect to geographic expansion, although accessing lower cost manufacturing is still an important factor, growing top-line results and moving into new geographic markets are also important elements of manufacturing strategies. The survey showed that 43% of all respondents reported that their primary motivation for their foreign investments will be to capitalize on lower-cost manufacturing opportunities. A smaller, yet still significant, number of respondents (34%) indicated that they were investing in order to gain access to new markets, signaling an intention to grow top-line results through new market entry.
For example, “manufacturers have gone from a ‘make in China’ strategy to instead gear up for a ‘sell to China’ strategy,” notes David Frey, partner, markets strategy, KPMG in China. “An existing footprint either in or near China is helpful, but the reality is that selling to China is not the same as producing there; it takes different skills, capabilities, corporate structures, and sales strategies.”