A tepid start, but with a focus on quality
As group vice president, Bob Parker is responsible for the research direction for IDC Energy Insights, IDC Manufacturing Insights and IDC Retail Insights, three of IDC’s industry business units that provide global, fact-based research and analysis on best practices. He discussed his outlook and some of the key trends for 2016 with CFE Media:
CFE Media: Manufacturing was in a slump at the end of 2015. What are the driving factors for manufacturing going forward that will pull out of that slump?
Parker: For mature economies, especially the U.S., Western Europe, and Japan, the major factor will be capital goods exports. With lower commodity prices (oil, metals, food) some of the major capital goods categories remain weak. There is a major shift in those areas from capacity (need more equipment to extract more product) to capabilities (I need to extract more efficiently) and major manufacturers will have to respond. Other capital goods have very healthy order backlogs (e.g. aerospace) and a major driver will be the ability for those companies will be to increase the cadence of production rates. All of this would move faster if consumer spending picked up in concert with lower commodity costs, but globally consumers seem content to pocket the savings or pay down debt. If this changes, activity will accelerate noticeably.
CFE Media: What’s your overall outlook for 2016? What will be the key issues affecting manufacturing as we begin the new year?
Parker: Financially, I think the industry remains relatively tepid, not a tremendous slow down but not a lot of growth either. Companies will maintain profitability but free cash will continue to go into dividends, stock buy backs, or acquisitions rather than new plant and equipment. Key issues will continue to revolve around the regulatory environment and aging workforces while governments continue to support boosting the industry. However, governments will continue to falsely see this as an opportunity to create new jobs when, in fact, it is more about the economic security that comes with making things (producing real value-add).
CFE Media: Everyone is hearing about the Industrial Internet of Things. Why should IIoT be important to manufacturers?
Parker: We see its impact on several levels. There is the obvious opportunity to improve factory throughput by improving yields and increasing asset availability. Secondly, it will be critical to dealing with the explosion in the number of end items a factory is asked to produce. Growing revenue will be dependent on tailoring or even personalizing products and this can be done more profitably by applying IIoT.
The third dimension is really a culmination of the first two; what we are calling Re-Lean. This means a new generation of process improvements based on Lean Six Sigma principles (with the ‘Re’ for resilient), but with the help of advanced technologies to make Lean improvements more resilient to changes.
Often, Lean programs drive tremendous improvements but leave a company’s processes brittle and vulnerable to market shifts. The marriage of Lean Six Sigma and IIoT create an opportunity to magnify the benefits of both.
CFE Media: We talk a lot about IIoT, globalization, safety and productivity. What’s the one big issue that you think manufacturers should talk about that doesn’t get a lot of attention?
Parker: Our survey work—whether talking to supply chain executives, IT, or factory leadership—indicates that quality is a top priority. With a peanut processing CEO getting a long prison term, automotive CEOs getting dragged in front of Congress, and customers with a low tolerance for failure, enterprise quality is the primary issue and emphasis before all else.
This priority compels companies to take a holistic view of product quality from design efficacy to supplier performance to production quality and on to aftermarket activities. The integration of the Operations Technology (OT) and Information Technology (IT) organizations is an issue as well.
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