DETROIT – Global manufacturing executives remain focused on cost management and operational efficiency initiatives but are turning their attention to investing in innovation and value-added services to drive growth, according to KPMG’s 2012 Global Manufacturing Outlook: Fostering Growth through Innovation.
KPMG surveyed 241 global senior manufacturing executives. Respondents represented the aerospace and defense, metals, engineering, and industrial products sectors, including industrial conglomerates. The executives – including 50 from the U.S. – made up 75 percent of respondents, and are optimistic about their business outlook. They believe that ‘transformational innovation’ is either in full swing or will be so in 12-24 months. The US is expected to lead the growth, followed by China, India, Brazil and Germany.
Despite their optimism, executives identify top-line growth (58 percent US; 41 percent global) and bottom-line growth (62 percent US; 43 percent global) as main priorities for their organizations. Other areas of focus are improved productivity/efficiency and increased competitiveness.
62 percent of respondents say their companies are doing what is typically done in low-growth periods: improving process efficiency and refocusing the business on its core offerings and capabilities. More than 50 percent say they are eliminating unprofitable product lines and markets. 44 percent of US executives and 36 percent of global executives indicate that their companies will increase investment in innovation and research and development.
“Manufacturers may be optimistic about the business environment over the next few years, but they are challenged with continued price volatility on cost inputs, risk in the supply chain, and uncertain demand,” said Jeff Dobbs, KPMG’s global head of Diversified Industrials and a partner in the US firm. Companies must continue to seek opportunities to optimize business operations and minimize costs. But manufacturers are also looking to spur growth opportunities through new product development and value-added service offerings.

”After several years spent cutting costs, many manufacturers realize that … they must deploy capital to develop the products that could give them a competitive advantage,” commented Dobbs.
The stronger focus on innovation – coupled with dramatic technological advances – is having a significant impact on manufacturing business models, which are becoming more service-oriented. This is giving manufacturers new ways to gain competitive advantage.
Value-added services may potentially add to profit margins, but it should also help executives strengthen customer relationships and identify future sales opportunities. Nearly two thirds of respondents predicted new/enhanced customer services will make a significant or very significant contribution to profits.
Shifts in value propositions – such as pricing models or augmenting products with value-added services – ranked third after cost structure and new sales targets as intended changes respondents plan to make to their business models.
“Customer and supplier collaboration in the earliest stages of product development allows for cost and risk sharing and lets manufacturers focus on what they do best …, accelerating speed to market,” Dobbs said.
