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Supply Chain News: What is Ahead for US Manufacturing in 2020?

 

Amid Apparent Manufacturing Slowdown, Time to Build Digital Muscle, Deloitte Says

Nov. 18, 2019
SCDigest Editorial Staff

The consultants at Deloitte are fresh out with their latest annual Manufacturing Outlook report for 2020 – and the picture is murky.

As 2019 winds down, there are several signs of US manufacturing weakness. The Purchasing Managers Index from the Institute for Supply Management was below the 50 level that separates manufacturing expansion from contraction for the third straight month in October.

Supply Chain Digest Says...

Deloitte analysis finds approximately one in four deals in the manufacturing space over the past two years can be linked to companies with digital value propositions.

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Meanwhile, the just released monthly data on US manufacturing output from the Federal Reserve was down for the second consecutive month.

Deloitte has recently reduced its own forecast for 2020 US manufacturing GDP to 1.3% from 2.0% previously.

One factor holding US manufacturing back: a severe labor shortage, especially in skill trades.

While US manufacturing job openings have recently contracted to about 6000 per month this year from more than 20,000 on average in 2019. However, Deloitte says "Even with the slowdown in hiring, manufacturers still report difficulty filling critical jobs."

Last year, Deloitte issues a separate report with the Manufacturing Institute that predicted that by 2028, there will be as many as 2.4 million unfilled jobs in the manufacturing sector, which if accurate will significantly reduce US manufacturing output (see graphic below).

Despite that headwind and the on-going tariff war with China, most US manufacturers are optimistic - about 67% had a somewhat or very positive outlook on business currently, though that was down from more than 90% in last year’s Outlook.

In terms of manufacturing trends, Deloitte expects acquisitions and divestures to again be strong in 2020, as there is investor pressure for focus over diversification.

And with it seems just about all sectors, there will be a strong focus on digitization in manufacturing, Deloitte says.

 




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"Digital "muscle building" can be one of the leverage points to increase flexibility in global supply chains," Deloitte says, adding that "Applying artificial intelligence, cloud computing, advanced analytics, robotics, and additive manufacturing to the value chain can increase visibility and transparency, allowing manufacturers to make faster changes to operations to respond to market-based threats or opportunities."

Interestingly, Deloitte analysis finds approximately one in four deals in the manufacturing space over the past two years can be linked to companies with digital value propositions, and the appetite for these capabilities is likely to continue in the coming months.

The final trend involves a focus for many on alternative energy sources. Deloitte says its 2019 global Industry 4.0 readiness study identified that more than one-fourth of manufacturers are "Social Supers" - manufacturers who express a genuine commitment to improving the world.

From another study, Deloitte found 64% of manufacturers surveyed plan to source a significant percentage of their electricity from renewable resources over the next five years. Apart from reduced carbon footprint and societal impact, more than one-third of manufacturers agreed that this transition will help them to diversify their energy dependency and reduce costs.

In a very uncertain environment, "Manufacturing leaders can begin by examining current supply networks and considering how they could build additional agility throughout, including adding digital technologies that increase visibility and transparency to drive the ability to flex production and resources as necessary," Deloitte concludes.

Any reaction to this Deloitte Outlook? Is digital muscle really the answer? Let us know your thoughts at the Feedback section below.

 

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