It is an interesting time for indian industrial manufacturing sector as manufacturing activity is picking up momentum with the launch of new PLI schemes. Industrial manufacturing CEOs sound quite positive of the year ahead and are preparing for tapping the opportunities. While enhancing EBITDA remains as an evergreen focus, a few others have emerged as priorities.
Digital transformation for connected enterprise
Digital transformation has emerged as one of the priorities for CEOs. They are transforming the organisation into Connected Enterprise to address end to end data challenges across front office, middle office and back office functions. Many of them have embedded Lighthouse teams within each function to unearth value from analytics of functional big data to identify patterns that can enable business benefits. They are investing in automation of repeated tasks to enhance productivity. Digital manufacturing/ Industry 4.0, which was in experimental phase so far is actively picking up and companies are connecting equipment to generate real time data to enhance efficiencies in the areas of asset reliability, quality, deliver maximisation, skill enhancement, etc.
Artificial Intelligence as an Efficiency Enhancer
Companies are looking at Artificial Intelligence (AI) to enhance efficiencies. Some of the more common applications where AI is leveraged include procurement function where AI is used for Price forecasting for categories based on external and internal data, support as Procurement Buddy for buying decisions, dynamic share of business allocation for vendors ,should be costing generation to name a few. Other areas including Logistics, Planning and Sales where AI is used for Route optimisation, Scheduling and to generate dynamic pricing models.
ESG - An Emerging Priority
ESG has garnered a clear position as one among the top priorities for CEOs. Companies are fundamentally reconfiguring their product ingredients and processes to become more sustainable. This involves applying value engineering principles on the specification of the raw material ingredients, evaluating substitutes/blends which are more sustainable but still fully meeting functional heads. Many of them are activity educating their Supplier ecosystem on concepts of Sustainability, evaluating them for long term partnership. Supplier audits for sustainability are getting initiated by companies and technology platforms for tracking sustainable supplier chain are emerging. Companies are actively tracking carbon emissions from transportation and evolving ways to reduce emissions interms of route optimisation, conversion to EV vehicles to name a few. Some of the organisations have achieved substantial cost reduction as well in this ESG pursuit.
Portfolio reshuffle is visible
An uptick in deals in the market is likely in the IM space. According to our KPMG Global CEO report, 88 percent of industrial manufacturing CEOs think their organisation will make an acquisition over the next three years. Case in point is many Cement manufacturers in India who are aggressively expanding capacity are exploring both organic and inorganic methods for growth if the target gives strategic advantage in terms of capacity as well as new market reach.
Portfolio reshuffling is expected to gain momentum in the market as players seek to focus on core strengths and divest assets that no longer support their long-term strategy and might struggle to access the necessary investments to create value over the long term. Manufacturers in our survey clearly stated that stable market conditions and availability of financing are the two pre-requisites to resume stronger M&A activity. It is encouraging to note that these two conditions significantly improved during 2023.
Service as a new growth engine
Many industrial manufacturing companies are looking at Service revenue as the new growth engine. They are investing on creating “Connected Products” and actively looking at monetising the digital connect. Ability to generate data realtime from the installed equipment help the OEMs to track performance/ parameters and hence their ability to understand equipment usage becomes better. This has changed the business model itself from Product Sales to Product as a Service. New commercial models are evolving where the OEMs are contracting for performance or sharing of benefits from performance improvement than pure fixed contracts. This model also provides stickiness of customers and hence increase in duration of contract terms are visible.
Conclusion
The above are few of the strategic imperatives in the minds of Indian IM CEOs. Digital transformation and ESG are clearly emerging as priorities for CEOs as they envisage these twin transformations will enable them to build a sustainable and profitable future.
