Industrial Manufacturing- Changes in Technology to Drive M&A Activity
There is no denying the transformative effects of technological advancements on businesses. Many changes in the industrial manufacturing industry have come from consumer preferences and demand. Consumers want things faster and of better quality, personalized and unique, and newer than last year (or even last quarter!). Due to the rapidly evolving pulls from end consumers, manufacturers have had to find a way to keep up not only with demand for products, but also with finding skilled workers to make products in an ever more technology driven age. As we will discuss below, there are several trends pulling manufacturers into a technology driven operating environment, resulting in companies turning to M&A in order to stay competitive.
There have been a number of trends and developments that have emerged over the past decade that affect the industrial manufacturing industry. These trends include the Internet of Things (“IoT”), the rise of artificial intelligence (“AI”) programs, and the implementation of computerized maintenance management systems (“CMMS”). These advancements have improved the manufacturing systems and efficiencies globally but have done so with significant investment on the part of industrial manufacturers.
By the end of 2019, there will be more than 1.5mn robots on production lines globally. There is some concern that the rise of technologies and utilization of robots will render a greater percentage of manufacturing jobs redundant. At EdgePoint, we believe the ongoing development and implementation of these technologies will open many doors for businesses, with human and robot collaboration being at the forefront of growth.
As this trend is set to continue and likely accelerate for the foreseeable future, it is worth looking at the ways that these technologies are fundamentally changing the manufacturing industry as we know it.
IoT, Big data, and Increasing Visibility
Manufacturers have always wanted to ensure consistent, reliable quality of every product or component produced. A once seemingly impossible task has now become a bedrock part of the production process for a growing number of companies. With the increased implementation of AI and CMMS technology, devices are connected remotely, allowing them to “talk” to each other. Commonly referred to as the Internet of Things, this technology connects factories to the internet, enabling automation and remote monitoring.
With this continuous connection and sharing of information, machines can seamlessly talk to each other and react to any problems that arise. This information can be measured and analyzed to increase productivity and efficiency, while reducing downtime and error rates. Additionally, machines can detect miniscule defects missed by the human eye during time consuming manual checks. The enhancement in precision manufacturing capabilities buy these smart technologies ultimately reduces costs for manufacturers by greatly reducing product failures, labor rates and production line downtime.
One of the biggest trends emerging in industrial manufacturing due to increased adoption of technologies is the impact on predictive maintenance. According to an article published in the Wall Street Journal, unplanned downtime due to machine breakdown or malfunction costs manufacturing businesses in the US approximately $50 billion annually.
AI and CMMS technologies have the power to make these expensive interruptions a thing of the past. As previously discussed, AI and CMMS systems constantly monitor and evaluate how a machine is running and can detect and analyze the slightest shifts in performance. More importantly, these systems have demonstrated the ability to forecast when an issue is likely to surface on individual pieces of equipment prior to the issue taking place. By identifying and flagging issues at earlier stages, businesses can foresee and proactively plan for maintenance, ensuring minimal disruptions to production capacity or quality.
Impact on the Workforce
While the power of technology has led to some exciting advancements in the capabilities of manufacturers, they continue to have an impact on the manufacturing workforce. A common issue facing industrial manufacturing businesses is a moderate or serious shortage of skilled or highly skilled personnel. In the next decade, it is expected that as many as 2 million manufacturing jobs will be unfilled due to this skills gap. The skills required of a manufacturing employee have transitioned from an assembler on a production line to that of an engineer with the ability to design and manufacture shapes utilizing software and equipment. It is fair to say the manufacturing labor is no longer a blue-collar workforce but is transitioning to a highly skilled white-collar labor pool.
Today’s manufacturing employee is not only highly skilled but highly compensated, earning approximately 25% more than the average U.S. hourly worker. Technology, and employees demonstrated ability to utilize new equipment and processes, is making these jobs more lucrative than before.
Given the costs and complexity of implementing new technologies, combined with difficulties in recruiting the new-age manufacturing employee required to operate these systems, many companies have made the strategic decision to utilize M&A as the primary tool of expanding their capabilities. The trend of industrial manufacturing firms utilizing M&A as an efficient method of acquiring new technologies and the hard to find human capital required to evolve and compete in the IoT economy is likely to accelerate over the coming decade as technology continues to evolve. The only constant is change, and this change will continue to be the fuel of M&A activity in the Industrial Manufacturing industry.
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