There are two basic ways a company becomes profitable: it cuts costs or increases sales revenue.
The extent to which the company is successful at doing either of these will determine its overall profitability and its share value. If it can cut costs and increase sales revenue at the same time, all the better.
During the Great Recession, most companies, especially manufacturing firms, cut costs the traditional way – they laid off employees; a normal occurrence in recessionary environments. Unemployment rose sharply and remained stubbornly high through the first few years of the so-called recovery before failling, particularly in the United States, to very low levels.
Layered over the normal expansions and contractions of economic activity is a more pernicious and long-term issue. Manufacturers today face a daunting challenge, over and above the daily battle to remain viable and profitable: demographics and a shrinking workforce.
Put simply, baby-boomers, who fuelled the prosperity of the past thirty years, are now retiring, and for the next decade they will continue to do so by the millions.
That leaves manufacturers facing very tight labour market conditions. There are more skilled jobs chasing fewer skilled employees. Theoretically, economists say, that will drive labour costs higher, as salaries must rise to keep existing employees from seeking greener pastures elsewhere.
There is enormous pressure on the manufacturing sector to find a way to deal with the demographic factor while remaining profitable, and the answer could quite easily lie with digital technology.
Digital technology is disrupting tried-and-true manufacturing processes, turning them on their heads and driving an entire revolution in the process – the Fourth Industrial Revolution or Industry 4.0, to be precise.
The net results of this digital transformation in manufacturing are staggering. Price Waterhouse Coopers undertook the largest survey of its kind in 2016, called The Global Industry 4.0 Survey.
The global advisory firm polled two thousand participants from nine major industrial sectors in 26 countries. The survey focused on the benefits of “digitizing horizontal and vertical value chains as well as …building digital product and service portfolios”.
Among the most significant findings:
- Annual revenue increases of 2.9% through digitization of processes. A large number of participants predict total revenue increases of over 50% in just five years.
- Cost reductions of 3.6% per year on average. This translates into savings of $421 billion U.S. each year over the next five years.
The survey goes on to report that these revenue increases and cost savings will come from new, digitally designed products, breakthroughs from data analytics and digital solutions for the existing customer base – exactly what Gestisoft is already helping manufacturing clients to achieve.
The 2,000 companies surveyed for the PwC report have been implementing digital strategies at an ever-increasing rate. More than half of the respondents say they will have significantly increased their level of digital products and services. 75% of them anticipate having heavily digitized value chains within five years.
The survey makes the point that Gestisoft shares and with which we opened this discussion: digital technology improves both top and bottom lines at the same time. No longer does a manufacturing company have to choose which to pursue.
Customers benefit in major ways as well, the survey concludes. Digitized manufacturers are able to provide products, systems and services in increasingly customized way for clients.
There surely must be a revenue gain to any company as a result of giving customers better and uniquely tailored levels of service through methods that are highly cost effective.
Gestisoft is in the business of providing digital transformation services and products to manufacturers and others. We’ve been doing it for more than 20 years, and an established reputation for quality service and results is our best calling card.
Our new eBook, Industry 4.0 – Manufacturing on the Brink in Canada, is now available and will provide more information on why digital technology is not just the future but the present, as well.
We also invite you to order your Industry 4.0 Opportunity Assessment today by reaching out directly to me at email@example.com . It is based on your company’s unique business DNA and ecosystem, and will be a solid first step towards developing the digital strategy that is ideal for your firm. With our help, Industry 4.0 can become an ally for your company, and power your business to new heights.