Machinery industry can seize up to 50% productivity boost from 'factory of the future' innovations led by AI - Bain & Co report

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Apr 03, 2024, 09:15 ET

BOSTON, April 3, 2024 /PRNewswire/ -- Machinery and equipment makers worldwide have immediate and large-scale opportunities to transform their productivity, with gains of 30%-50%, by harnessing artificial intelligence, lean, digital and sustainability innovations that form the backbone of the "factory of the future," Bain and Company finds in the second edition of the Global Machinery & Equipment Report 2024 launched today.

With machinery businesses under intensified pressure across many fronts, such as supply chain challenges, rising customer expectations, and intensified competition in fast-changing markets, leading companies in the sector are looking to harness state of the art innovations to boost performance. Machinery executives are turning to new digital tools and Industry 4.0 technologies such as AI, robotics and additive manufacturing, as well as traditional operational excellence approaches, to strengthen and future-proof operations as they strive to master the current wave of challenges.

"Machinery and equipment manufacturers often still rely heavily on traditional lean manufacturing approaches. They may be exploring how to incorporate digital tools or Industry 4.0 and sustainability measures. But they still do so in separate organizational silos," said Michael Staebe, head of Bain & Company's global Machinery, Paper and Metals sector, based in Munich.

"To truly become successful factories of the future and reap productivity gains, machinery companies need to address three critical challenges. Firstly, they should integrate the new Industry 4.0 technologies with their existing operational excellence approach and standards. Secondly, they need to integrate operational technology and information technology from an operational and systems aspect. And lastly, it is vital to connect sustainability and circularity with broader business objectives and implement them throughout the production system."

AI rising to top of manufacturers' priority list

Many machinery executives increasingly see AI adoption as an urgent task. According to Bain's research, 75% of executives from the broader advanced manufacturing industry said that adopting emerging technologies such as AI is their top priority in engineering and R&D.

Successful early movers are using AI to solve key problems in procurement, assembly, maintenance, quality control, and warehouse logistics. Leaders in the sector are finding AI technology particularly useful in building their supply chain resilience and sustainability in the face of ongoing macroeconomic and geopolitical disruptions.

While AI's use cases across industries are developing at a rapid pace, Bain's analysis highlights generative AI's far-reaching potential to transform the manufacturing sector, its productivity, and operations. Generative AI can surface hidden insights from unstructured data that can yield dramatic improvements in productivity, customer service, and financial performance.

Bain identified three specific areas in which companies today are successfully deploying AI. These include minimizing assembly defects and improving quality control, boosting productivity, and streamlining warehouse management.

Shift from products to digital solutions is key to machinery companies' future success

The industrial sector is now consuming more chips and Internet of Things (IoT) technology than any other sector, an indicator that machinery companies are fast embracing digital solutions. The payoff could be huge with Bain's analysis revealing that machinery companies that are already digital solutions leaders double their shareholder returns as compared to industry average.

Machinery companies that are among the first to meet rising customer demand for digital solutions will generate more profit, improved customer loyalty, and software-like valuation multiples.

Instead of producing standard products for a global market, today's report finds that many are developing customer solutions tailored to specific industries. This pivot means focusing on a smaller number of customers in specific vertical industry segments, while increasing the scope of offerings to these customers, and less fragmented supply chains.

Future markets will be defined by customer segments, not products. In this new era, machinery companies that have scaled digital solutions for a targeted set of customers will have a competitive advantage that is difficult to challenge.

Circularity paired with IoT could generate strong gains in efficiency and sustainability

A recent Bain study revealed that 47% of large machinery companies have made circularity commitments. However, most initiatives remain narrow in scope – focused on recycling, and reduction of inputs and waste. Many leadership teams view circularity linked to regulation, but some have begun to consider it as a value creation opportunity – one that can provide new revenue streams, supply chain resilience, enhanced customer intimacy, and access to new customer groups over the next 20 years.

Emerging leaders with circular operations and IoT capabilities generate strong gains in efficiency and sustainability, Bain notes. The IoT data gathered by firms using this technology creates vast opportunities to preserve assets at their maximum value for the longest possible time, improving energy efficiency and reducing the need for resource extraction.

"Data without a circular strategy and supply chain to extend the life span of machines and retrofit them is far less effective. Circular business models, in turn, depend on connected machines and data to reduce the use of raw materials," said Staebe. "Companies that anticipate shifting profit pools will be well positioned to identify new opportunities ahead of the competition and reimagine products and services for a circular future."

Bain concludes that in the future, machinery companies will design products for greater longevity, sell more products as a service, and tap into circular marketplaces. All three approaches can underpin a circular business model.

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