A Manufacturing Execution System (MES) works by capturing data from manufacturing equipment and the individuals involved in the various steps of making a product. These applications are generally oriented toward larger enterprises, but 98.6% of manufacturers in the U.S. have fewer than 500 employees, and those companies produce over $3 trillion of goods each year (>10% of the US GDP). 72% of the tasks in those factories are still performed by people, and 90% of these facilities lack an automated MES.
The average station efficiency is only 40–60%, and this results in reduced profit margins and output limitations. 79% of manufacturers say existing solutions require too long time required to implement, migrate, and train staff in a new system. 78% say integration with other applications is difficult and costly. 76% complain about rigid pricing structures (1).
Additionally, there are substantial traceability issues. One semi-size truck requires 100+ suppliers, and OEMs cannot track where in the production process all the semi-products are (Rivian, for example, must coordinate 2000 components from 400 different suppliers for a single vehicle (2)).
What is more, the quality control is poor and usually too late in the process, and automakers spend billions on recalls. On top of it, there is a labor shortage in the market. Over the next decade, 4 million manufacturing jobs will likely be needed, and 2.1 million are expected to go unfilled(3). Already now, 75% of factories in the US are struggling to hire and retain quality operators.
The focus of Industry 4.0 and technology providers has been almost exclusively on the needs of more giant factories and the desire for enterprise-level contracts. This exclusivity in technology availability and disregard for SMBs is exacerbating supply chain gaps. SMBs make up the vast majority of the supply chain, but they were left behind and lack the tools and technologies that more giant factories take for granted. The problem certainly exists, the market is enormous, and there is still no solution that is good enough to satisfy the market.
Industry Trends
Despite supply headwinds, labor shortages, and an uncertain economic environment, the manufacturing industry continues to surpass the expectations of previous years. To maintain this growth, leaders will leverage digital technologies, adopt strategies for the future of work, and drive supply chain resiliency. There is a clear demand for additional domestic capacity and augmenting current production lines with automation. Appliance and HVAC manufacturers are increasing domestic capacity as well as supply chains for the aerospace sector, particularly for cutting equipment and in an attempt to reduce reliance on foreign components (6).
Technology: Manufacturers have increased their digital investment over the past few years and accelerated the adoption of emerging technologies. Companies with higher digital maturity have shown greater resilience, as did those that accelerated digitalization during the pandemic. Continued investments in manufacturing technologies can help develop the required agility.
Talent: Addressing the tight labor market and workforce churn amid shifting talent models is expected to remain a top priority for most manufacturers in 2023. Despite a record level of new hires, job openings in the industry are still hovering near all-time highs. Additionally, voluntary separations continue to outnumber layoffs and discharges, indicating substantial workforce churn. This prevailing workforce shortage, elevated by supply chain limitations, is reducing operational efficiency and margins. Manufacturers are pursuing several approaches to strengthen their talent retention strategy like investing in technology that can augment human-reliant activities.
Smart factory: Manufacturers will likely continue progressing toward smart factory transformations as these initiatives drive future competitiveness. Many manufacturers are making investments in laying the technological foundation for their smart factories. One in five manufacturers is already experimenting with underlying solutions or actively developing a metaverse platform for their products and services.
Key Market Drivers
Rising need for increased production & connected supply chain: new orders of manufacturing technology totaled $519.3 million in September 2022, according to the latest U.S. Manufacturing Technology Orders Report published by AMT — The Association for Manufacturing Technology (4) It’s up 13% despite anticipating the economic slowdown ahead. The costs associated with MES are mostly implementation and operating costs, so affordable, easy, and quick setups will be preferred and win over cumbersome, costly, code-heavy, and not flexible solutions. Other longer-term trends supporting this positive outlook for U.S. manufacturing include the growing use of automation, the vehicle evolution to electric, lower-emission initiatives, infrastructure spending, government support of domestic semiconductor manufacturing, and supply chain reconfigurations.
Labor Shortage: 75% of the manufacturing industry is worried about retaining existing talent, 74% about finding the right talent, 51% about maintaining competitive wages and benefit packages in 2023.
Digitization: The primary growth strategy of manufacturers in the coming years is to bring technology, digitization, and automation (5). Factories plan to leverage new technologies and data to be more responsive to customers, deliver orders on time, and anticipate changing employee needs (6). 76% of supply chain leaders report that developing digital and analytics capabilities is very important to their strategy.
Simplicity: MESs have historically been mediocre or at least inflexible. They have ballooned in features, requiring specialized expertise. Over time, they have limited the scope for innovation and change rather than extending it. The next-generation MESs promise to improve the situation drastically, and it slowly but surely drive the entire set of vendors toward simplicity.
Resources & References:
(1) 2022 Manufacturing Insights Report
(2) Rivian “A Tour of the Rivian Plant”
(3) Deloitte and The Manufacturing Institute
(4) The Association for Manufacturing Technology
(5) Deloitte: 2023 Outlook on Manufacturing
(6) Alithya — Manufacturing Report 2022
