Manufacturing companies get stuck in digital transformation due to ‘option paralysis’

The manufacturing industry is at a major turning point. New research from software vendor IFS shows that manufacturing companies are aware that digital transformation is essential for their livelihoods, but are often bogged down and missing opportunities due to ‘option paralysis’. As a result, they risk losing their competitive edge.

The survey, conducted among 815 leaders in the global manufacturing industry, shows that the sector recognises the importance of technology for the survival of businesses. Yet less than 10 per cent of manufacturing companies manage to successfully position themselves as ‘digital leaders’. In the Netherlands, for example, as many as 71 per cent consider themselves ‘laggards’; globally, the figure is 65 per cent. They say they are stuck in the early stages of digital transformation without concrete plans for the future.

Digital transformation indispensable

The survey shows that 89 per cent of manufacturing companies in the Netherlands think their business can survive only one to three years without any investment in technology. The message is clear: digital transformation is indispensable for the survival of companies in the manufacturing industry. The turbulent market, constant disruptions in supply chains and the threat of climate change only make transformation more imperative.

A quarter of manufacturing companies consider climate change a top priority. Yet 84 per cent of companies lag behind in terms of a solid sustainability strategy and Environmental, Social and Governance (ESG) initiatives. This lag is higher than the global average of 71 per cent. Although 42 per cent of Dutch manufacturing companies are actively working on ESG initiatives, the gap between ambition and implementation still remains wide, according to IFS.

‘Option paralysis’ threatens laggards

The range of technology options available to businesses today is greater than ever. Over 80 per cent of respondents regard all available technology options as essential. This makes decision-making a lot more difficult and creates great ‘option paralysis’. In addition, within an organisation not everyone is always on the same page. While almost all C-suite executives (94%) see cloud computing as the most important technology for digital transformation, operational staff instead focus on digital twins (85%) and AI (84%). Vice presidents, on the other hand, consider IoT (81%) a priority.

Partly due to the plethora of choices and the inability to assess the priority of new technologies, the digital laggards are falling further and further behind. At the same time, manufacturing companies are running into all sorts of other challenges. For instance, Dutch companies struggle with compliance with laws and regulations (32%) and the complexity of the IT environment (29%). These challenges put manufacturing companies at risk of falling even further behind and jeopardize their livelihoods, IFS believes.

Benefits of new technologies

Despite the challenges, the Dutch manufacturing industry remains hopeful about the benefits of new technologies. When reviewing their supply chains, almost all (97%) apply geographical strategies to make the chain more resilient. Digital frontrunners exploit advanced methods such as scenario planning, while companies that lag behind still rely on isolated risk assessment tools.

Respondents also expect sustainability initiatives to have a positive impact on their organisation. ESG is no longer seen as a liability, but as an important factor for improvements in lead time, product quality and new business models, such as the circular economy.

Manufacturing industry in decisive phase

The manufacturing industry is in a decisive phase, according to IFS. Many companies see the urgency of digital transformation but remain stuck in indecision, waiting for proven results or the support of others. ‘The longer these companies wait, the further they fall behind,’ warns Maggie Slowik, Industry Director Manufacturing at IFS. ‘In today’s uncertain market, resilience and digital maturity are not just advantages, but necessities for survival.’

The post Manufacturing companies get stuck in digital transformation due to ‘option paralysis’ appeared first on Supply Chain Movement.