What are the biggest issues that affect production?

In the age of Industry and Production 4.0, manufacturing companies are facing numerous challenges that also represent an opportunity. Dealing with these challenges sets the course for long-term competitiveness in the market.  These are explained in more detail below.

Challenges and opportunities for the manufacturing industry

1. Sustainability/climate neutrality,
2. rising energy costs,
3. supply difficulties,
4. individualization
5. and digitalization.

#1 Decarbonization, climate neutrality, sustainability

With climate change at the latest, it is clear that climate protection and decarbonization are top priorities throughout society, worldwide – and especially for companies. The Paris Climate Agreement with 191 contracting parties states that global warming must be significantly reduced. If possible, by 1.5 degrees. The agreement aims to mitigate the effects of climate change. Global climate neutrality is required to achieve this.

For this reason, many corporations, and companies are setting themselves the goal of being climate-neutral. The Volkswagen Group, for example, is striving to achieve this goal by 2050.

What does it mean to be a climate-neutral company?

A climate-neutral company does not cause any CO₂ emissions or compensates for the unavoidable emissions by purchasing CO₂ offsetting certificates. Corporate sustainability strategies are thus concerned with decarbonization to operate with low CO₂ emissions across the company.

To achieve this goal, the companies follow the principle: avoid, reduce and compensate. In doing so, companies are looking at new technologies and innovations to increase energy and resource efficiency, as well as the substitution of CO2/greenhouse gas-intensive processes with renewable technologies, for example.

Three steps to climate-neutral production

1)    How many emissions are generated in production?

Actual data form the basis for calculating the current CO₂ footprint at the production and product levels. This requires connectivity and transparency across production processes. Granular data down to the machine level helps companies identify the exact causes of energy and resource consumption.

2)    How to reduce the CO₂ footprint?

The CO₂ footprint is reduced through production processes that are as efficient as possible. This means through low material use, minimal energy consumption and low greenhouse gas emissions. To achieve this, waste must first be identified on the basis of the data, and measures must then be developed and implemented. To identify waste, manufacturing processes must be analyzed.

This includes, for example, evaluating machine downtimes based on the recorded machine states and optimizing machine running times as well as measures along the continuous improvement process (CIP). In this way, potential energy and resource savings can be identified. The aim is to obtain concrete measures for reducing the CO₂ footprint.

3)    How can unavoidable emissions be offset?

In production, it will remain unavoidable for the time being to be completely emission-free. So-called Carbon Offsets can be used to compensate for these remaining emissions. These flow into climate protection projects that have a positive effect on society and the environment. Step by step, companies thus improve their eco-balance and ultimately achieve climate neutrality.

#2 Rising energy costs

It is not only climate change and the associated climate protection that are causing energy prices to rise, but also global developments. Energy prices have risen to record levels; higher than they have been for decades. A recent survey of 418 medium-sized companies found that 65 percent see the sharp rise in energy costs as an extreme challenge. 23 percent even see the high energy prices as an existential threat.

In an international comparison, Germany is one of the countries with the highest electricity prices, which is largely due to the high share of electricity prices paid by the state. In addition, it is extremely problematic for some companies that their energy suppliers engage in speculative practices. As a result, companies are sometimes forced to relocate their production sites abroad.

Rising energy prices are reducing the financial scope for important investments in the future. Medium-sized companies are particularly affected by this. Politicians are called upon to provide relief in the short term to secure the future of their locations.

In production, energy consumption can be reduced, for example, by energy monitoring. The energy consumption of the machines can be recorded thanks to a machine data collection system, and wastage is identified by mapping the statuses.

#3 Volatile supply chains – supply bottlenecks

Supply chain bottlenecks are a daily challenge for manufacturing companies. Corona and global developments have again significantly increased this problem. Supply bottlenecks have had an extremely negative impact on many companies over the past two years. The just-in-time delivery principle particularly is affected by supply bottlenecks in these times. Manufacturing companies are therefore trying to build up their inventories to avoid supply bottlenecks.

Due to supply difficulties for certain raw materials caused by unstable supply chains, the price of these raw materials also increases significantly, which further catapults production costs. Supply bottlenecks have increased sharply in the microelectronics sector in particular. As in the case of energy, the German economy – and accordingly German manufacturing companies – are very dependent on certain resources. Many companies are therefore switching to in-house production at local sites.

Products that used to be procured from third-party suppliers will be manufactured in-house again in the future. This enables companies to avoid supply bottlenecks. However, not every product can be manufactured in-house. Semiconductors, for example, are among the products that are difficult to manufacture in-house. For manufacturing companies, it could therefore be a good compromise to source such products from European production sites. Due to the difficult supply situation, it is therefore essential for companies to invest in innovative future technologies in order to become less dependent on suppliers.

What are the reasons for the semiconductor crisis?

In times of the pandemic, the production of automotive suppliers was shut down in many plants and orders for semiconductors were not called off. At the same time, demand for semiconductors in consumer electronics increased. The reasons for the supply bottlenecks are as follows:

• Bottlenecks in raw material supplies

  Semiconductor producers themselves are struggling with bottlenecks in raw material supplies

• Semiconductor expiration date

  Semiconductors can only be stored for a certain time and have an expiration date

• High market demand

  High market demand, which can not be met with the existing production capacity.

• Long delivery times

  Complex chips have long lead times of six to nine months, so it is not possible to respond to short-term fluctuations in demand.

Being responsive through real-time information

In volatile market situations, the ability to react quickly becomes even more important. Real-time information and the exchange of information across company boundaries form the basis and help to be able to react to changing situations at short notice. Connectivity also forms the basis here. A wide variety of systems must be supplied with information and a smooth exchange of data must be ensured. This supports supply chain management in adjusting supply chains and selecting suitable alternatives.

#4 Customer-driven change / individualization

Cost and competitive pressures, increasing customer demands and shortened innovation cycles are becoming an ever greater challenge for companies. Products that are launched on the market today are usually outdated again after just a few months.

In addition, customer expectations in terms of quality and customer service are rising. Nowadays, it is no longer enough to launch a high-quality product on the market. Customers have a desire for unique customer service, especially after the purchase is in the foreground for them. To this end, they want their wishes to be taken into account when a product is being developed.

It is therefore advisable for companies to focus on customer-oriented product development. To achieve this, companies collect innovative advice and wishes from customers and take these into account at an early stage in the product development process.

Customer-oriented product development also means that the product is no longer overloaded with functions; instead, the focus is on individualization and the customer’s user experience. Nowadays, customers are involved in the design  of the products. This creates trust as well as higher customer satisfaction and loyalty. Customers include both external and internal customers. Through constant feedback from customers, a product is created that takes individual customer requirements into account and grows with the customer. The product is then geared precisely to the customer’s needs, allowing companies to stand out from their competitors and stand out from the crowd thanks to individualization.

#5 Digitization

The ongoing topic of digitization. The rapid pace of digital progress is forcing manufacturing companies, among others, to get on board. If companies don’t get on the digital transformation bandwagon fast enough, they run the risk of quickly losing touch. Digitization must take place both as a whole and individuals within the company. The following areas are particularly affected by digitization:

• Digitize corporate communications: Through Corona and increasing home offices, corporate communication is shifting more and more towards digital communication. Cloud services and applications such as Zoom and Microsoft Teams are helping to digitize corporate communications.
• Digitize the value chain: Starting with the planning of a product and ending with the finished product, the entire value creation process is most efficient when it is digitized throughout.
• Digitizing business processes: Exchanging data, processing orders, recording inventory, marketing & sales, and many other business processes require a digital overhaul. Digitizing all business processes is essential for truly effective processes.
• Digitize production processes: To introduce or drive digitization in manufacturing companies, it is important to involve everyone involved in the production process. Long-established production processes that are to be redesigned and modernized thanks to digitization require clear communication and involvement of all stakeholders so that production processes can be successfully digitized. In order for digitization to function as a whole, employee awareness and data security play a major role. If, in addition, employees who have been used to analog processes for decades are not sufficiently picked up, there is a risk of employee dissatisfaction and, in the worst case, the departure of many loyal employees.

Conclusion

Manufacturing companies face major challenges and opportunities, both now and in the future. Both politics and the companies themselves must be willing to want to make a change here, to recognize the changing times at an early stage, and to take appropriate actions. In many respects, data form the foundation for obtaining real-time information from them. This is the only way to ensure that manufacturing companies make the right decisions and remain competitive and fit for the future.

Table of Contents

• Sustainability and climate neutrality
• Rising energy costs, 
• Supply shortages
• Individualization 
• Digitization

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