Confidence with caution: growth predicted, Industry 4.0 adoption lags

Manufacturers see growth, higher profits and higher costs in 2017. PHOTO: THINKSTOCK

Although economic growth was disappointing this year (1.2% forecast by the OECD), Canadian manufacturers have a positive view of their prospects next year. Canadian and US GDP is supposed to rise a bit above 2%. However, companies are exercising their customary caution when looking ahead.

PLANT’s Manufacturers’ Outlook 2017 survey (June to September) shows 36% of senior company executives are optimistic although most (55%) qualify that optimism.

The survey, conducted by Northstar for PLANT Magazine in partnership with sponsors Grant Thornton LLP, SYSPRO Canada and Machines Italia (with the Italian Trade Commission), is based on 526 replies from senior manufacturing executives (margin of error of +/- 4.27%, 19 times out of 20). Most of their companies (65%) fall into the small business category (under 100 employees); 23% are under 500; and 13% are large firms (500 or more).

Complete results will be available in a downloadable report (visit www.plant.ca) that includes a roundtable discussion of manufacturing issues involving senior executives and industry experts, but here are some highlights.

As in past surveys, we picked key areas for some additional detail, and this year focus was sharper on how companies view and are adapting to Industry 4.0 (a.k.a. the fourth industrial revolution), which entails automation and data exchange, cyber-physical systems, the Industrial Internet of Things (IIoT), cloud computing and how it all relates to the “smart factory.”
The results confirmed what has been evident in past Outlook surveys: manufacturers are primed to grow their businesses, but they’re not as engaged as they could be – or should be – with the technologies that would deepen their business intelligence and drive productivity. These key competitive factors will aid the success of companies operating in advanced economies like Canada’s where higher-cost labour is a disadvantage.

Only 30% make use of automatic data access, analysis and review to measure and monitor productivity; 42% do it manually; 28% don’t measure; and 61% won’t be connecting the shop floor to the top floor over the next 12 months.

The top three adopted technologies are CAD/CAE/CAM (46%), data acquisition, information and control technologies (34%) and computerized processing, fabricating and assembly technologies (27%). Thirty-two per cent don’t use any of the listed technologies.

IIoT engagement

Respondents also demonstrated limited engagement with IIoT, which connects and optimizes machines via the internet. Only 6% are applying IIoT capabilities and not knowing where to start is a major obstacle for 31%.

Innovation is key to improving processes and developing higher value products. Caution is evident by this year’s responses. Most (80%) either don’t know or aren’t sure what their companies will spend on innovation in 2017, but they’re almost evenly split on investment increasing (48%) or remaining at the same level (49%) over the next five years. Whatever their spending plans, most (62%) have not – nor do they plan to – take advantage of the SR&ED federal tax credit for investment in research. Only 27% plan to do so in 2017.

And what of their businesses? More than half of the companies are expecting orders and sales to increase (by an average 15% and 16%); but costs will also increase (by 9%). Pricing will stay the same for 55% but 33% expect increases (of 8%). Forty-two per cent see profits rising an average by 13%.

Pricing and costs top the list of challenges for 50%, followed by increasing sales (48%), economic conditions (45%) and the value of the loonie (42%).

Their caution is again evident by their intentions to invest. Sixty-six per cent don’t know how much they’ll invest in machinery, equipment or technology in 2017, and 72% are unsure about investments in their facilities. But 60% expect to invest in training and 55% in machinery, equipment and technology over the next three years.

Only 33% are concerned about entering new markets and 37% don’t export at all. Most (86%) are doing most of their business in North America, 62% of it in Canada.

What’s holding them back from increasing their revenues outside North America? Most (32%) say intense competition.

Forty per cent will drive growth by focusing on North America, 45% will expand sales and distribution channels and 44% will introduce new products.

Despite the growing risk to government and business networks from cyber attacks, most executives (48%) gauge their level of concern as mid-range and half are prepared for cyber attacks. The threats manufacturers are most unprepared for are targeted external attacks (26%) and breaches through a third party vendor (24%).

With increasing emphasis on regulations targeting the reduction of carbon emissions, 77% indicated they were very or at least somewhat engaged. But recent government moves to put a price on carbon have not raised the priority level of responses to climate change for 51% of companies and 46% do not include carbon reduction as a part of a formal business strategy.

Aside from tepid economic factors, manufacturers must also contend with troubling developments in the world at large. Belgium’s resistance to CETA is a sympton of growing objections to global trade agreements. The surprising election of president-elect Donald Trump in the US also suggests a disruption of trade relationships. Perhaps the caution expressed by Outlook respondents is prescient.

Download a copy of the Manufacturers’ Outlook 2017 report here.