8 minute read 21 Jun 2021
Robots welding in a car factory

How manufacturers are transforming amid growing sources of disruption

By Jerry Gootee

EY Global Advanced Manufacturing Sector Leader

Consulting leader with nearly 30 years of experience. Passionate about developing people, building relationships and serving clients. Guitarist and vocalist. Golfer and Cleveland sports enthusiast.

Contributors
8 minute read 21 Jun 2021

Companies are working to transform themselves into future-ready connected and sustainable enterprises.

In brief
  • Sustainability emerged as a major force of change, as manufacturers saw the value a sustainable business model can bring via service-driven revenue streams.
  • Manufacturers continued their journey to become future-ready connected enterprises by undertaking multimillion-dollar digital investments.
  • Most peers are planning for recovery by increasing production capacities as demand has rebounded in key end markets and regions.

The EY 1Q21 Advanced Manufacturing Quarterly (pdf) analyzes the top five market forces and company responses discussed by leaders of 31 advanced manufacturing (AM) sector companies (including those from the aerospace and defense (A&D), industrial products (IP) and chemical subsectors) during public earnings calls with analysts in April and May 2021.

Starting this quarter, we have separated the top 10 themes into “market forces” and “company responses” to distinguish change drivers from strategic initiatives. A market force is a trigger event or driver of change that includes political, economic, competitive, social, technological, legal and environmental factors. A company response is a company action or strategy in response to the market forces that can help achieve the next level of growth and mitigate risks. This edition tracks movement of the top five market forces and company responses from quarter to quarter to provide a perspective on shifts in the AM landscape.

Themes that stood out:

Sustainability initiatives:

Sustainability has emerged as a major market force, rising on the corporate agenda over the past few quarters. Companies are making sustainability a core part of their business strategy as they recognize the opportunity for tremendous value creation via sustainable offerings and supply chains. These include new service-driven revenue streams, creating markets for new products and gaining customer trust by becoming a responsible enterprise.

Product design and innovation:

Companies are realizing that the time to innovate is now and are resorting to digital measures to safeguard business continuity and develop resilient business models that will allow them to sustain growth in the “new normal” environment. Hence, to become a future-ready connected enterprise, companies are undertaking multimillion-dollar digital investments, increasing share of high-margin digital offerings and connecting their installed base to create differentiated solutions.

The top five market forces and company responses, each emerging from the 1Q21 earning calls, are listed in the charts below. Themes are separated into market forces and company responses, delving deeper to identify sub-themes for each category. We have also added the prevailing sentiments and evolution of themes every quarter over the prior year.

Explore the sections below for a view on advanced manufacturing subsectors and how different market forces are driving various company responses. Hover over the individual bubbles for more details; the size of the bubble denotes the number of times a theme is discussed in the earnings call.

  • A&D

    A&D peers continue to resize and reshape their business to align with the smaller market scenario. The defense and space markets remain significant and relatively stable. Commercial OEMs continue to make progress in transforming and improving business processes to drive long-term growth, while maintaining a disciplined approach to capital allocation and implementing cost reductions. OEMs expect to produce aircraft at very low rates for the first half of 2021 and gradually increase the rate by late 2021 or early 2022.

  • Chemicals

    Chemical companies lifted revenue and profitability outlooks based on recovery in key end markets, such as automotive and construction. Sustainability is a key driver as companies are investing in digital and technological innovations, and launching new products, services and brands, influenced by sustainability. They are also developing M&A strategies to strengthen portfolios, while announcing cost reduction programs.

  • IP

    IoT and advanced controls are making industrial equipment smarter, more efficient and sustainable, inciting a digital-first approach at all major industrial companies and fueling the market growth outlook in 2021. Global vaccination rollout has instilled further confidence in manufacturers – most industrial manufacturers have registered positive sentiments for 2H21 and beyond. Regulatory changes around decarbonization, climate change and efficiency are driving companies to innovate low global warming potential (GWP) products, invest in R&D and look for bolt-ons to plug both technological and sustainable products gap. Cost reduction and simplification remains a priority agenda given the continued pressure from stakeholders to improve performance after the pandemic-induced lull.

Scope, limitations and methodology

The identification of the top market forces and company responses are based solely on an examination of earnings calls held in April and May 2021.

Summary

Although accelerated digitalization is likely to provide resiliency in operations, manufacturing companies are actively looking to create long-term value by capturing new sources of revenue and gaining customer trust through the launch of sustainable offerings.

About this article

By Jerry Gootee

EY Global Advanced Manufacturing Sector Leader

Consulting leader with nearly 30 years of experience. Passionate about developing people, building relationships and serving clients. Guitarist and vocalist. Golfer and Cleveland sports enthusiast.

Contributors