Industry TALKS: How to overcome the biggest challenges in manufacturing

Work smarter, not harder. We keep repeating this. Why? Every industry we engage in is facing the backlash of local and global supply chain disruptions, increasing costs, and workforce shortages. However, the sector where these challenges have the most volatile impact is arguably manufacturing. Generating profit in this market is particularly challenging for those with production facilities. Unless you find yourself in the golden age of the semiconductor industry, margins are low, costs are high, and there are simply not enough people and resources to meet the demand.

The Dutch manufacturing industry has seen revenues decline for over five consecutive quarters since 2023. And manufacturers in other countries face decreasing profits as well. The primary culprit? A shortage of personnel. In short, productivity must increase. You can’t achieve this by adding more people to your workforce (let’s face it: there aren’t enough workers to begin with anyway), but by simply working smarter with what you already have—and, admittedly, a touch of technology. I do have to put a disclaimer on my first statement though. Working smarter doesn’t mean you get to lean back. You still have to work hard, but the labor you do will definitely be more fun and rewarding.

In this two-part blog series, I will first shine a light upon the three biggest challenges manufacturers face today. In the second blog, I will share which trends could serve as ideal steppingstones to overcome these challenges.

Costs of resources are like roller coasters thanks to – for example – global events like the conflict in the Middle East and in the Ukraine. These unpredictable factors causing cost fluctuations are already a real headache. But keeping a grip on your costs is set to become even more complicated in the coming years as you factor in increasingly stringent regulations. The European CSRD legislation in particular means that as a manufacturer, you need to invest not just in ways to extract accurate sustainability data for accountants from your systems and administration, and from suppliers and customers, but also in proper reporting. This will undoubtedly add to your cost sheet. However, it also presents opportunities.

In a previous blog, I discussed how you can turn the CSRD legislation and the need to start collecting data into opportunities to make your supply chain more commercially successful.

As I argued in the plastic fishing blog above, navigating all these challenges requires more than just a tight grip on the budget—it calls for a strategic rethink of how resources are used and where you can cut without cutting corners.

Knowing your costs is also vital. More specifically: insights in costs that are fundamental for decision-taking in your organization. Especially in a global operation where systems might not even speak the same language. What are the margins on your products? What about handling costs? Deep diving into these can help management and sales teams make informed decisions, rather than just going with the gut.

A very practical example of gaining insights in your operation – and working smarter, not harder – is the use of a solution that can provide you real-time data on the status of your work-in-process throughout each production order, and throughout the month. This way, once a run is marked as finished, you can immediately see if the variances between planned and actual costs differ too much and if so, take immediate action. In the pre-S/4HANA era – this was typically done for all products and batches at the end of the month during closing, putting a strain on finance workers.

Bart Duim explains in his blog how that workload is now evenly spread throughout the month and workers get faster insight on top of that.

Balance cost reductions and investments in technology

It’s a tightrope walk between slashing costs and splurging on new tech and innovation. Sure, the latter can feel like a luxury when you’re pinching pennies, but investing smartly is essential for staying competitive. If I relate this to our SAP business, I often see that many companies embark on ERP implementation without fully considering what they aim to achieve from it. As a result, it often just becomes another operational system, rather than one that proactively delivers actionable insights.

A great strategy is to define your top five drivers or KPIs from the outset that will guide your business decisions. Clarify these goals, understand the necessary information, and determine the level of detail required. This approach serves as an excellent blueprint for the implementation and configuration of your ERP. By doing this, you truly maximize the benefits of your investment in an ERP, as it aligns with and supports your broader business objectives.

For example, is cost reduction one of your KPIs? It all begins with transparency and insight in your operations. Or, if you’re like our client Nedspice, working with herbs and spices where raw material costs can vary greatly, you’ll want your system to support you in mitigating the associated risks.

In this article, you’ll discover exactly how Nedspice manages this with SAP S/4HANA.

The supply chain isn’t just a line from A to B—it’s more like a spiderweb with your company at the center. Improving flexibility and having a connected supply chain means being able to adapt on the fly. Historical data helps, but real-time data and forecasts can significantly streamline your operations. Here’s the catch though: your suppliers have their own suppliers, which adds layers of complexity to your planning.

1. Grip on waste and planning
While you can’t control every external factor like rising energy costs or material shortages, you can certainly tighten your grip on internal factors like waste and scheduling. Techniques like lean manufacturing, LCIA, and Kanban are not just industry buzzwords—they are practical tools that help reduce waste in the broadest sense of that word and optimize production, making sure that every part of your production chain pulls its weight. And, in the end, becomes more profitable. What these quite tangible methods also provide? A way for your workforce to work smarter and generate more output with the same number of people.

Production companies that utilize lean manufacturing often use OEE (overall equipment effectiveness) as a tool to monitor, evaluate, and improve the effectiveness of their production processes.

In this Industry TALKS video, our experts Jorrit van der Sanden and Michel Quaedvlieg explain how it works.

2. Transparency in planning
This is where technology shines—by providing transparency across your supply chain. An integrated ERP-system such as SAP S/4HANA gives you this end-to-end insight. When every part of the chain is visible, from material needs to supplier schedules, you minimize the risk of overproduction or understocking, avoiding costly mistakes.

To truly prevent waste and a large bullwhip effect, we need to think bigger and consider the entire supply chain. I’m talking about every supplier, processor, customer, transporter, and other links in the process from raw material to product, and from purchasing to sales. To make a difference in that connected supply chain, you need powerful technology that can collect, record, and share information across the entire chain—with countless players involved. I’m obviously talking about blockchain.

In this blog, we make a case for the use of blockchain to create a truly connected supply chain.

Finding and keeping skilled workers is becoming a Herculean task. And then there’s the knowledge gap left by retiring workers. So, what’s the solution? We already mentioned utilizing the lean methodology and OEE. Boosting productivity through technology can also help bridge the gap.

These technologies are not just about replacing human workers; they’re about augmenting their capabilities and reducing the time spent on training. For example, generally, assembly line workers undergo training in their first weeks and need to get acquainted with extensive work instructions. This requires time, but also a certain skill level. If you can eliminate that time-consuming process, and if it means that you can even hire less skilled workers to keep up with demand (that will do just as good a job), it is a logical step to invest in automated control systems and work tools in a process.

An example of those tools are pick-to-light-systems, in which a certain container with the supplies for the next single assembly action will light up per step on a workstation. You can also opt for pick-to-beam tooling, in which augmented reality, projected on a workstation, guides an operator through the assembly process. It comes with a smart sensor that validates if a step has been conducted correctly. With these work instructions, any operator can perform various tasks without having to go through thorough training. It also gives you the opportunity to flexibly allocate your workforce to the production lines with orders that, for example, require the most urgent attention.

Then, there are also co-bots, that you can set up in an assembly line, that work alongside the operator and do heavy lifting to protect the backs of their human colleagues or do tedious high-precision work that would be difficult to perform for people.