By Oliver Knapp and Bernhard Langefeld

Mechanical and plant engineering is Germany's second largest industry sector after automotive. Like many other industries, it's currently undergoing a transformation driven by global developments: supply chain issues, rising raw material and energy costs, and growing stakeholder demands for sustainable products and production. Further, the increasing demand for individualized products combined with technology disruptions in many different spheres are ramping up the pressure on companies. If the industry is to avoid a slow and steady decline, it must adapt to the changes. On the other hand, there are also opportunities to transform and rethink production. However, the traditional approaches to reducing costs and increasing efficiency are often exhausted, as a study by the VDMA and Roland Berger illustrates. New levers are available to let companies grasp the opportunities presented by the trends, and a number of pioneers from the mechanical and plant engineering sector are already applying them successfully.

Events such as the war in Ukraine, sanctions against Russia, supply chain issues, Brexit and so on have accelerated a development that had been foreseeable for some time: Our world is changing fast – and with it the market environment in which manufacturing companies operate, including mechanical engineering companies. At the same time, the opportunities that change brings are increasingly coming to the fore. At the heart of this development is the impact of six global megatrends:

• Sustainability is becoming increasingly important; not only consumers but governments and investors too are demanding it.
• Industry disruption such as the phasing out of fossil fuel energies and power generation technologies are disrupting entire industries.
• Location matters are growing in relevance as transportation/logistics costs and supply chain risks increase and customers and governments demand for localized production.
• Individualization is increasingly in demand and makes production more complex.
• Populist tendencies and the scale of public scrutiny are on the rise worldwide, forcing companies to pay more attention to their public image.
• Digitalization and the advance of Industry 4.0 are irreversible, and their importance in industrial production continues to grow.

Since the world is not expected to return to a perfectly globalized system, manufacturers must take these trends into account and adapt their production strategy accordingly, especially in order to improve their position in the competitive arena. That said, the approaches traditionally used to cut costs and increase efficiency are no longer sufficient, partly because there is little opportunity to differentiate given that industry peers are all relying on the same optimization levers. Companies are well aware of this, as illustrated in the study by the VDMA and Roland Berger:

Next Generation Manufacturing as a holistic framework

It is therefore not possible to face today's trends and developments with purely old methods. In order to break the deadlock and emerge into a "new world" of production, new methods are needed, such as those within the Next Generation Manufacturing (NGM) framework developed by Roland Berger: NGM helps companies develop their own individual measures to deal with the challenges posed by the transformation and build them into their production strategy. Many machinery and plant manufacturers have already recognized the potential this offers for rethinking their manufacturing and reinvigorating their competitiveness. At the same time, there is still a sense of uncertainty among many: Only just under a quarter of firms consider themselves in a position to drive NGM forward as pioneers. This is partly due to the underlying conditions: 68 percent of the companies in the survey believe there are deficiencies here, for example in the protection of intellectual property, in efforts towards low-corruption and de-bureaucratization, and also in infrastructure and a raft of other issues.

Despite all the barriers, there are already pioneers from the mechanical and plant engineering sector who are successfully applying elements of the NGM framework. The study by the VDMA and Roland Berger puts the spotlight on a number of case studies. These pioneers are rethinking their traditional manufacturing, proactively exploiting disruptive trends and developments, and thus turning their production into a real asset. The potential is there, it just takes the right production strategy, individually tailored to each company, to exploit it.

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