Federal legislation and digital transformation propel investment and safeguards
In 2024, America’s manufacturers are set to spend a record amount on development of sectors from semiconductors to EVs, encouraged by federal measures that offer funding and tax incentives, according to Deloitte’s recently released 2024 Manufacturing Outlook report. Yet the producers must still overcome significant hurdles, including labor tightness, the complexity and disruption of supply chains, and customers’ hesitancy to make the shift from traditional, cheaper energy alternatives. Digital tools like generative AI design and the visualization of operations in the industrial metaverse aid manufacturers seeking to reduce costs and cybersecurity risks.
The primary finding of the report is that three federal acts from 2021 and 2022 remain key to American manufacturers’ recovery from the impacts of the COVID-19 pandemic and geopolitical conflicts like the war between Russia and Ukraine. These are the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA). One of the concerns for manufacturers is the average lead time for production materials has not returned to pre-pandemic levels.
The problem is there are ongoing shortages for particular components, including electrical, electronic, and semiconductor parts. The shortages have lasted for over 30 months. Yet the CHIPS Act has motivated manufacturers like Intel to build semiconductor fabrication plants, some of which are set to begin production in 2024.
Such relief could be stalled by factors like a CHIPS Act requirement for chip manufacturers to offer high-quality, reliable childcare for workers. If component producers succeed in getting plants to come online on time, 2024 could be the first year that manufacturers begin to meet the rise in demand. 2024 could also mark a definitive, “no turning back” point away from pre-pandemic trends. For example, in the coming year, manufacturers could cement their prioritization of providing increased connectivity for remote work.
Technology is changing manufacturers’ roles
New tools like blockchain platforms are helping manufacturers deliver a greater-than-expected value from the public’s investment through the IIJA, CHIPS, and IRA. Such tools help manufacturers to increase production and be more competitive.
The change has come because the public and corporate markets have placed a higher value on being energy efficient, reducing waste, and tapping into the knowledge of retirees. The language and requirements of the IIJA, CHIPS, and IRA also encourage a shift in manufacturers’ views and actions. Consequently, manufacturers are focused on more than producing and distributing their products. They have expanded their role as agents to change how industries operate.
Today manufacturers are engaged in digitizing their supply chains, developing augmented reality (AR) interfaces for applications, finding ways to best deploy devices like IoT sensors to optimize energy use, and developing paths for retirees to share their knowledge with young workers. The mindset with which manufacturers are using new technologies is set to increase customer satisfaction and demand.
For example, consumers have increased their demand for customized goods. Manufacturers are relying on digitization to remain nimble and agile. Recording transactions such as purchases of supplies on a blockchain platform is one form of digitization. The decision to use blockchain technology to keep track of expenses and shipments is valuable because the data is not stored in one location. It is decentralized, so it can be accessed easily and reliably from multiple locations.
As manufacturers rely on new tools, it is critical that they maintain significant cybersecurity protections. Deloitte’s report cited numerous studies showing that manufacturing remains a highly targeted sector for malicious behavior like ransomware attacks. One of the reasons that manufacturing is so vulnerable is that it cannot sustain many delays or outages. If a manufacturer has to slow or stop a production line, it faces considerable costs and potential cancellations of orders.
Paths to success
Manufacturers are navigating their way through this period of transition with collaboration, communication, targeted development, and expansion. The IIJA, CHIPs, and IRA are shaping a new reality in which individual and corporate customers have different requirements and priorities. For example, joint projects involving multiple manufacturers can help all partners meet goals to lower emissions. The Deloitte report cited an example of Hitachi Construction Machinery and ABB working together to electrify mining haulage trucks.
The report also discussed Caterpillar’s creation of a “specialized vertical,” or development of a marketing niche, dedicated to offering zero-emissions products and technologies. The products include modular and scalable advanced power sources to help customers reduce climate change.
Some information in the report should be viewed with skepticism. For example, the report expresses enthusiasm that a manufacturer could use generative AI to significantly improve business outcomes in multiple areas. Generative AI has great potential, but it still needs considerable guidance. A 2023 enterprise AI study found less than 36 percent of study participants had a full policy framework guiding their generative AI use. Manufacturers, as many other types of companies, have a long way to go in developing “ethical guardrails” for algorithms and their use.
If companies do not develop and implement policies that value ideals like a lack of bias, the companies are less likely to correct algorithms and the materials they generate. This will result in companies experiencing problems likely to cause internal concerns, such as issues with operations and testing. It will also result in external concerns, such as negative impacts on a company’s reputation.
The Deloitte report offers a thoughtful, data-driven look into how the three federal acts’ push for sustainability, expansion, and economic recovery from the pandemic is changing operations and perspectives for manufacturers in sectors from automotive to aerospace, as well as their necessary counterparts, like battery design. As American industries become more interdependent, hopefully the positive outcomes anticipated in the report will have even broader effects than Deloitte anticipated. For example, the report found that 2022 ended with 71 percent of industrial companies talking positively about aftermarket services like product repair. Digitization has made it easier for manufacturers to communicate with customers to offer repairs.
Another one of Deloitte’s recent documents beyond the 2024 Manufacturing Outlook report, the 2023 Deloitte and MLC industrial metaverse study, found that close to one-third of respondents were experimenting with offering virtual aftermarket services like AR-based remote troubleshooting assistance. Partnerships between manufacturers and software developers on repair services could streamline and refine repairs even further. The partnerships could also raise public awareness and use of AR itself. Greater acceptance of AR as an educational tool and a method to solve problems could lead to a lower need for transporting repair people between destinations. This would further reduce energy consumption and the reliance on fossil fuels.
