The spotlight might not always shine on midsize industrial machinery and components businesses, but these organizations have a big effect on industry endeavors worldwide.

From construction machinery, machine tools, and heavy machinery to component parts such as gears, motors, actuators, and control systems, you can’t engage in a large construction project or run a factory without industrial machinery businesses.

Amid drivers like increased mechanization of farm equipment, escalated urban infrastructure spending, and demand for more sustainable packaging, the need for sophisticated machinery is on the rise, according to a June 2024 report from Global Market Insights. The researcher says the market for industrial manufacturers of all sizes was valued at US$693.7 billion in 2023 and was anticipated to grow at a rate of 7.5% per year from 2024 to 2032.

But the integral, connected nature of this industry, supplying parts and machinery to customers who demand uptime, also poses a risk. Supply chain disruptions can be problematic, even disastrous, especially for midsize firms whose supply chains are smaller and thus less flexible than their larger counterparts. The supply and demand disruptions that followed the pandemic and continued with global geopolitical tumult have spurred ongoing challenges for these companies.

Still, midsize industrial manufacturing and components businesses throughout the world are looking to grow, according to recent SAP Insights research. To understand current realities facing midsize businesses – defined as those having from 250 to 1,500 employees – SAP Insights conducted a global survey in 2024, comprising 12,003 responses across numerous industries, including 900 industrial manufacturers. Among these respondents, 93.8% say growing their business in the next year is an organizational priority.

However, respondents were clear that supply chain disruptions are a top constraint to growth, as are the lack of quality data and tools to aid in decision-making. To overcome these challenges, respondents are turning to new technology tools and working to expand both their skills base and their supplier and partner networks.

But even these moves create fresh hurdles, many of which will require these businesses to invest in automation and – possibly – AI-driven capabilities.

Supply chain issues are a top growth constraint

Supply chain management is the biggest issue for industrial manufacturing and components companies looking to grow their business, especially in a post-COVID world. The pandemic exposed the risks of over-globalization, and increasingly common catastrophic weather disruptions and geopolitical tensions have proved that companies must be able to engineer fast supplier changes or last-minute shipment rerouting.

This has affected midsize manufacturers’ businesses in two ways: The companies they supply parts to may have reshored their own supply chains, resulting in either a critical loss of business or a boon to the midsize companies supplying materials to them.

More than 90% of the North American manufacturers surveyed in September 2023 by BCG, for instance, have moved at least some of their production or supply chain in the past five years – and a similar percentage plan to make such moves in the next five years. A clear trend is a reshoring movement to the United States, Mexico, India, and Southeast Asia and away from China, according to the report.

Second, any disruptions from their own suppliers of raw materials – likely a small pool of suppliers – could result in missed service-level agreements with their own customers, incurring business losses they can ill afford.

It was not surprising, then, that of all the growth challenges in the study from which they could select, disruption or weakness in procurement and supply chain was named number one by the largest percentage of respondents (16%). Additionally, 40.6% of respondents named this factor as one of their top three challenges to growth in the coming year.

It makes sense that respondents pointed to improving and/or expanding their supplier and partner networks as a top business plan to reach their growth goals, with 40.9%respondents naming this as a priority. Of course, as Rodney Apple, founder and managing partner at supply chain executive search firm SCM Talent Group recently told SAP Insights, “This is not like flipping a light switch. There’s a lot of orchestration that goes on, and it changes our whole logistics network – transportation, warehousing, customs, freight forwarding. Everything is connected.”

Letting data lead decision-making

Another top growth constraint named by respondents was a lack of quality data for decision-making, cited by 33.6% of respondents. Respondents also pointed to business silos between departments (named by 33.1% of respondents), which can play a big role in impeding data flows.

Access to cross-enterprise data is essential to attaining the supply chain transparency these companies need. It can help them quickly find alternative suppliers or transport routes when challenges arise, or avoid slowdowns from duplicate efforts or misaligned priorities between product management and supply chain planning teams.

Shared data is also important for minimizing unfulfilled customer orders or overproduction due to incompatible planning and production schedules.

Notably, respondents said the supply chain processes that were most important for achieving their business objectives were all rooted in good data management:

• Monitoring activity against demand and revising the forecasts (43.6%)

• Defining production network and supply constraints (41.0%)

• Tracking third-party logistics storage and shipping performance (41.0%)

Just because monitoring activity against demand is important, however, doesn’t mean it’s easy. Nearly one-quarter (23.5%) of respondents said it would be “very difficult” to monitor supply chain activity against demand and to revise the forecasts in real time.

Accordingly, half of respondents (50.6%) said the top technology they’d invest in to reach their growth goals are new or updated analytics products and decision-making tools. Additionally, new business software systems or cloud-based systems would also lead to easier access to needed data for decision-making.

Simplifying business processes

Supply chain disruptions, lack of quality data, and business silos are not just a challenge for growth; they are also the top three factors impeding respondents’ efforts to simplify work and improve their business processes, a goal named by 90.9% of respondents.

Here, midsize companies in this industry are looking to invest in talent, as 38.9% of respondents said they would focus on developing or expanding workers’ skills. A similar segment of respondents (39.4%) said they would increase the automation of their business processes, while 38% said they would seek to reduce the complexity of those processes.

While the need for more skilled workers might seem at odds with increased automation which is often seen as something that reduces headcount – it stands to reason that the talent base among midsize manufacturing and components companies may not always be skilled in automation technologies and that these companies will need to take measures to attain needed skills.

Finding, hiring, and retaining key talent

Indeed, increasing their talent base of skilled and reliable employees is a top business plan for achieving growth goals, according to respondents, nearly tying with expanding supplier and partner networks (40.9% for the former vs. 40.3% for the latter).

Unfortunately, finding those skills could prove difficult amid rampant labor shortages in the global manufacturing sector. According to a 2024 study by the Manufacturing Institute, 65% of U.S. manufacturers said attracting and retaining talent is their primary business challenge. And if the lack of skilled labor is not addressed, more than 1.9 million of the up to 3.8 million jobs likely to be needed between now and 2033 could go unfilled.

As noted in an August 2023 IndustryWeek article, skilled trade jobs in manufacturing require expertise in automated and digital technologies. If these skill sets are unavailable, industrial manufacturers will need to look to upskilling and reskilling or even apprenticeships to assure appropriate use of automated systems and machinery.

The same dynamics apply to finding supply chain talent, where there is also a skills gap. In a 2023 Korn Ferry study, 41% of respondents said they intended to upskill current supply chain employees, while 62% were seeking out people in other areas of the organization, with plans to reskill them. About 65% said they were looking to hire externally but within the same industry.

Investing in AI

With its promise of uncovering data-driven insights, AI is of high interest for midsize industrial manufacturers, with 50.4% of respondents naming AI as a high priority and another 38.2% as a medium priority. These businesses also recognize AI’s potential for answering some of their supply chain challenges.

Respondents said the three best uses for AI in supply chain processes included:

• Prediction and remediation of supply chain disruptions and third-party risk (61.5%)

• Enhanced demand forecasting (51.3%)

• Improved quality with AI-enabled inspection and fault detection (51.3%)

For now, though, respondents seem more interested in using AI to meet other business goals, particularly enhancing data security and privacy, with more than half (51.4%) naming this as a high priority. Already, respondents are using AI to monitor regulatory compliance (40.8%), detect fraud (39.2%), and gather market intelligence (39.4%).

As Gartner points out in a January 2024 survey, manufacturers have the opportunity to help their supply chain function to take lessons from other business functions when it comes to deploying AI – for example, by gaining more insight into supply chain performance.

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