3 predictions for 2022 for equipment manufacturers

TL;DR

  1. World has changed a lot in the last 21 months, and winners and losers have emerged from this crisis
  2. While some of these changes were in response to the pandemic, many of them will stick, e.g. hybrid work, less business travel, rapid adoption of e-commerce, etc
  3. But the workplace challenges caused by changing customer habits, unavailability of workers for all functions and levels of the company, and downward pressure on profit margin will be relentless
  4. Only way out of this crisis for equipment manufacturers is to digitize and automate every workflow, starting with customer-facing ones
  5. 2022 will finally be the year the digital revolution finally takes hold in equipment manufacturers

As I started writing this post, I wondered if I should have the headline as  “Mid-pandemic memo”? It feels as if that should really be the time frame for this note to reflect on everything that has happened since mid-March 2020. And because there doesn’t seem to be an end in sight, given the rise of Omicron and other variants that will undoubtedly arise in the upcoming months.

The headline of course was the over 800,000 deaths in the US and millions more worldwide directly attributed to the COVID virus. The havoc this pandemic caused to people’s lives was incalculable; the resulting impact on the economies of the world was equally devastating with a wide range of consequential damage to corporations large and small, depending on the end markets, products, applications, etc. It caused changes in how people live, work, travel, and experience healthcare as well as leisure.

The result has been the creation of a clear set of winners and losers. Digitization boomed, and with the advent of work-from-home as a necessary mode of work, software applications that enhanced collaboration, processes, support, purchasing, and other actions took hold in our daily lives. “Touchless” applications in restaurants and other public places gained traction. In the manufacturing world, with visits to customers and job sites restricted (or heavily restricted), similar software applications became available and the entire paradigm became “remote-first” followed by in-person meetings and activities. And from the announcements seen in the press recently, it is clear that “return to office” is becoming a wish, not a reality.

So what does this mean for equipment manufacturers? For some lucky ones, like the material handling OEM that is our customer, the business has boomed and they simply can’t keep up with demand. For the less fortunate, like the one selling to restaurants, business was impacted severely and they did all they could to keep afloat and liquid. But in each case, the availability of workers has been severely compromised. Not getting sufficient staffing in factories, or having higher than normal attrition rates of office staff – with an inability to fill these open roles fast enough to make a difference.

So as 2021 draws to a close, how should manufacturers think about the next 12 months?

As a famous CEO once said, “Eat short term to live long term”. Which means, focus on the here and now, making sure you have 1) liquidity, 2) profitability, and 3) the talent to take advantage of the market opportunity in the Next Normal. But what is the Next Normal? Is it all hybrid work? Will workers ever return back to their offices and relocate to new cities again at the pace they did pre-pandemic? 

I had outlined some of these trends in a previous blog titled Industrial OEMs are in for a world of hurt.

After speaking to a large number of customers, market observers, and industry experts, here are our 3 predictions for 2022 for equipment manufacturers:

  1. Supply chain challenges will persist well into 2022 and will drive insourcing, nearshoring, and multi-sourcing by manufacturers causing downward pressure on component manufacturers worldwide. That will reduce the risk and cost across the supply chain and winners will be local manufacturers in the US, EMEA, and Mexico.
  2. Profit pressures brought on by “not meeting plan” in 2021 will cause manufacturers to spend less on both CAPEX and OPEX investments required to revitalize their businesses. But those companies with adequate reserves, staying power, and willingness to invest even in the face of these pressures will start separating themselves from the rest of the pack.
  3. Finally, these “investors” will race to digitize their operations, starting with the customer and installed base-related workflows – service, sales, support…anywhere they can “reduce cost, reduce reliance on people” will be the target of their investment.

The last 2 predictions may be the ones that separate the Netflixes from the Blockbusters, Amazons from Sears, Ubers from taxi cabs…but it takes courage to invest in the face of headwinds. 

While you are here, you may also want to check out our survey results for top Industrial OEM priorities for 2022.

Time will tell how the next generation of equipment manufacturers will separate themselves from the rest. Watch their actions closely in 2022.

 

 

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