Emerging trends
in the Industrial
Manufacturing sector
September 2022

Contents
03

17

54

Globalmanufacturingsector snapshot

Sustainable
manufacturing

Emerging
competitive
landscape

07

37

64

Building aresilientsupply chain

Increasing useof advanced
technologies/
Industry 4.0

Focus on key
industrial
manufacturingsub-sectors© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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2

01
Globalmanufacturingsector –A snapshot© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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1

Global manufacturing sector – A snapshot

In the last two years, the pandemic has adversely impacted economies, societies and people globally.
The virus has also triggered the worst recession since the end of World War II, affecting the
livelihoods, employment and household incomes. For the global manufacturing sector, which was
already struggling owing to protectionism and trade tensions amongst large economies, the pandemic
had a severe impact leading to the first global decline in world manufacturing production since thesub-prime crisis of 2008–09. According to the United Nations Industrial Development Organization(UNIDO), the second quarter of 2020 saw a considerable fall in worldwide manufacturing output of
11.2 percent compared to the same period in 2019 1.

World manufacturing output in percentage (y-o-y by region)

World

North America

Europe*

1.4
6.7

-6.7

0.05
8.9

-7

-1.1
7.5

Africa

APAC*

9.7

-4.3

-4.5

-1.7
5.2

-6.6

0.9
FY21

FY20

FY19

Note: * in the above chart refers to the industrialised economies
FY21 refers to the period from January 2021-December 2021
Source: World Manufacturing Production, Quarter 4 - 2021, UNIDO, accessed on 28 April 2022

Nevertheless, over the last few quarters, manufacturing situation has improved owing to gradualphasing out of economic and social restrictions across many countries. World manufacturing output
rose by 9.7 percent in FY21 while European region grew by 8.9 percent, exhibiting better growthcompared to the last two years, on a y-o-y basis. The industrial production for manufacturing in theEuropean Union neutralised the impact of the pandemic (98.5) and attained pre-pandemic levels in
2021 (107.2) similar to 2019 (107) 2. Countries and territories with stronger manufacturing capabilities
and more diversified industrial sectors have sustained the impact of the pandemic better than othercountries, depicting the importance of having agile and resilient manufacturing systems.
As industrial production and capacity utilisation surpassed pre-pandemic levels in the middle of theyear 2021, strong increase in new orders for all key sub-sectors indicates that the growth will continue
in 2022. A combination of high firm valuations, robust profitability, and low-cost loans may drive
companies to use M&A to enhance their technological capabilities, increase market share, and enter
1 World Manufacturing Production, Quarter 4 - 2021, UNIDO, accessed on 28 April 2022
2 Production in industry - annual data, Eurostat, accessed on 07 May 2022

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4

new markets as capital expenditures rise. Moreover, investments in infrastructure and policy changes
could aid in the resurgence of the manufacturing sector.
The ongoing conflict between Russia and Ukraine has triggered uncertainty for the global industrial
landscape. The war has caused major supply disruptions, which in turn led to a surge in raw material
prices, especially for energy and metals. The average price of Brent crude oil increased by 55 percent
in March 2022 to reach US$116/bbl (Barrel of crude oil), compared with December 2021, while WorldBank’s metals and minerals index rose by 13 percent in 1Q22, vis-à-vis the last quarter 3.
Manufacturers, notably those in Europe, have seen substantial disruptions because of the rise in costs
and raw material constraints brought on by freight delays and diversions as well as additional COVID19 lockdowns in China. In March 2022, the manufacturing Purchasing Managers' Index (PMI) for theEuro zone was 56.5, lowest in the last 14 months 4.

Major risks identified for organisations

25%

13%

12%

Supply chain
risk

Operational risk

Emerging/disruptive
technology risk

12%

9%

6%

Regulatory risk

Environmental/climatechange risk

Cyber security
risk

23%
Source: Global manufacturing prospects 2022, KPMG

Other risks such as talent risk,
tax risk, reputational risk etc.

3 Commodity Markets Outlook, World Bank, April 2022
4 Global factory activity slows as Ukraine crisis, inflation bite, The Economic Times, 1 April 2022

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5Given the current challenges of supply chain disruptions and its impact on the trade flow process,supply chain risks have emerged as the biggest threat to organizations, as per KPMG 2021 CEO
Outlook 5 report, showcasing the need for companies to build a resilient supply chain and stay
prepared for future challenges.
Driven by the evolving geo-political dynamics, the outlook for the manufacturing sector seems to beperilous, taking into consideration the uncertain financial developments in many countries, thepandemic’s unpredictable future trends, the supply chain bottlenecks and the ongoing Russia-Ukraine
conflict with marked regional disparities. Recent economic analyses suggest strong but dissimilar
developments of different economies, with headwinds arising from variable sources.
Businesses that want to participate in the upcoming growth period as well as function through thevolatility of an exceptionally quick economic recovery may find that business agility is essential.
Manufacturers who were more digitally advanced before COVID-19 had an advantage in terms ofresilience, as did those who accelerated their digitalization during the crisis. A more competitive andsustainable future in manufacturing may depend on digitisation, which now includes everything from ecommerce and enterprise transformation to smart factory initiatives.

As per the KPMG 2021 CEO Outlook* report, manufacturers may focus on the below mentioned
parameters as their operational priorities to align well with their growth objectives over the next
few years.
•

Advancing the digitization and connectivity across all functions•

Integrating ESG goals and consumer preferences into the company’s future strategic
initiatives•

Sustained employee value proposition to attract and retain talent•

Inflation-proofing capex, procurement and opex•

Reconfiguring the supply chain•

Driving cybersecurity and data resiliency

KPMG 2021 CEO Outlook, KPMG International, accessed on 28 April 2022

In the following sections, we will be covering major trends shaping the manufacturing industry in the
coming years, with a focus on building a resilient supply chain, sustainable manufacturing andincreasing use of advanced technologies/Industry 4.0.

5 KPMG 2021 CEO Outlook, KPMG International, accessed on 28 April 2022

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02
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2 Building a resilient supply chain
2.1

Supply chain disruptions

Supply chain disruptions are among the major hurdles facing manufacturers for the time being. The
pandemic along with other geo-political issues have added more complexity and disruptions to theindustrial manufacturing sector globally.
The manufacturing units and shipping companies are shifting gears, re-evaluating their strategies andrisk profiles, and struggling to keep up their production. Ripple effects could be felt with manufacturers
as raw materials and other intermediate goods could not be sourced from other countries. The
sourcing managers on the manufacturing side are not able to secure supply at a reasonable cost.
Prices of raw materials, commodities, which had already been rising due to the global pandemic
outbreak, have shot up further due to the Russia-Ukraine war.
Supply chains are already disrupted by the pandemic-driven recession and struggling with backlogs
are now facing renewed pressures. Rising prices and compounded supply-side disruptions are likely
to further exacerbate inflation, hampering global economic growth.
Below are some of the major reasons which led to disruptions in the global supply chain over the last
couple of years along with key actions taken by manufacturers to minimise the impact:

Implications

Corrective measures taken

Russia-Ukraine war• Russia is a noteworthy nation in terms ofproviding 35 critical minerals that the US
Department of the Interior (DOI) considers
important for economic growth and national
security, including:- 30 percent of the global supply of• Absorbing volatility in commodity
prices• Updating inventory policy and data-

based planning for critical resources• Moving to alternate sources ofsupply by carefully diversifying
platinum-group elements (including
suppliers
palladium) 6• Investing and partnering in new- 13 percent of titanium 7
freight routes and sustainable- 11 percent of nickel 8
modes of transport• The conflict has also disturbed the supply of • Friend-shoring by moving critical
Neon (used for etching circuits on silicon
supplies to close allies/ partners
wafers) and Palladium (used in catalytic
converters for cars) etc.

6 Russian invasion of Ukraine to further strain U.S. chip supply for auto, tech industries, CNBC, 24 Feb 2022
7 Explainer: Importance of Russian titanium to global industry, Reuters, 2 March 2022
8 Russia-Ukraine War Helps Drive Nickel Prices, EV Headaches, Forbes, 31 March 2022

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Implications

Corrective measures taken

Suez-Canal blockage• The Ever Given ship caused blockage that•

disrupted around US$9 billion worth ofgoods, including vehicle parts andaccessories, garments, electrical and•photosensitive materials, pharma goods etc.

• With news that the blockage could last for•weeks, oil prices jumped, and the supply
deliveries were put on halt. Cargo schedules
that were created for months were disturbed •and there were traffic jams at the ports.

• Ships could not be sent around the Cape ofGood Hope, which could have added to the •sailing time as well as raw material costalong with risk of pirates. Also, empty
containers could not get back to Asia, whichcaused a shortage in container space.

Rerouting through Africa’s Cape ofGood Hope, although it added tofurther delays
Exploring technologies like location
tools to simulate ‘what if’ scenarios
Assessing different modes likeplanes, trains
Investing in AI/ML for faster
decision making to handle suchdisruptions in future
Better insurance terms to coversimilar disruptions

Semiconductor shortage• The rising demand of laptops during the• Collaborating with chip fabricators

lockdown coupled with other factors such as
surge for 5G networks, cloud computing and •AI services led to chip shortage globally.

• The water shortage in Taiwan due towith large production capacity

Redesigning product features toreduce chip usage• Using compatible old technologies

drought and US sanctions due to the trade
war further squeezed the chip market, which •in turn led to increase in prices.

- For instance, in August 2021, achipmaking giant in Taiwan announced a •price increase for all their chips by about
20 percent, and other chip manufacturers
started following 9.

Leveraging software-based
solutions to optimize hardware
capabilities
In 2022, the EU launched an
initiative “European Chips Act” tostrengthen technological leadership,
mobilise public and private
investments to anticipate and swiftly
respond to any future supply chain
disruptions and increase productionof cutting-edge semiconductors to atleast 20 percent of the world
production by the year 2030 10

Brexit• Both the EU and UK rely heavily on eachother for their product requirements andUK’s exit from the EU has had an overall
impact on the economic growth and trade
policies within the European region.

• Custom checks and additional tariff fortransportation and production of industrial
products led to higher cost and rising
inflation.

• Reviewing the existing contracts
and profitability• Companies in pharma andtechnology have considered stock
piling of their key products• Exploring onshoring opportunities• Additional administrative checks andby companies and developing
regional suppliers or local footprints
of international suppliers

paperwork resulted in fluctuations and delay

9 TSMC hikes chip prices up to 20 percent amid supply shortage, Nikkei Asia, 26 August 2021
10 European Chips act, European commission, as accessed on 19 May 2022

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Implications
in delivery time, which has been a major
setback for the organisations having a “justin time” approach

Corrective measures taken• Short-term adjustements forinventory tactics for ensuringbusiness continuity and maintaining
service levels• Predicting the impact of changes

using forecasting and managing thechanges in demand

Raw material shortage and factory closures• Multiple shutdowns since the beginning of• Maintaining better supplier

the pandemic have exhausted the buffer
stocks and negatively impacted the•
production globally. Although manufacturers•
have resumed production, they are still
unable to meet the demand.
•• Freight issues such as shortage of dockworkers and truck drivers have also led tothe demand-supply gap.

• The raw materials market is still under astrain and the reduced supply has led toincreased material prices globally.

relationships

Finding alternate suppliers
Using alternative raw materials
Updating commodity strategies,
supplier base and risk management
including what to insource and what
to outsource• Simplifying and standardisingproducts to make them easy tosource at lower costs• Fixed price agreements andsecured volumes in contracts

Labour shortages• Workforce shortages in the manufacturing

units prevailed prior to the pandemic, which
has now deepened.

• A large number of people are exiting the• Partnering with local schools andcolleges• Offering internships leading to full-workforce, especially the baby boomers who •are retiring or quitiing their job voluntarily.

• Workers are seeking oppurtunities forswitching sectors and take up jobs in certain
sectors due to concerns over wages andworking conditions.

time employment

Training students on industry
requirements• Conducting social media hiring
programs• The limitations on immigration and bordercontrols have fueled labour shortages.
Although automation and AI were expected
to fill the gaps, human interuption is stillrequired to manage production lines andapply problem solving.

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Major economies have started to realise the importance and impacts of supply chain disruptions on
their growth potential and as a result, various institutions and countries have introduced initiatives tocurb the effect of supply chain disruptions and establish a resilient supply chain. For instance, inMarch 2020, the EU launched a strategy to diversify supply chains and build a “strategy autonomy” inareas such as raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors,
and cloud and edge technologies. Key highlights of the program include:

01

02

03

04

The outlined
strategy helped in
reducing reliance on
foreign suppliers forcritical materials
and products

Analyses andaddresses strategic
dependencies of the
supply chain fromboth technologicaland industrial
dimensions

Helped indeveloping adiversified
international supply
chain andstrengtheninternational
collaborations toincrease
preparedness

The strategy
proposes to make
Europe a global
industrial leader
along with providing
a competitive edgein green and digitaltechnologies

2.2Managing supply chain risks

The ongoing crisis has demonstrated that manufacturing
remains to be the backbone of all economies, but it also
exhibits the susceptibility of the global production systems
to sudden shocks. When asked about the importance of
having a resilient supply chain, more than two-thirds (68percent) of CEOs in KPMG 2022 “Global manufacturingprospects survey” 11 admitted that the key objective is tobuild supply chain resilience in the event of a global
lockdown.
To overcome/minimize the effect of disruptions on their
supply chains, companies are adopting various strategies toensure smooth flow of services starting from the production
phase to the end delivery. Manufacturers need to learn fromthe past scenarios and work on adopting an approach
towards continuous changes and innovation. It Is important
for the organisations to strengthen their strategic approachand implement strategies to minimize the risk of supply
chain disruptions and building up the operational efficiency.

Some of the top strategies tomitigate strain on the supply
chain in the coming years include:•••

Thorough monitoring of thecompany's supply chain (tiers 3
and 4) to foresee any potential
issues more accurately
Increasing the variety of input
sources by including new
locations to strengthen the
supply chain
Improving the production andoperational resilience, the supply
chain should onshore additional
inputsIncreasing the use of strategicplanning techniques, such as
long-term contracts and hedging
programmes, to stabilise thecompany's input costs•
Manufacturers are adopting various technologies and arealso looking at transferring various business operations,specifically in terms of selecting locations for moving theirown manufacturing capability or a key supplier, which will
be more viable to the demand location. Additional support
to supply chain can be provided by diversifying resources
which can eventually reduce the impact of events withshocks and shortages. The US and many other countries face limitations in the existing global supply
chain due to dependence on China. European, Middle Eastern and African companies have been
11 Global manufacturing prospects survey 2022, KPMG

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11exploring neighbouring countries in Central and Eastern Europe and North Africa for probablesolutions.
Procurement heads play a pivotal role in mitigating supply chain risks, enhancing operations andproductivity and making strategic moves that help manufacturing companies bounce back with more
resilience and competitive cost base. Manufacturers must relook into how the work gets done,
stimulate legacy styles of working, and bring in further transparency and intelligence across central
workforce dimensions (partners in the ecosystem and the physical production network).

Changes in strategic models to help with supply chain resilience

01

Automation anddigitalisation• Helps to operate in a streamlined manner••for efficient working of the supply chain
mechanism
Enables demand forecasting, scenario
planning, positioning of the inventory andmaintaining greater transparency within
the system
Latest purpose-built tools andtechnologies, such as Digital Supply
Chain Twin solution, are useful inaccessing future risks, forecasting
demand, and maintaining adequate
inventory to avoid any disruptions

03•• Reduces transportation costs andnarrows down delivery time
• Lowers the chances of disruptions in endto-end delivery, maximising the supply
chain efficiency• Helps in minimising total cost andincreasing profits, for instance, many
manufacturers in western Europe havebuilt factories in nations such as Turkey,
Hungary, Poland, and Romania, wherecosts are competitive with the costs in
China and help in financial success

From “just-in-time
supply chains” to “justin-case supply chains”• Helps in accurate forecasting of demand•02

and minimising risks arising due to theunsurety around the existence of relatedrisks
Provides flexibility of manufacturing
products and stocking inventory as per
the market requirement, avoiding huge
lossesSmoothens the process of inventory
management and compresses the needfor having large spaces/warehouses

Offshoring to
Nearshoring/Reshoring

04

Integrating supply
chain management
into structural decision
making• Builds a formal way of addressing supply
chain issues with the management• Provides equal importance and covers all•

dimensions of company governance
Amplifies involvement of other decision
makers, enhancing co-ordination for asmooth supply chain© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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05

Diversifying sourcing
and procurement• Ceases the over dependence on a single••

supplier for fulfilling the requirement
Boosts the power to negotiate for better
price competitiveness
More reliable in case of a sudden surge inproduct demand

07

06

Reconfiguration of
manufacturing plants• Enhances capability to help adapt to the••

Building agile andfuture readysystems

production capacities and functionalities ofthe manufacturing systems according to
the transforming product families
Optimises efficiency in case of a surge indemand with minimal efforts
Maintains high level of performance byaltering plant configuration to serve
multiple functional requirements orchanges in operational conditions

08

Reinventing processes
and operating models• Helps in identification of volatility in the• Mitigates the risk of supply chain

•

•

•

supply chains impacting medium to longterm goals of the organisation
Scales the supply chain network andorganisational development across productgroups based on asset and capacity
Shortens lead times and supply chain cycle
times with frequent production runs••

disruptions, enhances operations andproductivity
Helps in better adoption of strategic moves
to attain a competitive cost base
Identifies priority segments to manage
supply chains
Better assessment of the supplier networkfor financial stress and enabling safe andefficient selection process for onboarding
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13

Case Studies
Challenges faced

Approach

ImpactBosch

The company witnessed ashortage in component
and supply disruptions in
2021, hence, decided toreshore its activities fromSoutheast Asia to Europe

Announced a five-year
agreement with Astrata
for reshoring the
production from Malaysia
to France. Under thisagreement, Astrata's
advanced fleet
management system forheavy goods vehicles(HGVs) and lightcommercial vehicle
hardware will be
manufactured and Boschwill be responsible tohandle Astrata's
European production at
its Mondeville facility inNormandy

Bosch expects that thereshoring of
manufacturing activities
will bolster the company’s
European delivery
performance while
lowering environmental
and logistical concerns

MercedesBenz Group(formerly
Daimler)• Need for building a

Mercedes Benz Group•
collaborated with Ocean
protocol and signed a
proof-of-concept (PoC) to
explore decentralised•
distribution of internalsales and financial data
within the production hubs
and few of its external
supply chain procurement
partners•

secured platform toestablish a transparent
and secure enterpriseB2B data marketplace
Developing a securepathway formonetisation of data
across supply chainsfor connecting
Volkswagen • Needdata chains from the

supplier to the
manufacturer forenhancing efficiency• Early-stage
identification of supply
bottlenecks

Volkswagen is part of theindustry-wide initiative“Catena-X automotive
network” in 2021 that
intends on promoting
industry-wide dataexchange andestablishing data
standards for the wholeautomotive value chain

The application will
help the company inmonetising data
across its supply
chainsIt helped build
transparency in easeof sharing data andextracting insights withother enterprises• It will help Volkswagen•© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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in forming valuable
synergies for
expanding theIndustrial Cloud, which
can be used by thecompany to form aconnection between its
factories, suppliers,
and industrial partners.
This will help generate
new opportunities for
improved efficiency
and transparency inproduction and supply
chains14

Potential impacts of the supply chain rebuild
It is very important for the organisations to maintain a healthy balance between being resilient andcost effective along with having an agile system to ensure efficient supply chain mechanism. The
existing trends can help the organisations in building a resilient supply chain, which is indeed an
important factor in determining their financial success. Implementation of these trends can have asignificant impact on the top and bottom line of the organisations. Below is the list of few trends andtheir potential impacts.
Area of focus

How will it impact?

Area of impact

Demand forecasting• Offering a proactive approach for supply chain Accurate forecasting can have an
impact on bottom line of thecompany as the production
quantity is determined basis the
procurement and shortages
demand, hence chances of
Linking raw material requirements to sales andadditional costs associated with
operations to help drive a robust forecasting
the production gets diminishedprocess
Evaluates capacity utilisation targets andidentifies triggers based on utilisation trends
management• Help in predicting long-term product planning,••

Inventory / Asset management• Proper management avoids leasing of••••

Impact is observed on thebottom line as timely execution
unnecessary spaces
Maintaining a safety stock to prevent production of inventory/asset management
can lead to reduced production
constraints
and storage cost
Supply assurance for all the critical parts to avoid
shortages and obsolescence
Efficient inventory strategies for order flexibility
and service level performance
Focuses on cost-efficient sites to make up lost
global efficiencies

Market awareness• Awareness about products and suppliers• Mapping market-specific needs and trends• Monitoring the technology curve for materials
and design

Impacts the top line as it ensuresdevelopment of sourcing andprocurement strategies as per thecurrent market and consumer
sentiments resulting in increased
market share and additional
competitive advantage

Diversity in suppliers

•
•
•
•

Impact is observed on the bottom
line as it increases the bargaining
power of the organisations for the
Expanding/ diversifying supplier network
raw materials/finished goods
Developing strong supplier-buyer relationships sourced and minimizes the risk of
Linking supply chain risks to sourcing strategy inadequate supply in case of acomplete network shutdown
Reprioritizing geographies to reduce supply
risks

Another important factor in supply chain management is sustainability. Sustainable supply chain
management is established when organisations are aware of the environmental, social and economic
impact and are willingly making changes to lessen these impacts. For instance, if a company is
involved in manufacturing products, its sustainability strategy can include reviewing the entire© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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15

manufacturing process, which would further include the sustainability practices of all vendors, productassembly in the plant, and waste disposal and recycling. The following chapter will elaborate more on
the importance of sustainability in industrial manufacturing.

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03
Sustainable
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3 Sustainable manufacturing
3.1

Increasing focus on ESG

In the global economy today, adopting sustainable and ethical business practices is an imperative forthe manufacturing sector to remain profitable. The relevance of ESG and sustainability programmes
has grown to the point that they might have larger and more significant consequences, especially forindustrial companies. The preference for companies that embrace ESG is rising among investors,
regulators, employees as well as consumers. Consumers are more aware of sustainable products,
and supply chain partners are under more pressure to adopt ESG standards in B2B transactions.
Even C-suites and boardrooms are paying close attention to the ESG goals and initiatives.
Key concerns that make it an imperative for embracing ESG initiatives are high carbon emissions,water shortage, fossil fuel consumption, disruptions due to weather and waste management. The
manufacturing sector alone is the largest contributor to producing greenhouse gases. For instance, in
Europe, the manufacturing industry emits about 880 million tons of carbon dioxide annually 12. This
coupled with other considerations, is driving the increased focus on ESG.
Top four factors that make ESG initiatives a major concern for the manufacturing sector include:

1
2
3

4

Increasing customer demand• Compared with 2019, the number of large-scale purchasers asking their suppliers toprovide environmental data increased by 24 percent in 2020.

Monitoring internal governance• Companies that do not comply with ESG goals are expected to face significant
regulatory penalties. More than 70 countries, for example, have enacted legislation to
restrict plastic usage and about 170 countries have vowed to "substantially cut" plastic
consumption by 2030.
• In addition, SEC established a Climate and ESG Task Force in the Division of
Enforcement last year, which will create strategies to proactively identify ESG-related
misbehaviour. The task force will also investigate disclosure and compliance problems
associated with investment advisers and funds.
Participation of leadership• With global sustainable investment already exceeding US$29 trillion, up by 68 percent
since 2014 and 10 times since 2004, boardroom directors and C-suite executives areunder increasing pressure to make sustainable investments. Since the beginning of
2020, almost 57 percent of CFOs have made it a priority to invest in ESG activities, with
23 percent acknowledging that ESG investments are more important for theirorganisations now than before 2020.
• Companies are also beginning to link executive compensation to environmental, social,and governance (ESG) goals and KPIs. This emphasises the importance of developing
and implementing relevant ESG strategies.
The changing labour forces• The labour force is shifting, owing to a labour shortage triggered by the "great
resignation" and "grey tsunami."• In fact, ESG commitments are considered by 76 percent of millennials when picking
where to work. It will become increasingly important for companies to commit to ESG
initiatives to fill the talent pipeline, especially with younger generations.

12 From remanufacturing to recycling how manufacturing can raise the bar on global climate goals, Weforum, 14 June 2021

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18

3.2

Incorporating ESG agenda

3.2.1

Introduction

Manufacturing technologies and solutions are enabling the measurement and reporting of precise andconsistent ESG metrics across industries, as well as the enablement of both profitability andsustainability. Companies can set the agenda and show a stronger commitment to ESG.
The ESG journey of a company may include the following steps:

1

2

3

4

Evaluating the current
sustainability activities
and identify key
issues; this will also
include gauging
stakeholder interest
and creating a
guideline to implement
the ESG program

Identifying datacollection andmanagement
activities designed
for ESG program;
this will help in theanalysis of ESG
activities

Driving improvementin performancemonitoring andreporting; (Monitoringsustainability
objectives andtransparent reportingto stakeholders on
ESG performance)

Designing thegovernanceframework toaddress
compliancerequirements andESG-based risks;
also solidifying theinternal control
environment

Some of the ways
in which
manufacturing
companies
globally arerevamping theirbusiness
operations to suit
local/global level
ESG targets
include:1

Engaging with partners to
reduce the environmental
impact of sales anddistribution processes

3

Reducing the product size
and weight to optimise
packaging requirements

5

Using efficient andsustainable logistics andtransportation

7

Supporting biodegradable,
recyclable and reusable
products

2

Expanding the
product life cycle bymaking it reusable
and recyclable

4

Tracking ESG
metrics arounddowntime,
manufacturing cycle
time etc.

6

Use of renewable
and non-hazardous
materials

8

Redesigning andadapting to the
production
processes that
reduce the overall
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19

For measuring sustainability, frameworks including ESG goals are becoming an imperative, with amajor focus on the environment to determine how that company performs in its natural or physicalecosystem. Environmental considerations were expected to have a marginal effect on the economic
growth, however, climate risk, water scarcity, extreme temperatures and carbon emissions areobserved to be the key pillars in economic growth today.

• Companies may experience greater financial risks for neglecting the effects of policies andpractices on the environment• Companies may also harm the shareholder value if faced with government sanctions, criminal
actions and any damage to the reputation

The threat of environmental risks has led to fragmented global regulatory response. In Europe,
regulators are progressively pushing towards a carbon neutral economy and mandating standards forenvironmental reporting. EU has been redirecting investments towards sustainable manufacturing
along with pushing ESG factors into the capital markets over the last few years.
The industrial manufacturing sector has been at the forefront in terms of environmental performanceover the last few decades. While certain highly polluting manufacturing units have come to a halt,
certain other companies are getting more involved in voluntary schemes to compensate for theirimpact on the environment. The industrial manufacturing sector alone is responsible for a huge impact
on the environment in terms of pollution and waste generation.

Possible impacts of sustainability on a company’s performance

Impact on financial
performance

Impact on businessexcellence

Impact on stakeholder
relationships• Increase in sales by• Staying ahead of• Enhancement in••earning a competitive
advantage by meetingsocial and environmental
expectations
Improvement inproductivity and efficiency
by reducing resource
waste and regulatory load
Reduction in dependenceon hazardous materials byleveraging greener andinnovative alternatives••

regulations rather thanreacting after
implementation ofchangesWinning better access tocapital due to reduction in
operational, strategic andsupply chain risks andoffering sustainableproducts in the market
Gaining foresight on thestrategic front by
anticipating solution
innovation and value
addition••

reputation due to green
initiatives
Improvement in employee
retention and morale bycontributing to theenvironment
Building better relations
with the community bydemonstrating a
responsible approach
towards local people andenvironment© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

20

3.2.2Government initiatives around sustainability

Europe• The EU is extending support to the climate in many ways. For instance, the EU

increased its contribution on the European Green Deal. The InvestEU Programme
is anticipated to bring more than US$685 billion of added investment by 2027,
through the usage of an EU guarantee 13.

• Mitigation and adaptation of climate change has been integrated andmainstreamed into the EU’s key spending areas. In its proposal budget of over
US$1 trillion for the duration of 2021–27, the European Commission increased its
aim to spend a minimum of 25 percent of expenditure on activities related toclimate; representing about US$338 billion 14.

• According to European Environmental Agency (EEA), the EU has already cut down
its net greenhouse gas (GHG) emissions by about 31 percent since 1990.
However, further progress is required to meet the new reduction targets of 55
percent for 2030 15. The National Energy and Climate Plans (NECPs) haveundertaken various pathways and planned measures to meet the 2030 ambition.
Implementation of the measures planned under the NECPs of the Member States
is expected to reduce the EU emission levels by 41 percent by 2030 16 (without
considering emission removals) and would be a significant step towards achieving
the new climate target.

• The European Commission in March 2020, outlined an industrial strategy that

aimed at supporting the twin transition to a green and digital economy, improve theopen strategic autonomy of Europe, and make the European Union morecompetitive globally. The Industrial Strategy of 2020 enlisted actions to support thetransition to green and digital economy, most of which have already been launchedor adopted by the EU.

To accelerate the green and digital economy twin transitions, the Commission has proposed thefollowing:

EU Industrial Strategy
Transition pathways

Multi-country projects

Co-create jointly with stakeholders andindustry, transition pathways to identify
the actions needed to accomplish thetwin transitions, providing an improved
understanding of the scale, conditions
and benefits required.

To assist the recovery efforts anddesign digital and green capacities,
the European Commission to support
Member States in joint projects tomaximise investments under
Recovery and Resilience Facility.

Horizon Europe partnerships

Abundant, available, andaffordable decarbonised energy

Bringing together public and private
funding to support research anddevelopment on low-carbon
technology and processes.

The European Commission will jointly
collaborate with member states tofacilitate investments into grids,
renewables and address barriers.

13 European Commission Press Corner, as assessed on 19 May 2022
14 EU budget 2021-2027, European Commission, as assessed on 19 May 2022
15 2020 Highlights - European Environmental Agency, as assessed on 19 May 2022
16 Data and maps - European Environmental Agency, as assessed on 19 May 2022

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21

Middle East and Africa• Saudi Arabia as part of its Vision 2030 strategy, 17 has planned to invest US$6.4

billion towards recycling waste by 2035. The circular economy model has opened
up enormous opportunities across the region, in terms of energy creation,
products, or services, and can contribute substantially to economic diversification.

• The Arab Chambers of Commerce, Arab League, the Government of the United

Arab Emirates (UAE), and Bahrain Chamber of Commerce & Industry, havestressed on their responsibility to accomplish the 17 global goals mentioned in the2030 Agenda for Sustainable Development.

• Building on the Climate Change Action Plan by World Bank, the Middle East &North Africa (MENA) Climate Roadmap is anticipated to guide the support of theWorld Bank to the MENA region for the upcoming five years and drive theirinvolvement to help countries cut down emissions and adapt to climate change.
The roadmap consists of World Bank Group’s funding investments of up to US$10
billion, to be utilised for climate smart projects and policy reforms, and leverage
added US$2 billion in financing of the private sector 18. In keeping with country andregion-specific demands that manage climate adaptation and mitigation measures,
about 50 percent of this climate funding will be invested in interventions that help inbuilding resilience.

Regulatory framework for industrial manufacturing:
Manufacturers in Europe need to ensure that the products placed in the market are safe. They need toensure that the products meet safety, environment and health protection requirements. To trade
products in the EU market, manufacturers need to ensure the below points:

Conducting the conformity assessment

Setting up the technical file

Issuing the EU conformity declaration

Affixing CE marking on products

As per the European commission, below are the six steps required for affixing a CE marking on a
product.

1

2

3

Identify the applicabledirective(s) and harmonised
standards

Verify product specificrequirements

Identify whether an
independent conformity
assessment is necessary

4

5

6

Test the product and checkits conformity

Draw up and keep available
the required technicaldocumentation

Affix the CE marking anddraw up the EU Declarationof Conformity

17 Saudi Vision 2030 – Arab News, as assessed on 19 May 2022
18 Feature Story - Driving Transformation: A Climate Roadmap for the Middle East & North Africa, World Bank, as assessed on 19 May 202© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

22

For products that pose a high safety risk like gas
boilers, the safety checks are performed by an
external organisation that has been appointed by
the national authorities. The CE marking on the
products can be fixed only after clearing thesafety check. The industrial policy of theEuropean Union aims at making the European
industry more competitive so that it can sustain
its role as a driver of employment andsustainable growth. The transition toward a
digital and carbon-neutral economy has led tothe adoption of various strategies to ensure
better framework conditions for the industry.

\Framework for regulatory requirements at each phase of the PLC

R&D
•
•
•
•

Production

Material
Sourcing

Classification
andregistration
Trials registry
Regulatory
agencyapproval
Patentregistration

•
•
•
•
•
•

Supplier
contract
regulation
Supplier
conformity
certificate
Material
traceability andtracking
Complianceand regulatorystorage
Requisition
routing withapprovals

•
•

•

•
•

Qualitysystems
regulation
Testing andinspection
By-products
and coproducts
regulations
Waste disposal
regulations
and risks
control
Qualityassurance
ESG
compliance

Customer
Warehousing management
•
•
•
•
•
•
•

Audits andInspections
Compliance toregulatorystorage
Controlledarea access
Hazardous
goods handlingprocess
Rules forexpirymanagement
Packaging
controls© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

•
•

•
•

Product
declaration
requirements
GDPR
Price indication
and unfair
commercial
practices
directives
Directive on
faulty products
Legalguarantees
and warranties

23

Sustainability in Industrial manufacturing – European region

Metal
US$125 billion
annual turnover for Europe

5,00,000
direct employees

3 million
indirect jobs along the EU
value chain

Annual production ofrepresenting over one47 million tonnes,
fifth of the global production

pure base metals and alloys
52 percent ofcome
from recycled sources

the Earth’s crust is made up
13 percent ofof non-ferrous
metalsDistribution of metal usage by sector (in %)

29%

24%

19%

Transport

Construction

Industry

11%

11%

5%

PackagingBatteries

Durables

Source: Our Metals Future, Eurometaux, accessed on 17 May 2022

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Industries in Europe are using metals to produce and generate more sustainable products, services,
and infrastructures. Following are some notable examples:

Renewableenergy sources

Renewable energy technologies including solar thermal systems,
photovoltaic cells, and hydroelectricity need metals such as zinc,copper, nickel, and potassium to operate. Metal components
contribute to nearly 90 percent of the weight of a modern windturbine.

Efficientcommunication

Recent innovations with metals such as cobalt, lithium, nickel, or
copper have substantially improved the battery life of devices suchas laptops and cellular phones. Technologies are utilizing metals tocreate smaller and resource efficient devices.

Other
applications

Non-ferrous metals have been an integral part for resource efficient
packaging, as trace elements in modern medicine and for
improving human health through medical equipment.

Sustainablebuildings

The durability, recyclability, and strength of metals contribute toconstruction of sustainable and safe buildings. Copper, nickel,
lead, aluminium, and zinc are corrosion resistant and can last morethan 100 years without maintenance. Metals with conductive andsemi-conductive properties are also essential for efficient use ofelectronics and electricity in modern buildings.

Low-carbon
transport

Metals such as magnesium and aluminium can help in constructionof light weighted vehicles, lowering their fuel consumption, withoutcompromising on their safety. Precious metals such as platinum are
critical to catalytical converters, whereas batteries using lead, nickel,
lithium, cobalt and copper are used for improving fuel efficiency inelectric and hybrid vehicles.

Source: Our Metals Future, Eurometaux, accessed on 17 May 2022

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25

Eurometaux is an association of the non-ferrous metals
industry in Europe. It includes an extensive network ofcompanies engaged in the production, transformation
and recycling of non-ferrous metals in Europe.
Eurometaux is involved in executing short-term projects
with the target to support the transition towards asustainable economy. Noteworthy examples of theactions, research and projects in which Eurometaux
and the industry are engaged in are as follows:

EuropeProduct Environmental Footprint• The pilot project for three years known as the

Product Environmental Footprint, is coordinatedby Eurometaux and involves distinct metalcommodity companies and associations thatstrive to achieve a robust methodology toevaluate the impact of metals through thelifespan of several products.

Benchmarking and defining certification
schemes• Eurometaux is managing a project to define the•conditions required for certification schemes forprocessing of waste at the pre and end stage,
covering environmental, quality, efficiency andhealth criteria.
The project will also establish a benchmark forquantifying and measuring the impact of thesecertification schemes, along with improvements
in recycling and collection.

Water regulation knowledge-sharing• Eurometaux will introduce a project to notify•

member states about the impacts of new water
regulations on permits.
It will utilise training tools and materials andscientific knowledge to highlight the toxicity andpresence of metals in water, and guidance on
executing bioavailability models to harmonise
national approaches to metals.

Source: Our Metals Future, Eurometaux, accessed on 17 May 2022

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26

Aerospace & Defense
US$ 241 billionof annual turnover

884,600
direct employees

88 million
indirect jobs along the EU
value chain

Since 2000, the retrofitting of winglet devices onaircraft has meant

80 million

tonnes of CO2 have been
avoided

CO2 emissions from aviation dropped by

64 percent in the EU in 2020
the total weight of an aircraft
92 percent ofis recycled.
Today’s modern aircraft producing
CO per seat than the first
80 percent lessjets in the 1950s.
2

EU Emissions Trading System has so farcontributed to reducing the carbon footprint of theaviation sector by more thantonnes per year, withcompliance covering more than

17 million
99.5 percent of emissions.

TARMAC AEROSAVE, a jointly owned
organisation of Airbus, Suez, and Safran recycled
more than 135 aircrafts since its establishment in2007.
Sustainability goals:• To have a carbon neutral growth from 2020
• To reduce absolute emissions by 50 percent by
2050, compared to 2008 levels.
• Net zero CO2 emissions by 2050 via a
combination of four elements: enhanced aircraft
and engine technologies, Sustainable Aviation
Fuels (SAFs), Air Traffic Management andeconomic measures.
EU Investments:
Source:Reducing emissions from aviation, European commission
EUROCONTROL Data Snapshot #2 on CO₂ emissions from flights in
2020, Eurocontrol
European Aviation Environmental Report 2019, EASA
European aviation sector proposes EU Pact for Sustainable Aviation torealise EU’s 2030 and 2050 decarbonisation ambitions, ASD Europe

Approximately US$5 billion over the last 10 years
through various programmes (e.g., Clean Sky,SESAR, Life, Horizon 2020, Connecting Europe
Facility) and an array of measures (e.g., EU ETS,CORSIA, aeroplane CO2 certification standard)© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

27

Machinery
US$740 billionof annual turnover

3 million
direct employees

US$240 billionof manufacturing
added value

Europe non-road mobile machinery contributes toabout

30 percent of the traffic pollution,
16 percent of nitrogen oxides and about
7 percent of particulate matter
CO2 emissions from machinery industry can be
reduced by

50 percent if partial electrification is used.
The emissions are further reduced by additional

7 percent in case of advanced electrification
the machines are made of
83 percent ofrecyclable
metallic materials
Sustainability goals:•

The European Green Deal aims at achieving
environmental sustainability for industrial
sectors by 2050
• The European Green Deal has laid down
compliance implications for 2030 targets that
include subsequent goals –32 percent of energy sourced from renewables, 40
percent cut in GHG emissions, and a 32.5 percent
increase in energy efficiency
EU Investments:
Approximately US$7 billion of investment funds
have been allocated by EU under the French
Support measure to provide investment support
towards sustainable recovery for industrial sectors
including machinery and equipment manufacturing

Source:European Commission -Advanced Technologies for Industry - Sectoral
watch -April '21
CECIMO Circular Economy Report - April '19
European Commission 2030 Climate & Energy Framework
European Commission State Aid Press Release
IOP Science: Environmental Research Letters, Vol 15, Number 12© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

28

Building & Construction
US$2 trillionof annual turnoverUse of sustainable concrete for construction canalone reduce carbon dioxide production
by almost

50 percent
18 million
direct employees

4 percentconstruction outputof Eurozone in 2021

CO2 emissions from building operations dropped

6 percent in 2020
GHG emissions from material extraction,
construction and renovation of buildings contributeto5-12 percent of emissions.
Greater material efficiency could save

80 percent of those emissions
Investments in energy efficiency and green building
certifications resulted in reducing carbon output
from buildings and the investment in energy
efficiency increased to more than

39 percent in 2020 from 2015.
Sustainability goals:•••

Renovating public and private buildings under
the European Green Deal Initiative to tackle
energy poverty and worst performing buildings
Double annual energy renovation rates ofbuildings in next 10 years
Requirement to renovate 3 percent of theexisting building block stock each year toincrease energy efficiency

EU Investments:••
Source:2021 European Construction Outlook ING
Construction Sector: European Union
European Aviation Environmental Report 2019, EASA
European Commission - Energy Efficient Buildings - Renovation Wave
European Commission - Sustainability - Building & Construction

Approximately US$79 billion of investment
funds have been allocated to the buildings
sector under the Recovery and Resilience
Facility (RRF) under NextGenerationEU
The Cohesion Policy Funds and InvestEU also
contributed to efficient building construction© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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29

Case examples of initiatives undertaken by industrial manufacturers towards sustainability
Siemens (Germany) - Siemens launched the Sustainability Vision towards 2040 19 to ensure its
contribution has a significant impact in the future.

•••

The Vision outlines a path to reach the net-zero emissions goal by 2040, including emissions
generated by the entire value chain of the company. Previously, the net-zero targets to achieve a
decarbonised economy was year 2050
The company will seek opportunities to accomplish a carbon intensity rate of zeroemissions per MW installed without any measures to offset compensation. Few key actions will
be replacing all existing and new cooling and heating systems with zero carbon alternatives, andself-generation in the factories and wind farms.
Siemens Gamesa accomplished carbon neutrality and became the first renewable energy
manufacturer by confirming to its climate-related targets by the Science Based Target initiative(SBTi). In addition, it switched to being powered 100 percent by electricity generated fromrenewable energy sources.

Airbus (France) - In 2005, Airbus undertook a voluntary approach to aircraft decommissioning andrecycling. Presently, Airbus and Tarmac Aerosave have identified a proven method for dismantling,
decommissioning and recycling the entire product range of the Airbus aircraft in an environmentally
efficient way, with about 90 percent of aircraft eligible for recycling or reuse. For non-recyclable parts,
the organisation emphasizes on safe disposal 20.
The project has been successful in achieving the following results since 2007:

517

Aircrafts
stored117

Aircrafts
recycled

92%

Reuse ofleft-over parts

100

Engines
recycled

19 Sustainability Vision towards 2040 – Siemens, as assessed on 17 May 2022
20 Sustainability Overview - Airbus, as assessed on 17 May 2022

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CO2
Airbus has committed to contribute to the Paris Agreement targets and leading thedecarbonisation of the aviation sector in full collaboration with all stakeholders. The
company is committed to reduce its industrial emissions by up to 63 percent by 2030 inline with a 1.5°C scenario.

EnergyThe company is working to increase the share of renewable and low-carbon energy atits sites. Improved monitoring, increased efficiency for lighting, heat and steam, and new
constructions in line with certified building standards are additional initiatives thar are
currently underway.

Water
To limit water consumption, the company focuses on increasing water recycling andreuse in industrial practices. Increased measuring and monitoring are also the key.

Air emissions
Air emissions, such as volatile organic compounds (VOCs), are mainly related tosurface cleaning, treatment and paint. Even with delivery rates increasing, the company
aims to maintain 2015 levels.

Waste
New ambitions as part of the high5+ programme have been set for waste managementfor 2030.
These include reducing the amount of produced waste by 20 percent, diverting wastefrom landfilling and avoiding incineration without energy recovery.

Another sustainable concept is Circular Economy (CE) that contributes to a more sustainable world
but doesn’t necessarily translate to sustainability. Circular economy concentrates on resource cycles,
whereas sustainability is widely related to the planet, people, and economy. Sustainability andcircularity stand in a long tradition of related theories, visions, and models. By promoting systeminnovation that boosts resource efficiency, keeps materials in use, and decouples growth from theconsumption of finite resources, CE is thought to have the potential to disrupt the current linear
economy of unsustainable production, consumption, and waste generation, thereby achieving ahealthier balance between the economy, environment, and society. The long-term goal is to switch toa circular, regenerative economy where resources are used in ways that maximise their long-term
worth to society. CE increases resistance to upcoming setbacks like pandemics, intense and frequent
weather catastrophes or the effects of a changing environment.

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3.3

Focus on circular economy

3.3.1

Introduction:

When implementing CE in industrial manufacturing, four
cornerstones must be considered: Reduce, Refurbish/Reuse,
Recycle, and Recover. Each of the four foundations
contributes to long-term manufacturing sustainability. Their
importance for CE, impact on present manufacturing strategy,
and simplicity of implementation, vary on the other hand.
Furthermore, the level of influence and applicability varies perindustry.

3.3.2

Significance of circular economy inindustrial manufacturing

Manufacturing firms should analyse the five circular economybased business models and their sub-models to address theinefficiencies in the linear value chain:
Circular businessapproach

Usage

Impacts

Use of bio-based
products, renewableenergy, or potentiallycompletely recyclable
materials••••

Recovering value ofwaste

Recovery of energy or
usable resources fromby-products or waste• Supply risks are diversified since

Optimising capacity use

Improved rate of usage
through collaborativemodels for access,usage, or ownership• Reduce cost like sharing warehouse

Implementing outcomeoriented solutions

Offering products forusage with retention of
product ownership thatincentivizes increase inresource productivity
through the entire life
cycle

• Increase revenue• Replace product ownership with PaaS

Extension of the life cycle
through repair,maintenance,remanufacture, upgrade,and resale• Reduce operating expenses• Increased sales (from reselling)• Increase gross profits

Rethinking the usage ofresources

Extending repurposed
product life cycle

Reduce production cost
Increase market share
Reduce utility costs
Access to funds
materials can be recycled repeatedly
and provide a more predictable supplyof resources(Product as a Service) model, forexample, Uber and Airbnb© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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32

While manufacturing companies can reap huge benefits using CE, there are several challenges thatthese companies need to overcome to transform themselves. These challenges may be intrinsic aswell as extrinsic and can be related to the organisational culture, ecosystem and finances.

Some keychallenges

Manufacturers
can take steps
to overcome
thesechallenges,
some of which
may include:

1

Need for introducing policies that define correlation
between monetary benefits through circularity as wellas the impact on environment

2

Linking of various production chains can make thecompany vulnerable to disruptions

3

Limited benefits from economies of scale inrepurposing waste

4

Requires legal guidance for new business models

5Managing the entire life cycle of the product and building
a reverse value chain is expensive for companies

6

Requires new risk assessment and mitigation
strategies

7

Requires experience in circular economy principles

1

Run dedicated programs to induce cultural changes

2

Develop ecosystem by including new and relevant
partners

3

Assess all benefits of CE holistically

4

Assess funding requirements for the specific businessmodel

5 Develop risk mitigation strategies
6 Identify funding partners with experience in CE© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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33

3.3.3Focus on circular economy in Europe and Middle East

EUROPE

About

While the rates of

6 percentEU27 are just slightlyof the global economy
today is circularabove the global
average rate

68 percent of the manufacturing industry in
the world has started implementing lean concepts
such as:x••••

Muri (process overburdening)
Mura (variability signals)
Muda (waste results)
Visualization tools such as value stream
mapping (VSM) to streamline stakeholder buy-in
and guide systems thinking.

MIDDLEEAST

2 million
tonnesof waste reduced inlandfill

Belgium has thehighest rate ofaverage circularity i.e.,

17.4 percent

A circular economy in Europe could
increase household income by

US$3,000 per year, add
US$950 billion to GDP by
2030, and slash CO2 emissions by

50 percent compared with thecurrent levels.

1.5 million tonnes Around
US$50 million
CO2 saved
revenue

Countries in the Middle East will save around

Middle East contributes to nearly

USD145 billion 2030 through35–40 percent of producedbyadoption of circular economyx

GDP to increase by approximately
1 percent for Middle Eastern economies
The

waste compared with

25–30 percent in the EU.

Source:Multi-Stakeholder Platform Input to Reflection Paper Sustainable Europe 2030 - Eurostat, accessed on 17 May 2022
Circular economy action plan – European Commission, accessed on 17 May 2022
Analysing the Implementation of Lean Methodologies and Practices in the Portuguese Industry: A Survey– MDPI, accessed on 17 May 2022
Material flows in the circular economy - Eurostat, accessed on 17 May 2022
Growth within a circular economy vision for a competitive Europe – Ellen Macarthur Foundation, accessed on 17 May 2022
Middle East’s Circular Economy Expectations for the Next Ten Years – Open Science Journal, accessed on 17 May 2022

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34

3.3.4 Initiatives undertaken by the government towards circular economy• The Circular Economy Action Plan (CEAP) 21, which the European Commission unveiled in March

2020, aims to empower consumers by establishing a right to repair while also promoting waste
reduction and sustainable product design. The emphasis is on industries that use a lot of resources
like plastics, textiles, electronics and ICT and construction.

• In a resolution on the new CEAP adopted in February 2021, the Parliament called for additional

steps, such as stricter recycling regulations and binding targets for material use and consumption
by 2030, to achieve an environmentally sustainable, carbon-neutral, toxin-free, and fully circular
economy by the year 2050.

• To hasten the transition to a circular economy, the Commission published the first set of CEAP

measures in March 2022. The plan called for educating customers about the green transition,
promoting sustainable products, revisiting legislation governing building supplies, and developing aplan for sustainable textiles.

3.3.5

Industrial manufacturers’ initiatives towards circular economy

Current
inefficiencies

Addressing these inefficiencies using
circular principals

Materials areunsustainable• Volvo utilises around a third of recycled materials for

Capacities areunderutilised• Caterpillar acquired Yardclub, a management tech start-up, with

Product life ispremature• The Circuit Breaker Retrofit program by Schneider Electric,

construction of new trucks, and about 90 percent is recyclable
towards the end of the truck’s lifespan• Wärtsilä designs its engine by applying modular architecture toallow backward compatibility of parts and increased
commonality

a platform facilitating equipment renting, selling, and sharing.
This acquisition will help Caterpillar in gaining technicalexpertise for offering better digital experiences to its customers

updates and modernizes electrical distribution centres• Bosch makes use of remanufacturing chains for components, toconfirm the material stays in the loop at its highest possible
value and for as long as possible

End-of-life value iswasted• Maersk introduced a database called the Cradle-to-Cradle

Customer engagements
are unexploited• Philips has various contracts in place for offering light-as-a-

Passport for vessels, for registering the material composition of
the main ship components, thereby facilitating fine recycling ofparts and materials• GM owns 111 landfill free facilities and recycles 84 percent of its
manufacturing waste worldwide
service on a monthly subscription or pay-per-lux basis• Michelin provides sensor-based data analytics for predictive
maintenance and tire-as-a-service i.e., pay per mile

Sources:
Volvo Trucks: First in the world to use fossil-free steel in its trucks, 24 May 2022
Increased Commonality of Components
Caterpillar buys into construction rental start-up Yard Club, CNBC, 27 May 2015
Retrofit solutions for electrical distribution, Schneider electric
How GM Makes $1 Billion A Year By Recycling Waste, Forbes, 21 Feb 2013
Preventive maintenance API, Michelin
21 Circular economy action plan, European Commission© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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35

The application of digital and technological systems has helped in the uptake of CE. While there
needs to be more efforts to increase reuse and recycling of materials, technology can help establish
CE across all sectors. As we move towards the Fourth Industrial Revolution, innovative technologies
provide massive opportunities to revolutionize the way we do businesses today. These technologies
are driving innovative ways of creating value in a circular economy, for both established and emerging
businesses.

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04
Increasing useof advanced
technologies /Industry 4.0© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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4 Increasing use of advanced technologies /Industry 4.0
4.1

Technology in manufacturing

4.1.1

Introduction

The Fourth Industrial Revolution or Industry 4.0 is the creation of a digital manufacturing firm that is
not only connected but also communicates, analyses and uses data to motivate more intelligent actionin the real world. It powers the physical act of designing, production, distribution and performance in acontinuous cycle.
The significant advancements in cyber-computing capabilities over the previous few decades are thereasons why Industry 4.0 is gaining popularity. Artificial intelligence (AI), the Internet of Things (IoT),
and other cutting-edge technologies have helped to close the gap between the virtual and physicalworlds to build an interoperable platform between information technology (IT) and actual physicalactivities. The technologies listed below had a favourable impact on industrial manufacturing.

Technology

Use cases in manufacturing

Autonomous
RobotsRobots are used for collaborative assembly, painting and sealing,inspection, welding, drilling, and fastening. Robots are replacing
many dangerous human occupations, such as those in thechemical and metal industries.

Nano
technology

Widely used in automotive and aerospace industries, it is used incoatings, nanoengineered polymers, lubricant coatings, DNAbased structures and nanomachines.

Big Data
Analytics

It examines large data sets to unleash market trends, hidden
patterns, unknown correlations and provides insights to enablereal-time decision-making.

Industrial
IoT

IoT-enabled and sensor-embedded equipment can send data thatassists the supply chain team in tracking assets (using RFID and
GPS sensors), forecasting, gauging vendor relationships, andscheduling predictive maintenance programmes.

3D Printing /Additive
manufacturing

It supports manufacturing-as-a-service (MaaS), which allows
businesses to maintain an up-to-date infrastructure that can serve
several clients without having to buy new equipment.

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Technology

Use cases in manufacturing

Smart
Factories

Smart factories are advantageous for operations such asplanning, supply chain logistics, and product development since
they can help produce at a large scale.

Artificial
intelligenceand machinelearning

Even in production facilities, AI-enabled systems identify objects
on conveyor belts and can sort products automatically based on
their predefined shapes, colours and sizes. Such intelligent
systems use image analysis and image recognition to identify
product flaws in manufacturing.

DigitalTwin

Using digital twin, companies can get a complete digital
prototype of products that they can use to detect physical issues
sooner, build better products and predict outcomes more accurately.
Not just that, the combination of Industry 4.0 and digital twin will
enable various industries to market a new product quickly, improve
operations and bring up new business models to drive revenue.

Cloud
Computing

To better schedule resources and direct workforce, as well as
track inventories, an aerospace company, for instance,
established a cloud AI platform. The solution tracked "machine
available to perform work," tracking and tracing where parts werein the facility for staging and integrating localised data with ERP
and 3PL systems.

Augmented
Reality

Designers and engineers are utilising VR to generate realistic
product models, allowing them to visualise their concepts in 3D
and troubleshooting difficulties before going into production. They
can even contact an expert to receive real-time assistance using
AR technology. Another big advantage of AR is that it enhancesindustrial training and learning by reducing risks and costs.

For instance, fuel consumption has decreased, scheduling has improved, and flight delays are
reduced by using real-time flight data gathered from sensors in an aircraft. By using data to track asset
status and foresee component and system breakdowns, Aerospace & Defense 4.0 technologies arealso enhancing the aftermarket experience.
The effects of these technologies are already becoming apparent to some businesses. They are
investigating considerable potential benefits in several areas, including cost-cutting, supply chain
reorganisation, accelerated delivery and widespread product and device connectivity. The leading
objective of Industry 4.0 is to excel in manufacturing operations: to become faster, more efficientand customer centric. For instance, the usage of Mixed Reality devices can help the repair
personnel to see through the machine and easily detect the faults. The identification of drilling
point becomes easier. Also, with Industry 4.0, manufacturing companies can not only automate
and optimise their processes but also discover new business opportunities as well as different
models.

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39

This transformation can provide information around the entire value chain which can help
manufacturers in multiple ways:• Design strategies to manage the supply chain – Introducing smart logistics can betransformative such as automated warehousing, cargo tracking and remote fleet
management• Prevent wastage of resources – A combination of technologies could also be easily
used to automate recycling tasks — an area that is more popularly known as ‘robotic
recycling’.

• Improve the production rate and manage risk of surplus production – Deploy asmart asset monitoring solution on a robust IoT platform. It gives information on the entire
manufacturing process in real time. The organisation's value chain is visible to the user —resources employed in production, their distribution throughout several phases,
provenance and the various production-related activities.

• Enhance communication between employees – Sensors, actuators, embedded

computers, cell phones, and other cyber-physical systems are all connected to one
another and share data among themselves.

• Controlled distribution of goods – Technology can improve the distribution of goods byincreasing the shipping speed. We can use latest technologies such as logistics
management, port clearance on site etc. to deliver the goods to customers within the
shortest possible time.

• Develop smart products for different market segments – Manufacturers can create

self-aware, connected items that can exchange data about their location, usage pattern,storage conditions and more. Everything can be enhanced — from product quality andcustomer service to logistics and R&D with the help of the data these smart gadgets
provide. They may also foresee service requirements, get upgrades remotely, and pave
the way for fresh, service-based business models.

• Deliver excellent customer experience – To provide an outstanding customer

experience, manufacturers must make sure they are collecting, monitoring and analysing
data about product requests and customer service from all relevant touchpoints or input
channels.

Technology today plays a vital role in managing industrial manufacturing, particularly in areas such as
inventory, supply chain and operations management. Unlike before, customers are at the centre ofevery industry, and they dominate the product strategy. Owing to the pandemic, buyer demands havechanged, and manufacturers are implementing technology to design better products and services tomeet the market demand. Technologies such as IoT, robotics, quantum computing and 6G will alsofind their way in product development and go-to-market strategies through trends such as masscustomisation and mass production.
Mass customisation:
Mass customisation allows customers to receive products at a lower cost. Customers’ uniquerequirements are fulfilled by the company as a part of its business strategy. This approach is used
not only by the manufacturing sector but also by service providers such as retail, financial
services, software and technology, home construction and interiors, among others. Some of thefactors which manufacturers must consider are product features preferred by customers, making
goods or services suitable for customisation through reusing or restructuring and providing uniqueproposition to the customer. For instance, Dell maintains close relationships with its suppliers andcustomers and allows its customers to select preferred configurations online. Dell provides madeto-order products and assembles parts promptly.
Many industries such as food, automotive, consumer electronics, healthcare have adopted
customisation and personalisation in shapes, features, colours, graphics etc. Some of thetechnologies that are being used are around digital models, product visualisation, productrecommendations on ecommerce platforms and dynamic pricing. The top ways in which masscustomisation can help organisations is by reviving the stagnant markets and providing opportunities
for higher growth and profits.
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Challenges

Potential Benefits

Balancing the right amount of differentiationand costs

Gives a competitive edge

Creating online platforms for customisation

Attracts more customers and improves brand
image

High production time for custom madeproducts

Simplified production and inventory
management

Need for excess inventory due to variations
in demand

Less waste

Increased information management

Unit cost of product is decreased as
production scale increases

Due to the abundance of possibilities,
predicting trends and spikes in sales isincreasingly challenging

Allows introducing premium pricing

Buying flexible machinery and hiring
highly skilled personnel could be significant
investments.

Less expenses on product research
Lowers fashion risk and product model
obsolescence

Mass production is viewed as the most effective production approach where costs are driven down
while production capacity is sustained at a higher level. Mass production can be demarcated as the
production of large quantities of standardized products quickly.
Comparison between mass production and mass customisation
Parameter

Mass production

Mass customization

Production
Products
DemandEconomies of scaleTechnologies
Customer involvement
Machines / processes

Large scale

Large scale

Standardized

Custom-madeStableFragmented

Possible

Not possible

Less investments

Heavy investments

Passive

Active and integrated

Specific machines and lessskilled operators

Process oriented factories,
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41

Case examples of mass customisation:

Audi

Customisation efforts• Mass customisation techniques were applied, including flexible production andlogistics systems, modular product architecture, and integrated IT systems, toenable the provision of highly personalised products at a reasonable cost.
• Implementing product variant management was one recent attempt to improve
the firm's operational effectiveness. It helps in balancing the requirements fromthe customer and production costs by finding the best combination of standard
and custom components.
• This program's major goal is to preserve a wide range of products that
consumers demand while reducing internal complexity and related expenses
along the whole value chain.
Impact• Helped the company to establish a luxury brand image

Nike

Customisation efforts• Nike adopted mass customisation with different colour combinations, various
materials and option to engrave name on shoes.
• The idea of the brand was to gain a competitive edge and grow its margins.
• The brand also launched an app for mobile phones targeting its D2C approach
to cut middle-men costs.
Impact• Generated over US$100 million after launching NikeiD• 10 to 20 percent price hike for premium customised sneakers• Custom-made NikeiD sport shoe costs only 20 percent more than a massproduced one.
• NikeiD dominates the customisation market worldwide• Increased brand loyalty

4.2

Penetration of advanced technologies in manufacturing
The penetration of advanced technologies in the manufacturing sector
helps enhance the economic prosperity with increase in technology
exports, higher productivity and compensation of employees.
Competitive nations focus more on building their R&D capabilities in thetechnology space to nurture the innovation ecosystem. The digital andphysical worlds have completely converged in the 21st century
manufacturing competitiveness, resulting in smarter products,
processes and more intimate connections between consumers,
suppliers, and manufacturers, attributed to advanced hardware,advanced software, sensors, big data and analytics.

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Impact of technology on manufacturing•

Production: The immediate bottom-line impacts include reduction in scrap and downtime
issues, lesser machine failures and improved output•

Innovation: Allows manufacturers to introduce new products to the market by reducing
production lead times•

Operations: Industrial IoT improves the operational effectiveness and helps in cost reduction•

CX: Customer experience can be enhanced through digitisation•

Enterprise Risks: Systematic reduction in risks and likelihood of occurrence•

Other benefits: These include enhanced agility, high business continuity through advanced
maintenance and monitoring, better product quality and real-time data

4.2.1

Penetration of industry 4.0 across Aerospace & Defense

The A&D sub-sector has a history of being one of the first to adopt disruptive technologies to improve
product development and production processes. Several major technologies are now being used by
the sub-sector to address new manufacturing issues and deal with the pre-pandemic order backlog ofaircrafts.

Technology

Current applications

Emerging application

Additive
manufacturing• Prototyping, tooling, and• Improving aerospace parts andfunctioning• End-use parts
manufacturing••

Advancedanalytics

Advancedrobotics andcognitive
automation• Tracking the condition of
aircraft in real time
• Intelligent schedulingdetermining system/component failures• Intelligent scheduling• Efficient aircraft

manufacturing systems

accessories by combining
innovative materials
Developing large-scale
digitisation of plane maintenancedata and schedules
Enabling the “connected plane”• Developing large-scale•

digitisation of plane maintenancedata and schedules
Enabling the “connected plane”• Time-saving simulations of theperformance of satellites,
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43

Technology

Current applications

Emerging application

Blockchain• Improvement in just-in-• Improving tracking in supply

time logistics• Improvement of inventory
turnover

DigitalReality(AR/VR/mixed)• Replacing assembly

IoT• Monitoring health ofmanuals• Smart glasses display

aircraft engine• Optimising performance ofengine basis datacollected from sensors

chains• Improving validation of supplier•• Simulate factory or warehouse• Train workers to safely use
equipment and machinery• Manage demand fluctuations by

•
•

AI

• Automatic programming oftasks and processes• Predictive maintenanceconsidering weather conditions,seasonal demand and pasttrendsIntegrated smart connectedassetsAutonomous production
environment• Advanced safety features in

•
•

4.2.2

performance and reputation
Time-stamping records toreduce fraud

aircrafts such as CT scanners,
biometrics that use data for
analysis
Replacing human co-pilots withrobotsAutonomous aircrafts

Penetration of Industry 4.0 across metal manufacturing
The metals sub-sector approaches digitalisation and Industry 4.0 in avariety of ways. Metal production is a highly complex process, and theuse of modern technology can greatly aid in the optimisation of the entire
process. Steel manufacturing can be digitalised due to an intelligent
combination of process automation, information technology, andnetworking that goes far beyond traditional industrial automation.
Legacy equipment, uncertainty about the impact on jobs and dataprotection/security issues are the key challenges facing the European
iron and steel industry on the road to Industry 4.0.
The most significant initiative for creating innovations in the European
steel industry is the RFCS (Research Fund for Coal and Steel). As aresult, this programme addresses innovation in the steel industry's
digitisation. 145 RFCS projects have been found in a recent assessmentby the Erasmus+ Program of the European Union.

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44

Following are a few examples:

Robot-assisted
production

Use of humanoid robots for assembly and packaging.
Project

Description

ROBOHARSH(2016–19)• Human robot is used in the steel industry for thedevelopment of a complex maintenance procedure.

• In this project, the operator role changes to that of asupervisor. Hence, there is no replacement of the human
workforce.

DESDEDMONA(2018–21)• Use of robotic and automatic systems such as UAVs andground mobile robots for steel defect detection.

Combination of Industry 4.0 technologies such as
IoT, smart sensors and big data analytics among others are used toachieve assembling line simulation and optimisation.

Production line
simulation
Project

Description

Burner 4.0(2019–22)• Combined Industry 4.0 technologies are applied in

BLEMAB(2020–23)• This ongoing project aims at developing a newdifferent areas, such as process optimisation, predictive
maintenance and improving the combustion system
leading to a breakthrough burner concept in the steel
industry.
• IoT, smart sensors, big data analytics are among thetechnologies used and integrated in the existing burners.
measurement device for the Blast Furnace (BF) process
stability and management, leading to the optimisation of
resources and energy consumption.

Real-time control of production networks is enabled by self-organisingproduction which improves automation.

Self-organisingproduction
Project

Description

DESDEMONA(2018–21)• Advanced tools are used to develop novel design

methods, procedures and technical solutions for selfinspection and self-monitoring of metal structures.

New cyber risks for manufacturers that are smart and connected,
require managing and mitigating these risks

Cyber Security
Project

Description

Auto
Surveillance(2019–22)• Solutions for detecting anomalies along the process•

route reheating furnace, rolling mill and cooling in themetal manufacturing unit are expected to be developed.
The system will be able to announce threats anddistinguish between faults and intentional attacks.

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4.2.3

Penetration of Industry 4.0 across Machinery

Technological transformation and digitalisation have provided growth opportunities to the machinerysub-sector. The sub-sector in Europe is under a lot of pressure to innovate. The adoption of connected
and digital assembly processes will benefit the manufacturers by reducing the costs. One of thebiggest challenges in adopting automation is the complexity of assembly processes due to which
many companies still follow traditional manual assembly.
Some of the key benefits of smart manufacturing include:• Replacing tools before they break down will be the main cost-reducing factor• Minimising human errors will increase efficiency• Reducing downtime by using data analysis will help reduce costs
Applications of advanced technologies in the machinery sub-sector:

Technology

Penetration• The machinery accounted for roughly 11 percent of global demand in

Robotics•

2020, was one of the biggest users of robots, according to theInternational Federation of Robotics' (IFR) annual World Robotics report*.
The use of robots in the machinery sub-sector is most prevalent innations such as Finland, Sweden, Switzerland, Belgium, Austria, Italy and
Denmark.

• IoT is becoming more prevalent in agricultural machinery• For instance, manufacturers of agricultural machinery can offer intelligent
IoT

field management and the utilisation of field data to over-the-air updatesof software and firmware. These services enable better use of thetechnology, boost farming productivity, and decrease the need for manual
labour.

• One of the prime uses of AI in machinery is maintenance• AI plays a vital role in intelligent quality inspection and helps inAI

automating visual inspection and fault identification of small components
using machine learning and cutting-edge image recognition systems• End users will be able to efficiently plan their machine use, dynamicallyplan material flow and supply and foresee potential shock events due todynamic simulation and optimisation of processes.

• The pandemic is anticipated to increase demand for virtually focused
AR/VR

production methods, particularly in equipment manufacturing.

• Virtual tools are used to design new vehicles from a distance while
assisting with the manufacturing of trucks and loaders.

Blockchain• The machinery sub-sector has not yet embraced blockchain.
• This technology's capabilities might make it possible to track and tracecomponents and goods in a safe manner throughout their full lifecycles
and provide more transparency for transactions on cloud platforms.

*Annual World Robotics report, International Federation of Robotics (IFR), as assessed on 17 May 2022

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4.2.4

Penetration of Industry 4.0 across building and construction

The construction sub-sector is undergoing significant transformations by the fervour of industry 4.0 toimprove its overall effectiveness for the successful completion of projects. Integrating manufacturing
processes with information technologies such as the Internet of Things (IoT), the Internet of Services,cloud computing, and cognitive computing is the fundamental goal of Industry 4.0. The construction
sub-sector has been rather slow to implement these innovations, in contrast to other sub-sectors thathave made progress. However, it is starting to understand the importance of industry 4.0 in terms ofthe technology and architectural requirements.
Building and construction is currently making progress as new technologies push for industry
penetration. Cyber-physical systems (networked control systems) and digital ecosystems serve as thetwo key building blocks of Industry 4.0, which integrates physical and digital technologies in building
and construction. The advancing technologies and systems, including industrialised buildings, robots,
AI, drones, and digital twins, among others, further assist these components.
Features of Industry 4.0 in B&C Industry

Interoperability

ServiceOrientation

Decentralization

Virtualization

Real-time
capability

Modularity

The use of digital technologies in building and construction
While some of the technologies are observed to have moderate penetration in this sub-sector, othertechnologies such as robotics, 3D printing, digital twins, AR/VR, AI/ML are observed to have highpenetration. Examples of pilot projects utilising 3D printing for a complete building include ETH in
Zurich, Switzerland. Testing of AI in structural analysis, design and optimisation is still quite limited
and mostly restricted to pilot projects.
An AI-powered platform for construction simulation created by the American business ALICETechnologies can analyse a project's requirements and produce effective building schedules. They
claim that incorporating AI into the design process can reduce construction costs by 32 percent andspeed up schedules by 10.2 percent.
Technologies
Sensors

Design &engineering

Construction

Operation &maintenance

Renovation &demolition

Y

Y

Y

Y

Y

Y

Y

IoT
3D ScanningY

Y

Robotics

Y

3D Printing

Y

Drones

Y
Y

Y

Y

Y

Y

BIM

Y

Y

Y

Y

VR/AR

Y

Y

Y

Y

AI

Y

Y

Y

Y

Y

Y

Y

Digital Twins

Y indicates Yes, technology is used
Source: Digitalisation in the construction sector – Analytical Report 2021, European Construction Sector Observatory, as assessed on 17 May 2022

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47

Technology

Examples of usage• It has effective infrastructure and building planning, design,

Building
Information
Modelling(BIM)

construction and management.

• The sub-sector with the most advanced and widely applied digital•technologies. Its market penetration, though, is currently quite minimalin the EMA region.
The market structure and company sizes are to be blamed for its
uneven adoption. Large corporations are mostly in charge of
implementing BIM, with SMEs adopting it to a lesser extent.

• The building and construction sub-sector has seen a considerable risein the use of sensors.

• In the EMA region, Spain, Romania, Sweden, the Netherlands, andBelgium seem to have the highest adoption rates.

• Globally, sensors are considered among the top data acquisition
Sensors

technologies.

• It can determine how to best utilise the equipment and machinery to•

maximise Return on Investment (RoI) by reducing costs associatedwith fuel and energy.
It may lower the risk and expense of repairs and breakdowns throughpredictive maintenance, which can result in cost reduction of up to 20
percent* over the course of a project's entire lifecycle.

• 3D scanning is still only being employed in a limited number of
3D
Scanning

experimental projects and by start-ups and government agencies forthe preservation of cultural assets.
• If 3D laser scanning is used consistently, it is predicted to reduce
project costs by 5-7 percent, improve project timeliness by 10–12
percent and reduce site time by up to 80 percent*. This would be aconsiderable improvement over time.

*Digitalisation in the construction sector – Analytical Report 2021, European Construction Sector Observatory, as assessed on 17 May 2022

4.3

Technology in delivery and customer acquisition

Leveraging technologies to improve customer experience
Emerging technologies such as Artificial Intelligence (AI) and Machine Learning (ML) have been the
major catalysts in transforming the 'Digital Customer Experience' and enabling the emergence of new
business innovations by transiting from products to services. Together, they accelerate growth
opportunities for customer-centric businesses aiming to harness the potential of digitalisation.

Technologies enable organisations to gain competitive advantage by:•Understanding customers' ever-changing desires and alleviating customer pain points•

Creating a great digital experience that a potential customer will value for lifetime•

Analysing customer behaviour to deal with rapid shift in preferences•

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48Predicting customer behaviour and patterns correctly is a business imperative. Organisations
across the world are combining AI and ML to examine historical and behavioural data. It also captures
a precise understanding of clients' behaviour and employs real-time decisioning to achieve more
effective marketing objectives. Every day, companies leverage this real-time customer intelligence toprovide more hyper-personalised experiences to their customers by delivering highly relevant content
and personalised recommendations that help them interact with customers on a more personal level.
Some of the key merits of using AI to enhance customer experience include:

•
•
•
•
•

Streamline the process of purchase
Enhance simplicity and efficiency of the buying process
Product recommendations
Prevention of frauds
Customer analytics

Firms that successfully deploy user experience strategy achieve reduced customer churn, enhanced
revenues and higher customer satisfaction rates.
Following are the factors essential for predicting customer behaviour:

Product
Enhancement

Intelligent
communication

AL and ML play avital role to predict
customer behaviour.
As a result,companies canunderstand their endusers needs, offer
improved products
and serve theirpotential customers
better without themeven asking for it.
This way, they aretaking a step towards
an excellent
customer experience.

The virtual customer
assistant (VCA) or
chatbot technology is
the new normal for abetter customer
digital experience inthe wake of the
global COVID-19
crisis.
The customer service(via chatbots) –• reduces human•dependency byanalysing what tosay wheninteracting withpeople and when
to route tohumans.
minimizes roomfor error andensures increased
digital (and selfservice)effectiveness.

Greater
Operational
Excellence

Contacting
Interested
Customers

AI is the key enabler
to greater digital
operational
excellence as it canquickly predict endusers’ behaviour inreal-time.
It allows businesses
to become moreinnovative, improverisk prediction, raise
top-line profits,
generate better
customer insights,
and gain greaterbusiness agility by
efficient scaling
through intelligent
automation.

Investing in acentralised CRM data
centre can yield
immediate results by
documenting every
interaction with acustomer throughout
the customer
lifecycle.
This data can beleveraged to gain adeeperunderstanding of thecustomer's
expectations at every
touchpoint. This
allows a company toreach out to potential
customers at the righttime with the rightmessaging, resulting
in increased businessprospects.

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49

Leveraging tools that offer supportability and greater customer engagement:
Customers want B2C experiences in B2B environments. A manufacturer can leverage digitaltechnologies and tools in combination with SAP ERP to provide these experiences and to drive
unprecedented customer engagement.

For instance,• A digital-enabled manufacturer can use SAP/ERP to get real-time access to customer data via
its front-end applications. This ensures that both employees and customers can access theinformation they need when they need it and at a single location. The result is a 360-degreeview of ERP data leading to improved customer engagement.

• The use of digital technologies and tools with SAP/ERP also provides customer self-service
options and enables manufacturers to provide customers with fast, seamless experiences
virtually anywhere.

• It also allows the manufacturers to provide customers with a wide range of information directlyfrom their SAP system. Thus, if a customer wants to access its order history, status, invoices,and other information, it can do so without delay.

Impact of technology in delivery and customer acquisition
Industry 4.0 technologies drive the way in which organisations interact with their customers andtheir changing preferences. It further allows manufacturers to change their value proposition fromproducts to ongoing data driven services. Connected technologies help generate opportunities toenhance customer experiences by improving efficiency, enabling manufacturers to retain
customers and additionally generating significant, service-driven value.

4.4

Cybersecurity

Like other sectors, the manufacturing sector is also majorly impacted by cyber-attacks. Some of thecommon attack methods could be malwares, denial of service (DoS) and hacking. The manufacturingsector is attractive for cyber attackers who can break into the manufacturing network, move to IT
systems and lead to industrial cyberespionage, IP leakage and production crippling. Manufacturers
today lack preparation around a huge array of vulnerabilities through multiple endpoints.

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50• In 2017 and 2018, the effects of industry 4.0 and the rise in cybercrime gradually came to light.
However, many businesses in the sector were still unaware of the dangers.

• In 2019, the manufacturing sector ranked eighth among the industries that cyber attackers mostfrequently attacked.

• The issue escalated because of pandemic-based limitations, compelling many businesses torely almost solely on remote labour. Cyber attackers were ready for the impact of COVID-19,
whereas most people were generally unprepared.

• The manufacturing sector rose from the eighth to the second most targeted sector bycybercriminals, after only the finance and insurance sectors. This is a 300 percent increase inthreats in single year, according to the 2021 Global Threat Intelligence Report (GTIR).

Lack of information and training is the largest cyber concern for many manufacturing organisations.
Most employees receive little to no training in identifying and avoiding possible threats, andmanagement is all too frequently unaware of the risks. The first step in developing a cybersecurity
solution to safeguard an organisation is learning about the top cyber dangers for industrial companies.
Following are the most common cybersecurity threats that affect industrial manufacturers

Cybersecurity threat
Phishing attacks
One of the oldest and most popular methods employed by cybercriminals isphishing. It has a long range of detrimental repercussions for a company, including
financial loss, loss of intellectual property, reputational harm, and interruption ofdaily operations. These consequences combine to reduce a company's value,
sometimes with irreversible consequences.
Ransomware
Ransomware is becoming a common type of cyber threat. It affects mostbusinesses, with manufacturers being most at risk. A simple email or an official
document can easily be used to launch an attack. In the long run, organisations
end up losing revenue due to downtime. Not to mention the recovery expenses
that may never be reimbursed. Additionally, customer data is compromised.
And with this comes the risk of irreparable reputational damage.

Intellectual property theft
Manufacturing firms depend on intellectual property (IP) to be competitive. It
also determines how long they remain relevant in the industry. This is why
intellectual property theft is a frightening concern. Businesses that commit
intellectual property theft suffer from lost competitive advantage, damaged
reputations, slowed corporate growth and diminished customer trust. IP theft
may cost businesses a lot of money and pile up to huge amounts on a national
scale.

Supply chain attacks
From extraction to supply chain warehousing, manufacturers are now moving
most of their operations online due to increase in digitisation. Because of the© 2022
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need
to be aware
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supply chain attacks. System outages, financial losses and reputational harm
are the growing effects of these attacks.

51

One of the recent reasons for the rise in threat of cyber-attacks is the Russia-Ukraine War:

• A series of distributed denial of service (DDoS) attacks have already commenced since theonset of war, impacting both the Ukrainian government and banking institutions.

• Some of the cyber-attacks on Ukraine could be launched on other countries, including
governments and companies working with Ukraine.

• On 23rd February 2022, a new variant of wiper malware named HermeticWiper was discoveredin Ukraine. A new round of website defacement attacks was also observed impacting Ukrainian
government organisations.

• Future attacks may target other countries in retaliation for increased sanctions or other politicalmeasures against the Russian government.

• All organisations, especially sensitive and critical sectors have higher exposure to these threats
It has become imperative for manufacturing firms to identify and manage cybersecurity risk mitigation
pursuits. The following business objectives can help manufacturing firms to prioritise and manage
cybersecurity risks:Business
objectives

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52

Strong cybersecurity can generate tremendous revenue opportunity with the adequate use oftechnology, time and talent. Some of the ground–breaking impacts of implementation of
cybersecurity can be referred below:• Risk modelling to protect from costly cyber threats• Increase employee productivity from removing malwares and viruses• Save losses incurred due to customer data / personal information leakage• Build trust and drives customer confidence• Scale cybersecurity to adopt more technologies for business growth• Drive competitive advantage
Case examples of implementing cybersecurity by manufacturing industry:

Volkswagen

Bechtel• Volkswagen has implemented cybersecurity measures in the firm and has anindependent cybersecurity network across its group brands and all
operational regions to monitor potential cyber risks. This enables thecompany to respond swiftly in case of a potential threat• Bechtel's asset performance management (APM) and operational technology•(OT) cybersecurity solutions have safeguarded their critical infrastructure.
To increase the availability of operational assets that are crucial for theoperation of the organisation, APM blends cybersecurity, processoptimisation, software tools, and applications.

The industrial manufacturing sector's competitive environment is still being shaped by these technicaladvancements. As a result, manufacturers must choose where and how to invest in new technologies
as well as which ones would be most beneficial for their businesses. Successful manufacturers requirea clear articulation of their corporate objectives, knowing where to play in rapidly emerging technology
ecosystems, in addition to effectively appraising their current strategic positions.

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05
Emerging
competitive
landscape© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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5 Emerging competitive landscapeThe ongoing turbulence surrounding adverse global events has created immense pressure onindustrial manufacturing players to evaluate new opportunities in the market for sustaining in acompetitive environment. Manufacturing companies must start thinking beyond digitalising theiroperations and work upon leveraging their investments in advanced manufacturing, inorganic growthand partnerships/collaboration with emerging players to transform their existing operating model andgenerate opportunities for developing new revenue models for the business. New revenue models
have the potential to provide manufacturers with recurring cash inflows, offering more agility andflexibility, affirming relationship with the supplier and ensuring success of the business.
Rising prices, shift of business models from existing traditional models to innovative models,
emergence of new start-ups in the ecosystem and increasing consolidation in the industry via M&As
are few salient themes leading to competition between the industrial manufacturing players to affirm
their position.

Pressure on
pricesIndustry
concentration

Emerging
start-ups

Organisations are
finding ways forhorizontal andvertical integration toachieve cost
efficiency

The sector has
observed large
number of M&As,
showcasing thepreference forinorganic growth bycompanies to achieve
competitive
supremacy

The rising scope in
the innovativetechnologies andopportunities haveencouraged new
businesses to enter
the industry

5.1

Business
Model
Innovation
Organisations are
keen on developing
and reinventing
existing businessmodels to stay
updated with thetechnologicaladvancements andnew business
opportunities

Pressure on prices

Demand for commodities rebounded to the pre-COVID levels owing to the recovery in global
economy, wherein commodity production observed a gradual increase, burdened by several years of
weak investment in new production capacities and continuous supply disruptions.
The war between Russia and Ukraine has not just prompted a surge in energy and commodity prices,
but also highlighted the compounded existing stresses in commodity markets and dependence of EU
nations on the two warring countries. The potential impact of the war on commodity markets can benoticed through two main channels — the physical impact of trade barriers and the levelling ofproduction capacity, and the impact observed on trade and production due to the newly imposed
sanctions. Policy responses have inclined to favour trade restrictions, price controls, and subsidies,
which are likely to augment shortages in the near term. The Russo-Ukrainian crisis is amplifying
supply and demand tensions, damaging consumer sentiment causing a major threat to the global
economic growth. In March 2022, the Economic Sentiment Indicator (ESI) dropped substantially inboth the EU (-5.3 points to 107.5) and the euro area (-5.4 points to 108.5), mainly due to plummeting
consumer confidence 22.
The pressure on prices remains a major challenge for businesses and it is essential for theorganisations to develop frameworks restricting the impact of higher raw material prices, negligence of
which can hamper business operations significantly.
22 Economic sentiment indicator, Eurostats, accessed on 15 May 2022

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55

Some of the impacts of increased pressure on prices are illustrated below:

Shift fromtraditional raw
materials toother alternate
sources

Highertransportationand storage
costs
Increased costof production

Impact on
business
profitability
Prolonged
product life
cycle duration

Price volatility Russia is a major oil exporter to European countries and EU imports about 49 percent of oil from
Russia for meeting its energy needs. The ongoing war has severely impacted the oil supply andtriggered a surge in oil prices across the globe. As a result, energy prices recorded a growth of morethan four times in March 2022 in comparison to the April 2020 lows depicting the largest 23-monthincrease in energy prices since oil price hike in 1973 23. In the past, oil price hikes have ledorganisations to look for new sources of supply and find ways to reduce demand through efficiency
improvements and substitution of other commodities, A similar trend can be expected in the coming
years, wherein organisations may tend to switch to alternate commodities in case of a resource
scarcity.
Crude oil, Brent in US$/bbI, averageclosing price71

64

100 92

42
2019

2020

2021

2022F 2023F

Source: Megatrends

Price of natural gas in Europe has witnessed a massive growth in the last two years, showcasing afour-fold growth in 2021, compared with the 2020 price levels. Prices are further estimated to go up till
US$34/MMBtu in 2022, depicting a growth of about 100 percent from the current levels. High prices
have in turn led some fertiliser, aluminium, and zinc operators to shut production in Europe. Increasingenergy prices push the cost of extracting and refining metal ores, specifically for metals such asaluminium, iron ore, and steel. Further, higher metal prices drive up the cost of renewable energy
technologies.
Manufacturing producer price index (PPI) inflation in the euro area averaged about 12.5 percent in thesecond half of 2021, substantially higher than an average of 1.5 percent during 2017–19 24. Price ofnickel went up by 35 percent in the first quarter, primarily due to a short squeeze that halted the
23 Commodity markets outlook, World Bank, April 2022, as accessed on 19 May 2022
24 Supply disruptions added to inflation and undermined the recovery in 2021, VoxEU, 16 March 2022, as accessed on 5 May 2022

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56

Natural gas, Europe in US$/mmbtu

34
25
16.12
4.8 3.24
2019

2020

2021

2022*

2023*

Source: Megatrends

trading in the London Metal Exchange for several days in mid-March 2022. The prices of aluminium
and iron ore also observed significant increases as Russia is a major supplier of these commodities.
The World Bank’s Precious Metals Index rose about 4 percent in 1Q22, vis-à-vis last quarter andinventories at metal exchanges have retracted to extremely lows, leading to price volatility. Key drivers
for the price surge of these commodities include production curtailments due to high energy costs,
supply concerns due to Russia’s invasion of Ukraine, rising inflation, and pandemic-induced
disruptions.
Price of metals (2019–23)
Metals

2019

2020

2021

2022F

2023F

Aluminium (US$/mt)

1,794

1,704

2,473

3,400

3,100

Steel (US$/t)

501.5

486.5

842.5

767.8

705

Iron ore (US$/dmt 25)

93.8

108.9

161.7

140

105

Copper (US$/mt)

6,010

6,174

9,317

10,1009,700

Nickel (US$/mt)

13,914

13,787

18,46528,00022,000

Lead (US$/mt)

1,997

1,825

2,200

2,300

2,100

5.2

Industry concentration

Companies who are looking to grow inorganically through M&As with a change in approach andtransitioning from a defensive strategy to a more aggressive approach may view the disruption
produced in the manufacturing sector as a business opportunity. It is crucial for the businesses toseize industry disruptions as well as other market possibilities that exist outside of their conventional
market positioning. As a result, unconventional deal-making techniques can be seen as an additional
means of seizing and investigating bigger chances. For example, joint ventures, alliances,
partnerships, and Special Purpose Acquisition Companies (SPACs), collaborations and other tactics
may be successful in reorganising companies for rapid expansion. The ability of M&A to boost
inorganic development and profitability in a slowing economy, as well as its strategic fit fororganisations, have forced to review and reconsider options. Current global cues have resulted inunanticipated limitations and business restraints.
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57

Key industrial manufacturing M&A highlights from EMA region during 2021–22
A total of 958 deals have been registered as ofJune 2022 continuing the existing trend
Total deal volume in 2021, exceeded
the level of 2020 showing signs ofrecoveryIn 2021, the deal value amounted to US$622.8
billion, an increase of about 60 percent from2020

Key IM M&A
highlights for
EMA region

Total PE deals registered in 2021
amounted to 1,398, an increase ofabout 36 percent from 2020
PE deals constituted about 40 percent of total M&A
deals in 2021
Source: Merger market

Emergence of the pandemic and other global events have changed the industry dynamic and deal
rationale, where in companies have shifted their focus from just gaining access to new customers todetermining fresh sources of growth in technologically disrupted spaces.
Historical M&A deals analysis (2019–21)
Total deals vs PE deals

Deal value

5,565
820
622.8

3,454
2,557

379

1,859

1,398

887

2019

2020
2019

2021
2020

958

147.1

376

2022*

2019

2020

2021

2022*

Deal Value

Source: Merger market

M&A deals in the EMA region constituted a major proportion of the total global deals and the outlook
for M&A seems to be more volatile owing to the ongoing geopolitical tensions, fear of higher interest
rates, inflationary pressure and regulatory changes. However, the key drivers deciding the upcoming
trend will include the rising adoption and disruption into the technology areas, rising volatility in theprices leading to instability, Integration of ESG related practices into the production chain, active
involvement of PEs and SPACs in M&As, portfolio optimisation and uncertainties in the global
economies.

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58

Key themes driving M&A –Digitalisation

High volatility in commodity prices• Disruptive changes such as• Massive jump in the commodity prices•

electrification, digitisation, andautomation have led organisations tointensify M&A for gaining newly criticalcapabilities
Tech-driven acquisitions have gained
traction as companies are looking toaccelerate integration of AI/ML,
blockchains within the system andupgrade the existing resources
and capabilities

has made organisations rethink theirsourcing and pricing strategies• Direct impact on availability of raw
materials has impacted operational
efficiency, which has pushedorganisations to look for vertical or
horizontal integration with otherbusinesses

Integration of ESG goals

Volatility in market conditions• In Europe, involvement of the• Geopolitical instabilities, travel

governments in implementing ESG
agendas and the race to a low-carbon
economy are pressuring traditional
business models, but also offer fantastic
opportunities to test new industrial
offerings• The importance of building more
resilient and sustainable supply chains
will lead manufacturing players to adopt
an ‘environment friendly’ approachand make strategic acquisitions•

restrictions, additional transportation
costs and tariffs have encouraged
organisations to de-globalise theiroperations
Vulnerabilities of interconnectedeconomies and rising number ofprotectionist governments globally might
impose greater regulatory scrutiny anddeteriorate cross-border acquisitions

Capital availability

Portfolio restructuring/divestitures• Private equity and SPACs have largely• Organisations are reassessing their•contributed to industrial M&As and isassumed to continue a similar trend
owing to the higher capital availability
and M&A appetite
Organisations tend to form
partnerships/collaborations/JVs with thePEs and SPACs for capitalising on thepotential in blooming industries such astechnology, AI and EVs•

portfolios to focus on new growth
opportunities and divesting nonprofitable assets to grow valuations
Companies are re-evaluating ways of
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59

5.3

Emergence of innovative start-ups

Manufacturing companies are looking at maintaining their productivity with reduced manpower also as
an aftermath to the pandemic. Many start-ups are focused on building wearables, gadgets and smart
sensors that eliminate the need for human presence. Simultaneously, companies are banking upon
start-ups to help reduce the carbon footprint of manufacturing processes as well as the products andalign with their sustainability goals. Start-ups are also helping companies in shifting the labourintensive traditional style production methods to a new digitalised era using technologies such as AI/
ML, robotics, AR/VR etc. For instance, 3D printing helps manufacturers in shortening their supply
chains and reducing waste, which facilitates sustainability.
With the invention of disruptive technologies, predictive technologies, robotics and a huge shift
towards industry 4.0, companies need to address these emerging opportunities and doing this inhouse would not be possible, hence manufacturers are collaborating with cutting-edge start-ups. Startups have been able to establish and support manufacturing capabilities in multiple ways.
Start-ups have been on the forefront of creating value for manufacturers. Manufacturing companies
need to employ various technologies to drive innovation and enhance productivity and start-ups
globally are bringing the manufacturing sector forward.
Below are some of the key technologies provided by start-ups.
Disruptive technologies
offered by start-ups

Potential benefits for manufacturers

Robotics• Assists the workforce in manual tasks such as picking, grinding,AI••• Provides diagnostics in manufacturing to prevent errors• Helps in improving the product quality• Helps in speeding up the product development process andpalletizing
Advance robots can send process status
Helping in cost reduction while increasing the productivity

Additive
Manufacturing

downsizes the production chain• Helpful in mass manufacturing by eliminating convention machining
process

Cloud computing• Remote monitoring, centralized control

Simulation• Helps in testing prototypes before manufacturing that prevents

Industrial IoT• Avoids errors that can be potentially expensive• Helps in predicting the behaviour of a system• Helps in streamlining processes and production maximisation by

waste of resources•
Nano Engineeringtransforming traditional factories
Some advantages include integrating manufacturing systems,
asset performance management, advanced sensors, automation of
PLC etc.

• Helps in reducing manufacturing costs and time by enhancing thematerials with unique properties• Helps in increasing the life cycle of mechanical parts as well asother components

In the last few years, EMA region has shown immense growth in adoption and implementation ofdigitalisation across industries/ sectors, which has led to rise of tech start-ups in the region providing
automation and ML/blockchain related services to the manufacturing players for better optimisationand process efficiency.

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Tech start-up landscape in Europe and Africa

Europe• The total number of tech start-ups in
•
•
•
•
•

Europe reached more than 43,000 by
2019.
Cumulatively, the start-ups raised morethan US$40 billion in investment capital.
In the last five years, purpose-driven techcompanies raised about US$20 billion
across more than 3,000 funding rounds
Of the total capital invested in European
tech companies, 17 percent was invested
in purpose-driven start-ups.
European Smart Manufacturing Spending
market size is expected to grow 2X during
2020–25.
Germany (19 percent), France (16percent), Spain (12 percent) and theNetherlands (11 percent) constitute about
60 percent of the total EU 27 start-up
creation in the machinery industry.
Sources:
European start-ups report, Dealroom
2021: the year of deep tech, 8 January 2021
Supercharging the European tech ecosystem, Dealroom

5.4

Africa• Tech start-ups in Africa are growing six
•
•
•

•

times faster than the global average.
It is assumed that the digital economy
will contribute an estimated US$300
billion to Africa’s GDP by 2025.
African tech start-ups attracted US$4.9
billion in funding in 2021, depicting a
243 percent increase from 2020.
The “big four” markets of Africa namely
Nigeria, South Africa, Kenya andEgypt, accounted for about 87 percent
of tech start-up funding between 2010
and 2020.
Four sectors constituting FinTech,
AgriTech, HealthTech and EnergyTech
secured about 60 percent of funding
deals in 2020.

Sources:
Supercharging Africa’s Startups: The Continent’s Path to Tech
Excellence, Tony Blair institute for global change

Business innovation models

The pandemic has underscored the importance of manufacturing
and the role supply chain systems play in empowering the global
economy. Hence, it is critical for manufacturing and supply chain
leaders to enhance their efforts and adopt to the upcoming
innovative business models if they want to remain competitive inthe current environment. The new challenges posed by the recent
geopolitical events have enforced organisations to think beyond
operations, productivity and efficiency improvements and to be
successful, companies will need to leverage their investments inadvanced manufacturing not just to optimise operating models,
but also to unearth the potential of new business models that cancreate and deliver maximum value to all stakeholders, including
companies, society and the environment.
In case of a disruption, companies in the production ecosystemneed to quickly pivot and accelerate the adoption of digitaltransformation for smooth operational process. Companies havestarted to leverage the advancements in technologies for
optimising production and manufacturing processes and shifted
their approach from traditional business models to innovative
business models for driving efficiency across their operations andsupply chains, bringing a more innovative, sustainable, andinclusive approach to enhance value creation. The table below
depicts some of the recently developed innovative ideas used by
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Product servitisation
Description ••••Potential
Benefits

Offering value added services to the customers rather than offering only the productIntegrates services with the products
Providing customers with successful case studies
Offering services that differentiate from other brands• Generation of higher margins by adding services• Improvements in after-service along with overall equipment efficiency• Companies generate revenue primarily from a product’s performance

Asset-light market entry
Description ••Easy penetration into new markets with minimal upfront investment
Provide distribution, logistics and marketing support which can help in optimisingoverall costs
Companies own few capital assets and focus on operations

•
•
•
•

Lowers the cost for initial business set-up since most functions are outsourced
Keeps operations lean
Helps in ease of setting up business in foreign markets
Can easily respond to the changing marketplace trends•

Potential
Benefits

Mass production to rapid manufacturing
Description ••••Potential
Benefits••••

Companies have started manufacturing products as per the ongoing trends andchanging consumer preferences
Accelerating the manufacturing process by using technologies like 3D printing
Consortium/collaboration of companies has enabled faster production, processing anddelivering of goods to cater the growing demand of consumers
Establishing micro factories/smart factories and use of AR/VR technologies to support
the supply and streamline end-to-end delivery
Develops different products in a short span of time
Enables fulfilment of supply in case of a crunch situation
Has a positive impact on top line
Offers flexibility in changing specifications of a productMultilocal manufacturing
Description •Setting up production units in low-cost countries/ emerging economies• Moving from centralized to regional approach in design, supply and support

Potential
Benefits• Cost-effective since operations is located near to the end market• Economical in preparing small batches of customised products and their faster delivery
to end markets• Allows identifying local market requirements and leveraging business opportunities• Allows mitigation disruptions including geopolitical push for local manufacturing© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
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62

Impact of emerging competitive landscape on industrial manufacturing sector:

Pressure on
pricesInorganic
GrowthEmerging
start-uplandscapeImpactCase example

The pressure on prices is going to havethe following implications:• Bosch Group is witnessing a shrink

•
•
•
•
•

Increased cost of production

•
•
•
•
•
•

Improved economic scale

Supply chain issues
Extended lead time
Impact on business profitability
Higher transportation and labour cost

Increased market share
Competitive advantage
Portfolio strengthening
Enhanced distribution capacities
Access to more financial resources

Emerging start-ups in the manufacturingsector have started to bring a paradigm
transformation to the manufacturingindustry and have the following impacts:

•
•
•
•
•

Result in newer offerings
Increased flexibility and customisation
Improved efficiencies
Cost savings
Speeds up transformation of industrial
processes

in its profit margins due to risingcost of raw materials and energy. It
witnessed a fall and squeezed by
4.65 percent against its forecasted
margin of 8.45 percent for FY 2021

• To mitigate the burden of rising

prices, the company plans to passon the price increase to its
customers• In Aug 2021, Parker Hannifin

Corporation, an aerospace &defense motion player announced
all cash acquisition of Meggitt PLC• The acquisition aims at doubling

the size of Parker’s aerospacebusiness by 2x and strengthening
the prospects of the combinedgroup within the A&D industry 26• Konux, a Germany based start-up,

could succeed over more
recognized automation players inequipping Deutsche Bahn withsensors that delivers online data to
track status and efficiency on train.

• It has been estimated that service

and maintenance cost savings arein the range of 10 to 40 percent
based on data through sensors• Provides new manufacturing processes
Evolving
businessmodels• Enhances the business performance of • Qingdao Doublestar Tire Industrial
a firm and brings sustainable
competitive advantage• Enhances the customer experience• Helps in meeting customers new needs• Enables agile, co-created innovation for
new processes, products, and services

Co., a tire and automotive player,
enabled an end-to-end production
operating model, and achieved 1–3
percent reduction in users’ fuelconsumption, 10 percent extended
service life and 10–20 percent
reduction in cost of tire 27

26 Press Release - Parker Hannifin Corp, as assessed on 25 May 2022
27 Unlocking Business Model Innovation through advanced manufacturing WorldEcon, as assessed on 25 May 2022

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06
Focus on key
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6 Focus on key sub-sectors
Impact/importance of mega trends across key sub-sectors

A&D
Supply chain resilience

Sustainability• Give A&D companies the ability to react to• Since its inception in 2007, TARMAC••

shifting demand and new technologies more
effectively, allowing them to profit from thepost-pandemic rebound.
Manufacturers have better access to small andmid-sized suppliers (through database) who
can provide low-volume materials for
prototypes or new aircrafts/ drones
By eliminating supplier margin, vertical
integration can be used by A&D organisations
to gain control over key supply chain
operations and save operational expenses.
Additionally, it gives them the flexibility to react
quickly to changes in both market demandand product specifications, minimising theactual cost and time impact of theadjustments. They get access toauthentic and locally available
suppliers to speed up theaircraft / other equipment
production

Digitalisation and automation

AEROSAVE, a business owned by
Airbus, Safran and Suez, has recycled
more than 135 aircrafts.
• To divide the passenger area from thegallery in an A320 aeroplane, Airbus
developed a thinner, more durable"bionic" partition. As a result, the weightof the aircraft was reduced by up to 500
kg, cutting CO2 emissions by up to 166
metric tonnes annually.
• In order to evaluate engine performancein real-time and ultimately save 22 million
tonnes of carbon, manufacturers havedeveloped digital twins of engines.

A&D• Automation drilling and filling
•
•
•
•

•

solutions save almost 10 percent- 20 percent of the rig time.
After implementing an automated drilling system,
Boeing registered 93 percent improvement inhole quality.
98 percent of flaws, tool marks, andmisaligned holes have been eradicated using
the automated drilling method.
Boeing's robotic painter can complete a single
coat in just 24 minutes, compared to four hours
for human painters.
By building a predictive model, the automatedtechnology utilised to improve assembly efficiency
saves about five hours of flow per assemblyline.
According to Moog Aircraft Group, a lead time offour to six weeks occurred from outsourcing the
production of CMM fixtures. However, thebusiness can manufacture the identical fittingsinternally using 3D printing in about 20 hours.

Inorganic growth• M&As in this sub-sector have seen asignificant jump over the last one year,
wherein a rise of about 60 percent (73 in
2021 and 45 in 2020) was observed in
EMA deal volume from 2020 to 2021.
• Reduces operating costs significantly andeliminates supplier margin.

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Metals
Supply chain resilience

Sustainability• Metal producers can deal with price volatility• Reduction in number of stages in metal

•

•

•

across major mining geographies
By creating alternate routes or means oftransportation and maintaining buffer stocks at
crucial points in the supply chain, thevulnerability to disruption at ports or during
shipping of manufactured metals may bedecreased
Manufacturers also get access to diverse raw
material suppliers for metal production

Digitalisation and automation•

manufacturing process
Using AI to lessen the wasteful use ofsome materials, the generation of scrap
garbage in excess and the uneven
distribution of energy resources in order
to increase sustainability.
Energy utilisation in the manufacturing ofsteel has decreased by 60 percent overthe past 50 years due to technologicaladvancements and a switch fromtraditional blast furnaces (BFs) to electricarc furnaces (EAF).

Metals• 10-12 percent increase in production
output• The robotic automation of support•••

removal might drastically cut the cost
per part by 25 percent.
Saves over 50 percent of the working
time
Reduces unit costs significantly below
the level of other processes or manual
processing
AI/ ML with RPA and enterprise analytics
help underpin supply chain management
and procurement and make the metal
supply chain resilient and adaptive.

Inorganic growth• M&As in the sub-sector have seen a•steady jump over the last one year,
wherein a rise of about 25 percent (77 in
2021 and 61 in 2020) has been observedin EMA deal volume from 2020 to 2021
Cost efficiency has increased and there isadequate supply of raw materials.

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Machinery
Supply chain resilience

Sustainability• Helps secured buy of industry-specific raw• The sub-sector is aging and is not green•••

materials to support demand
Maintained service levels and business
continuity
Enhanced cost optimisation and operational
efficiency
Helps in finding alternate materials to criticalparts

Digitalisation and automation•

enough to meet the EU’s standards onsustainable production and environmental
protection. The current proportion of"green products" in the machinery subsector is about 5–10 percent.
In another 10 years, it is anticipated that
all items would adopt the green design
family, which includes recyclable, easily
reassemble-able, and recyclable parts
and whole machines.

Machinery• The majority of CNC machines have3 or 4 degrees of freedom of motion.
Industrial robots can move along more
complex paths than most CNC
machines. Articulated robot arms
typically have 6 degrees of freedom
which means that machines of any
shape can be produced without any
limitations — even ones withcomplicated angles.
• Most collaborative robots can work onmuch larger pieces than CNC machines.
A medium-sized industrial robot will
have a work envelope of about 7 to 8
cubic meters.

Inorganic growth• Production capabilities have increased.
• M&As in the sub-sector have seen a•

massive jump over the last one year,
wherein a rise of about 35 percent (470 in
2021 and 344 in 2020) has been
observed in EMA deal volume from 2020
to 2021.
Uncertainty over the supply of oil andnatural gases, shut down offactories/plants, shortage of manpowerand emergence of innovative businessmodels have played a vital role inpopularising M&As as an option forcompanies to enhance the operational
efficiency and streamline the production
process.

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Building and construction
Supply chain resilience

Sustainability

For supply chains to be resilient in the building &construction sub-sector, procurement should focus on:• Supply chain vulnerability – The subcontracting
structure of construction projects drives risk further
down the supply chain. Increased transparency andrebalance of risk are required with adequate
mapping of the supply chains to fully understandvulnerability areas.
- Demand planning – It is crucial for procurement
teams to work in a non-competitive way toensure supply remains as even as possible.
Additionally, the subcontracting nature ofconstruction products makes it unnecessarily
complicated.
- Standardization of products – Inefficiencies
and risk in the supply chain are caused in caseof customizations in a product. It is important forthe construction sub-sector to focus on
standard specifications across projects
to achieve flexibility in sourcing fromsuppliers and in turn achieve
increased productivity•

Digitalisation and automation

•
•
•
•
•

•
•

Reduction of environmental impact ofresources such as water, materials, embodied
energy throughout the lifecycle of buildings,
from the extraction of building materials todemolition and the recycling of materials.
Opportunities for better construction anddemolition waste management
Sustainable buildings combine improved
energy performance and reduce
environmental impact throughout their life
cycle, providing users better health and wellbeing and productivity gains that translate into
cost savings.

Building andConstruction

If construction companies invest in digitisation alongwith advanced automation, their overall productivity is
expected to increase by 2x.
The risk and cost of repairs and breakdowns can be
decreased with sensors, which can result in a cost
reduction of up to 20 percent over the course of aconstruction project.
The effective cost saving estimate for IoT in building
projects ranges from 22 to 29 percent of the entire
project expenditure.
IoT reduces energy usage by utilising coordinateddigital building systems (up to 35 percent).
The use of 3D laser scanning results in a 5–-7 percent
decrease in project expenses, a 10–-12 percent
improvement in project duration and a reduction of up to
80 percent in site time, making it a major benefit overthe long term.

Inorganic growth•••

The construction & real estate sub-sectors
have bagged M&A deals worth US$4.3 billion
in March 2022, making Europe hold over 53
percent share of global deal value.
The building and construction sub-sector in
Europe have been witnessing substantial M&A
deal activity with a count of 57 deals recorded
during March 2022. However, there has been
an average yearly drop of 3.4 percent fromMarch 2021.
The reasons attributed to the increase in M&A
activity in the sub-sector include increase indemand for modern, sustainable buildings, the
COVID-19 impact, asset clustering, building
modular construction and ESG excellence.

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

68

6.1

The KPMG way:

Businesses today need to be resilient across their operations and product development for which theyneed a deeper understanding of the entire value chain as well as the regulatory landscape. There are
additional risks for companies in today’s volatile environment which may be around business agendas,
automated production, ESG and customer centric offerings. KPMG firms can help companies inindustrial manufacturing and bring future-forward thinking along with a value-driven approach. Acrosssectors, KPMG professionals can help clients embrace transformation that could range from evolving
business models and ecosystems to advances in automation and analytics. Some of the key areas
where KPMG professionals can offer clients a pragmatic and holistic approach include:
Supplychain and
operations

IT & Digital

Sustainability

Strategy

Risk
ComplianceTransactions

Supply chains are assumed to fall outside of a company’s core operations hence there
are uncontrollable risks that they are exposed to. The effects of these risks can fallunder financial, operational, and reputational damage. KPMG firms can assist clients
across various areas and provide insight and advise to enhance supply chains.

•
•
•
•
•
•

Supply chain analytics
Operations strategy
Procurement transformation
Measuring sustainability for suppliers
Strategic global sourcing
Spend reduction

Technology can provide solutions help automate and enhance decision making. There
are unprecedented challenges for manufacturers globally. KPMG professionals
encourage companies to think about the current and emerging technologies that canhelp in accelerating the digital transformation and build resiliency in future crises. Someof the technology-based solutions include:

•
•
•
•
•
•
•

IT Sourcing
ERP transformation
Innovative business models leveraging technology
Digital transformation
Blockchain capabilities
Automation, data analytics and connected systems
Cyber / information security- Cloud security and resilience- Secured data management services- Understanding the regulatory landscape• General Data Protection Regulation (GDPR)© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

69

Sustainability is at the core of every organisation that is focusing on making an impact
on the environment as well as the society. The current linear economic model is low,
and companies are getting aligned with the CE model which allows full extraction of
product value before it is reused or recycled. This model is gaining momentum acrossall industries – from private to public and manufacturing to service. KPMG firms canhelp clients in the following ways:

•
•
•
•
•
•
•
•

Sustainable strategies and business models
Sustainable investments
Reducing carbon emissions
Circular Economy based opportunities
Infusing CE principles into organizational plan
Identifying CE opportunities beyond waste management
Reporting frameworks
Workplace health and safety

Strategy focus is paramount for companies today as they face shifts in structure due to
new technologies, regulations, sector convergence and customer needs. There is aneed for agile strategies in the rapidly changing world today. KPMG professionals canhelp companies in identifying and implementing a set of platforms that can accelerate
growth. Some areas for fulfillment of goals and ambitions include:

•
•
•
•
•
•
•

Pricing and market accessNew business models
Portfolio transformation
Market entry and expansion
Operating strategy and cost
Multi-year strategic planning
Corporate center redesigns

Risk mitigation and compliance come in play when companies need to earn the trustof their stakeholders, marketplaces and customers whom they serve. Companies today
are facing challenges due to increased regulatory requirements, financial assessments
and operational instability. KPMG professionals can help companies in enhancing theirperformance and decision-making processes as well as aiming for highest levels of
integrity through various offerings:

•
•
•
•
•
•

Enterprise risk management
Governance, risk and compliance
Regulatory compliance
Risk Analytics
Fraud Management
Crisis Management© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

70

Key Contacts
KPMG Industrial Manufacturing
Stephane Souchet

Carmelo Mariano

Global Head of Industrial
Manufacturing,
KPMG International and Partner,
KPMG in France

EMA IM Sector Leader,
KPMG in Italy
E: cmariano@kpmg.it

E: ssouchet@kpmg.fr
Nancy Barrett

Shrey Singhal

Senior Manager, Global Energy &Natural Resources,

EMA IM and ENR Sector Executive,

KPMG in Canada

E: shreysinghal1@kpmg.com

E: nancybarrett@kpmg.ca

KPMG Global Services

Romain Liotard
Global Sector Executive, Industrial
Manufacturing,
KPMG in France
E: rliotard@kpmg.fr

KPMG Global Services
Vikas Dubey

Rohit Jain

Manager

Assistant Manager

E: vikasdubey@kpmg.com

E: rohitjain11@kpmg.com

Devashish Ashish Sharma

Sharada Prakash Parulekar

Associate Consultant

Associate Consultant

E: devashishsharma@kpmg.com

E: sharadap@kpmg.com© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities
provide no services to clients. All rights reserved.

71

www.kpmg.com

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without appropriate professional advice after a thorough examination of the particular situation.
© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International
entities provide no services to clients. All rights reserved.
KPMG refers to the global organization or to one or more of the member firms of KPMGInternational Limited (“KPMG International”), each of which is a separate legal entity. KPMGInternational Limited is a private English company limited by guarantee and does not provide
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