The global manufacturing industry is on a journey to develop cleaner and circular operations while addressing rapidly changing customer needs and serving its customers better than ever before. New technologies will transform manufacturing as the world knows it today. While this transformation is one of the biggest challenges since the start of the industrial revolution, it is also a great opportunity to create more value for the manufacturing industry’s customers and shareholders.
Energy and material transformation
Sustainability goals to reduce greenhouse gas emissions are driving a major shift in material flow towards a more resource-efficient manufacturing system. Additionally, changes in consumer demand will require new business models. Propelled by these changes, the energy and materials transformation are converging into a broad and revolutionary sustainable manufacturing transformation.
There are six megatrends that are shaping the sustainable manufacturing transformation – climate action, energy system transition, circular economy, anything as a service (XaaS), Additive Manufacturing (3D Printing) & micro-manufacturing and Industry 4.0, as noted in Figure 1. The effects of these disruptive trends will differ by the industry sector.
Manufacturing is a system that turns primary materials into intermediate products and intermediate products into capital goods and consumer items. Supply chains consist of multiple steps, with freight transport often as a key enabler of these operations. Energy plays an even more integrated role in the future end-to-end manufacturing process.
The megatrends identified in Figure 1 will have a large effect on the way materials are processed and on how products are assembled and distributed. There are three major overarching transformational waves:
From traditional to on-demand manufacturing
Changes in consumer preferences are an important driver for this transformational wave. While many companies profess to be consumer-centric, this will be tested as real-time data and analytics are used for targeting clients. Digital platforms will connect consumers, designers and producers to allow for a high degree of product customisation. The megatrends that are most prominent in driving this transformational wave are anything as a service (XaaS), digital platforms and new manufacturing technologies.
On-demand customised manufacturing
Reshoring (part of) the apparel manufacturing to allow for faster, more customisable fashion would redefine the interaction between the manufacturer, the brand and the consumer. It would also mean that access to low cost labour no longer drives a company’s competitiveness. Such a shift in the business landscape will affect the manufacturer’s operations and deliver a competitive advantage. It is expected that this shift to more localised manufacturing will primarily affect goods manufacturers but could potentially affect manufacturers of intermediary materials when adequate production technologies emerge.
With an increased demand for more personal products, digital platforms will emerge. These platforms will enable interface between customers (B2B), consumers (B2C) and the production process. Technological advancements have the potential to further improve the customer experience when using these digital platforms. At the same time, the platforms will enable producers to have access to a pool of potential customers and quickly streamline their offerings based on the customer demand.
New manufacturing technologies
The emergence of new manufacturing technologies and the continuous digitisation of manufacturing will not only redefine the demand for products on one side, but also the way materials and products are used on the other side. The technology uptake from manufacturers will affect companies on both, an asset and operational level.
Anything as a service
Companies that want to be successful in the future need to further diversify their business. With XaaS, companies intend to make life easy for consumers who do not have to take care of maintenance and repair. XaaS is shown to promote more durable and efficient technologies with longer lifetimes, thereby also increasing sustainability.
From energy consumer to energy prosumer
Linear value chains supporting one-way power flow from centralised generation to the end-customer will give way to a more sustainable and highly digitised energy system. This system will support two-way energy flow in which customer choice and agility command a premium. At the same time, various energy carriers will become increasingly interconnected and integrated.
Renewable electricity production & conversely electrification of various assets will be the key enablers for manufacturers to participate effectively in this new energy ecosystem. Energy consumption flexibility and storage options will mature to viable trade assets. As various energy carriers will become increasingly interconnected and integrated, the focus will also shift toward production of renewable heat, fuels and feedstocks, opening up new business opportunities for manufacturers. In this new ecosystem, many manufacturers that traditionally operate as consumers at the end of the energy supply chain will transform into active participants and move to a centre stage role in the energy system & the orchestration of producing, converting and trading energy.
Energy efficiency and electrification
Energy efficiency improvements will remain an important objective for every company. Energy efficiency improvements can be incremental or can be based on novel technologies. With the increased penetration of renewables in electricity markets, electricity-driven options to improve energy efficiency will become more attractive. The industrial heat pump is a key technology contributing to electricity-driven energy efficiency. With the help of electricity, industrial heat pumps upgrade low temperature waste heat to more useful temperature levels.
Flexibility and storage
Changes in the energy system will inevitably lead to a higher volatility in energy prices and most notably in electricity prices. Companies flexible enough to make optimum use of this volatility in prices will be the winners. Flexibility can be generated in various forms – the most obvious is the flexibility in the production processes. Furthermore, with the decreasing prices of batteries, electricity storage may become an attractive option. This is even more the case if freight fleets turn to full or hybrid electric: controlled charging can then be applied. Demand-side management programs making use of intelligent control systems in a digitised environment will help to harvest the benefits of flexible production. All these options have the potential to use electricity when it is cheapest and thus, decrease operational costs.
Producing and sourcing of renewable electricity & heat Renewable energy has become the energy source of choice for many companies; this choice is supported by RE100, an initiative of well over 100 companies. Renewable power procurement by industrial end-users will continue to grow as costs of renewable energy are competitive with fossil energy generation. An important driver for this activity is the emergence of innovative PPA concepts, which offer manufacturers the possibility to hedge against the volatility of fossil fuels. The next frontier in the application of renewable energy is the production of heat. There are many renewable heat feedstock options available. In most cases, heat production will be based on a flexible mix of local resources & purchased commodities, giving a manufacturing company maximum control of the way heat is produced at any time.
Production of renewable fuels and feedstocks
Fuels are important in manufacturing, especially as feedstock. This is most apparent in the chemical industry, which is largely based on the conversion of fuels to intermediate products. One of the big challenges in the coming decades is how to produce more of these fuels from renewable sources. The dominant options are biomass sources and renewablebased electricity. The development of bio-based chemistry will lead to the emergence of a chemical industry centred around new platform chemicals.
The production of commodities from electricity offers an alternative route to bio-based production. The logical basis is hydrogen, which can be produced through electrolysis. Hydrogen can be the basis for further production of ammonia or, when combined with CO2 (CCU), methanol. Methanol can subsequently be converted to many of the existing platform chemicals. Substances, such as methanol and (bio-)ethanol, will become important in a dual role of fuel and feedstock. Electrochemistry will provide new power-to-X production routes. The production of renewable fuels will likely lead to lower costs but also increase production and demand-side flexibility.
From supply chain management to full system orchestration
With the ever-evolving developments of new products and materials and the use of digital algorithms for autonomous process optimisation, separate supply chains will combine into more complex networks, breaking the silos in value chains. Sector interactions will increase, allowing for further optimisation and value chain creation. Moreover, changes in consumer preferences, including preferences for greener products, will be an important driver for this transformational wave. The transformation will be propelled further by climate action, as it requires a complete transformation of the manufacturing industry’s production processes toward low carbon materials and products.
Creating a strong position
Understanding these waves and developing pathways to fully maximise their value is key to creating a strong position in the manufacturing industry of the future. While manufacturing is going through a chief conversion, manufacturers are looking at the sustainable part of it a lot more dedicatedly, which is not only cost-effective but also emboldens customers to be involved with the company. The subsequent edition will be highlighting how unique combinations of transformational waves influence a company’s business environment, which can be assessed with scenario analysis.