It’s time. Upgrade for growth in manufacturing

“As long as manufacturers have a net profit to begin with, they can apply the cash tax savings from the OBBBA incentives and credits for expansion.”

Kelly Schindler 

Head of Manufacturing Industry
Grant Thornton Advisors LLC
Partner, Audit Services, Grant Thornton LLP

The One Big Beautiful Bill Act (OBBBA) offers manufacturers incentives — some of which will expire — for investments that could include technology. “As long as manufacturers have a net profit to begin with, they can apply the cash tax savings from the OBBBA incentives and credits for expansion,” said Grant Thornton Manufacturing Industry Lead Kelly Schindler. “When manufacturing incentives passed in the first Trump administration, manufacturers saw record revenues because of expansion and what they were able to do with it.”

“So that’s what your competitors will do,” Schindler said.

Chaikin acknowledged, “It’s easy to get complacent and assume that, if the business is doing well, it will continue to do well — and not take into account that your competition is investing in new tools and technologies. If they’re running faster than you are, and if you’re not going to make those investments, you’re going to fall behind.”

The key is to run in the right direction. Many leaders across industries are rushing to compete in the race to emerging technologies.

But that might not be the place to start.

“A lot of people aren't doing anything with their ERP system because they are under the impression that AI is going to make ERPs obsolete … AI will enhance ERPs, but it's not going to replace ERPs.”

Greg  S. Davis 

Principal, Technology Modernization Services
Grant Thornton Advisors LLC

“A lot of people aren’t doing anything with their ERP systems because they are under the impression that AI is going to make ERPs obsolete,” said Grant Thornton Technology Modernization Advisory Services Principal Greg Davis. “That’s really not the case. AI will enhance ERPs, but it’s not going to replace ERPs.”

Davis said another common issue is that manufacturers have not moved their current technology beyond a minimum viable product (MVP) implementation. “When they first implement technology, they just want to get the foundation in. They basically have a transaction system, and they leave the optimization and growth work for later … but ultimately, they never do it. By the time they go live, they have a hard enough time owning, governing and operating the technology that they never complete optimization. They never get to the to the state where they can take on growth.”

“There are the reactive firefighters who are going to work every day resolving technology issues,” Davis said. “Then, there are the growth-oriented strategic companies, with a good handle on their governance, that are looking forward.”

Now is the time when more manufacturers are likely to catch up and prepare their infrastructure for growth.

Critical decisions

An effective infrastructure helps you prepare for growth by streamlining work, but also by giving you decision-driving data. “Modern, capable systems have better automation and better business process transformation, with improved data integrity and integration across manufacturing, sales, warehousing and transportation, all the way to the financials,” Chaikin said. “That frees people up to focus on where they can grow. If you don’t have good data, it’s hard to understand which of your products are the best sellers and where you have higher profit margins. It’s hard to understand where you need to focus for growth.”

Davis acknowledged that data management can be difficult in manufacturing, especially with materials requirements planning (MRP). “Manufacturing is very data intensive. The amount of data that goes into just running MRP effectively is massive. A lot of people are stuck with insufficient data — they don’t have trust in the system and they need to get that. Take a look at your manufacturing data and the source systems providing it. That’s one way to start identifying optimization and growth.”

To prepare your digital infrastructure and its data for growth, you need to make the right investments.

“When a company's not taking a top-down approach with leaders deciding where to fund technology, you end up with a lot of shadow IT.”

Seth Chaikin 

Partner,
Technology Modernization Services
Grant Thornton Advisors LLC

“When a company’s not taking a top-down approach with leaders deciding where to fund technology, you end up with a lot of shadow IT,” Chaikin said. “You get departments that are buying the products they want and trying to implement them themselves. So, you’re still spending money as a company. You’re just not doing it in a cohesive way.”

As a result, the company could be paying SaaS and support fees to solve the same needs many times over, in multiple ways, with unseen cybersecurity risks, all while missing out on the potential for connectivity and efficiency. “I can't tell you how many times Greg or I have gone into companies and found out they have several disparate systems that nobody in IT even knew about, and everybody's using them differently, with different parts of the business using different tools that do the same thing,” Chaikin said.

Leaders need to be proactive and comprehensive in managing infrastructure. “Another thing I see a lot is that companies are focused on improving the operational side but not the back office, or vice versa,” Chaikin said. “Those really have to play together. All of your operational data is feeding the back office and how well you can invoice customers and collect cash. You can’t just focus on one part of the business.”

“It’s often not whether the company has the funding for technology,” Chaikin said. “It’s whether the company is funding technology correctly — with a top-down enterprise-driven approach.”

“I’ve seen companies that bought another company with a really effective ERP system, and the acquirer makes that the new enterprise technology.”

Kelly Schindler 

Head of Manufacturing Industry
Grant Thornton Advisors LLC
Partner, Audit Services, Grant Thornton LLP

However, some manufacturers see that issue from the other side. “I’ve seen companies that bought another company with a really effective ERP system, and the acquirer makes that the new enterprise technology,” Schindler said.

This approach could even inspire manufacturers to reactivate M&A strategies that many had put on hold.

“Technology spending is considered CapEx, which is sometimes a problem for budgets — but they have more freedom to do M&A. So, they’re building their infrastructure through M&A, where they’re acquiring companies that have already set up the technology they want to have. They don’t have to go through the effort to set up the technology, plus they might have adjacencies in product offerings or the companies are small startups that are exploring something with potential.” Any of these scenarios can help a manufacturer fill unique gaps in its infrastructure and its plans for innovation.

Organic innovation

To foster growth within the organization, manufacturers have a range of tech-driven options from transforming customer experiences to making other investments that help achieve growth targets.

Often, companies need manage both implementation and adoption. “There's the fear factor, especially with AI, that it’s going to replace headcount,” Schindler said. “While that can be a possibility, we’re finding that it’s not truly what’s happening — headcount is staying flat, but productivity is significantly increasing.” Often, AI solutions are helping teams innovate new capabilities that weren’t practical before. “The most common use right now is new product development. They’re using AI to help automate that and test whether customers are going to want a product or not.”

In ordering systems, AI can give a customer recommendations about other products that are tailored to their profile or purchase history. “It’s also helping companies think through a service component,” Schindler said. As companies analyze what customers are buying, they can consider whether they could offer training, maintenance or other services, even as a recommendation in the ordering system. That creates an ongoing relationship with the customer, which is sometimes more profitable than the products. “It’s a smarter, stickier sale.”