Rising costs and transformation are top of mind in manufacturing sector

Rising manufacturing costs have grown into the top concern among manufacturing executives in Europe and the Middle East. As a result, many companies in the sector are eyeing cost reduction and transformation initiatives.. 

This concern over costs was the main takeaway from a survey of manufacturing companies conducted by Horváth, which found that besides rising costs, other main concerns include regulations and bureaucracy and a lack of skilled workers. 

Interestingly, the challenges perceived as least concerning by the surveyed companies included internal disagreements at the management level and a lack of investment capital. This suggests that external economic and regulatory pressures are currently outweighing internal operational hurdles in the minds of manufacturing leaders.

The challenges ahead

Across all sectors surveyed, companies are most optimistic about revenue development and EBIT in the next 12 months. While 51% of respondents said they are looking forward to development in the workforce, more than 30% expect a reduction in personnel.

The study notes how the automotive industry has been especially affected by subdued revenue this year. It has been able to somewhat augment that by reducing workforces, but there is still trouble ahead as the many car makers have struggled with the shift to electric, while in Europe, US tariffs have shifted the sector into uncertainty.  

Goals over the next 12 months

The goals set by companies for 2025 vary quite widely depending by industry. For example, automation and AI are top priorities for mechanical and plant engineering companies, but other industries are largely focused elsewhere.

One connecting thread is a focus on revenue: Across all sectors revenue growth is a common priority. Other main areas of focus are optimizing supply chains, EBIT-improvement, and increasing employee productivity.

Many companies aim to grow primarily through innovation and expansion. In the consumer goods industry, many companies are looking to introduce new innovations, while in industries like pharmaceuticals and MedTech, companies are mostly focused on company acquisitions.

Transformations

As markets shift and new realities set in, manufacturing companies are facing major pressure to transform in one way or another. A total of 46% of the companies surveyed by Horvath said they have at least one transformation program in place and are planning to introduce at least one more within the next 12 months.

These planned transformations are either financial, strategic, or operational in nature, with a somewhat even distribution, though most (79%) are looking at operational restructuring or transformation. This signals that companies are well aware of the need for various changes and are already investing in it.

AI is a major part of the transformations that companies are looking to put into place. Over 60% of companies are already using AI in their transformations or are planning on leveraging it at some point. After AI, the most important levers for companies is automation of production process and administrative processes. This shows a clear intention to streamline processes on the part of many business leaders.

The results from the study underscore the significant pressures facing the manufacturing sector in 2025. Rising costs and the imperative for comprehensive transformation are clearly top of agenda for executives.

“The economy is in a state of flux. Companies across nearly every sector are grappling with significant challenges, some of which are existential,” stated the authors. “They can’t afford to wait for conditions to improve; they must adapt to the changing landscape and market shifts now – and quickly.”