CFO Deep Dive Series: Key Trends, Challenges, and Opportunities in the Machinery Manufacturing Industry

6 mins read

26 May 2023

Sander Berkhout, Chief Financial Officer, APAC, TK Elevator

The COVID-19 pandemic has brought unprecedented disruptions and uncertainties to various industries, not least the machinery manufacturing industry. Throughout the ups and downs (pun intended), the pandemic has compelled companies like TK Elevator to adapt and innovate in the face of adversity. 

While it’s a niche sector, there are common lessons to be gained. Sander Berkhout, Chief Financial Officer, APAC, TK Elevator shares his insights with DigitalCFO Asia on the emerging trends that are reshaping the sector as well as the challenges, and unique opportunities they faced. 

What Goes Up Must Come Down – Challenges in the Post-Pandemic Landscape 

“Supply chain disruption continues to pose one of the greatest challenges for manufacturing companies in the post-COVID era,” says Sander. 

“It’s a hurdle that TK Elevator, as an industry-leading innovator, must navigate as we strive to develop and deliver cutting-edge solutions. Particularly, the scarcity or limited availability of parts and components, notably semi-conductors, presents a significant obstacle.” 

This is of course not unique to the machinery manufacturing industry. Looking at the broader economic landscape, fierce competition for a shrinking pool of business has emerged as a critical concern. Many countries and markets worldwide experienced a slowdown or decline during the pandemic, resulting in reduced economic activity and diminished consumer confidence. To remain competitive, companies resorted to exhausting their inventories rather than focusing on innovation. This forced them to undertake painful transformational measures like reorganizations and aggressive cost-cutting initiatives.

The pressure on the bottom line has also intensified. Global inflation and supply chain limitations have driven up material and labor costs, while fierce competition has stifled manufacturers’ ability to offset these increases through price adjustments. Consequently, only companies with robust cost structures and stringent cost control mechanisms have been able to adapt and maintain their competitive position.

Last but certainly not least, the pandemic has brought the importance of health and safety in the workplace into sharper focus, demanding unwavering attention as a responsible employer. Manufacturing-intensive companies must continually enhance protocols and safety measures to safeguard employees from hazards and risks. Simultaneously, they must strive to minimize operational disruptions caused by outbreaks and other adverse health and safety events, ensuring the well-being of their workforce while maintaining operational efficiency.

Opportunities that the Post-Pandemic World Has Brought to the Industry

The post-pandemic era heralds a remarkable transformation, characterized by a rapid shift towards digital technologies, evolving market demands, and an unyielding pursuit of optimization. Amidst this dynamic landscape, businesses that can seize these opportunities stand poised to not just survive, but thrive.

One such opportunity lies in introducing new, technologically advanced products and solutions

“In times of adversity, customers become acutely aware of cost and efficiency considerations. Hence, innovative products and solutions that offer enhanced efficiency or significant cost savings are poised to capture their attention,” says Sander. 

Take, for instance, TK Elevator’s digital maintenance solution, MAX. This cutting-edge offering has garnered immense interest from property managers and owners, thanks to its ability to reduce costs and minimize equipment downtime. 

Moreover, this era presents an unparalleled chance to expand market share. With overall market growth constrained, fierce competition looms large, forcing weaker players to exit the stage. This creates a void waiting to be filled by strong, resilient companies like TK Elevator, providing a unique opportunity for exponential market share growth.

But the potential for growth extends beyond mere market share and into the possibility of transformation. In times of adversity, such as during a global pandemic, the need for transformation becomes undeniably apparent. This creates a favorable environment for implementing successful transformation initiatives, positioning organizations to outshine their peers once the market rebounds.

In addition, this challenging period presents a silver lining in talent acquisition. Unlike periods of robust global economic growth, the intensity of the so-called “war for talent” has somewhat subsided. Consequently, it becomes relatively easier to attract exceptional talent, offering attractive packages and enticing prospects to join the ranks of TK Elevator.

The post-pandemic landscape is teeming with opportunities, waiting to be seized by those with foresight and audacity. By embracing technological advancements, striving for market dominance, driving transformative change, and attracting top-notch talent, TK Elevator is poised to not only weather the storm but emerge as a trailblazer in the industry.

What Are the Rising Trends in the Industry?

The machinery manufacturing industry is undergoing a fascinating transformation. Driven by the rise of digitalization and modular construction, these emerging trends are reshaping the landscape, offering compelling advantages and ushering in a new era of innovation.

“For TK Elevator, we foresee that digitalized elevator maintenance and connected elevators represent a paradigm shift in their industry. Beyond saving manpower and costs for customers, these advancements align with the evolving building trends, particularly smart building management.” Elevators which were once seen as mere vertical transportation devices, are now seamlessly integrated into building management automation and optimization. This integration not only enhances efficiency but also paves the way for a more interconnected and intelligent future.

In addition to digitalization, modular installation and modernization solutions are revolutionizing the way elevators are deployed. 

“By embracing a modular approach, TK Elevator can install products with reduced lead times and minimal disruption to customers and users. This streamlined process ensures swift implementation while maintaining operational continuity,” says Sander.

Furthermore, the modular design enables the effortless removal and reuse of components from previous installations, boosting the sustainability performance of projects and contributing to a more circular economy.

From a macro-economic perspective, the machinery manufacturing industry mirrors broader economic trends, albeit with a slight time lag of 6 to 12 months. As the general economy moves towards recovery, TK Elevator closely monitors the developments in the real estate sector, which has shown increasingly positive indicators in recent months. 

“Keeping a watchful eye on these dynamics allows us to capitalize on emerging opportunities and align our strategies with the shifting market landscape,” says Sander. 

The machinery manufacturing industry is at the forefront of a transformative journey, guided by digitalization, modular solutions, and a keen understanding of macro-economic trends. By embracing these innovations and staying agile in their approach, TK Elevator is poised to not only meet the evolving needs of their customers but also lead the industry towards a more efficient, sustainable, and interconnected future.

How Has the COVID-19 Pandemic Affected and Changed the Industry?

“In some of the markets we operate in, business was not conducted face-to-face for a very long time, and our manufacturing operations had to operate in a closed-loop model due to prolonged COVID-control measures,” reveals Sander.

Risk management strategies in light of the pandemic situation became essential; revenue projections, contingency plans for supply chain and operational disruptions, as well as managing resources to ensure financial stability were some of the key challenges for Sander and his team during the COVID-19 pandemic.

In general, the machinery manufacturing industry is less vulnerable to shocks due to its robust service and maintenance business. The need for elevator service by the public are only to a limited extent impacted by the economy, thereby maintaining a stable revenue stream for companies providing these services. Nevertheless, there remain several factors that can still significantly impact manufacturing companies no matter how shielded they are from the effects of the pandemic.

Firstly, price pressure can squeeze profit margins which can lead to reduced profitability and financial strain. In addition, delayed new projects can disrupt financial planning and increase overhead costs if alternative arrangements need to be made. Furthermore, suspended contracts can further exacerbate financial challenges by reducing revenue streams.

Secondly, workforce management becomes a critical aspect affected by these challenges. If manufacturing companies face financial difficulties or reduced demand, they may need to optimize their workforce. This can result in reduced employee morale, and the loss of skilled workers, which can have long-term negative effects. 

Additionally, these circumstances can pose a threat to business continuity and market competitiveness. Manufacturing companies may struggle to maintain customer relationships, fulfill orders on time, or invest in innovation and technological upgrades to stay competitive. These challenges can hinder growth opportunities and weaken their position in the market.

Lastly, manufacturing companies rely on a complex network of suppliers and vendors which means that disruptions caused by delayed buildings, closures, or suspended contracts can ripple through the supply chain. This will result in inventory shortages, increased lead times, and difficulties in sourcing essential raw materials or components.

To mitigate these challenges, manufacturing companies may need to carefully manage costs, explore alternative production arrangements, diversify their customer base and adapt their strategies to the evolving market conditions. These measures can help companies navigate through the difficulties and maintain their competitiveness in the machinery manufacturing industry.

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