Clarity From the Messe

It’s time to pick up the pace, not the pieces

By Jayson Myers

Anyone who has attended Hannover Messe – the world’s largest advanced manufacturing show – can’t help but be impressed. The sheer scope of the show is astounding. This year, over a quarter-million people visited 17 halls full of exhibits of the latest digital, production, and energy technologies from around the world, each hall the size of two or three football fields. The fair dwarfs any trade show in North America. It’s a good workout for those who can get to every hall! It’s all a bit overwhelming, but it’s a great place to see the latest technology solutions for manufacturing and to meet executives from around the world scouting out potential innovation and business opportunities.

Canada will headline as the partner country at the fair in 2025. It will be a chance to showcase our leading technology capabilities in advanced manufacturing. We have a terrific record when it comes to research and tech development in advanced manufacturing. However, the adoption and deployment of advanced technologies by Canadian manufacturers is a different story. When it comes to the use of leading-edge technologies to improve productivity, increase agility, connect supply chains, or enhance customer value, we not only lag behind other developed economies; we are falling further and further behind them each year.

Our largest companies are keeping pace with the rest of the world. Over 87 per cent have invested in some sort of advanced technology related to materials handling, supply chain management, design and control, processing or fabrication, business intelligence, environmental sustainability, or cybersecurity over the past three years. Nearly half have invested in some sort of emerging technology like artificial intelligence (AI), Industrial Internet of Things (IOT), Blockchain, 3D printing, or in nano- or biotechnologies, as well.

However, Canada’s small and medium-sized enterprises (SMEs) – manufacturers with fewer than 500 employees – are trailing badly behind. SMEs are investing at only about two-thirds the rate of larger companies in advanced technologies and less than half the rate of larger companies in emerging technologies. That’s significant because SMEs account for about 92 per cent of all manufacturers in Canada. If they can’t keep up with larger companies, they are putting their own competitiveness and growth potential at risk, as well as that of their customers and their suppliers.

The reasons most frequently given by smaller manufacturers for not adopting new technologies, digital technologies in particular, are surprising. When surveyed by Statistics Canada, 22 per cent cite the high cost of technology, 11 per cent a lack of technical skills, 10 per cent difficulties integrating new technologies into existing production systems, and just under two per cent cite problems obtaining financing. Only 10 per cent say they don’t see any economic value in advanced technologies. But worryingly, most companies just don’t think new technologies are relevant to their operations: 55 per cent say that digital technologies don’t apply to their business activities, while 18 per cent report that investments are not necessary to sustain operations.

Those companies need to think again. The ability to track and trace materials, measure quality, and report greenhouse gas emissions within facilities and across supply chains is rapidly becoming an essential requirement for doing business. It’s not just a matter of operating efficiency, online payments, and rapid customer response. A wide variety of stakeholders, from customers and regulators to investors and insurance companies, expect data to be used to improve visibility, supplier response times, and overall operating performance.

The use of data, AI, and other digital tools to design, monitor, test, control, and predict the performance of products, processes, and entire production systems has become vital for manufacturers to keep pace with customer demand, pivot into new lines of products and services to mitigate market risks or take advantage of new business opportunities, compensate for labour shortages, and simply keep ahead of competitors. While they may not see the relevance today, SMEs that fail to digitize are likely to lose business in the very near future.

Prairie manufacturers at risk

Across the Prairies, SMEs are slightly more at risk than the average Canadian company. They lag behind when it comes to connectivity through the Internet of Things and the adoption of digital technologies for business intelligence, design and information control, cybersecurity, fabrication and processing, online payments, and e-commerce. On the other hand, adoption rates are slightly higher than the national average with respect to their use of clean technologies, digital technologies for materials handling, supply chain management, and logistics, and digital marketing.

Prairie manufacturers are also more likely to say that they don’t have to adopt advanced technologies. Over 56 per cent do not believe the technologies apply to their business activities, while 27 per cent say that they are too expensive, and 19 per cent report that they are not required for continuing operations. 

Fewer than 10 per cent of Prairie manufacturing companies say that a lack of technical skills, difficulties in sourcing financing, or problems integrating new technologies into existing production systems are barriers to adoption.

Manitoba faces the biggest challenge

SME adoption rates are significantly lower in Manitoba than the Canadian average. They are 62 per cent below the national average with respect to the use of business intelligence technologies, 60 per cent lower for design and information control technologies, 49 per cent for cybersecurity, 38 per cent lower for fabrication and processing applications, and 33 per cent for material handling, supply chain, and logistics technologies.

While the percentage of SMEs with an online presence or conducting e-commerce and e-payments is fairly close to the national average, 54 per cent
fewer have adopted integrated IOT systems and 13 per cent fewer have adopted online solutions for digital marketing. When it comes to clean tech though, the adoption rate by smaller Manitoba manufacturers, while still small at 6.2 per cent, is almost 22 per cent higher than the Canadian average.

The most common reason cited by Manitoba SME manufacturers for not adopting technology is that it is irrelevant for their business. Over 57 per cent say that. Surprisingly, the percentages of SME manufacturers in Manitoba that cite other factors, that technologies are not necessary for their continued operations, too expensive, or that companies don’t have the skills or financing in place to support their adoption, are all much lower than the national average.

Saskatchewan shines in supply chain, and e-commerce

Adoption rates by SME manufacturers in Saskatchewan are 42 per cent higher than the Canadian average when it comes to material handling, supply chain, and logistics technologies, seven per cent higher for digital marketing, and a full 54 per cent higher for e-commerce payment systems.

However, adoption rates for other applications lag seriously behind. They are 19 per cent lower for business intelligence, 31 per cent lower when it comes to design and information control, 46 per cent lower with respect to security systems, 40 per cent lower for automated processing and fabrication, and 38 per cent lower in terms of the use of IOT systems. While the adoption rate for clean tech is a full 53 percent above the national average, only 7.8 percent of Saskatchewan SMEs have adopted advanced technologies in that field.

Again, the major reasons for not adopting advanced technologies cited by Saskatchewan manufacturers are that they are not applicable to their business (48 per cent), too costly (26 per cent), or unnecessary to sustain operations (21 per cent). The percentage reporting other barriers to adoption are lower than the national average.

Alberta manufacturers report the most constraints

Ironically, Alberta’s SME manufacturers have a higher-than-average adoption rate for many technologies but report the greatest number of barriers to investment. The use of advanced technologies for business intelligence, design and information control, security, material handling, supply chain management, logistics, and environmental management purposes is either at or within three percentage points ahead of the national average.

Almost 18 per cent more SMEs in Alberta use digital media technologies than their counterparts across Canada. There are, however, some notable exceptions. Adoption rates are 38 per cent lower for advanced processing and fabrication systems, 15 per cent lower for IOT systems, 20 per cent lower for e-commerce, and 10 per cent lower for e-payments systems than the national average.

Challenges appear to be more daunting for Alberta SMEs than in the rest of Canada. Just under 57 per cent of small Alberta manufacturers say that that advanced technologies are irrelevant for their business, 31 per cent that they are too costly, 20 per cent that they are not required for current operations, 15 per cent that they don’t see any value in adopting them, 13 per cent that they lack technical skills required for implementation, and eight per cent that they are experiencing difficulties obtaining financing.

Where to from here?

It’s pretty much guaranteed that more SME manufacturers across the Prairies and across Canada will come to see digitally enabled communications, control, design, production, material handling, logistics, and supply chain technologies as critical for their business as customers, investors, insurers, and regulators demand greater supply chain visibility, higher levels of quality control, and faster response times from their suppliers. Digital adoption will become a matter of business survival, not simply an issue of competitiveness and growth.

When it comes to the technologies themselves, three trends stood out from Hannover this year. The first is the growing importance of environmental sustainability. Everything from GHG emission tracking solutions to new systems for battery and EV design, testing, and manufacturing, to hydrogen and alternative energy systems were on display.

The second was evident from the nature of the exhibits at the fair. Even five years ago, it was all about equipment. This year most of the exhibits were still about equipment, but they were virtual. And the presence of IOT, 5G, cybersecurity, additive manufacturing, automation software, blockchain, and even quantum solution providers has grown significantly.

The third trend was evident in the nature of the digital solutions at the show. The future will be plug-and-play fully interoperable systems using standardized data platforms and protocols. Manufacturing processes are going the way of smartphone apps.

Canadian companies have a great opportunity to leverage these emerging trends, as technology suppliers and as manufacturers looking to adopt emerging solutions. But the time is now to capitalize on first-mover advantages. Don’t wait down the road because your customers will pass you by.

See you in Hannover next year!

Jayson Myers is CEO of Next Generation Manufacturing Canada – the country’s advanced manufacturing supercluster. An award-winning business economist and leading authority on technological change, Myers has counselled Canadian prime ministers and premiers, as well as senior corporate executives and policymakers around the world.