INDUSTRIAL

CAPITALEXPENDITURESURVEY2017

INVESTINGANDBUILDINGINCHANGINGMANUFACTURINGMARKETS

CONTENTS

Foreword

Executivesummary

Researchoverview

Introductiontotheresearch

Industryoutlook

Sevenkeythemesandtrends

Betterreturnsandimprovedspeedtomarket

Flexibilityandagility

Sustainabilityincapitalprograms

Supplierintegrationandcommunication

Internalstakeholderengagement

Centralization

Thewarfortalent

ArcadisSevenStepModel

-theroutetosuccess

Conclusion

Methodology

Furtherreading

Contactus

FOREWORD

ItismypleasuretointroducetheArcadisIndustrialCapitalExpenditureSurvey2017-Investingandbuildinginchangingmanufacturingmarkets.

WithIndustry4.0advancingasacatalystforchangefortoday’smanufacturingindustry,changesinthisalreadydynamicandfastmovingenvironmentareexpectedtobemoreextensiveandrapidthaneverbefore.

Thiscomesatatimewhenglobalmanufacturersarealreadyworkinghardtokeeppacewithfastchangingconsumerdemands,duetoglobalsocioeconomicfactors,suchasglobalization,populationgrowthandemergingmarketdynamics,tonamebutafew.

Whetheritbechangesinthelaborforce,newtechnologyandsystems,digitization,orrobotics,theneedtoincreaseefficiencyandreducecosts,whileimprovingspeedofgettingproductstomarket,isofparamountimportance.

Despitelimitedcapital,manufacturersmustinvestinbuildingandupgradingbuiltassetsandfacilitiestomeetchangingdemands.Andwiththenewspeedofbusinessanalyticsandinsightintorespondingto

market,thesefacilitiesareexpectedtobebuiltquicker,withmoreflexibility,andatlesscost.

Atthesametime,Industry4.0continuesatpace,inwhichend-to-endmanufacturingvaluechainsarebecomingseamlesslyconnected,underpinnedbyfurtherdigitization,technicaladvancesinbigdataanddataanalytics,theInternetofThings,robotics,artificialintelligenceanddrivenbytheexponentialgrowthofcomputationalpowerandavailableinformation.Wearewitnessingtheworldmovingtowardsmoreon-demandprocesses,enabledbytechnologiessuchasadditivemanufacturingandrealtimebigdataprocessing.

Thisallrequires‘SmartAssets’,thatnotonlysupportanddrive,butalsoeffectivelyimprovebusinessperformance.

Flexibilityandresilienceinbuiltassetportfoliosandoverallvaluechainsarekey,asistheneedtoensureresponsibleuseofnaturalresourcesandsafeandsustainableoperationofassets,inlinewithcorporatebrandvalues.

Thishasafundamentalimpactonthewaymanufacturersdesign,create,operateandeventuallyre-purposetheirbuiltassetportfolios,whetheritbethemanufacturingplant,theResearchandDevelopmentcentre,ortheinfrastructurethatsupportsit.

Reachingouttoover70leadingindustryexpertsinmanufacturingacrosstheworld,ourreportprovidesinsightintothelatesttrendsinbuiltassetcapitalprojectandprogramdeliveryacrosstheindustrialmanufacturingsectors.Itassessescompaniesand

sectorstoseehowreadytheyperceivethemselvestobetorespondtotoday’schallengesbroughtbyIndustry

4.0.Italsoprovidesaseven-steproutetosuccessformanufacturerstoimprovetheircapitaldeliveryandgainacompetitiveadvantage.

Ourfindingspresentanoverallpictureofpragmaticoptimism,withmanufacturersconfidentinthevaluetheircapitalinvestmentsinbuiltassetsbringtotheirwiderbusiness.However,withconstraintsonavailablefundsrankingasthetopchallengetocapitalprojects,itiscrucialthatcompanieslearnfrompeersandtakebestpracticefromothersectors,tomeettheaffordabilitychallengeandmaximizethevalueofbuiltassetsdelivered,inthemidstofatransformingsupplychain.

Ihopeyoufindthereportasinformativeandengagingasourexperiencewasinproducingit.Amidstthecurrent,rapidchangesinthemanufacturingindustries,itisgreattoseehowweallcanlearnfromourviewsonthechallengesathand,notingsimilaritiesanddifferencesfromvariousperspectives.Iwouldliketothanktheindustryleaderswhosharedtheirinsightsandcontributedtothisresearch,andIpsosMORIfortheirinsightfulresearchprogram.

TjerkvanderMeer

GlobalSectorLeader

Industrials,Conglomerates&ConsumerGoods

“IpsoswasdelightedtoworkwithArcadistoconductapioneeringexplorationofthetrendsincapitalplanninganddeliveryinindustrialmanufacturingmarkets.Aspartofacross-sector,globalexplorationoftheseimportantissues,wespokewithsenior

executivesfromworld-leadingmanufacturersfacingtheimperativeofspendingsignificantcapitalbudgetsinaworldofshortening

timehorizonsandongoingtechnologydisruption.ThisapproachhasenabledArcadistoprovideadetailedpictureofthebehaviorsandattitudesofadiversemixofcompanies,identifyingcommonthemes,trendsandbenchmarks,asmanufacturersseektomeetthecommercialandoperationalpressuresinarapidlychangingmarket.”

EXECUTIVESUMMARY

Inarevolutionizingindustriallandscape,itisevidentthatmanymanufacturersarelookingtoembedtheirbuiltassetcapitalprogramsintotheircorevaluechainofdeliveringproducttomarket.

Workingwithworldleadingcompaniesacrossawiderangeofindustrialsectors,Arcadisisina

uniquepositiontoshareourrecordofbestpracticemethodologies.

Inthisreport,wepoolthatknowledgetoprovideinsightintohowtheindustrialsectors,asawhole,areplanninganddeliveringbuiltassetsaroundthischanginglandscape-andhowindividualcompaniesareperforminginthecontextoftheirpeers.

PartneringwithIpsosMORI,thisnewresearchshareshowbuiltassetcapitalprogramsarebeingplanned,deliveredandmanagedacrosstheindustrialmanufacturingsectors.

Ourfindingsdepictapositiveoutlookacrosstheindustrialsectors,inwhichcapitalprogramsareclearlyviewedassignificantdriversofvalueforbusinesses

asawhole.

Highlightingwhichsectorsareadoptingbestpractice,thereportrevealssevenkeythemesandtrends,whichbest-in-classmanufacturersmustnavigatetobebetterabletodelivertofuturemarketdemand:

Asummaryofthesevenkeythemesandtrends:1Betterreturnsandimprovedspeedtomarket:

Ahealthy88%ofcompaniesareconfidentthat

theycandemonstratethevaluethattheircapitalinvestmentprojectsbringtothewiderbusiness.However,onlyoneinfourcompaniesadoptbestpracticeandbenchmarkagainstpeersandonlyoneinfivebenchmarkcross-sector.Thisraisesthequestionofwhetherthereisopportunityto

improveconfidenceincompetitiveperformancebyconductingbenchmarkingbothwithintheirindustryandinothersectors.

Flexibilityandagility:Withincreasedflexiblemanufacturingrequiringagilefacilities,amere52%ofcompaniesbelievethattheirportfoliooffacilitiesisflexibleenoughtomeetthechallengesfacingtheirbusiness.Thisisdespite60%ofcompanieshavingamulti-yearinvestmentplaninplace,whichwaspositivelylinkedtohigherconfidenceintheflexibilityofassets.Thislackofflexibilitysuggestsafundamentalriskfortheindustryinbothremainingcompetitiveandgettingproducttomarketontime.

Sustainabilityincapitalprograms:Sixintenglobalcompaniesratedreducingenvironmentalfootprintassignificantinhowtheyapproachmajorcapitalinvestmentprojects.Meanwhile,allcompaniesinthechemicalssectorratedthisassignificant,likelyduetoamixofregulatoryandsocietalpressures.Weexpect

toseethisdemandincreaseasglobalenvironmentalstandardsareapplied.

Supplierintegrationandcommunication:Themajorityofcompaniestakeorarelookingtotakeanintegrated,enterprise-wideapproachtomanagingsupplierrelationships.However,manycompaniesdonotfullycommunicateandengagewiththeirsuppliers;only57%reportedthattheysharedtheir

projectgoalswithsuppliersandlessthanhalfsharedtheirwiderbusinessgoals.Thismaylinktooneinthreecompaniesreportingasignificantdispute

withasupplierinthelasttwoyears.Enhancedcommunicationandobjectivesharingwillhelpavoiddisputesandprojectfailures,andensureabetterintegratedvaluechainthatisorientedtowardstheendcustomer.

Internalstakeholderengagement:Onlyaroundhalfofcompaniesbelievethattheyaregoodatengagingtheirinternalstakeholdersoncapitalinvestmentprograms.Bettercollaborationandcommunicationwasidentifiedasthemostsignificantfactortoimprovestakeholderengagementandthesuccessfuloutcomeofprojects

Centralization:62%ofindustrialmanufacturingcompaniesmakedecisionsaboutcapitalinvestmentprojectscentrally,and89%ofcompanieshaveacentral,enterprise-wideinvestmentboard.Theheavyindustrialssectorleadsthewayinthistrend,withallrespondentsfromthissectorreportingthatthesedecisionsaremadecentrally.

Thewarfortalent:Overhalfofcompaniessayrecruitingandretainingtherightpeopletoplananddelivercapitalinvestmentprogramsisdifficultand42%ofcompaniesreportthishasbecomemoredifficultoverthelasttwoyears.Whileworkingcloselywithuniversitieswillimprovethis,itisonlyasmallpartofthesolutionandcompaniesarelookingtodifferentavenuestoattractandup-skilltalent.

Inthisreportweexaminethesetrendsandwhattheymeanformanufacturers’end-goalsofgettingtheirproductstomarketandinnovatingcutting-edgeproductlines.Wegoontodiscusssevenpracticalstepsthatcompaniescantaketopro-activelyrespondtothesetrends,usinginsightfromourexpertswhoregularlypartnerwithhighperformingorganizationsandtakeslearningsfromacrosssectors.

7

THEWAR

1

BETTERRETURNSAND

FORTALENT

6

IMPROVEDSPEEDTOMARKET

2

CENTRALIZATION

SEVENKEYTHEMES

FLEXIBILITYANDAGILITY

3

5

INTERNALSTAKEHOLDERENGAGEMENT

SUPPLIERINTEGRATIONANDCOMMUNICATION

4

SUSTAINABILITYINCAPITALPROGRAMS

RESEARCHOVERVIEW

INTRODUCTIONTOTHERESEARCH

Weinterviewed73executivesatindustrialmanufacturingcompaniesfromacrosstheglobe,allwitharesponsibilityformanagingtheircompany’scapitaldeliveryprograms.Together,therespondentsrepresentleadingmanufacturingcompaniesgeneratingoverUS$300billioninrevenueseachyear,spanning

theautomotive,pharmaceutical,chemical,buildingandmetal,heavyindustrial,fastmovingconsumergoods(FMCG-includingfoodandbeverage)electrical,engineeringandgeneralmanufacturingsectors.

TheinterviewswereconductedbyIpsosMORIin2016,andfocusedonkeyaspectsincapitaldeliverytoidentifyhowcompaniesmanageandoptimizetheircapitalexpenditure(CapEx)programsandthechallengestheyarefacinginrespondingtomarketandbusinessdisruptors.

AccordingtoUNIDO,globalmanufacturingoutputwasexpectedtoincreaseby2.8%in2016.Manufacturingproductionwaslikelytoriseby1.3%inindustrializedcountriesandby4.7%indevelopingeconomies.

Atthesametime,globalCapExhasbeenstrugglingtomakeheadwayoverthepastcoupleofyears.Globalnon-financialCapExspendingtotaled$2,702billionin2015andisforecasttodropto$2,541billionin2017.

Withmanufacturingincreasingbutinvestmentfalling,agapisbeingcreatedthat,ifnotaddressed,willresultinmanufacturersnotbeingabletomeetdemand.Thisgapwillonlywidenifthistrendcontinuesresultinginhugemissedopportunities.

ThisalreadychallengingCapExenvironmentsitsagainstabackdropofkeyindustrydriversthatareinfluencinghowindustrialmanufacturingcompaniesplanandconstructtheirfacilities:digitalization,automationandtechnologyadvancement,formingIndustry4.0,globalization,consolidationandawarfortalent.

Itisevidentthatmanycompaniesarealreadyrespondingtothesechallenges.Yettherearefewsourcesofinsightintohowtheindustrialsectors,asawhole,arerespondingandhowindividualcompaniesareperformingincontextoftheirpeers.Ourresearchaddressedthisbyprovidinguniqueinsightintohowtheeachindustrialsectorisresponding,andmakesoverarchingcomparisonsbetweensectors,indicatingwherecompaniescanlearnfromboththeirpeersandothersectors.

Figure1:Globalnon-financialCapEx(2003–2017F)

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

+25.0

+20.0

+15.0

+10.0

+5.0

0.0

-5.0

-10.0

0

2003

2004

200520062007200820092010

2011201220132014

2015

20162017

-15.0

CapitalExpenditure(US$BN) CapitalExpenditureGrowth(YOY%)

Source:S&PGlobalMarketIntelligence,S&PGlobalRatings.

Note:Figuresareroundedtothenearestwholenumber

1

/news/press/global-manufacturing.html

INDUSTRYOUTLOOK

Inthemidstofarevolution,industrialmanufacturingexecutivesarepositiveabouttheoverallfutureoftheirindustry:morethanone-third(36%)believethattheirsectorwillimproveoverthenextyear,andoverhalf(51%)saythattheirsectorwillremainthesame(seeFigure2).Theseareencouragingsignsfollowingthelow-growthyearsinthewakeoftheglobalfinancialcrisisandarecentdownturninCapExspending,ledinalargepartbynormalizationafterthecommoditiesboom.

Despitethisgeneraloptimism,executivesretainadegreeofcautionwhenitcomestomanagingtheircapitalinvestmentprojects.Thelargestchallenge,accordingtomorethanone-quarteroftheinterviewedexecutivesisthelackofavailableinvestmentorfinance.Andoneinfivealsoreportedthattalentrecruitmentisakeychallenge(seeTable1).

OntopofjugglingthesedaytodaychallengesofCapEx,companiesarestartingtothinkaboutthefutureandtheimpactnewtechnologyandsocio-economicfactorswillhaveontheircapitalinvestmentstoremaincompetitive.

Table1:Thetopfivechallengesinmanagingcapitalinvestmentprojects

CHALLENGE

%OFRESPONDENTS

1

Availabilityoffinance

27%

2

Lackofavailabletalent

21%

3

Increasingproductioncosts

15%

4

Demonstratingreturnoninvestment

12%

5

Qualityofservice/product

10%

"Thekeychallengesforusaretograsptheindustrytrendintime,theemergenceanduseof

ofhigh-endtechnologyandthelackofhigh-endtalent."

Automotive,China

Figure2:Overall,doyouthinktheoutlookforyoursectorwillimprove,staythesameorgetworseoverthenext12months?

"Thebiggestchallengeistogeneratecashtoinvest

%ofrespondents

persector

Automotive:80

Building&Metals:59

Chemical:56

Engineering:33

FMCG:60

HeavyIndustrials:67

Manufacturing:40

Pharmaceutical:43

51%

10%

OverallrespondentsImprove

Staythesame

GetworseDon’tknow

3%

36%

%ofrespondentspersector

Automotive:0Building&Metals:41Chemical:22

Engineering:50

FMCG:20

HeavyIndustrials:0

Manufacturing:50

Pharmaceutical:29

becausethemarketissluggish."

Building&Metals,France

Note:Figuresareroundedtothenearestwholenumber

SEVENKEYTHEMESANDTRENDS

BETTERRETURNSANDIMPROVEDSPEEDTOMARKET

Unsurprisingly,80%ofrespondentssaythatreturnoninvestment(ROI)isasignificantfactorinhowthey

approachcapitalprojectsand‘profitability’isthemostcommonlyusedperformancemetric,accordingto62%ofexecutives.

Aresounding88%ofparticipantssaytheyareconfidentthattheycandemonstratethevaluethatcapitalinvestmentprojectsbringtotheirwiderbusiness.ThisconfidenceextendstotheperformanceoftheirassetportfolioinROI,which66%rateas‘good’or‘verygood’(seeFigure3),ledbythechemicalssector,inwhichacompelling89%ofcompaniesreportedtheROIoftheirbuiltassetportfolioas‘good’or‘verygood’.

However,nocompaniesintheheavyindustrialssectorratedtheirROIperformanceas‘good’,andanoteworthy33%ofrespondentsinthissectorwereunsureoftheROIperformanceoftheirbuiltassetportfolios.Thismaybeattributedtohighcapitalintensity,combinedwiththemajorinfluenceofcommodityprices.Therefore,balancingtheirROIwiththeirorderprocessingshouldbekey.Theuncertainty

revealedinourresearchcouldhighlightaneedfortheiroperatingteamstobetterreportorcommunicateperformancebacktothecapitalprogramteamsin

thissector.

Whenitcomestospeedtomarket,companiesaremarginallylessconfident,with62%ratingtheirassetportfolioperformanceas‘good’.Performancewasparticularlylowinthepharmaceuticalsector,whereamere29%ofcompaniesratedtheirspeedtomarketas‘good’andnearlyhalfwereunsureoftheirperformanceinthis.Thisfindingisexpectedgiventhelaser-sharpfocusofpharmaceuticalcompaniesonspeedtomarketfollowingpatentapproval,anditispossiblethatthesuccesscriteriaforperformanceisevenhigherthaninotherindustrysectors.Whatthisdoespointto,isthatanenhancedabilitytobenchmarkperformanceinthisareawouldbebeneficialinthismarket,andhereinparticular,assetperformance,flexibilityandagility

iskey.

Similarly,beingfirsttomarketiskeyfortheFMCGsector,inwhichcompaniesusemarketresearchdatatoidentifyconsumerdemandandreachidentifiedmarketsaheadofcompetition.Oppositetothepharmaceuticalsector,companiesintheFMCGsectorareperforming

Figure3:Thinkingaboutyourportfolioofproduction,distributionandotherfacilities,howwouldyourateyourcurrentperformanceoneachofthefollowing?

OVERALL-Returnoninvestment:

5% 4% 25%

AUTOMOTIVE BUILDING&METALS CHEMICALS ENGINEERING

OVERALL-Speedtomarket:

7% 10%

22%

AUTOMOTIVE BUILDING&METALS CHEMICALS ENGINEERING

wellatthis,with80%ofcompaniesratingtheirspeedtomarketas‘good’or‘verygood’.

Withthevaryingconfidenceinperformanceacrosssectors,howcompaniesandsectorsmonitortheirassetandcapitalprogramperformanceisvital.Nearlythree-quarters(70%)ofmanufacturingcompaniessaytheyhaverobustmeansofmeasuringthefinancialbenefitsoftheirspendingoncapitalinvestmentprojects.

Successinthisareaincludesbothhavinganeffectivemeansofcapturingperformance,andapragmaticwayofmonetizingthebenefitsthatthoseprogramsdeliver.

Yet,whileahealthy61%ofcompaniessaytheyidentifylessonslearnedfromcompletedprojects,just54%sharethoselessonsacrossthebusiness.Thisfailuretosharelessonslimitstheopportunitytofind

improvementsforfuturecapitalprojects.Consequently,businessesmayloseoutoncostsavingsorimprovedsuccessoffuturecapitalprojects,deteriorating

thebusinesscaseforfutureinvestment.Utilizingbenchmarkingdatafromcapitalinvestmentprojects,acrossbothownandsectorprograms,cangreatlyimprovebothcostsavingsandspeedof

build.TheobviousresultisafasterandbetterROIasproductscanbeproducedanddeliveredtomarketquicker.

Furthermore,whiletwointhreecompaniesheldcentraland/orbusinessunit-levelbenchmarksontheircapitalinvestmentregisters,onlyone-quarterofrespondents’

registersbenchmarkagainstothercompaniesintheirsectorandonlyoneinfivebenchmarkagainstcompaniesinothersectors.Withoutbenchmarkingagainstindustrystandards,companiesmaynotbecertainthattheirperformanceisascompetitiveasitshoulditbeandareunawareofwhatbestpracticelookslikeinthehighestperformingsectors.

ThelocationassetsarebuiltinisalsoakeyfactorforROI.Understandingwherefacilitiesarelocatedgloballycanhelpinformcompaniesintheirdecisions;isitbettertomanufactureoutsideofthechosenmarketandship,orisitbettertolocateproductionlocally?

Howthesedecisionsaremadeobviouslydifferspersector,theautomotive,heavyindustrialandaerospacesectors,forexample,donotnecessarilyneedtobewithintheirconsumermarketandthus

canmanufacturewhereinputresourcesarelocated,orinlower-costterritories,andship.WhereasforpharmaceuticalorFMCGcompaniesitisessentialtohavetheend-productonthegroundandwith

consumersfast,tolowerlogisticscostsandenhancespeedtomarket.

Thisisparticularlyessentialforthefoodandbeveragesector,duetotheperishablenatureoftheirproducts.Withthedynamicandfundamentalchangesinmanufacturingasawhole,continualreviewandimprovementsintheseeffortscannotbeunderestimated.

"Theaccomplishmentofourpurposeis[themost

significantrisktocapitalprograms];thereturnoninvestmentmustbesuccessful.”

Automotive,Germany

Don'tknow

Neithergoodnorpoor

Fairlypoor

Fairlygood

Verygood

“Themostimportantchallengestocapitalprogramsaretoreduce

49% 16%

securityrisks,reducecostsandincreasespeedofproject

implementation.”

Chemicals,Belgium

FMCG HEAVYINDUSTRIALS MANUFACTURING PHARMACEUTICAL

42% 19%

FMCG HEAVYINDUSTRIALS MANUFACTURING PHARMACEUTICAL

Note:Figuresareroundedtothenearestwholenumber

FLEXIBILITYANDAGILITY

Chemicalssectoraheadinflexibility

Theriseofflexiblemanufacturinghasputpressureonbuiltassetstobeagiletoaccommodateproductionofvariousproducts,orsmall-batchproducts,suchasinthebiopharmaandspecialtychemicalssectors.

Ourfindingsshowthatcompaniesinthechemicalssectorperceivethemselvestobemorereadytoadapttochangethancompaniesinothersectors.78%ofrespondentsinthechemicalssectorsaythattheircurrentportfolioofproduction,distributionandotherfacilitiesisflexibleenoughtomeetthechallengesfacingtheirbusiness,comparedwith52%

acrossallsectors(seeFigure4).Thismaybebecause,thoughchemicalcompaniesoftentakecentraloveralldecisions,itisnotuncommoninthissectorforindividualsitestocompeteforinvestmentfromthecenter.Therefore,thereisaneedforflexibilitytobeabletoswitchproductlinestosecureboardapprovalforfundingandshowlowercostsingettingproducttomarket.Thisisunlikesectorssuchasautomotive,wherecompaniesaremorelikelytohaveaglobalmanufacturingstrategy,whichallowsthemtoshiftproductlinesaroundtheworld.

Thisflexibilityanddifferenceinapproachcan,however,impactcapacity.Somesectorshaveatendencytooperateforovercapacity,whilstotherssufferfrom

notbeingabletoproducesufficientproductsquicklyenough.Havingafacilitythatcanadapttochangesinproductlinesorhousemorethanoneproductresultsincostsavingsandmoresustainablereturns.Whenpartnering,particularlywithautomotivecompanies,weseehowflexibletheyhavemadetheirfacilitiestohelpthemtacklemarketdemandshiftsandthereismuchthatcanbelearntfromthissectorbyothers.

Given60%ofrespondentssaythattheyhaveamulti-yearinvestmentplaninplace,itisconcerningthat52%arelackingconfidencethattheirbuiltassetportfoliosareflexibleenoughtomeetthechallengesfacingtheirbusiness.Thisraisesthequestionofwhethertheir

long-terminvestmentplansproperlytranslate-orareboughtinto-byrealestateandproductionteams.Onereasoncouldbethatorganizationsfacecomplexchoicesastowhethertoinvestinlegacyassets,bringinginmoderntechnologytoachieveflexibilityorbuildanewassetthatisimmediatelyfitforpurpose,

whichcangeneratedifferentandsometimesopposingviews.Whatisclear,isthatgreaterconnectivitybetweentherealestateandplantandproductionteamsandstrategyandcorporatefunctionsisessential,andweareseeingthatsuccessfulorganizationstreatbuiltassetsasastrategicdriverforgrowth,ratherthanjustanessentialoverhead.

Lowerlevelsofconfidenceintheflexibilityofbuiltassetsisalsolinkedtothecurrentpaceofchangeanddisruption.Changeisseenonthehorizonandrecognizedbycompanies,however,investmenttorespondtochangeisoftennotavailableyet.Forexample,thepharmaceuticalsectorisanticipatingashiftfromtraditionaltobiopharmadrugs.Whiletheyknowthischangeiscomingandthereforerecognizethatanynewfacilitiesneedtobeflexibleenoughto

Figure4:Doyouagreeordisagreethatyourcurrentportfolioofproduction,distributionandotherfacilitiesisflexibleenoughtomeetthechallengesfacingyourbusiness?

%ofrespondents

persector

%ofrespondentspersector

Automotive:60

Building&Metals:59

Chemical:78

Engineering:33

FMCG:60

HeavyIndustrials:33

Manufacturing:55

Pharmaceutical:0

Overallrespondents

AgreeDisagree

52%

nordisagree

Don’tknow

Neitheragree

30%

Automotive:20Building&Metals:18Chemical:22

Engineering:33

FMCG:40

HeavyIndustrials:33

Manufacturing:35

Pharmaceutical:57

16%

1%

Note:Figuresareroundedtothenearestwholenumber

accommodatefuturechange,thefundingmaynotyetbeavailabletodeliverthis.Thiscouldlinktowhynopharmaceuticalcompaniesagreedthattheirportfolioisflexibleenough.

Additionally,intechmanufacturing,theriseofadditivemanufacturingisnotonlychangingproductionmethodsbutalsoplaysamajorroleintherequirementforflexibilityandagility.

TheapproachtoprioritizationoftheavailableCapExiskeyandwehaveseenthatwhenthisisconsistentlyappliedthelocalCapExteamsimprovebothplanningandbusinesscaseperformance.

While80%ofcompaniessaythattheirassetlongevityperformanceis‘fairlygood’or‘verygood’,lessthanaquarter(22%)ofcompaniesdeploya‘lifetimeusage’oftheassetasaperformancemetricforcapitalinvestmentprojects.Consequently,nearlyoneinfivecompanieshaveexperiencedanearlyredundancyofanasset.Thisfiguremorethandoubledto40%fortheautomotivesector,likelyduetothestringentandchangingdesignstandardsinthissector.Meanwhile,only7%ofcompaniesinbuildingsandmetalssectorhadanearlyredundancyofasset,likelyduetogreaterconsistencyandcertaintyinend-product,andlessshort-termvolatilityindemand.

Companies-particularlyintheautomotivesector-couldbenefitfromfactoringflexibilityofdesignandlongevitymetricsintotheircapitalprojectsandbuiltassetplanning,andavoidcostlyredundanciesorrepurposingofassets.

SUSTAINABILITYINCAPITALPROGRAMS

Reducingenvironmentalimpactissignificantindetermininghowindustrialmanufacturingcompaniesapproachmajorcapitalinvestmentprojects,accordingtosixintenofourrespondents(seeFigure5).

Unsurprisingly,thiswassignificantforallcompaniesinthechemicalssector,likelyduetoconsumer-facingsectorsbeingmoreexposedtoregulatoryandsocietalpressures.Bycontrast,lessthanhalfof

intervieweesfromthebuildingsandmetalsandgeneralmanufacturingsectorsratedthisassignificant.

Yetforall