Industrial Technology: The Next Transformative Sector for Emerging Talent
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Industrial Technology: The Next Transformative Sector for Emerging Talent

The 70’s had “plastics,” the 80’s and 90’s had finance, and ever since tech and software have won the war for talent; as the manufacturing sector embraces transformation, industrial technology is beckoning the next generation of inventors and hackers.

Industry 4.0 – commonly referred to as the fourth industrial revolution – refers to the current trend of automation and data exchange in manufacturing technologies. The goal of Industry 4.0 is the creation of “smart factories” that utilize cyber-physical systems, the Internet of things, cloud computing and cognitive computing.

SOURCE: Getty Images

This is not your father’s manufacturing sector or even the same industry in which the Greatest Generation took so much pride.

Driven by rapid advances in technology, a revolution is taking hold in the U.S. manufacturing sector that is recasting the way business leaders think about how, where, and even when products are made. When one considers the possibilities of on-demand manufacturing, enabled by IoT and machine learning technology, advanced robotics, and exponential advances in materials science, Industry 4.0 is rapidly migrating toward its next phase. The convergence between digital technology, engineering capabilities and the utilization of raw materials won’t only help define the Industry 5.0 era, it will also push us to reimagine most other fields, from construction and retail to technology and medical devices.

The component parts of Industry 4.0 are here, but far from being fully realized within the whole of the sector. That will soon change.

Among the biggest impediments standing in the way, however, has been a shortage of talent with the right DNA (think, scrappy, intellectually curious, and persevering). For some, it may seem to be a contrarian career path. But as technological advances combine with a budding appreciation that manufacturing is a “strategic” industry that underpins the country’s economic security, the stage is being set for exponential growth in domestic manufacturing. As such, there may be no better moment to take the first steps on the industrial technology executive track.

From the Rust Belt to the Industrial Internet
U.S. manufacturing already was undergoing a transformation prior to the pandemic, and the focus on the sector has only intensified as policymakers recognize the public benefits of robust and more independent domestic manufacturing. The supply chain crisis exposed our overdependence on overseas manufacturing while also raising fresh questions about the cost-benefits of offshoring. Are overseas manufacturing partnerships really worth the geopolitical risks now exacerbating already acute supply chain challenges? Do the all-in “landed” costs of imported products represent a significant cost benefit? And when looking through an ESG framework that will make the cost of capital more expensive for operators in many developing economies, is it only a matter of time before the lower cost of labor is unable to offset the higher costs of managing a global supply chain?

Despite the recent onshoring, re-shoring, and near-shoring momentum, and there is indeed considerable momentum in these initiatives, American manufacturing still faces many challenges. The country’s capacity to adopt new technologies will determine its competitiveness. In short, the component parts of Industry 4.0 are here, but far from being fully realized within the whole of the sector. That will soon change.

Clearly, significant investment is needed. One of the recommendations of the Reagan Institute’s recent report on the state of American manufacturing is funding for wide-scale modernization, up to $100 billion per year from public and private sources, to accelerate adoption of Industry 4.0 technologies and the efficiencies and competitiveness they bring. As automation and advanced robotics lower the cost curve in developed markets, rapid change is coming whether the incumbents like it or not.

The good news is that this is one of the few issues attracting bi-partisan support. The new Chips and Science Act, signed into law in the first week of August, marks the urgency in Washington to stimulate semiconductor manufacturing in the U.S. and incentivize research in other fields. Among the highlights, the legislation earmarks $54 billion in grants for semiconductor manufacturing and 5G deployment, which should further spur IoT development. Moreover, the bill included a 25% tax credit for new semiconductor manufacturing facilities, and billions more channeled into the National Science Foundation, the Commerce Department, the National Institute of Standards and Technology, and the Energy Department. This capital is expected to enhance research efforts in these areas.

3D printing, also known as additive manufacturing, is a method of creating a three-dimensional object layer-by-layer using a computer-created design. 3D printers use a variety of materials including thermoplastics, metals (including powders), resins and ceramics. [Source: Getty Images]
Still, one of the key drivers of the manufacturing revolution is the innovation already taking place. Additive manufacturing or 3D printing, for instance, exemplifies the advances that make manufacturing so attractive to new candidates. For job seekers entering tech because they want to create something new or scratch an entrepreneurial itch, 3D printing is creating mind-bending possibilities that will seem even more innovative and groundbreaking in the very near future. The technology can make bones, skin, and other body parts “on demand” and grabs the imagination for good reason.

Fathom Digital Manufacturing, for instance, represents the direction industrial manufacturing is heading. One of our portfolio companies that went public late last year, Fathom is one of the largest on-demand manufacturing platforms in the country with 12 sites across the U.S. In many cases, it can turn around high-precision prototyping and complex manufacturing in as little as a day, something unimaginable 10 years ago. A combination of factors, especially advances in materials science, is driving adoption and quality, and we believe we’re only in the early stages of the innovations emerging from these types of industrial technology.

Industrial technology will undergird the reawakening of our manufacturing sector, and through it, promises to deliver meaningful impact for the broader economy.

Less sensational but equally important, industrial technology advances are also having a profound impact on traditional manufacturing functions, combining speed, flexibility, and efficiency that will be critical as the sector reinvents itself as a more agile, higher-quality alternative to offshoring. Moreover, the promise of this transformation is attracting capital that is now going to the most efficient and attractive operators, whose value propositions are tied directly to the Industry 4.0 trends.

CGI Manufacturing, for instance, is a $500+ million manufacturer with over 2,000 employees of complex fabricated sheet metal, plastic injection molded and machined production parts, assemblies, and weldments. On its face, CGI may not seem like a company at the forefront of innovation. But in addition to its activity and investments in cloud computing and cybersecurity, CGI is at the cutting edge of automation, utilizing these technologies to bring precision and efficiencies to material handling, multi-axis back gauging systems, sheet lifting capabilities, and robotic cells. The company also serves innovative customers in industries most essential for the world today.

[Source: CGI Manufacturing]
Under CORE’s leadership, CGI has completed seven add-on acquisitions in less than a year, the most recent being the July purchase of Tenere, a provider of custom mechanical solutions to the information and communications technology (ICT) and renewable energy industries. Tenere’s customers are some of the most prominent innovators changing the definition of critical infrastructure. It’s still bridges and roads, but also fiber and 5G expansion, bringing faster internet to cities and rural communities while creating the necessary foundation for IoT technologies and autonomous transportation. Cloud and edge computing provide the data backbone required for processing and storage, and in an ideal world, renewable energy powers the entire operation.

Innovation in the 21st century is about the details. For example, technology and telecom sectors are pressed for space in enclosures from splice boxes for fiber and 5G, to data center enclosures and racks. Manufacturers can meet the stringent tolerance requirements of essential industries by using robotic operators, automatic tool changers, material handling systems, and other automated processes. In addition, a sophisticated centralized data and analytics warehouse on the backend provides insight and transparency on machine efficiency, utilization, productivity, quality, OTD, and safety. These investments enhance manufacturers’ ability to make more informed business decisions and grow with their customers.

From the perspective of talent considering a career path, the transformation across the sector is occurring rapidly. This creates an optimal entry point, particularly as other areas of the economy, such as tech and software, begin to retrench as funding dries up.

What some top talent finds in industrial technology
The promise of industrial technology tends to draw a distinctive individual with a diverse set of talents. It’s not for everybody, yet for those who appreciate the manufacturing ethos and want to join a field that is digital, mechanical, and gritty, all at once, it can provide both the purpose and rewards that are becoming harder to find in other areas of the economy.

The allure of Wall Street and Silicon Valley will certainly continue, and parents will always push their high-achieving children to become doctors, but we believe no story will be as uniquely compelling to emerging talent as industrial technology over the next 10 to 20 years. Industrial technology will undergird the reawakening of our manufacturing sector, and through it, promises to deliver meaningful impact for the broader economy. A re-established U.S. manufacturing industry would serve as the economic backbone of the country and revitalize key regions across the rust belt, from Chicago to Altoona, Pennsylvania to Texas and further Southwest.

Dynamic advances in industrial technology are beginning to flourish just in time to provide at least a partial answer to U.S global economic vulnerability. The revolution may leave some behind and will inevitability drive change across the sector. For those willing to join the revolution, the new era of industrial technology promises to be the opportunity of a lifetime.

About the Author
John May is the founder and managing partner of CORE and is responsible for overseeing all activities of the firm including investment sourcing and valuation, transaction structuring, the securing of acquisition financing, fundraising, and all administrative activities. Before founding CORE, he spent the past 18 years working on transactions with several private equity sponsors principally with The Blackstone Group and H.I.G. Capital. He serves on the boards of all CORE portfolio companies.

Chicago-based CORE makes control equity investments of up to $100 million in North America-based companies that have revenues of up to $200 million and EBITDA of up to $20 million. Sectors of interest include a range of specialty verticals within the manufacturing and industrial technology sectors.

© 2022 Private Equity Professional | September 22, 2022

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