By Maggie Slowik and Andrew Burton, Global Industry Directors, Manufacturing, IFS
The global manufacturing industry is at a pivotal juncture going into 2025. Rapid technological advancements, climate change, and intensifying cybersecurity threats demand urgent, strategic solutions.
While many manufacturers recognize the transformative potential of technologies like Industrial AI, decision paralysis and reluctance to disrupt existing systems are holding many back. Manufacturers face a variety of pressures in a rapidly shifting landscape.
In a study* of manufacturers from around the world, IFS found the top three challenges were technological advancements, cybersecurity threats, and climate change. These issues pose substantial risks, from operational disruptions caused by cyberattacks to supply chain vulnerabilities exacerbated by climate events like floods and droughts.
Cybersecurity threats rank as a top concern for over a quarter of manufacturers, and for good reason. Interconnected systems and reliance on digital tools increase vulnerability to attacks. Companies are investing in secure technologies like cloud computing, which most manufacturing executives are prioritizing as the cornerstone of their digital transformation efforts.
The other major challenge is how much climate change poses as an existential risk to certain industries. For example, food and beverage manufacturers face challenges as traditional crop-growing methods become less viable. To combat these risks, manufacturers are prioritizing operational resilience and investing in entering new markets to diversify and reduce dependencies.
The pace of technological change has left two thirds of manufacturers categorized as digital laggards, reliant on outdated tools and processes. Yet, most executives believe that their companies would not survive more than three years without investing in new technologies. Where to start remains an issue for most manufacturers. Indecision has meant progress has been slow. We call this “option paralysis”, where everything is important and nothing is important. But change is coming. In 2025, we will see manufacturers make strategic technology decisions and start to move forward at pace. In this article, we outline our predictions for 2025.
Prediction 1) The Role of Industrial AI in Driving Transformation
While AI has been around for a few years, adoption has been slower than expected. Barriers including poor data quality, unclear benefits, and regulatory compliance concerns have held manufacturers back from embracing it. However, for companies that have overcome these obstacles, the benefits have been profound. Manufacturers that are pioneering the way forward by embracing Industrial AI gain real, tangible business improvements and competitive advantage.
Manufacturers report that Industrial AI delivers significant improvements across production optimization, energy management, predictive maintenance, demand planning, customer service, and product design. Early use cases have found manufacturers driving a 50% boost in agility, a 44% rise in operational efficiency, and enhanced data-driven decision-making.
An IFS industrial manufacturing customers recently said: “AI and robotics can significantly expedite product development by shortening design iteration time, reducing prototyping efforts, and improving safety science. This allows manufacturers to bring products to market faster and stay competitive.”
While early adopters are pulling away from those that are yet to fully embrace AI, we expect to see by 2030 AI fully integrated into core manufacturing systems like ERP platforms and IoT devices, driving efficiency at every level. Starting in 2025, manufacturers must define the value of AI for their organizations and accept that risk is inherent in innovation. Risk has not always been easy for manufacturers, but to remain competitive, they must become less risk averse.
Prediction 2) GenAI Reshaping the Workforce
While Industrial AI is embedding AI into business processes, data and applications, we are also seeing GenAI revolutionize the manufacturing workforce by automating routine tasks and augmenting human capabilities. For example, Gen AI-powered systems transform shopfloor workers by providing them access to data in a way they never had before, leading to quicker decision-making and more efficient operations. Consequently, we expect that over the next three years, GenAI will create a hybrid workforce enabling employees to focus on creativity, problem-solving, and strategic oversight.
This will transform talent management. We know that talent retention remains a critical challenge, with a third of C-suite executives citing it as a top concern. We are also the cusp of the Silver Tsunami, where 20% of the workforce retires, leaving a huge skills gap. Couple this with the fact a large proportion of manufacturers report difficulty finding workers with the necessary expertise, particularly as advanced technologies like AI require specialized knowledge, then new approaches and policies are required.
To address this, companies are adopting flexible work policies, investing in STEM education, and enhancing employer branding. In the next 2-3 years, many manufacturers plan to invest in digital tools and training programmes to future-proof their workforce. Training programmes will empower employees to collaborate with AI systems, interpret complex data, and leverage AI tools for strategic advantage. This transformation will create a workforce equipped to harness AI’s potential while retaining human ingenuity as a cornerstone of the industry.
Prediction 3) Sustainability and Circularity: The New Imperative
Sustainability is becoming a cornerstone of manufacturing strategy. Circularity—designing products for reuse and recycling—is gaining traction as companies strive to minimize waste and comply with stringent regulations like the Corporate Sustainability Reporting Directive (CSRD).
Digital Product Passports (DPPs) will play a pivotal role in advancing circularity by providing detailed, blockchain-secured information about the environmental impact of products, their composition, their production and history. From 2027, industrial and electric vehicle batteries will be the first products to have mandatory DPPs. Other product categories, including textiles, are expected to follow by 2030. DPPs will enhance transparency, streamline recycling processes, and align with consumer demands for sustainable goods.
AI will also drive sustainability efforts. For instance, AI-powered systems can optimize energy usage and reduce waste during production, helping companies achieve both environmental and cost-saving goals. In 2025, we expect to see circularity really take off as organizations look to drive their sustainability efforts further and faster.
Prediction 4) Localized Production and Resilient Supply Chains
Global supply chains are increasingly vulnerable to disruptions from geopolitical instability and extreme weather. As a result, nearly half (49%) of manufacturers are shifting toward a more localized production model.
Localized, automated facilities near key markets will allow manufacturers to reduce transportation costs, emissions, and risks associated with long supply chains. These facilities will have to rely on cutting-edge technologies like additive manufacturing and robotics to maintain and improve efficiency while meeting local market demands.
A Call to Action towards 2030
2025 will see the starting gun sound for manufacturers to adapt or risk obsolescence. The age of accelerations and a sense of urgency will drive manufacturers to prioritize digital transformation, AI adoption, and workforce development to gain substantial rewards.
In an industry where everyone agrees that survival depends on technology, the time to act is now. 2025 will be an epoch year. By overcoming inertia, aligning strategies, and embracing innovation, manufacturers can turn challenges into opportunities, leading the sector toward a resilient, sustainable, and prosperous future.
*Research conducted by Censuswide in 2024, among a sample of 815 senior decision makers in manufacturing with a company turnover of £150m+ across the UK, Germany, Austria, Switzerland, Netherlands, Norway, Sweden, France, Japan, USA, Poland, Czech Republic, Singapore, Australia, Saudi Arabia, UAE, Belgium, Canada, and Indonesia.
