By: Dan McFetrich, Global Sector Specialist at Schroders

Manufacturers are increasingly turning to digital solutions to boost productivity. Global investment manager, Schroders discusses how AI has the potential to turbo-charge this trend and highlight two company case studies.

The rise of AI in industrial software is a trend that investors cannot afford to ignore. As manufacturers increasingly turn to digital solutions to boost productivity and reduce waste, we believe that the integration of AI into these platforms will be a game-changer and provide two examples of this below. By driving innovation, improving functionality, and opening up new markets, AI-powered industrial software is set to play a critical role in shaping the future of the manufacturing industry.

Industrial software is critical for manufacturing

Manufacturing employment has largely recovered since the pandemic, but growth has started to stagnate. We also continue to see worrying skills shortages in key roles throughout the manufacturing process. Industry is struggling to fill skilled job openings, and the US Manufacturing Institute estimates that around 425,000 of these positions will remain unfilled by 2029.

"Middle skill" positions projected to be unfilled through 2029

Manufacturing workforce demographics also continue to age. This looming demographic shift and consequent shortage of workers is one of the pillars of Schroders’ 3D Reset framework. The 3Ds (demographics, decarbonisation and deglobalisation) are shaping a new economic regime.

Given these continuing demographic and skills shortages, US manufacturing wage inflation rates are proving far stickier than general product inflation in the manufacturing industry, driving manufacturer margin pressures. The below employment cost index shows total compensation growth remains well ahead of pre Covid levels.

Manufacturing producer price inflation vs employment cost index

This margin pressure is driving manufacturers to digitise to improve industrial productivity. Industrial software adoption has been, and continues to be, a key enabler of manufacturing productivity growth, and this need has been accelerated by COVID.

AI enhances industrial software optimisation and accelerates adoption

What will be the impact of AI-enabled industrial software? We strongly believe that the impending integration of AI into industrial software development will significantly enhance the value propositions for manufacturers. Specifically, we anticipate the following benefits from AI deployment:

1. ‍Increased efficiency: AI can drive coding efficiencies for software engineers, accelerating innovation timescales and streamlining bespoke tendering proposal processes.‍
2. Enhanced functionality: AI can improve software platforms' reliability, interface and usability. Machine learning algorithms can analyse data inputs to identify patterns, while AI utilises this information to make real-time decisions, ultimately enhancing the software's value proposition.‍
3. Market expansion: The integration of AI can lead to industrial software being adopted in new markets, as the enhanced capabilities and improved performance open up new opportunities for application.