In 2025, the manufacturing industry is set to undergo significant changes, driven by innovations in artificial intelligence, supply chain digitization, smart operations, workforce development and sustainable practices.
Here are the top five manufacturing enterprise priorities.
1. Talent Development and Retention
The manufacturing industry has a constant skill shortage. This is why it’s vital for enterprises to retain and retrain their employees. Workforce retention depends on understanding employees’ current skills, learning their interests and understanding their career goals. Preparing employees for leadership roles is a powerful way to transfer institutional knowledge and boost loyalty. The biggest challenge faced by the industry is around workforce training. According to the ISG Smart Manufacturing Study, 58% of organizations struggle with change management related to training programs. In 2025, organizations will need to place greater emphasis on learning and development, equipping employees with the skills needed for the future of work.
2. Technology-Driven Sustainability
Sustainability in manufacturing has evolved beyond traditional physical processes to embrace advanced technology, particularly integrated software solutions. In 2025, manufacturers will need to increasingly leverage software to achieve carbon neutrality, reduce waste and optimize energy consumption. Real-time data capture and analytics will play a pivotal role in this shift, enabling companies to monitor energy use, minimize emissions and reduce production waste more effectively. By integrating these digital solutions, manufacturing processes are becoming more resource-efficient and environmentally friendly, marking a significant transformation toward sustainability.
3. Automation for Business Value
In 2025, AI and GenAI will be the invisible forces driving smarter decision-making, predictive maintenance, product design optimization and hyper-optimized supply chains. Manufacturing is rapidly embracing AI, in all its forms, with adoption rates increasing. Early adopters are already seeing significant returns in terms of cost reduction, quality improvement and increased agility. ISG believes that GenAI use cases are most abundant in intelligent chatbots, customer communication and service support, which aims to reduce the resource overhead in these functions. As per ISG’s State of the AI Market report, GenAI spend is increasing faster than we saw in 2024, when 4% of overall IT spending was expected to go toward AI. In 2025, we see that 4% is assigned to GenAI alone, as enterprise wants to catch up with their competitors. We expect AI spending to increase to over 6% of the IT budget to meet business expectations.
4. Continued Rise of Smart Factories
Smart factory solutions and cutting-edge digital technologies are set to revolutionize the manufacturing industry. Customer demand for personalized products with seamless delivery and customer experience are pushing manufacturers to adopt smart manufacturing practices, using AI and analytics to quickly produce, deliver and support products. Guided by Industry 4.0 and 5.0 principles, the integration of automation, cloud computing, AI, machine learning (ML), the Industrial Internet of Things (IIoT), augmented and virtual reality (AR/VR), cybersecurity and blockchain technology promises to enhance efficiency, strengthen security, improve scalability and elevate connectivity in manufacturing operations. While the shift to smart factories may start slowly and present challenges, the long-term advantages – allowing enterprises to meet customer demands as they evolve – make smart manufacturing an attractive option. By integrating product, process and consumer data into a unified digital thread, manufacturers can achieve scalable, customized production—an accomplishment that has long been out of reach for the industry.
5. Comprehensive Supply Chain Value
The supply chain has remained a paramount concern for manufacturing companies over the past several years. It is unsurprising that, in 2025, the supply chain will remain a key focus for ongoing monitoring, management and enhancement. Facilities are exploring innovative strategies to improve flexibility and reliability while maintaining value throughout their operations. Heightened concerns regarding geopolitical disruptions to trade routes have prompted many manufacturers to strategically reconfigure their supply chains, emphasizing resilience through practices such as ally-shoring, near-shoring and reshoring. Investments are increasingly focused on digital tools that offer real-time analytics, simulation and planning, so enterprises can enhance resilience and manage costs more effectively. AI is poised to elevate supply chain resiliency to a new level, emphasizing interconnected data and collaborative efforts across the enterprise.
ISG helps manufacturers assess where they stand in the current market, create a technology-forward strategy for the future and execute on plans that meet evolving customer demands. Contact us to discuss how we can help you.
About the authors
John Lytle
John has 40+ years of providing global enterprises with practical, yet strategic vision to drive meaningful change through complex programs, which extend business value through the effective use of today’s exploding Digital capabilities. John is a senior leader for many multinational enterprises in Capital Goods manufacturing. John leads the North American Industrial Manufacturing segment for ISG and is regarded as a global thought leader, regularly advising on emerging technologies and operating model changes to drive innovation.
Anamika Sarkar
Anamika Sarkar works as a Manager in ISG. She has close to 11 years of experience in research across various industries and geographies. At ISG, Anamika helps Manufacturing enterprises understand the latest technology trends, strategy, and innovation.
