The industrial economy goes digital: Transforming traditional industries

Industrial industries have been an integral part of our society for centuries, forming the backbone of our economy. It’s surprising that despite their importance and size, these industries haven’t been dramatically disrupted by technology startups until only recently. With recent macro shifts, we are witnessing an incredible paradigm shift — the opportunity to bring traditional industries into the digital age. The possibilities are bigger than ever, paving the way for impactful results such as increased efficiency, cost savings, and sustainability.

An industry that’s impossible to ignore at the moment is online retail. The pandemic accelerated the digitization of customer journeys by several years, with eCommerce adoption jumping by 10 years in just 90 days during the peak of the pandemic according to McKinsey. Arguably as relevant is the supply chain industry. We’re seeing an increased adoption of supply chain technologies due to frequent natural disasters and geopolitical events such as the Russian-Ukraine war.

Tomer Landesman.

Structural labor shortages and generational turnover are driving companies to heavily consider new solutions. The gravity of this opportunity is not to be underestimated. In fact, 77% of manufacturers are facing a workforce shortage. According to the National Association of Manufacturers, this shortage has created a gap in the U.S. that is predicted to result in 2.1 million unfilled jobs by 2030. In response, companies are turning to automation, virtualization and robotics to fill the gap. With a new age comes new people, and there is massive opportunity to rapidly adopt new technologies through Gen Y and Gen Z. These generations are not only the true digital natives, but will make up the majority of the workforce by 2025.

In our current market, increased competition and shrinking profit margins are motivating companies to find innovative ways to improve efficiency and reduce costs. In labor intensive sectors such as manufacturing, where material cost is the main expense, followed by labor cost, higher productivity could boost companies’ earnings by up to 45% according to Mckinsey. This presents a significant opportunity for startups that can provide digital solutions.

Lastly, government initiatives and policies are pushing digitization in traditional industries to become more competitive facing the global U.S.-China trade war. The U.S. government’s Advanced Manufacturing Partnership is an inspiring initiative to strengthen and revitalize advanced manufacturing ecosystems. Companies such as NASA are leveraging this to support advanced manufacturing technology research and development as a critical means of addressing improved affordability, enhanced performance, improved safety and reliability for aerospace research and development efforts. Biden’s $2 trillion infrastructure bill is a call for transportation and energy industries to literally repave the way we transport and answer growing needs.

With the spotlight on AI, recent breakthroughs in Generative AI, combined with the concept of the Omniverse, has the potential to revolutionize factory simulations. The Omniverse, as a shared virtual universe, can digitally mirror twin entire factories, creating a twin of the original. These twins provide a platform to simulate, visualize and enhance all operations in real-time. Generative AI algorithms can then iterate on these digital twins, creating and testing thousands of possible operational changes to optimize performance. This powerful synergy can help identify efficiency gains, predict maintenance needs, and innovate factory processes with unprecedented speed and accuracy. This concept was the focal point discussed at the Nvidia GTC conference, which included: building and running simulations on a digital twin of a real factory, reinventing manufacturing from design to delivery and using the Nvidia Metropolis system, an application framework that aims to streamline the development and deployment of AI-powered video analytics.

With so many opportunities to solve pressing pain points for organizations, internal innovation teams are answering the call to innovation that’s knocking at their doors.

Here are a few companies that are moving the needle in their respective industries: Tulip (Pitango Growth portfolio company) in digital manufacturing platforms, NoTraffic in traffic management industry, Formlabs (Pitango Growth portfolio company) in the 3D printing industry, Optibus (Pitango First portfolio company) in the public transportation planning platforms, and Kornit, that specializes in digital textile printing solutions.

In the next five years, we should expect to see significant technological advancements in several traditional industries, driven by digitization and automation. Keep a look out for a few more major technologies that will come into play, including AI, automation, and computer vision.

Tomer Landesman is an Associate at Pitango Growth