Deloitte: How AI Will Redefine Manufacturing Competitiveness
As the manufacturing sector navigates the fallout from a turbulent 2025, its leaders are turning to AI to build resilience and secure a competitive edge.
Following a year where the Institute for Supply Management's index consistently signalled contraction, a new narrative focused on technological adoption is taking shape.
Amid challenges like rising costs and trade policy uncertainty, investment in AI and smart manufacturing could be critical.
According to Deloitte's 2026 Manufacturing Industry Outlook, the uncertainties faced by manufacturers are set to drive greater investment in smart initiatives.
Tim Gaus, Principal at Deloitte Consulting and Smart Manufacturing Business Leader, explains: "The uncertainties manufacturers anticipate in 2026 will lead to more investment in smart manufacturing initiatives, which will be critical to driving future competitiveness and resilience.
"Despite the challenges in the year ahead, real growth catalysts exist."
Agentic AI and the smart manufacturing evolution
Investment in smart manufacturing technology shows no signs of slowing down.
A 2025 Deloitte survey on the topic found 80% of manufacturers intend to allocate at least a fifth of their improvement budgets toward smart manufacturing, targeting automation hardware, data analytics and cloud platforms.
"Manufacturers are focusing on automation, advanced analytics, cloud, and agentic AI to compete and adapt faster, driving measurable productivity, quality, and capacity gains," Tim says.
The emergence of agentic AI represents a substantial leap beyond traditional automation, promising to add substantial value across the manufacturing chain. Its potential applications are extensive.
These include identifying alternative suppliers during disruptions, capturing knowledge from retiring employees and improving customer experience by simplifying repair processes.
The next frontier is physical AI, or robots with enhanced autonomy.
A Manufacturing Leadership Council survey from early 2025 found nearly a quarter of manufacturers plan to deploy physical AI within two years, more than double current adoption rates.
These advanced systems, including robotic dogs and humanoid robots, can navigate unstructured production environments and accomplish complex tasks.
Enhancing supply chain resilience with AI
The shifting landscape of trade and tariffs created considerable uncertainty and increased costs for US manufacturers throughout 2025.
The National Association of Manufacturers' third-quarter 2025 outlook survey showed that trade uncertainty remained the primary concern for 78% of manufacturers.
"Supply chain complexity isn't abating; it's evolving," Tim says.
To address this, leading companies are using advanced digital tools.
"Leading manufacturers are deploying AI-driven trade analytics and autonomous agents to continuously assess risk, scenario plan and rebalance networks, improving visibility end-to-end while optimising cost and service across volatile trade and logistics conditions," Tim says.
Sophisticated AI agents can monitor potential disruptions from trade policies or weather events with visibility beyond Tier 1 suppliers.
These systems can alert staff when issues arise, quantify the potential impacts and recommend alternative suppliers, even initiating mitigation steps with human oversight.
Transforming services and the workforce with AI
Aftermarket services are a crucial revenue source for industrial manufacturers, with margins more than double those of equipment sales.
Agentic AI is poised to transform this area by enabling a shift from reactive to proactive service models.
"Aftermarket services are another bright spot," says Tim.
"AI agents can help manufacturers move from reactive to predictive service, boosting uptime and customer experience."
An agentic system could, with human oversight, autonomously detect component wear on machinery, then order parts, schedule service and optimise manufacturing quantities based on real-time demand.
This wave of technological adoption highlights talent challenges.
Competition for skilled labour is intense and equipping workers with the right skills is a top concern for executives. AI itself can be part of the solution.
For instance, agentic AI could capture the tacit knowledge of experienced workers to generate standard operating procedures, which would accelerate training for new employees.
A flexible "build, buy or borrow" framework for workforce planning could also help manufacturers remain agile in uncertain times.
Tim's belief is that the manufacturers seizing new opportunities and continuing to invest in smart manufacturing will be "well positioned to navigate volatility, unlock new growth and widen the competitiveness gap", he says.
The path forward requires a blend of technological sophistication and strategic agility, with investment in AI-powered solutions offering a clear route to a more resilient and competitive future.
