KPMG argues the next wave of competitiveness for Australian manufacturers will come not from the factory floor, but from transforming how companies engage with their customers.
Australian manufacturing is entering a new era – one defined less by production volume and more by insight, technology, and customer connection. A new report by KPMG, The Case for Customer-Centric Transformation in Industrial Manufacturing, argues that success in the coming decade will rely on how effectively manufacturers can turn sales and service into strategic differentiators, rather than viewing them as back-office necessities.
While the sector continues to grow, that growth is being driven by digital- and technology-enabled products and services – offerings that command higher prices but require greater specialisation and innovation. This shift, according to KPMG, is pushing manufacturers to rethink traditional models built around operational excellence and product innovation alone.
From operational strength to customer intelligence
For decades, manufacturing strategy has been dominated by lean operations, process optimisation, and continuous improvement. These priorities have delivered efficiency and quality gains, but often at the cost of customer understanding. Many businesses, KPMG warned, still operate with a “build it and they will come” mentality – a mindset that risks becoming obsolete in markets where buyers expect personalisation, digital connectivity, and service integration.
KPMG believes this is necessary as manufacturers must contend with rising labour costs, near-shoring trends, supply chain pressures, and the adoption of emerging technologies in labour-intensive processes. In response, many are having to rethink both their competitive positioning and broader growth strategies.
Lisa Bora, partner in charge of Clients, Growth & Markets, Consulting at KPMG said lessons from consumer industries are instructive.
“The retail sector offers valuable lessons for industrial manufacturers looking to develop stronger customer engagement capabilities, having mastered customer insight, frictionless sales experiences, loyalty-building strategies and personalisation,” she said.
The report positions front-office transformation – the modernisation of sales and service – as the next frontier for industrial competitiveness. It identifies that many Australian manufacturers continue to underinvest in these areas, despite earning substantial profits from after-sales service.
“Traditional focus on proprietary technology and product suites has driven past gains,” Bora said, “but it often comes at the expense of alignment to ongoing and changing customer needs.”
The ‘retailisation’ of manufacturing
KPMG calls this new opportunity “retailisation”: applying the customer-centric practices of retail to business-to-business industrial contexts. While retail has long mastered customer insight, frictionless engagement and loyalty creation, the industrial sector remains constrained by legacy thinking that prioritises product over relationship.
Two retail archetypes are highlighted as useful models. The product-service culture, exemplified by specialist retailers such as hardware stores, combining quality ranges, trusted brands and expert service. Also, the process-price culture, typified by low-cost, multi-range retailers that compete through operational efficiency and value pricing.
Both, KPMG notes, share a “relentless focus on customer insight, operational efficiency, and the development of sales processes that minimise friction and maximise value”. For industrial firms, the challenge is not to copy these models outright, but to adapt their principles to B2B realities – particularly as competition intensifies and relationships become less personal and more data-driven.
Six opportunities for front-office reinvention
The report outlines six key focus areas for industrial manufacturers seeking to strengthen customer centricity.
The first is customer obsession alongside product passion. Deep product knowledge remains a strength, but it must be matched by an equally deep understanding of customer businesses, challenges, and strategic priorities. Too often, executives cannot clearly define their customer segments or articulate how their products create value. “As the sector evolves, advanced manufacturers are increasingly becoming problem solvers,” the report notes, “helping to improve the efficiency and profitability of their customers through end-to-end solutions.”
Next is balancing operational and customer-facing technologies. KPMG’s Report finds manufacturing among the most technologically ambitious industries – but most investment remains focused on operations rather than customer experience. While 34 per cent of organisations have achieved return on investment from multiple AI use cases, front-office systems such as customer relationship management (CRM) platforms and self-service tools often lag behind.
“Industrial manufacturers should look not only to retail, but also to other industries like technology, who utilise strategic partnerships across all elements of the value chain such as ‘invent-with’, ‘solve-with’, ‘sell-with’ and ‘grow-with’,” said Richard Large, director, Consulting at KPMG.
Underdeveloped customer segmentation should also be a concern. A one-size-fits-all approach remains common, with little differentiation between high-value and low-value accounts. Advanced segmentation – based on needs, behaviours and profitability rather than demographics – enables better allocation of resources and more targeted product development.
Additionally, KMPG argue after-sales service shouldn’t be treated as an afterthought.
Many industrial companies continue to treat service as merely a maintenance function, overlooking both its profitability and its role in fostering customer loyalty. KPMG identifies this as a missed opportunity: service offerings often generate higher margins than product sales. Beyond the financial benefits, services also strengthen customer relationships and provide real-time insights into preferences and behaviours.
Forecasting failures and inventory implications should also be a focus. Inaccurate sales forecasts continue to erode margins and tie up capital. KPMG notes that “years of inaccurate forecasting have led to persistent oversupply of inventory and unprofitable stockpiling of input materials” across parts of the sector. Smarter integration of sales and operations planning is needed to improve visibility and balance inventory with demand.
Finally, the report reframes environmental, social and governance (ESG) obligations as a commercial advantage.
“Forward-thinking manufacturers recognise the strategic value of both meeting their own compliance obligations, and helping customers meet theirs, too,” said Jennifer Westacott, special adviser, Consulting at KPMG.
As procurement increasingly favours sustainable, transparent suppliers, ESG alignment is becoming a point of differentiation.
“Low-impact manufacturing and ethical sourcing are emerging as meaningful competitive levers,” Westacott added, “with carbon transparency influencing both purchasing decisions and brand loyalty.”
Data, design, and differentiation
The report stresses that transformation must go beyond technology deployment to include new ways of working. Embedding design thinking – where customers co-design solutions and experiences – can help manufacturers build products and services around lived experience rather than internal assumptions.
To operationalise this shift, KPMG recommends six transformation steps based on the six key focus areas:
1. Conduct a customer-centricity assessment to identify gaps in insights, processes, and leadership.
2. Invest strategically in front-office technology such as CRM and self-service systems.
3. Build segmentation frameworks to identify high-value customers and align offerings through design thinking.
4. Develop service-specific business models with digital platforms tied to customer outcomes.
5. Integrate business planning processes to connect sales with operations and enable scenario planning.
6. Adopt omnichannel engagement for seamless, data-led customer experiences.
With 64 per cent of global leaders in KPMG’s Future of Front-Office report citing customer experience as their top priority over the next two years, the momentum for change is clear.
Consulting at KPMG.
The cost of inaction
KPMG warns that the cost of standing still is mounting. Customer churn in manufacturing now averages 35 per cent – more than 20 per cent higher than other B2B service sectors. Meanwhile, customer acquisition costs are climbing, reaching between $500 and $1,800 per new customer in Australia in 2025.
Adding to the challenge, international competitors often operate with cost advantages up to 2.5 times lower, driven by cheaper labour, scale, and subsidies.
The message is clear: competing on relationships, price or product alone is no longer sustainable. Long-term growth now depends on embedding customer focus throughout the organisation – from front-line sales to digital interfaces and post-sale service.
Reimagining the industrial relationship
KPMG concludes with the message that we are no longer operating in a world where we just buy a commodity or a component part, but one where customers now seek end-to-end solutions that pair customer experience alongside product innovation.
For manufacturers ready to embark on this transformation, KPMG positions itself as a partner in the journey – one that combines sector expertise with cross-industry insight. The firm’s team, led by Bora, Large and Westacott, has worked with industrial businesses across Australia to integrate customer insight, digital systems and service innovation into coherent strategies for growth.
As the sector continues to evolve, the imperative is clear: customer centricity is not a marketing exercise, but a competitive necessity. Manufacturers that reimagine their sales and service functions today will define the industrial leaders of tomorrow.
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