Technologies underpinning the AI-supported factory of the future are reshaping the economics of industrial production, with the potential to generate productivity gains of up to 60%. These changes are driving a new logic of competitiveness, in which performance is determined by how effectively production configurations are redesigned and implemented, BCG reports.
For the first time, upgrading to factory-of-the-future capabilities in a high-cost country can be a more competitive option than relocating production to other regions, even as lower-cost countries also invest in modernising their factories. Without this transition, around $1 trillion of manufacturing value is at risk of relocation from Western Europe, and a further $440 billion from the United States.
The report by Boston Consulting Group (BCG) and BCG Institute, "How the Factory of the Future Is Reshaping the Economics of Manufacturing", combines a global survey of 1,000 manufacturers with proprietary quantitative analysis to examine how advances in AI, automation and digital systems are transforming industrial production at scale. "Manufacturers are entering a new era in which competitiveness is no longer defined by static cost comparisons, but by their ability to redesign production configurations end to end," said Daniel Kuepper, Managing Director and Senior Partner at BCG, fellow of BCG Institute and co-author of the report. "The factory of the future changes how companies create value and how they define their production location strategies."
Supported by AI, the entire production configuration is redesigned in an integrated way, generating benefits across energy consumption, material use, yield rates and production capacity. The key factors in industrial footprint decisions are no longer relative labour costs or supplier and customer logistics alone, but a facility's capacity to be transformed into a high-productivity factory of the future. The benefits vary by sector and location: high-cost locations gain more from automating labour-intensive activities, optimising energy consumption and improving yield, while sectors with high logistics costs, such as food and beverages, benefit most from proximity to end markets. In the BCG Institute survey, 87% of respondents said access to skills and qualified staff is becoming a critical factor, and 69% said the same of digital infrastructure.
Overall, these developments are creating a more variable and dynamic global manufacturing landscape, in which competitive advantage depends on aligning sector characteristics, location capabilities and effective implementation of advanced production technologies. Companies must reassess their production location decisions through a new lens that integrates technology deployment with footprint strategy. "Companies that integrate production location strategy with advanced manufacturing capabilities will be best positioned to compete in the next decade," said Kuepper. The full report is available [here](https://www.bcg.com/publications/2026/how-the-factory-of-the-future-reshapes-manufacturing).
