Don’t let your current IT investments hold you back
Many
manufacturers' information technology (IT) budgets are skewed toward
maintenance and integration activities. This can prevent strategic investment
in the systems the company really needs and restricts the organization's
ability to grow and remain profitable. It becomes even more confining as the
demands of the industry change, requiring new information.
A core
problem is that while many IT shops can tell you about the frugality of their
budget and targeted project ROI, few can explain IT's impact on productivity or
profitability.
What eliminating existing integration and maintenance costs can
mean to strategic investment
A
litmus test for IT budgets is comparing IT operating expense to IT capital
investment. A good rule of thumb suggests numbers should be in the range of 70 percent
for operating expenses to 30 percent in capital investment. This tells us that
systems are being invested in and renewed and that IT is continually addressing
new business problems with technology.
Since
the budget tightening that occurred during post 9-11 economy, the numbers have
fallen out of balance for too many companies. It's not uncommon to see 80
percent or more of the budget spent on operating expense. The likely culprits:
lots of maintenance and enhancement activity keeping old systems alive.
Why
poor systems increase SG&A costs and hamper productivity
If you
compare the cash outflow of the IT budget to employee productivity you'll find
some interesting things.
Is
productivity improving or slowly deteriorating over time? Depending upon the
level of detail available here, the answer shows up in high indirect to direct
employee ratios in manufacturing and often in high SG&A numbers for the
overall company. The implication we can draw is that the systems may no longer
be helping the firm succeed.
How so?
Look for disconnected processes and systems that hamper communication and see
if you find lots of workarounds. It's likely these prevent employees from doing
the right things—slowing down decisions and customer response times while
pushing up overhead—or they are doing the right things, but by spending far too
much effort. The cost, ultimately, is profitability.
There
are several areas where today's ERP systems can make a substantial difference.
Gain
visibility into all aspects of the supply chain
Benchmarking
studies have shown that one of the keys to supply chain success is forecast
accuracy. A better forecast helps you make better decisions throughout your
operations. For example, smoothing production plans uses labor and your
manufacturing assets more effectively. And accurate procurement from your
suppliers minimizes inventory. More efficient operation leads to more efficient
customer response. And it's worth it. Supply chain benchmarking done by AMR
Research has shown that improving sales forecast accuracy by as little as 1
percent can improve profitability by 2 percent.
To
determine whether an ERP system would optimize your supply chain, assess
forecasting and demand management systems. Look at how analytics systems reveal
true performance. If there's room for improvement, consider how today's ERP
systems provide the capabilities to access information through familiar desktop
tools, so that employees can make rapid decisions informed by real-time,
accurate data.
Get new
products to market faster
New
product development and launch is improved when good information and
collaboration tools are available. Companies must quickly assess projects, pick
the right ones, and manage intellectual property. Collaboration extends beyond
coordinating the project and engineers, now it embraces marketing, sales, and
all supply chain activity, both internally and externally.
Streamline
manufacturing processes
While
most manufacturers agree that lean manufacturing improves customer-response
time and reduces costs, many organizations run their lean processes with manual
systems, spreadsheets, and standalone personal computer applications rather
than with enterprise-class applications. The challenge is to make data
available to everyone. But this is difficult, laborious, and costly when
sharing information with staff, customers, vendors, and partners must be done
manually.
Increase
collaboration and customer satisfaction
In most
industries, supply chain transparency is essential to success. Manufacturers
need to be tightly integrated with their suppliers and to provide critical
product, price, availability, and shipment information to their customers. This
is especially true in a global supply network. Responding to changing demands
rapidly requires visibility across the entire supply chain and accurate
information about the supplier's capacity.
Yet
capabilities, such as inventory visibility, vendor-managed inventories,
electronic Kanban replenishment signals, or working with new suppliers, are
often done manually or not at all. So, the supply chain is difficult to manage
efficiently. To increase efficiency, many companies invest heavily in
integrating data from their customers and suppliers into their ERP systems. And
they're adding customer portals to reduce order-taking costs, speed
fulfillment, and increase customer satisfaction.
Ensure
compliance with regulations
There
is probably no sector of the manufacturing industry that is not concerned with
new regulatory compliances. Simply put, regulatory compliance means collecting
critical data and ensuring that production and the resulting products meet the
constantly evolving required safety and quality standards. For far too many
manufacturers, collecting and compiling this data is an offline task that
consumes valuable employee time and reduces profit margins. Compliance can't be
ignored, but it can be done more efficiently when data is captured by a current
ERP system.
Implement
integrated information systems—from making do to moving on
Just
because a business doesn't request an integrated system doesn't mean it doesn't
need it. People have an amazing ability to accept what they have. When they
need data, people go to great lengths to get it—even if it means rekeying data
into spreadsheets and other applications. But when they do, it can add to
overhead costs and slow down business processes—especially those critical to
bringing new products to market or that are customer facing.
Integrated
systems can speed time-to-market, improve customer delivery performance, and
provide the data executives need to make the right cost and investment
decisions as markets and products change.
Succeeding
in today's fast-moving manufacturing world requires a combination of exciting
new products, collaborative development, partnerships, and acquisitions.
Integrated ERP systems have already embedded the best practices for many
state-of-the-art global business processes. And, with powerful and familiar
desktop tools integrated into the corporate data source, ERP systems give
real-time, accurate visibility to the specific information needed to make
decisions and move your organization forward.
