Australian manufacturers may get caught napping

Cincom Systems of Australia Pty Ltd
By Tom Nies
Thursday, 13 November, 2003

There has been much coverage in the press outlining the problems many companies have experienced with software implementations, such as ERP, over the past decade. Indeed many manufacturers did get burned by spending many times what they should have on big IT investments that took much longer to implement than planned, and then fell short of expectations on functionality when they were finally up and running. Often, by the time they got their high-cost, large-scale system working, it was obsolete.

Even though there may be signs that things may be 'bottoming out', there is no doubt that the global economy is still in rather a bad way. In reality, recession is the only way to describe the current state of affairs. No one wants to hear the 'R' word, but when the United States is reporting its 30th consecutive month of manufacturing employment decline - and Japan's stock market has its worst trading week for 20 years - the message is loud and clear.

But it's at just such tough times as these that investing in low-cost/high-value solutions is imperative. With low labour costs allowing the Third World to annex more and more of the world's manufacturing business, Australian companies that want to stay in manufacturing have to greatly improve their cost-effectiveness. If they're not willing to look at their whole business and see where they can dramatically improve efficiencies, they may as well run up the white flag now and get out of manufacturing.

Some companies have taken the downsizing approach but this can only go so far and is ultimately self-defeating. Cutting staff does not reduce the cost per remaining employee and at the same time does not ipso facto improve revenues either. It becomes a vicious cycle. Downsizing, even when necessary, typically begets more downsizing - unless improved efficiencies are also gained so that costs per person do not rise during the downsizing.

The good news is that there are still many ways companies can achieve better efficiencies by making more strategic use of their information. Companies can still improve inventory management, streamline process management, reduce bid and order turnaround times, improve order configuration management and reduce sales costs. All information, from the shop floor up, can be used to improve every aspect of the business - better information means better decisions.

In looking at how to use that information strategically, though, manufacturers should look for software that works well for their style of operation and can offer a strong return on investment in a reasonable time frame. In difficult economic times, companies naturally turn away from high-cost, high fashion offerings and are only interested in solutions that offer real value at low costs.

On top of that, manufacturers should look for good, experienced people who can share many years' expertise with their customers. Such people bring years of insights, ideas and suggestions to their customers' businesses. Most of the experience we have gained over the years is, of course, built into each new edition of our business information systems software products, as they evolve to meet new market demands. But a lot of it is also in the heads of our people and we tap that collective knowledge to benefit our customers.

For some manufacturers, the thought of investing in more IT systems no doubt leads to a sharp pain behind the eyes. But it's a good idea to start with an audit of their information systems to identify the shortcomings and plan how to attack them incrementally. The return on investment in smaller projects is much quicker and there is greater impetus to then proceed to further improvements. The bigger the IT spend, the slower the ROI - better to get a return in stages and ratchet up as quickly as possible.

The manufacturer who can gather information from the entire operation as well as the international markets, to reconfigure the order and respond rapidly to changes from the customer, is the one who will secure the business, while their competitors are caught napping - or struggling to respond to complex prospect requirements.

These might seem like small improvements but in these ways manufacturers can improve the things that enable them to win business quickly and get more out of the manufacturing systems in which they have invested. These types of systems can, and do, not only help substantially to cut costs but to grow revenues as well.

Of course, there are even more challenges facing manufacturers today. The Internet is well on its way to generating a staggering level of collaboration all along the supply chain. Certainly the rewards of successful collaboration are potentially huge, but the potential for disaster is also great if inefficient systems are opened up to the outside world and in-house problems filter down the line. The newest ERP and supply chain software will allow manufacturers to join this brave new world.

But the players who sit back and wait are not going to improve their operations. By the same token, manufacturers don't have to go to the other extreme and bet the whole ranch on a vast new system. Gradual steps to improve efficiencies will ensure they improve their hand, and better both their current situation and their future potential.

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