By Mark Humphlett. February 18, 2014. Industryweek.com
Mark Humphlett is the Industry and Solution Strategy director at Infor.
Since growing revenues and cutting costs is a longstanding plan for increasing profits, it should come as no surprise that manufacturers are focused on those tried and true basics as they continue the climb out of the economic downturn of the last few years.
But despite what many consider to be a weak recovery, executives across functional areas of discrete and process manufacturing companies are largely committed to investing in product innovation and expanding in emerging markets.
In a recent survey on optimization trends in ERP usage by market research firm GatePoint Research, executives shared their top priorities for boosting revenue and improving operations.
In particular, the survey provides insight into how current ERP systems are performing in helping businesses meet their goals and what needs to improve, as well as which processes they believe offer the best potential for improvement.
More than one-third indicate that manufacturing operations are increasingly complex and almost 90% rate the need to address the challenges of complexity at three or above on a five point scale.
The survey underscores that executives at manufacturing companies are focused on the following five factors to optimize their complex manufacturing operations:
- Taking advantage of revenue opportunities
- Tuning up operations and processes optimizing
- Utilizing ERP across the enterprise
- Finding harmony among diverse applications
- Coming to grips with this complexity.
While the basics for manufacturing industry success are a constant— minimize costs, maximize flexibility, and keep your systems current—it’s increasingly important to be able to adapt to rapid shifts in business and technology.
Factor One: Taking Advantage of Revenue Opportunities
Following one of the worst economic downturns in modern history, and one that hit manufacturers particularly hard, the North American outlook for the industry is moving in a positive direction, though at a lukewarm pace.
The global economy, increased competition from emerging markets, complex supply chains, bigger compliance requirements, and the volatile costs of raw materials are forcing manufacturers to monitor and react to vast external issues, as well as to manage their own internal productivity.
Manufacturing executives in North America are intently focused on related business goals of growing revenues and cutting costs.
When GatePoint asked these leaders to indicate their top priorities over the next 18 months, an overwhelming 83% checked the revenue growth category, while 73% checked containing/cutting costs.
The top tactic for growing revenue, cited by 71% of those in the survey, is investing in product innovation, perhaps reflecting the belief that after such a long downturn, now is the time to capitalize and take advantage of a new growth wave.
Meanwhile, about 42% of respondents said that they are prioritizing new product introductions and 35% say that tightening the areas of operations, production and manufacturing are a priority.
Manufacturers can extend revenue streams by adding services such as installations, repairs and maintenance.
They can also leverage their information systems to identify new niche markets and niche products while increasing collaboration with customers with services such as design-to-order and engineer-to-order.
And, the ability to track the complexity of unique SKUs is vital to ensuring supply inventory needed to fulfill these services.
Factor Two: Tuning Up Operations & Processes Optimizing
As manufacturers deal with the growing complexity of supply chains and distribution channels, the ability to tailor reporting systems and metrics is increasingly important so that they are able to spot potential issues as soon as possible and adjust processes before they turn into real problems.
Production processes leads the list of what executives are exploring to improve operations, selected by 74% of those in the survey.
Just slightly less than half—42%—say they are exploring ways of shortening the supply chain, although only 28% indicate they are seeking to reduce the number of suppliers they’re dealing with.
ERP systems are almost always used by today’s manufacturing companies for monitoring and automating business performance functions, and those systems span functional areas across the manufacturing enterprise, from managing the customer lifecycle, to improving quality to greater visibility into financials, and optimizing the supply chain and distribution channels.
Factor Three: Utilizing ERP across the Enterprise
Without a doubt, ERP has a great impact on finance and accounting.
In fact, 59% of the executives in the survey said that is where their organization gets the most benefit from ERP.
A third, however, responded that ERP is vital across all aspects of their organization, while lesser amounts give the nod, in descending order, to purchasing, inventory control, manufacturing operations and sales.
Those perspectives may also reflect how modern an ERP implementation is in each respondent’s organization and how often it has been updated.
Over a span of more than 20 years, ERP software has undergone a significant transformation.
While early systems were purchased and used primarily for financial applications, order management, purchasing, and manufacturing, today’s systems are designed for broader use across the enterprise.
Newer ERP systems can include specialized applications for supply chain management, customer relationship management, human capital management, product lifecycle management, enterprise asset management, and expense management.
In fact, many manufacturers need both a general ERP and specialized business applications, which requires middleware able to handle the integration of information across the enterprise.
The manufacturing environment is rapidly changing, and flexibility is going to be essential for the manufacturer who wants to adapt and respond quickly to changing market demands.
Harmony and Complexity
Factor Four: Finding Harmony among Diverse Applications
Fifteen percent of the polled executives indicate that there are multiple ERP systems in use at their organizations.
That often results from acquiring a business that had an existing ERP system in place different than that in use at the company making the acquisition.
It may also be a result of distributed decision-making and the ability of new business units to select a more up-to-date system than is being used by older business units.
The ability to connect these systems is crucial to providing the information flow to feed the advanced analytics capabilities that manufacturers are relying on to provide management with insight that is needed to make critical business decisions.
Factor Five: Coming to Grips with Complexity
Complexity in manufacturing operations is also significant challenge that manufacturing executives face. On a scale of 1-to-5 in importance, 87% of the respondents rated addressing increased complexity as a 3 or above.
An ERP system that meets manufacturers’ needs today has to be able to help the business deal with change, which can come in the form of a shift in market preferences, interruptions to the supply chain, new regulations, or new competition that is undercutting pricing.
Additionally, an ERP solution that will grow with the business as it expands and enables it to manage complex supply chains is a critical asset in dealing with global market issues.
When expansion occurs, manufacturers can lose valuable productivity as they adapt and refocus, which can be disruptive to complex processes, and may involve new procedures and retraining personnel, or more significant retooling and re-engineering actions.
So What’s Next? Manufacturing Solutions for the New Year
The GatePoint Research survey underscores that executives at manufacturing companies are focused on increasing revenue by focusing on product innovation and expanding into emerging markets. They understand that optimizing production processes is a key strategy to help support those goals.
Businesses should also expect their information systems to foster collaboration and communications. Not just with regard to customers and suppliers, but also in providing information to skilled workers. The more easily organizations can consume relevant information, the easier it is for the business to speed up decision making.
Each step in the manufacturing process can dramatically affect profitability. Gaining visibility and efficiency is crucial for any company wanting to compete globally, open up new markets and leverage its investments to meet evolving business needs. ERP software is a necessary component of manufacturing today, yet many firms fail to realize its full business benefits.
Mark Humphlett is the Industry and Solution Strategy director at Infor.