Manufacturers can stay competitive with more strategic IT planning
INSIGHT ARTICLE |
It is, regrettably, a common scenario: A manufacturer’s legacy accounting and business management system is essentially a series of independent spreadsheets, which are difficult to maintain and often accurate for only one or two weeks. The department uses a manual process for invoicing, slowing payments. Inventory forecasting and demand planning are also performed manually, resulting in overstock of lesser-used parts and a shortage of more critical items.
These highly inefficient, cumbersome processes seriously compromise the ability of management to make informed decisions. Sales personnel lack a clear view of current leads and opportunities; the accounting department’s slow invoice payments damage vendor relationships; inventory steadily becomes obsolete.
What is lacking in such an environment—one that could be found in any number of middle-market companies across the country—is a comprehensive, integrated strategy for information technology. Contrary to the common perception that they are at the forefront of technology and innovation, however, U.S.-based manufacturers are lagging behind their non-U.S. competitors in their use of information technology.
As noted in the 2015 Manufacturing & Distribution Monitor report on information technology, U.S. manufacturers dedicate about 3.7 percent of revenue to IT, three quarters of which is spent on operational expenses.
IT governance can be difficult at companies large and small. With limited resources, small companies may find it challenging to do more than manage the fundamentals of IT infrastructure; large companies often have to deal with multiple, discrete applications that are decades old and managed by an ever-shrinking number of people who understand them.
Ideally, manufacturers should be spending 50 percent of their IT budgets on maintenance and 50 percent on strategic technology initiatives. To take advantage of the opportunities that IT offers, budgets need to increase—or priorities need to shift.
Recognizing the technology shift
Clearly, companies that are not utilizing technology strategically cannot maintain an advantage over their competitors for long. Manufacturers and distributors need to invest in solutions that may well revolutionize their entire technology platform. Customer expectations have changed, and organizations must update their infrastructure and systems or risk being left behind.
As collaboration and innovation technologies become more widespread, they are eliminating barriers for organizations and changing how they go to market. Systems now have sophisticated workflow capabilities that can be customized to an organization’s business model and bring efficiencies to their processes that enable them to be more competitive.
Many companies are finding ways for this technology to drive their success:
- A large wire cloth fabricator historically processed their sales orders manually. The process would take two to three days per order to deliver to the warehouse for production. The process included handwriting the original order from the customer, multiple log entries and re-writing and, finally, hand delivering the orders to the production department. A customized CRM system eliminated 80 percent of the manual paperwork as well as the need for job ticket re-entry.
- A distributor found its enterprise system was unable to keep up with the company’s growth. Customer complaints were on the rise and the bottom line was shrinking due to a high number of daily shipping errors. By bringing the system up to date—and enforcing the processes it supported—the company was able to slash its operating costs by $800,000 while significantly improving its customer service.
- A manufacturer of automotive drive-train equipment was not fully utilizing its MRP systems, resulting in excess inventory, out-of-date parts drawings and few product improvements, and, ultimately, diminished cash flow. As infrastructure and technology needs were met and operations streamlined, the firm was able to apply the significant amount of working capital that became available to its long-range plans.
Transforming through technology
Before companies will allow their IT budgets to shift priorities or increase to accommodate new technologies, a case will have to be made to support the return on such investments.
A team should be assembled to identify ways to leverage technologies. Members should include personnel from multiple levels in the company. With proper due diligence, analysis and review, management and the team can ensure that IT resources are aligned with business requirements.
A customer relationship management system can provide a single view of the customer base and should prove very helpful in learning customer needs and priorities. How a company competes in the marketplace also can help focus the team’s efforts to identify opportunities.
Management should also consider outsourcing commodity requirements. This will help reduce or shift IT spending to strategic projects.
Such technology-based transformations take on average about 12-18 months to fully implement. It is, as they say, a marathon, not a sprint. Consider placing a higher priority on those ideas that directly support how the company competes in the market. Management should develop an IT road map of approved, prioritized IT projects and review it on a quarterly basis.
How a company leverages technology has an impact that is felt by a broad array of internal and external stakeholders. With so much riding on how IT is utilized―providing products and services, increasing efficiencies, optimizing product usage, customizing client engagement―management must allow IT leaders to play a primary role in the strategic direction of the company.