Appreciation of the power and potential of e-business in manufacturing is coming on way beyond that expected by received wisdom. Brian Tinham examines the findings of the huge new Benchmark Research e-business study released at CIM 2000.
Things are moving faster on the e-business front in manufacturing than most would even dream. A staggering 90% of UK manufacturing businesses either already have or are planning investment in e-business. 57% have an e-business strategy, a further 20% are developing one, and an additional 13%, while claiming not to have considered e-business strategically, have either already invested or plan to invest in web technologies. That’s a lot.
Why are they doing it? Because, say manufacturing’s business leaders, first and foremost it improves their ability to collaborate with suppliers and customers, and second it enhances internal communications and knowledge sharing. Although arguably soft benefits, these, they say, have been critically important. Third it ramps up marketing, while for smaller manufacturers especially, going onto the web improves sales volumes. Larger manufacturers are expecting e-business to cut costs and transform efficiency. Surprisingly few though, think of it as able to deal with supply chain issues.
These are among top line findings of the huge new e-Business in Manufacturing survey conducted among 792 manufacturing business leaders in the UK in September and October by Benchmark Research, author of the annual Computers in Manufacturing (CIM) survey, for which results are due soon. Benchmark’s e-business survey was sponsored by the Department of Trade and Industry, Ariba, Aurega, Boward, ClearCross, Enigma, Fourth Shift, JD Edwards, Mapics, Minerva, PA Consulting, Ramesys, Ross Systems, Sage Enterprise Solutions and SAP.
This is a fundamentally different landmark study. Whereas the CIM survey investigates IT directors and managers, this on e-business represents the views of business heads – senior sales and marketing managers and directors, procurement managers and directors and manufacturing and production managers and directors. And, its scope includes both discrete and process manufacturing sites with 50 or more staff – which, says Benchmark managing director Guy Washer, means it captures the view from the top of manufacturing business today.
e-business was covered – albeit in nothing like the detail – in the 1999 full CIM survey, and although IT directors’ views aren’t necessarily those of the board, nevertheless the new survey highlights some remarkable changes – not least in e-business drivers today. Currently, says the research, the top five key drivers in rank order are: exploiting new sales opportunities, then improving supply chain efficiency, followed by competitive pressures, keeping up with the technology and improving internal efficiency.
Which begs the question, who exactly is driving manufacturers’ e-business development? Benchmark finds that over the last 18 months sales and marketing have led according to 50% of respondents (sales directors say they drive strategy in 69% of cases). Half that figure say it’s led by the board of directors; then it’s the IT department, followed by procurement (19%, although procurement directors say they are responsible in 32% of cases), and finally manufacturing and production (at 12%, although manufacturing directors believe it’s 18%). Other departments’ influence was far smaller.
When asked about how that might change in the next 18 months, the respondents saw sales and marketing’s role increasing slightly, procurement moving up significantly to second place, then the board, and then IT departments falling back, with production and manufacturing, although in the ascendant, still trailing.
Says Washer: “Procurement and purchasing people, and to a lesser extent, production and manufacturing managers are moving up fastest to drive e-business implementations.” And he adds: “it seems e-business is already showing signs of maturing – it’s increasingly about line managers with the most to gain taking responsibility. They’re seeing the kinds of gains they can get for the business, and our survey shows that when they find they can get them relatively easily there’s a snowball effect.”
Washer also notes that the IT department’s role in all this is reducing: “they’re becoming more support-orientated, and this is going to be the pattern for the future” he says. And here’s another interesting observation: it appears that a sizeable (albeit diminishing) majority of manufacturing directors feel they’re not involved early on. Washer believes this reflects the early emphasis on sales and marketing. “Many feel that e-business has little to do with them – it’s mostly about selling and promotion over the web.” And Benchmark research manager Paul Watts confirms the interpretation, adding that face-to-face interviews revealed worrying overall ignorance of web technologies among manufacturing managers compared with their counterparts in sales, marketing and procurement.
It’s odd though. Because, although on the face of it entirely understandable, Benchmark’s study also finds that of the manufacturing and production directors that have actually implemented e-business, most are anything but ignorant – and the benefits they parade have everything to do with front line, solid manufacturing, production and business improvements. Comments Washer: “where manufacturing people are involved they’ve mostly come at e-business from the supply chain direction, or providing web-based access to their ERP or front end configuration or scheduling systems for availability, capable to promise and the rest. So we’re seeing a gap here between those that have done it and those that haven’t.”
And the survey certainly punches out the benefits. 54%, for example, of manufacturing and production directors that have done it said they now have better communication with customers, 53% also with other departments and 48% with their suppliers. “These might sound like quite soft benefits, intangibles, but our respondents say they’re hugely underestimated,” says Washer. “They say better, faster communications have impacts everywhere – it means the business can be much more responsive, lean and customer-focused. And that’s key.”
Other benefits? 41% mentioned access to more accurate planning information, and the same numbers also claimed they were now able to meet customer orders faster and more reliably. Beyond this, 39% reckoned they had more reliable delivery of materials and components to the factory, 36% claimed reduced order to finished goods cycle times, and 34% faster delivery of materials to the factory. If that wasn’t enough, 31% cited improved visibility of real time events throughout the factory floor and 30% specifically said that inventory levels had been reduced.
Some achievement - and some testimony to the web. But there’s more: manufacturing managements’ expectations of e-business for the future are just as promising. Benchmark reveals significantly heightened belief in its ability to improve communications, and more than half also expect it to improve on-time order fulfilment, while offering access to customers’ and suppliers’ ERP. Similarly, 50% anticipate more accurate planning and more reliable material deliveries to their factories (46% also expect them to be faster) – and significantly, 46% are certain of reducing cycle times.
In fact, Benchmark’s findings of the different functional groups’ perceptions of the e-business’ benefits are among the most revealing in its study. For example, among sales and marketing directors in firms that have already implemented e-business, 60% say they have improved communications with major customers and 42% also with smaller. 49% say they’re using it successfully for product promotion; 42% reckon they’re reaching new customers and markets; and 40% say communications with other departments are better.
But here’s a little perspective: of the 33% in Benchmark’s survey which are now selling on-line, only 8% are generating more than 10% of sales this way. Nevertheless, expectations for the near term are high: better communication with customers is top (76% for major firms and 62% smaller). 69% expect to enhance advertising, 62% say they will reach new customers, and almost two thirds are confident of increasing revenues over the web. In fact, these directors expect nearly all manufacturers to be selling on-line down the supply chain within one or two years – with 85% seeing between 10 and 60% of their sales via the web.
It’s not all a bed of roses though. Of those selling on-line today (76 respondents), main problems have been lack of integration between their ERP and e-business systems (52%), the resulting need to re-key orders into the ERP system (47%) and non-automated order processing (44%) – meaning staff have to re-confirm order details conventionally. Others to note were: 32% found suppliers having difficulties with web trading and 24% noted difficulties in handling international tax and duties.
Security, so often paraded as a big issue by those that haven’t done it, barely registered among those who have. Says Washer, “we shouldn’t be surprised by this: yes security is an obvious concern for anyone thinking about the web for critical information sharing – but it turns out not to be that difficult. It’s all about fear of the unknown: our study shows it just isn’t a big deal.” But, he adds, “lack of integration with ERP systems is the real problem; that’s what will hold back e-business implementations in this early phase. Manufacturers are going to be forced to upgrade their ERP systems for web compatibility or find ways round it.” Watts adds that this will become even more important as firms begin to realise the value of looking back up the supply chain to include suppliers, as well as out towards their customers.
What about the picture of benefits as seen by purchasing directors? Of those already on-line, 46% said they had already identified new sources of supply and established better communication with major suppliers (34% with smaller), and 35% said communications with other departments were now better. Just 14% had reduced the cost of consumables (indirect materials), while 12% mentioned reduced cost of production (direct) components. As for improvements over the next two or three years, even more (10%-plus) expect improvements with communications with suppliers, finding new suppliers and communicating with other departments.
But most important, almost half expect to reduce the cost of direct materials purchasing – up an astonishing 400% on experience to date. Interesting this, because of the 33% of respondents Benchmark found already buying direct materials on-line, so far only 7% say this accounts for more than 10% of procurement. But two years from now, 82% expect to be buying on-line, and 65% more than 10% of it! “Manufacturing industry clearly sees this as a major cost cutting opportunity,” asserts Washer.
What about their perceived difficulties? Benchmark found 97 procurement directors actually doing e-business, and their problems largely reflect those of the sales and marketing people. Number one, reported by 52%, was order processing not fully automated means suppliers have to re-confirm web orders by fax – closely followed by lack of integration between the ERP and e-business systems. Below these was (again as for selling) difficulties with international trading regulations (30%) and the same with taxes and duties (28%).
One final aspect of Benchmark’s report worth particular attention is its findings of respondents’ overall views of the barriers that limit investment in e-business. And at the top of the list was security – despite those that have done it saying the opposite. More believable is cost constraints, followed by shortage of internal resources, problems of integrating with their ERP systems (Benchmark found a full third of respondents anticipating significant changes needed with their ERP systems, and that’s a lot) and educating staff in Internet technologies.
Many, understandably, remain concerned about quantifying benefits and ROI – again despite the experience of those that have done it. Others cite traditional company culture and fear of change as their biggest barrier to progress.
Nevertheless, with the clear shift in attitudes towards – and understanding of – e-business across manufacturing demonstrated by this study, and the concern of competitors getting in first, it looks certain that e-business will continue to accelerate into our sector.
Author: Brian Tinham