Focus your IT spend

Another year has passed and UK manufacturing can look forward to another Computers in Manufacturing (CIM) Show, this time even more focussed and geared up to help companies identify the right software solutions for their businesses, whether that means supply chain management, enterprise software (ERP), e-procurement, 3D design, or simply software to help you integrate your existing business systems. But times are tougher than ever for UK manufacturing firms. Recession is looming. The UK Office for National Statistics states that, “Manufacturing output in the last three months fell by 2.1 percent compared with the previous three months.” It says the sectors most responsible for the downturn are “The electrical and optical equipment industries, with a significant decrease in output of 10.4 percent over the last three months.” But what does this mean in terms of IT? Quite simply, it means more pressure will be exerted on the software vendors to prove their systems really can deliver value to manufacturing businesses: improve their engineering and manufacturing productivity levels, reduce inventories, make supply chains more efficient, improve business workflows and improve the bottom line. The days of vendors riding the wave of Y2K expenditure and all the hype surrounding e-business are well and truly over. Manufacturers won’t be stopping their IT investment altogether, but will be making the most of their existing systems, and bolting-on new applications. So integration vendors may even see an upturn in their fortunes as a result. “Rather than buying full suites of software, companies will be focussing on middleware, integrating their current systems and making the most of what they’ve got,” says CIM Show director, Damon Thompson. “We’ll see companies take a more cautious approach to IT spend, with longer conversion times [from initial lead to contract signing] for vendors, and phased investment.” And Guy Washer, director of manufacturing-focussed market research firm Benchmark Research, agrees: “The main difference today is that manufacturers are looking for technology that addresses specific business issues rather than simply investing in IT for the sake of IT. That means rooting out software at the CIM Show that directly improves the productivity of your workforce and helps you remain competitive in the marketplace.” It’s not all doom and gloom though. A lot has changed in the last 12 months. Software is even more ‘open’ these days, and there’s the web, making supply chain collaboration between engineers, manufacturers, suppliers, partners and customers more achievable than ever before. The CIM Show itself is an important meeting place for manufacturers and the software vendor community. The educational programme and exhibitor area is split into some of the main IT challenges facing manufacturers today: supply chain management; design technology; manufacturing management; e-procurement and e-business; and collaborative commerce. According to Show director Thompson: “This is manufacturing industry’s most authoritative IT think-tank.” So the message from Thompson is get yourself along to the Show and take advantage of all this – learn from industry peers and test out your new ideas with the experts and those that have been there and done it. Internet is key Starting with supply chain management, what should manufacturers be considering here? Well, perhaps they should take a leaf out of Volkswagen’s book. The German car manufacturer has been working hard for the last couple of years on several IT projects and reckons it’s making huge savings by integrating the complete supply chain, from design right through to manufacturing, sales, distribution and service. How? By developing an online collaborative e-marketplace that covers online material auctions, catalogue purchasing and supply chain capacity management. And the Internet is key here. Dr Jens Neumann, VW’s main board director, explains: “The web brings wider scale integration, speed and collaboration.” He says the problem before the ‘e’ implementations was, “Too much patchwork as a consequence of … departmental approaches … too many legacy systems … too much complexity … not enough transparency. Web-based IT … will just blow away old-fashioned hierarchical information management, foster team spirit, speed up decision-making and increase transparency for our customers and stakeholders.” Neumann reckons the average cost reduction per order has been cut by 13%, but the real benefits have come from compressing time in the supply chain. In some cases, 10 days work slashed to just two hours! But that’s not all. Process costs have been reduced by 50%, and delivery times shortened by no less than 70%. So manufacturers have got to start thinking about their supply chain and how they can eliminate waste, and compress time, from it. There are certainly plenty of vendors with software solutions in this area, from supply chain management to optimisation, execution, planning and forecasting. There are also more packaged applications around now, which are relatively quick and easy to implement. And the big ERP vendors have also got in on the act, along with some of the former warehouse management software companies. And closely related to this are design technologies and that much-used word, ‘collaboration’. Whether you’re considering moving from an aging 2D CAD system to 3D, or embarking on a PDM (product data management) project to store and manage all your product-related documents in a single, centralised database, manufacturers can seriously improve their productivity levels here. Sharing design know-how And once again the web can help you out. There’s a host of web-based design collaboration tools available in the marketplace that are fast and relatively cheap to implement. But there are business issues to think carefully about before diving in. A warning from Bob Brown, principal consultant for industry analyst Cambashi: “When we talk about design collaboration we’re usually thinking of companies collaborating with their supply chain. This can mean large companies collaborating with smaller ones, typically, but this stereotypical image is unhelpful – the relative size of the players is less important than the significance of their contribution to the design and their willingness, or otherwise, to play.” He’s right. There’s already a problem persuading design departments to share their knowledge with and accept input from others, even within a single company. As soon as the design process crosses the company boundary it starts to involve people whose goal is to maximise profit for their own company. According to Brown, “Fundamental commercial considerations now colour every decision about sharing information and working together … the retention of design know-how is very typically at the heart of the issue.” So on to e-procurement and web marketplaces. A year ago, the major vendors in this area were shouting about the savings companies could make with this technology. The likes of Ariba, CommerceOne and Oracle certainly all profited from the large corporate customers that had the necessary spending power and could therefore aggregate this spend over their global sites to make huge savings. Typical savings on indirect (office supplies, stationery and the like) materials were as much as 20 to 30% for some of these clients. But what about the more complex, engineered (direct) materials? Industry analyst AMR Research has been tracking 300 trading exchanges in Europe over the past 12 months. Nigel Montgomery, AMR’s European director, says: “European companies have seen short term price savings as a result of trading exchanges and e-procurement [on indirect goods], but if you’re looking to source complex materials, manufacturers have to look at their supply chain relationships closely. “In our European survey this year we found the biggest barriers to trading exchanges were partner readiness, cost and legacy business models... But Europe is catching up the US. Although we still lag the US on adoption rates, the functionality we have here is more than equal to the US. “The really big difference here is our attitude and culture,” he adds. “European companies are now demanding faster paybacks, they’re getting smarter and they want to see real business value from the technology they implement.” And Montgomery’s message to manufacturers visiting this year’s CIM Show: “Go to stands with a couple of clear business issues that you need to solve, like reducing stocks, improving lead times, cutting design development times, etc. Don’t simply ask exhibitors, ‘So what software do you do then?’ Or ‘I’m thinking of getting into e-procurement.’ This simply invites vendors to give you their usual product sell speak.” He has an equally strong message for the vendor community: “Users are more educated now compared to one year ago. They’re more cautious with thier IT investment, therefore vendors are struggling to cope with longer conversion times and a higher cost of sale. “What’s still worrying though is that many users we are talking to rely heavily on the software vendor to develop their e-business strategy. In a survey we did this year, 34% of respondents said they were doing this. This is not the way it should work. It’s like asking a garage mechanic what needs servicing on your car!”