Manufacturing spending more on IT, while capex falls

IT spending by manufacturers in the UK, currently facing their toughest times, is holding up and set to grow early next year. That’s the surprise headline finding of Benchmark Research’s latest study. The firm finds overall investment in IT declined 3.4% between 2001 and 2002, and forecasts a further 1.6% cut this year to £2.92bn before next year’s upturn, despite industry currently continuing to shrink. The figures couldn’t be in sharper contrast to the massive decline in capital equipment – machine tools and the rest – falling from a high in 1998 of just over £17bn to £12.5bn last year. 2002 alone witnessed a 15% decline, according to the Manufacturing Technologies Association. Benchmark, which has been monitoring the manufacturing IT market successfully for more than 15 years, comments that spending in 2002 will in fact be greater, in real terms, than in 1998 when most industries were in growth mode. The firm also says that whereas from 1993 to 1998, industry spent between 1.6 and 1.7% of its GDP on IT, that rose to a high of 2.1% in 2000 and has slipped back to 1.9% now. If Ernst & Young’s recent encouraging assessment of the outlook for manufacturing and engineering (with UK production output predicted to rise 2.9% in 2004 on the back of renewed growth and exchange rate improvements) is well founded, Benchmark’s forecast could be on the modest side. It’s hard to escape the conclusion that British manufacturing not only recognises IT as a prerequisite for business, but that it is coming to perceive it as a preferred route to today’s business objectives of cost cutting, efficiencies and increasing flexibility. Benchmark says preferred IT investments are likely to remain essentially tactical, with justification in fast return on investment and tight links to existing business needs. The company also reports that business managers are increasingly taking responsibility, with IT managers providing the enabling role. Again surprisingly, the company suggests that of the ERP ‘add-ons’, most favoured for priority spending is shop floor data collection after ERP/MRP upgrades, integration and better stock control. Other add-ons like business intelligence, work in progress tracking, modern scheduling and CRM (customer relationship management) are lower down the pecking order – implying a worrying misunderstanding of best gains by managers in industry.