The results of a recent IDC Manufacturing Insights survey suggest that manufacturers have learned some hard lessons from the chaotic market conditions of the past few years. Cost containment initiatives are important, but they are not sufficient. Being lean and mean on its own does not make you a winner.
Investment in product innovation is at the core of these growth strategies. In fact, no manufacturing industry segment spends more on research and development than high-tech. Nearly 80 percent of the high-tech respondents in the IDC insights research (375 manufacturing leaders across 12 countries were surveyed) noted that the key to sustained growth is through product innovation.
However, economic turmoil and a lack of consumer confidence have forced the industry to tighten R&D budgets. This requires companies to do an even better job at portfolio management to adequately fund fewer projects with the best market opportunities. Better integration of product development with sales and marketing, supply chain management and sourcing is also critical to fully exploit time-to-market.
Demand volatility has also risen sharply and high-tech manufacturers have to cope with increasing market complexity and uncertainty. To counter volatility and improve customer fulfillment, manufacturers need to find new ways to not only better forecast and sense changes in demand, but to more proactively shape demand. According to the research, more than 40 percent of high-tech manufacturers will undertake initiatives to improve demand management capabilities over the next three years.
Another key initiative to keep costs under control is investment in supply chain technologies and sourcing optimization. With the increasing complexity in high-tech supply chains, more than 60 percent of respondents are focusing their cost containment initiatives outside the four walls of their enterprise. The key strategy is to reduce the number of suppliers next to sourcing components from lower-cost regions.
However, low cost is not enough in the hyper-competitive high-tech industry - it needs to be combined with an extremely agile, flexible supply chain that can dynamically respond to changes in demand. Over the next three years, high-tech manufacturers will be busy identifying how their supply chains should be better structured to respond to fluctuating demand at an overall lower cost. High-tech manufacturers will employ supply chain segmentation strategies to employ various models optimized for cost, flexibility or lead-time depending on the product and lifecycle stage. Supply chain management and sourcing will become a critical weapon not only to lower costs and protect margins, but to fully leverage margin improvements resulting from product innovation and time-to-market leadership.
Finding the Right ERP System
IT systems are the critical element for high-tech manufacturers to manage the increasing complexity in their business and deliver against the initiatives outlined. IDC's research indicates that many high-tech companies have not achieved operational excellence as they are still struggling with data accuracy, information silos and business process integration. Almost 50 percent of survey respondents find their existing ERP system too complex to customize and too difficult to integrate with other systems.
A large portion of survey respondents describe their ERP systems as "financial ERP" systems that mainly serve as a system of record and do little to support the core operational needs of the business. Manufacturers cite a lack of industry-specific capabilities as the main reason they have to heavily customize their systems and interface them with other complementary systems. The result? A complex system landscape that is next to impossible to manage and maintain, let alone upgrade. But this does not even take into account inaccurate data, information silos, the lack of business process integration, organizational silos and compliance risks.
It is not surprising that close to 80 percent of high-tech companies feel that their current ERP system does not allow them to react quickly enough to changing business needs. However, manufacturers are determined to fix the issue given its strategic importance: nearly 50 percent of respondents expect their company will undertake specific initiatives aimed at better aligning IT with the business over the next three years. But how do you get there?
Our research has shown that financial ERP systems improve IT efficiency over custom developed systems, but do little to support the needs of the business. Best-of-breed applications can help with improved business alignment, but typically result in inconsistent data, information silos and a lack of process integration. But there is a better option: The answer is "operational ERP" systems that are built to support the specific operational needs of the high-tech industry, without compromising on financial management and compliance. Because such operational ERP systems come with best practices built in, they can be implemented faster with fewer customizations and require far fewer integrations with specialized applications. And because they deliver a wealth of industry specific functionality, they can be rapidly reconfigured to enable business process change and innovation.
As companies seek to consolidate systems, and standardize information and business processes across their global operations, their needs require a single-instance ERP. Sixty-three percent of survey respondents plan to consolidate their ERP system landscape and support their global business through a single global instance. Why? Because increasingly global operations require multi-site planning and execution capabilities to orchestrate increasingly complex processes. Strategic sourcing and shared services promise significant cost savings across organizational boundaries. Global visibility and the sharing of best practices, in pursuit of operational excellence, will soon become a reality.
But perhaps even more importantly, a single instance of a global operational ERP is a key foundation for growth strategies. When asked about major limitations of their current systems, over 60 percent of IDC survey respondents noted the inability of their current system to support fast decision making. Further, almost 50 percent cited a lack of support for collaboration and social networking capabilities. Unlike traditional ERP systems, which have treated reporting and analysis as an afterthought, next-generation solutions deliver business intelligence and collaboration tools seamlessly into the process. Next generation solutions take a holistic view of business processes beyond planning and transaction management by providing engaging and insightful user experiences for every end-user in the organization.
High-tech manufacturers also believe that the major barrier to effective decision making comes from the inaccessibility of accurate data, as it is stored in too many different IT systems and locked up behind rigid organization and information silos. Manufacturers want to overcome the current system fragmentation and encourage a more collaborative environment with greater visibility and easier access to insightful information. As a result, these manufacturers recognize the importance of modernizing traditional IT, leveraging what IDC calls the "four IT forces": cloud computing, social business, mobility and big data. Next generation operational ERP fosters collaboration and enables rapid decision making and coordinated action across on-premise and cloud services by embracing the social enterprise, enterprise mobility and big data.
Nearly 95 percent of the respondents believe that these four forces will change the way they work in the near future, and more than 40 percent believe these forces will completely alter the way their businesses are managed. The real strength of the four IT forces is delivering both IT productivity and business value at the same time. IDC Manufacturing Insights expects high-tech manufacturers to make foundational investments in these technologies to improve the value of their IT systems very soon, and those manufacturers will be the ones to see long-term growth in their bottom line.
Keywords: ERP & Enterprise Systems, Forecasting & Demand Planning, Business Intelligence & Analytics, Business Process Management, Collaboration & Integration, Cloud, Saas & On-Demand Systems, Technology, High-Tech/Electronics, financial ERP systems, operational ERP systems, single-instance ERP
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