The manufacturing industry, which is now gearing up for its second growth curve (following a period of sluggishness), is continuing to invest in IT and supply chain management to get leaner, meaner and fitter. Segments within manufacturing such as automobiles, steel, aluminium, cement, auto ancillaries, forgings and pharmaceuticals are already showing signs of a revival.
According to business intelligence firms in India, the manufacturing sector will play a crucial role in fuelling the countrys economic growth in the future. A 2002 study by McKinsey & Co on Improving Indias Manufacturing Competitive-ness vis-a-vis China reiterates the sectors export potential. The McKinsey analysis shows that exports in this market can be boosted to $70 billion if Indian manufacturing companies implement innovative strategies to re-invent themselves and become more globally competitive.
A Growth Catalyst
Most leading companies in the manufacturing sector have beefed up their IT purchases in the last decade, deriving significant benefits from their automation strategies.
Technologies such as ERP (enterprise resource planning), CAD (computer aided design), SCM (supply chain management), data warehousing and CRM (customer relationship management) have been increasingly harnessed by players to bring about production and process improvement and customer centricity.
Today, manufacturing companies large, medium and small focus on capturing all production and process efficiencies that IT affords and use technology solutions to streamline their supply chains and internal operations. What typically used to be an enterprise phenomenon giant manufacturing organisations aggressively implementing IT has now petered down to the SMEs (small and medium enterprises) within the manufacturing pack. It is now the SME segment which is witnessing a proliferation of IT within its domain and opting for products and services that will have a direct bearing on their existing and future business goals. The large companies, meanwhile, continue to consolidate their IT investments and achieve maturity in their automation endeavours.
Manufacturing Firms To Beef Up IT Spend
An analysis by Gartner Dataquest reiterates the growing importance of IT within the manufacturing vertical. In a study, titled Manufacturing Industry Outlook, 2002: A Look at Solutions Opportunities, Gartner states that the total worldwide IT spending in 2002 was around $1.7 trillion. Financial services, manufacturing and communications were the three leading verticals accounting for a cumulative share of 57 per cent of the total IT spending (IT spend figures 2002; source: Gartner-Dataquest). The report also shows the following: IT spending in the manufacturing vertical touched around $71 billion in 2002 and is expected to rise to $96 billion by 2005.
Total IT spending within the manufacturing vertical will witness a CAGR (compounded annual growth rate) of 5.9 per cent in the US; 8.3 per cent in Asia-Pacific; 9 per cent in Central and Eastern Europe; and 9.9 per cent in Latin America during the 2000-04 period. Closer home, the IT usage patterns are quite similar. Recent studies by the National Association of Software and Service Companies, (Nasscom), have revealed that the manufacturing sector accounts for 15 per cent of IT usage across industries in the domestic market.
According to Nasscom, while numerous large manufacturing companies in the automobiles, auto ancillary, pharmaceutical, steel sectors etc have made significant investments in IT, the smaller SME players have been slower in implementing these solutions.
The studies also point out that enterprise applications such as ERP, SCM, CRM, are being actively rolled out by companies and will continue to hold centrestage in the years to come. Over the past two decades, global organisations have matured and evolved from their islands of automation state, to integrated, well-knit set ups with extensive information and knowledge exchange capabilities.
Recent research by Accenture has shown that the stock prices of public companies that invested in getting their operating model right with the aid of supply chain technology outperformed their rivals by 20-25 per cent. Companies with the right supply chain model are likely to lead within their verticals owing to their lower cost of customer servicing, efficient turns of inventory and high working return on assets.
Integrated Data Models
The key to knowing more is using a common data model for all business processes, across all languages and currencies and all organisation structures. For example, concept-to-release is a business flow with a single data model; everyone sees the same data-marketing, sales, production-and they can all collaborate. Furthermore, managers can receive daily business intelligence that is accurate and up-to-the-minute, because it comes from a single source of truth.
They can review the companys profit and loss, marketing leads, sales forecast, service requests, contract renewals, orders processed, headcount, on-time shipments indeed, any measurable aspect of the business. And, because it all comes from a common data model, they can drill right down to the level of individual customer orders to understand any variance.
Integrated architecture is the key that helps organisations transform to a networked supply chain. This was a vision only four years ago but is a reality today, thanks to the efforts of enterprise application developers who have been able to come out with the right suite of products to meet these evolving requirements.
The author is senior director, Oracle India Private Limited