Cambashi column

Posted on 4 Oct 2011 by The Manufacturer

Prepare to replace your current Enterprise Applications Systems! In this new fortnightly column from industry IT experts at analyst firm Cambashi, the challenges and opportunities in manufacturing enterprise technology are laid bare.

Prepare to replace your current Enterprise Applications Systems!

Why? Well, as this blog will argue, they support your business as it was around ten years ago.

Business drivers and business initiatives have changed, Read on, see if you can recognise some of these issues in your enterprise. Whether you agree or not, we welcome dialogue and will try to respond intelligently in future blog entries.

We’re not saying you necessarily need to change your entire IT infrastructure but the cardinal rules in Information Technology are:

1.Never, ever, however tempting, be first
2.Don’t be last either!

What we are saying is that you need to rethink your business processes and that probably means additions, rationalisation and change to your legacy software applications.

Let’s look at ten ways business has changed since the last big enterprise applications refresh in the lead up to Y2K, the dog with a bark bigger than its bite:

1.More focus on core values to create a brand and products with Unique Selling Points and pricing power.

2.Informed consumers changing their choice versus risk behaviour

3.Consumer and business demand for “smart” products and devices with novel functionality

4.Mass customisation, where the customer receives an instance of the product with options chosen at the point of sale, Dell’s PCs are a good example

5.Faster, cheaper and more varied methods for payment and credit

6.Disintermediation

7.Globalisation

8.Multi-modal logistics, cheaper methods of fulfilling orders using different types of packing and shipping

9.Business customers’ procurement rules and processes chasing more value for money

10.Enterprise management’s desire for faster, better, decentralized but synchronized decision making.

Note that none of these are technology drivers. We don’t believe in technology drivers. As business moves on technology improvements simply enable some business initiatives at lower cost and risk.
Enterprise Resource Planning worked. In the last ten years, well implemented ERP applications helped enterprises respond more effectively to demand change.

In the dot.crash of 2001, when experience with ERP was limited, many companies took inventory write-offs or write downs. Cisco Systems took the biggest inventory write-off ($2.5 billion). Other companies include Lucent Technologies ($563 million), Conexant Systems ($149 million), Extreme Networks ($40.3 million), Copper Mountain Networks ($35 million), Xilinx ($32 million), New Focus ($28.5 million), Redback Networks ($24 million) and Avanex Corp. ($21.6 million). In large part, these write-offs were as a direct result of the inflexibility of the supply chain and manufacturing processes.

In contrast, in the credit crunch of 2008/9, companies were much more nimble. Despite steep declines in demand, companies adjusted their output. Supplier contracts were more flexible; suppliers were informed faster; inventories and work in progress did not build up. Labour was more flexible too. According to Deutsche Bank Research, GDP in Germany took one of the hardest hits in 2009 at minus 5%, outstripped only by Ireland and Finland. However, enterprise management were able to identify issues and find solutions faster than ten years earlier, leading to a quick return to profitability. Due to schemes such as the Kurzarbeit short-time work scheme, and less paid overtime, the unemployment rate rose by less than ½ pp, to 8%.

Germany emerged from the credit crunch with one of the strongest economies in the developed world. Now weaker economies are turning to it for help. It is also the economy where management has the most experience and well thought out Enterprise Resource Management implementations. This combination of management information and a flexible approach to business both by suppliers and labour minimized waste.

In future blog entries we will examine the ten business changes we’ve identified. The common theme of these business drivers is that they are facets of increasing connectivity between enterprises. An industry network forms to supply the ultimate customer. To create more value to the ultimate customer the network has to optimise.

ERP kept the score within one enterprise. It minimised waste within that enterprise. However, managers are paid to improve the score, not keep it. We will argue in this blog that you should spend time and effort looking inside at your current processes and legacy applications. That will lead to talking to your existing suppliers who themselves are changing their portfolio. As well as this we will examine some of the specialist suppliers who provide deeper functionality for business initiatives to deal with these business drivers.

The next Cambashi blog will be posted on October 17. If you would like to respond to this blog please email [email protected]