Gary Turner, product marketing director for Microsoft Dynamics, explains how manufacturers can lead the way in times of change and uncertainty
The meaning of the word ‘change’ has gone through something of a transformation over the past two years. Until relatively recently, it had been parked firmly in the lexicon of ‘management consultancy speak’, derided by many in the small and medium-sized business community because it was so frequently used as empty rhetoric.
As we have seen during the first six months of 2009, however, the impetus for business change is stronger than ever. For organisations around the world, the collapse of the global financial system, a major recession and increasingly disruptive technologies make change a fact of life.
Of course, manufacturing has gone through its fair share of changes over recent decades. The sector is arguably more flexible and open to change than sectors such as professional services that have done very well in recent years, without the economic and business pressures that have sent domestic manufacturing into decline.
That’s not to say that manufacturers are always ahead of the game, but as a recent Microsoft Dynamics survey and whitepaper shows, even very small technology-enabled changes can have a very positive business impact on even the most risk-averse and traditional organisations.
As we have found, even seemingly negative change – a need to reduce staffing levels, for example – allows imaginative and positive businesspeople to re-shape and re-invigorate their companies. Our research shows that those businesses able to stimulate change internally – rather than simply react to external forces – are likely to be more successful.
As Andrew Birch, IT director at I’Anson Brothers – a 100- year old feed manufacturer – told Microsoft, “Our business was very risk averse and change was not something that I’Ansons was used to. We started by implementing a new financial and accounting system and it is amazing the cultural impact the technology has had on our business… we are now complete change zealots.”
Change in manufacturing
Mid-market manufacturers have had to get used to massive change over the past 30 years. The most noticeable trend has been for less skilled labour to move to the Far East, with the UK retaining more highlyskilled posts.
Yet despite the rapid erosion of the manufacturing base in the 1970s and 1980s, the sector is still highly vulnerable to external change. Manufacturers have also seen technological advances in planning and production; new markets for environmental, IT and communication products; and, of course, a massive impact from the recession.
According to a report by the Engineering Employers Federation, 140,000 skilled manufacturing jobs could be lost in the UK during the downturn. Smaller and mid-sized manufacturers may be badly hit, although it is the largest, least flexible companies that appear to be taking the brunt, with orders falling to their lowest levels since 1990.
The negative statistics are seemingly endless and it is very easy to get carried away by the doom and gloom. But the latest commentaries and surveys seem to highlight critical requirements for manufacturing businesses looking to ensure their future and come out of the recession in great shape to capitalise. Two of these requirements are flexibility and visibility.
Businesses that are able to flex their approach to suit external change will be better placed to thrive, whatever the circumstances. For example, many manufacturers are looking to bring production closer to home to avoid both the working capital impact and excessive leadtimes of Far East production – and reduce their exposure to fluctuations against the dollar.
Bigger manufacturers are more likely to find this flexibility hard to achieve. Some car makers and other large firms have sought to reduce workers’ hours in an attempt to cut costs. But it is in the smaller and mid-market firms that true flexibility – of markets, products and processes – is most attainable.
Exploiting that flexibility is another matter. Manufacturers able to forecast orders (and their own financial position) accurately will be best placed to make the right changes internally to adapt to external forces. Only by having true transparency – into areas such as input costs, efficiency, margins, currency exposure and so on – can SMEs make sure their size delivers a competitive advantage.
Companies with the capabilities to react quickly to external change and to drive internal change rapidly ahead of domestic and global competition can and will define the UK’s manufacturing base for years to come.
So how prevalent is a culture of change in UK manufacturing companies? Well, quite far according to a recent survey of 500 businesses by Microsoft Dynamics.
We asked directors of organisations from a variety of sectors about their attitudes to change, strategy when implementing change programmes and champions of change in their businesses. Of all respondents, 37% were what we term ‘change pioneers’ – those companies that are ahead of the change curve and push change from inside the business, regardless of external pressure.
Among respondents in manufacturing, the proportion of Pioneers rises to 43%, the highest of all sectors. As a result, 85% of manufacturing companies – again, more than any other sector – claim to actively promote operational change within their organisations.
Looking at the type of change they have experienced, it’s clear that smart manufacturers have been addressing both their cost base and seeking new opportunities for sales:
1 New product development – 57% (highest of all the sectors)
2 Technology infrastructure – 51%
3 Marketing – 48%
4 Business systems and processes – 47%
The Microsoft Dynamics survey shows that the UK’s small and mid-sized manufacturers are being proactively managed through these difficult times, whether it’s in developing new products, streamlining processes or improving customer service.
One of the manufacturers interviewed for the research, I’Anson Brothers, has turned its 100-year-old business into a change-focused organisation to ensure business continuity.
Technology is a key enabler of change, and once businesses successfully deploy technology that helps them gain visibility of their internal processes and financial health there is often a knock-on effect, where technologydriven change permeates through the business culture.
As I’Anson Brothers has shown, small improvements to systems and processes can have large positive knock-on effects.
A new IT system, based on Microsoft Dynamics AX, allowed I’Ansons to remove manual processes, reduce headcount and gave the board more insight into their business operations than ever before. “We are rolling out software and looking to start projects that will change all parts of our business: we now want to procure raw materials more efficiently; need to improve our website and information access; analyse factory and machine performance; reengineer our supply chain; and move to using analytics and key performance indicators so we can manage by exception,” Birch says.
Another example of a ‘change pioneer’ is Allgood – a manufacturer of bespoke ironmongery for clients including Mercedes, London 2012 and Heathrow Terminal 5. For Allgood, it’s all about providing the best in quality, but justifying the associated cost to customers is no longer predicated on quality of product alone.
As Allgood’s head of IT Jan Dragosz told Microsoft: “We offer the highest quality in workmanship, but that makes us expensive compared to other lower-quality suppliers.
In the current climate we justify that expense through our workmanship, but also by demonstrating to customers that we can change and respond to their needs quickly.” Allgood needed to change the way they worked internally to allow them to respond more quickly to customer needs and shorten order turnaround times. The only trouble was that their technology was part of the problem.
“Our inventory system, customer management, and quotation systems didn’t interoperate,” says MD Peter Hill. “Gaps in the flow of sales, purchasing, inventory, and contract data forced people to re-enter data and chase information to deal with issues after they occurred.” Employees had developed a complex web of workarounds and localised solutions to supply chain issues.
Using Microsoft Dynamics AX, Dragosz was able to pull all of these processes together on one platform. “Because the system is adaptable, we can liberate people from unproductive labour,” he says. “Purchasing spends less time sorting out problems and more time securing better discounts. Contract management teams aren’t doing data entry; now they are liaising with our clients.” Allgood are now rolling out change programmes with their suppliers and partners to manage stock and shorten lead times.
Change and technology
Clearly, technology can facilitate change in a business, delivering a flexible platform that helps decision-makers understand what their options are, how their actions will affect their company and helping them commit to those actions quickly.
A strong technology platform is therefore a prerequisite of change. According to the Microsoft Dynamics survey, 51% of directors claim that their finance, inventory, HR and management IT systems are all integrated, yet the figure is just 42% for the group identified as ‘change followers’. There is a direct correlation between smart use of technology and both willingness and ability to effect change.
In manufacturing, Microsoft Dynamics provides an integrated suite of applications that give companies the tools to plan, manage, and execute operations and manage the entire manufacturing process from product configuration, supply and capacity requirements planning, to scheduling and shop floor.
Companies with the capabilities to react quickly to external change and drive internal change rapidly ahead of domestic and global competition will define the UK’s manufacturing base for years to come. Flexible and responsive businesses will also be able to do so without compromising their business models or margins.
As manufacturers like Allgood and I’Anson Brothers have found, a robust, yet flexible software platform can improve agility, promote innovation and instil a culture of change throughout an organisation.