In the recovery, keep it simple to succeed
What is the right framework for making 2010 investment decisions?
Thomas Tan, SAP
However you look, 2010 is shaping up to be a year of opportunity much more than the past two years have been for most midsize manufacturing companies. With the latest numbers from the Department of Commerce showing signs of improvement in the economy, executives are factoring that data into their investment plans for 2010.
However, with the signs of recovery comes a challenging dilemma: If they invest too aggressively, they could get ahead of the curve and significantly increase their financial risk, given the uncertainty about how fast the recovery will be in 2010. However, if they take a conservative approach, they could risk falling behind competition and missing out a rare opportunity to get a head-start.
In such a situation, what is the right framework for making 2010 investment decisions?
A Simple Framework:
As midsize manufacturing companies start to recover from the credit freeze and declining demand of 2009, we believe that they should choose those investments in 2010 that will best leverage the two unique advantages they have over large companies - agility and focus. The ability to move fast to take advantage of new market opportunities is one of the midsize company's biggest advantages.
Furthermore, midsize companies also enjoy a sharper edge by specializing in a narrower range of products and services. On the other hand, midsize companies cannot afford to move fast in the wrong direction or place wrong bets with their limited resources. As manufacturers plan to invest in areas such as technology, equipment and headcount they should ensure that every one of these investments allows them to become more agile and grow their market focus.
This translates into things that will help make the business processes more agile and efficient, business model more flexible, and executives to have clearer visibility into what is working well and what is not.
Implications on Manufacturing Systems Investments
By applying this framework, we can evaluate various investments in manufacturing systems for 2010 and make the right decisions:
- When it comes to manufacturing systems investments, nothing is more fundamental than having a solid ERP (with integrated plan floor system) that enables organizations to integrate all their business processes, make them more efficient and increase the velocity of information flow within their four walls, as well as with customers and suppliers.
- Increased velocity of information flow provides agility in responding to customer demand changes or new supply constraints. As a result, the manufacturing environment becomes more responsive to new customer orders. It also allows manufacturer to proactively address potential customer shipment delays or reduce unnecessary inventory buildups.
- Business Intelligence or "BI" enables people to better understand, analyze, and even predict what's occurring within their company and make decisions based on facts rather then instincts. With role-based dashboards showing KPIs such as order fill rates or work center utilization or forecast accuracy, everyone uses the same source of truth - allowing the management team and everyone within the organization to get on the same page and sharpen their focus.
The combination of BI and ERP improves agility by streamlining financial, operations, sales and marketing processes and then succinctly surfacing information on what is working and what is not on an ongoing basis, so you can correctly prioritize and rapidly act/react.
- The combination also sharpens the market focus by providing every manager within your organization with the same version of truth, so there is alignment between strategy and operations and any disconnects are eliminated.
Because of such capabilities, these two technologies serve such a core foundation for consistent execution for any manufacturing organization, that without them it is difficult for a company to show predictable growth quarter over quarter.
The Balancing Act
Delivering profitable growth requires executives to carefully balance and tune the multiple levers they have at their disposal. A mid-sized manufacturer must evaluate the right mix among the various investment options that give it the most leverage.
By cautiously investing in those areas in headcount, technology and equipment that enable the organization to continue to be agile and focused are likely to position it well in 2010 and beyond.
Thomas Tan is director of solutions marketing at SAP in its SME solutions marketing
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