Do we have the right expectations from IT in the Manufacturing space ?
India is fast emerging as a global manufacturing hub on account of its skilled manpower, access to raw materials & most importantly a large domestic demand which is growing by the day. Manufacturing roughly contributes 15% of the GDP of India & provides the largest direct & indirect employment in the country. Attaining a competitive edge in manufacturing depends on several factors such as technology, focus on productivity & quality& positive governmental regulations. IT is today being widely embraced in this sector & has the potential to provide a distinct competitiveness to this crucial sector of our economy.
IT is helping to provide step changes in productivity though an entire range of manufacturing processes and is enabling companies to integrate both with their global & local suppliers & customers.
To sustain the growth in the manufacturing sector and also face the increasing competition globally & locally, companies will now have to look towards value addition rather than cost reduction alone. The path towards achieving this would involve inculcating global manufacturing best practices and IT will be a keen enabler to achieve this. Today Enterprise Resource Planning systems talk about not just IT adoption but also adoption of IT in line with global best practices.
However inspite of these advantages, the embracement of IT is still low in manufacturing firms compared to Western economies such as for instance in US, Germany or even UK.
Broadly for IT purposes, firms can be classified into those having a turnover – large (> 100 crores), medium (10-100 crores) & small (<10 crores). The aims & strategies for IT enablement in these firms depends to a large extent on size of these firms.
The key challenges faced by firms however irrespective of size remain fluctuations in raw material cost & in time, in quality supplies to customers. In short supply chain optimization. IT expectations are to assist in tracking production costs, tracking product quality, tracking customer orders and deliveries and most importantly provide strategic information to management to improve their processes continually.
In majority of organizations the success of the IT outcome depends on synchronizing the IT goals with Business goals. Organizations which have got this right have experienced significant benefits and those which haven’t are faced with issues such as confrontation between IT & Business interests, money which has not given expected benefits & returns and most importantly losing out the competitive edge in the longer run.
How does one measure IT usefulness or effectiveness. It is quite challenging & difficult. In the real world everybody uses a computer to do multiple tasks – surfing the internet, acquiring information, communicating, paying bills etc. In short it improves our quality of life. However if one were to put an actual measure on this, it would be a very difficult task and highly subjective.
However when companies invest large sums of money , time & effort on IT adoption they need to be clear on the outcomes and this where the real challenge is both from the companies perspective as well as those helping the company to achieve the objectives.
Studies have shown that a majority of companies which have invested in IT are not completely convinced about the effectiveness of their investment.
The challenges for large firms has mainly been in time deliveries , obtaining real time information and making decisions based on these whereas for smaller firms it is more to do with tracking costs and competitive pricing.
Typically the business expectations from IT are tracking costs, meeting timely deliveries, quality & access to business information.
In order to increase the benefit of IT investment, typically it needs to be combined with organizational change, BPR, greater business knowledge among IT staff and increased IT knowledge among the organization.
Some of the critical areas where IT is expected to help out are Order & demand management , Material scheduling , Accounting , costing , Vendor handling & payments , Invoice generation , material accounting ad of course HR & payroll systems.
Enterprise Resource planning is the most widely adopted IT application among manufacturing firms. Also supply chain management is also being undertaken to integrate a plant shop floor systems with the constituents of a supply chain. However as far as India is concerned, this is still in a nascent stage. Also organizations today are increasingly talking about Customer Relationship Management.
Today very few organizations, probably less than 3% combine CRM, SCM with ERP. This definitely impacts the effect of IT. However on a positive note organizations are increasingly realizing this and today are talking about implementing SCM & CRM on top of the ERP and specically SAP implementations that have already done.
Today organizations are also talking about outsourcing IT which could result in savings cost as outsourcing organizations bring in better talent and ability to manage the IT systems , this is particularly so in IT hardware.
Since the main reasons for IT adoption are to improve processes such as order taking, delivery management, Invoicing & inventory control, wouldn’t it probably make more sense to focus on process improvement as a measure of IT effectiveness?
The author has worked for some of the largest firms worldwide such as HP, Shell, Deutsche Bank, Hitachi LogicaCMG & iGATE.