Caution becomes constraint
Manufacturing show offers modest indicators that enterprise apps spending may loosen
By Roberto Michel, editor -- Manufacturing Business Technology, 4/1/2003 12:00:00 AM
No one predicts an imminent return to the heady days of application spending seen in the late 1990s, but research put forth at National Manufacturing Week (NMW) indicates manufacturers may be ready to loosen their purse-strings for enterprise, supply chain, and production management applications that deliver specific returns.
"We're finding some cause for optimism, especially among smaller manufacturers," says Bill Swanton, a vice president and research fellow with Boston-based analyst firm AMR Research, which released a study on global manufacturing trends at NMW, held March 3-6 in Chicago.
The AMR study found a mixed attitude toward overall economic recovery by manufacturers, but with a slight optimistic slant, especially among smaller companies with less than 500 employees. Additionally, while most study respondents said capital spending—including spending on information technology (IT)—remains flat, one-third see an increase, and small enterprises were again the most optimistic.
The National Association of Manufacturers (NAM), the Washington-based trade association and sponsor of NMW, also released a study at the show. It found three-fourths of members surveyed expect overall capital spending growth to be below 5 percent in 2003.
NAM President Jerry Jasinowski sees signs that capital spending will increase. "Most manufacturers I know are busy looking at investments," he says. "Unfortunately, they aren't making any yet ... but they are poised to make them."
Tony Raimondo, a NAM board member and chairman and CEO of Behlen Manufacturing Co., a Columbus, Neb.-based supplier of livestock equipment and grain storage products, believes manufacturers will increase their IT investments, although modestly. Behlen itself is just coming out of an 18-month freeze on new IT spending projects, says Raimondo.
Patrick Sedillo, Industrial Sector segment executive, Small & Medium Business, with Armonk, N.Y.-based IBM Corp., works with small and mid-market enterprise software vendors. He believes applications spending is bound to pick up soon. While Sedillo acknowledges the tough economic times of the past couple of years have brought a reduction in capital investment, manufacturing may be approaching the point where new systems are needed.
"Manufacturers have cut inventories, trimmed back workforces, and improved on business processes," says Sedillo. "To get to the next phase of improvement, companies need to invest again in technology. When the lack of updated systems becomes the constraint, then we'll see that level of investment increase."
Turning the corner on slowed applications spending can't come too soon for software companies that exhibited at National Manufacturing Week, many of which have seen declining sales—or at least a declining rate of growth—over the last two years. The response of most vendors has been to focus enhancements around specific business process improvements.
Scott Rich, a company vice president for Lilly Software Associates, a Hampton, N.H.-based enterprise suite vendor, says that while some companies still need enterprise resources planning (ERP) systems that fit their vertical industry needs, others are looking to enhance the value of existing ERP solutions by deploying constraints-based planning tools and bottleneck management techniques. "There definitely is a trend toward companies looking for the second round of improvement after ERP," says Rich.
Chicago-based enterprise suite vendor IFS is touting a concept called 3LM. According to John Bridges, a vice president for IFS North America, 3LM means that IFS Applications 2003, IFS's suite, addresses the three main aspects of business—customers, products, and physical and human assets—as integral to the suite's various components.
For IFS customers such as Hitachi Koki Imaging Solution, a Simi Valley, Calif.-based manufacturer of digital network printers, 3LM manifests itself in functionality like product configuration, which tracks as-built configurations within the IFS suite, resulting in accurate orders. "With 3LM, we get our customer thinking about the overall processes they deal with in business, rather than modules or components within our system," says Bridges.
Kronos, a Chelmsford, Mass.-based vendor of integrated human resources, payroll, and labor management solutions, had a strong return-on-investment (ROI) story to tell. A study of Kronos's Workforce Timekeeper solution recently conducted by Nucleus Research, Wellesley, Mass., found three-quarters of users reported an ROI above 250 percent, with organizations achieving payback for the system in an average of five months. According to Clay Ritchey, manufacturing industry manager for Kronos, this level of ROI is derived in a couple of ways.
"By automating payroll processes, inaccurate entries are eliminated," says Ritchey. "This alone delivers tangible ROI, as seen in the study, where elimination of payroll errors generated system payback for 88 percent of users. The other main area of benefit stems from labor management analytics, which give companies insight into how to get rid of nonvalue-added activity."
