Doing well, manufacturers look to do better

Based on a recovery in capital goods investment and increased exports, in 2006, 14 of 22 U.S. manufacturing sectors surpassed their pre-2001 recession production levels, according to the National Association of Manufacturers' (NAM) annual Labor Day report.

"Lead by double-digit growth in computer and electronic products, primary metals, aerospace, and electrical equipment production, overall manufacturing output has increased by 5.8 percent over the past year (66 percent faster than GDP growth). This is the fastest four-quarter increase in manufacturing production in six years," says the report.

Over the past three years, NAM says, manufacturing output grew at a 5 percent rate and, most strikingly, productivity gain grew four percent annually, for a total of 22 percent since the recession.

NAM surveys also indicate its members' optimism moving forward. Its operating survey of small manufacturers, released in October 2006 found that 63 percent of respondents expected sales growth and capital investment of more than 5 percent in 2006.

Therefore, while projections for information technology (IT) markets in 2007 have been mixed, it's not surprising that those for IT use in manufacturing have been more bullish. Manufacturers understand it is IT investment that drives productivity growth, and they see there is much more to be accomplished in this area.

In fact, surveys from AMR Research, Aberdeen Group, and Manufacturing Business Technology show remarkable unanimity in this regard, projecting increasing ERP and plant operations investments in 2007.

An October 2006 AMR Research report, U.S. IT Spending Profile, 2006-2007, by Fenella Sirkisoon, indicates IT spending will grow 3.7 percent in the next 12 months, while capital spending, as a percentage of the budget, will increase from 35 percent to 43 percent, with planned 2007 growth of 5.3 percent. Discrete manufacturers will spend approximately 4.9 percent of revenues on IT, with ERP being the most strategic investment and entailing the largest dollar investment.

Aberdeen Group's October 2006, ERP in the Mid-Market report says midsize manufacturers struggle with a proliferation of aging ERP systems, finding that 42 percent of midsize manufacturers have two or more ERP packages, and 16 percent have three or more.

The author of the report, Cindy Jutras, VP, manufacturing and ERP research, says, "We found that aging implementation based on outdated technology are limiting the business process evolution necessary to any company that wants to thrive and grow amidst the pressures of globalization and increasingly demanding customers."

Manufacturers have multiple ERP systems for three primary reasons: merger & acquisition activity; ERP decisions left to autonomous divisions; and changes in corporate standards in which existing systems weren't replaced. Today, 71 percent of surveyed companies with multiple ERP systems intend to consolidate, says Jutras.

The MBT survey, sponsored by business applications vendor SAP, found a broad mandate for efficacious use of IT, with most companies increasing IT investment and nearly half increasing capital expenditures. The most important area of software investment was ERP, followed by manufacturing operations. Important initiatives influencing IT investments included delivering value to customers (38 percent) and better use of data (27 percent). IT cost containment rated third at 15 percent.