By Andy Archer, Regional Vice President Sales UK at Epicor Software
While economic uncertainty is never a desirable situation, it’s a fact that some of the world’s greatest businesses have started during a downturn or recession. Indeed, of the 100 companies listed on this year’s Forbes America’s Most Promising list, around a third were forged in the doom and gloom years of the global financial crisis.
How did these companies achieve extraordinary growth when others were in freefall? In this article we’ll take a look how businesses can overcome difficult economic conditions by better planning and the deployment of agile technology.
While the wider economy struggles with uncertainty, the manufacturing sector in particular has stagnated. Indeed, last quarter it was reported that UK manufacturing has actually fallen back into recession for the third time in eight years. The woes of factories show no sign of abating after enduring 12 months of falling output.
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A good proportion of this can be attributed to the difficult world economy with rising costs combining with reduced demand, the ongoing effects of the cutback in oil and gas investment and the steel crisis. On top of this, the UK vote to leave the EU raises long term concerns about growth of the global economy.
Economic cycles are a reality but the challenges and economic pressures on the manufacturing sector are distinctive to this part of the economy. This period of downturn is, however, providing opportunities for companies to emerge on top.
There are big changes happening in manufacturing through digital transformation. This fourth industrial revolution, or ’Industry 4.0’ as it is commonly referred to, is explained as a way of increasing competitiveness through the convergence of the manufacturing process with technological and innovative applications and processes resulting in a merging of the virtual and physical worlds.
McKinsey recently published a report which stated that the digital revolution is now breaching the walls of manufacturing as it continues to disrupt media, finance, consumer products, healthcare, and other sectors. It commented that “the explosion in data and new computing capabilities—along with advances in other areas such as artificial intelligence, automation and robotics, additive technology, and human-machine interaction—are unleashing innovations that will change the nature of manufacturing itself.”
The problem is that manufacturing companies have traditionally been slow to react to the advent of digital technologies across the manufacturing value chain and operating model. While there are a few manufacturing companies that have made rapid advances in deriving significant benefits from digital software such as enterprise resource planning (ERP), their number is still small.
It’s time for a new approach. Manufacturers should be working now to build an agile platform that will allow them to adapt to future customer requirements. Organisations that embrace the latest technologies – from mobile to scalable integrated platforms and from SaaS to next gen analytics – will be able to jump on the wave of economic recovery when it arrives.
The pressure on manufacturers to accelerate production cycles and become more customer centric is driving change, although perhaps more slowly than people have predicted. A key factor in this is the extent to which companies are restricted by the lack of visibility they have over an organisation’s core processes.
Manufacturing generates more data than any other sector of the economy, with an abundance of operational and shop floor data that can be used to increase yields and reduce costs. The problem is that few companies are harnessing it. Last year, one oil-and-gas company was reported to be discarding 99 percent of its data before decision makers have a chance to use it.
Manufacturers are increasingly realising the need to adopt technologies that allow them to transform their operating models and digitally connect processes, events, actions, internal and external partners. Introducing software such as ERP can drastically improve the visibility of the whole production process, resulting in efficiency savings across the organisation.
Take, for example, inventory management processes. Central to ensuring inventory usage is maximised is the ability for manufacturers to increase visibility of all inventory levels. This includes static materials and maximising the value of, and gaining real-time visibility into, inventory in-transit.
Dutch solid wood systems manufacturer, Derako, is a great example of data best practice. The company benefits from an integrated ERP system with an intuitive dashboard for wood procurement which improves the purchasing process and saves considerable man-hours. The system makes intelligent procurement recommendations when it is running low on items like foil, nails, and doweling, providing the capability to respond quickly to market changes, customer requests, and stock levels.
ERP has effectively provided Derako with the necessary agility to become more customer focussed and competitive. The fact that the company can make decisions at the front-end of the business (customer) that automatically ripple through to the back-end (procurement and accounting) without manual intervention, ensures that they can provide the economic flexibility required to be truly customer-centric. In a world where markets are stagnating or declining, it is the businesses that use technology to combine efficiency with customer-centricity that will prevail. These are, after all, the businesses that can provide customers with maximum flexibility and choice at a low cost.
Ensuring growth through investment
Downturns force businesses to become smarter in order to compete with, and outperform, their competitors. Coming out of the last global economic downturn, the most successful companies have made progress in boosting competitiveness through efficiency and flexibility.
Companies should be looking to invest, drive efficiency, increase productivity, and increase market share now. While the effect may be small during slow times, it could help them survive and the effects will then be magnified as the economy recovers. Companies that wait until economic recovery before they invest could be months or years behind.
Younger businesses have an advantage in this context because of their inherent agility. Nevertheless, agility doesn’t have to just be the domain of the small or the young. A list of the top ten lean manufacturing companies in the world, which includes top brand names such as Nike, Intel and Ford, shows the extent to which the implementation of these technology-driven initiatives helps even the largest companies achieve success.
Throughout the manufacturing sector, we’re seeing advances in technology that are proving to be the fundamental linchpin shaping this new business model. Technology systems like next-generation ERP give operators at all levels accurate and timely information with which to make informed decisions.
As a result, smart manufacturing businesses are investing now, with the needs of tomorrow in mind. They are also making better use of the technology investments they have already made to jump ahead of competitors and spot new market opportunities. This trend is despite, and in many ways because of, the industry downturn.
The journey is well underway from the long-outdated oil-and-overalls image to a modern and highly innovative sector.