Now Is the Time to Invest in IT

Today's most successful businesses believe that if they are not moving ahead, they are falling behind. Is your business watching, or are you participating?

Today's senior executives are facing more complex business challenges than have any generation before them. Recent world events have created a new sense of urgency: Economic uncertainty, employee layoffs, labor strikes, reduction in capital expenditures and the residues of war have all contributed to executives searching for new and creative ways to adapt to surprises and a constantly evolving competitive landscape.

No industry segment has felt this more than the core manufacturing and distribution organizations that serve as the backbone of our economy. In an effort to be fiscally responsible, many companies shut down all internal information technology (IT) and business process initiatives in order to control overhead spending, only to see revenues continue to decline and margins continue to shrink.

But successful manufacturing companies are re-committing themselves to value-based IT initiatives. They are driving real business improvements, increasing operational efficiencies and building a strong foundation for future growth as the economy turns around.

However, there are significant differences between these technology projects and those of a few years ago.

ROI-based Initiatives

While just a few short years ago a return on investment (ROI) was considered to be a nice benefit, today substantial and measurable ROI has become an essential criterion for almost all business initiatives. To be supported, an undertaking must increase revenue, decrease expenses or raise asset value. Return on investment is expected to be clearly identified in a compelling business case prior to a project being approved, and it is often the gauge of project success — a critical factor when executives are putting their careers on the line.

One way that many companies approach measuring ROI is through the use of strategic opportunity assessments. Company challenges are evaluated carefully for potential business impact and then plotted against two specific criteria to help prioritize them. One criterion is value to the organization if an improvement in the area is realized. The second is ease of implementing the recommended change.

In considering potential initiatives this way, organizations can identify and agree upon which opportunities will have the greatest overall impact to the business and which can be realized in the shortest amount of time. This allows the business to go after low hanging fruit and drive quick results that will help support and fund subsequent projects.

Smaller Projects

Tied directly to these ROI-based initiatives, a very positive trend that many companies are adopting is shorter, less disruptive technology projects with more clearly defined project scopes. By approaching projects this way, organizations can minimize distractions to their businesses. Rather than attacking problems that can take the better part of a year before results are seen, companies are attacking issues where improvements can be realized in three to four months.

This is achieved by narrowly defining project scopes that address very specific business needs. For example, it is quite common now to see a company optimize forecasting, address inventory visibility or optimize transportation modeling with a specific piece of technology functionality, rather than utilizing entire application suites.

Another advantage to smaller projects is that the project teams can be limited to only those business users who are directly impacted by usage of the new tool. This causes minimal disruption to the rest of the business.

Collaborative Demand Planning

Another common theme among corporations is a movement away from internally focused production planning initiatives toward more collaborative demand planning initiatives. Companies have been forced to accept the fact that by addressing production planning improvements without increasing forecasting accuracy they were simply becoming more proficient at building the wrong items.

Those same organizations are now using improved demand planning technology to uncover data buried in their systems and turn it into valuable information on sales and inventory trends. With this approach, many consumer goods organizations achieve better than 20 percent improvements in forecast accuracy when five to 10 percent gains were originally anticipated.

The businesses that are most proficient in this area are using the information to shape demand by structuring pricing and promotions to drive customer behavior. Organizations are selling what they have over produced when they were unable to accurately forecast what was actually required. An example of this is in the automotive industry where pricing discounts and premiums on specific color combinations are used to drive demand at specific dealer locations.

Reducing Inventory Levels

A struggling, albeit growing, economy, along with more demanding consumers driving shorter product life cycles and lower cost structures, has generated real concerns over the billions of dollars tied up in finished goods throughout worldwide distribution networks. Leading manufacturing organizations are taking action and seeing major improvements in reducing inventory levels across their supply chains.

This is being achieved by utilizing emerging technologies in areas such as transportation management, warehouse management and radio frequency identification (RFID). Enhancements in supply chain management (SCM) technologies have evolved to the point where there are now very effective tools for managing inventory levels and facilitating true collaboration. This very real ROI is one of the reasons that SCM issues are appearing in the general press, the analyst community, in print ads and even in a number of recent television commercials.

Many companies have tied demand planning and inventory reduction initiatives together. This aggressive approach benefits everyone involved as inventory is reduced from distributor networks by utilizing demand planning collaborative tools for ordering and improved inventory management techniques for execution. Overall reductions in the numbers of days that finished goods spend in the pipeline are finally being realized.

Fueling the momentum is the developing fact that the gap in inventory management strategy between the best and worst companies is growing dramatically and creating significant competitive advantage for those that are managing it best.

Unlocking the Value of ERP Implementations

Many manufacturing organizations have not yet realized the value that they had hoped to gain with costly enterprise resource planning (ERP) implementations of the past six to eight years. Most companies originally implemented these systems because they had Y2K concerns, needed to update legacy systems or were looking to create a common platform for future growth. Because of these drivers, the true value-enhancing aspects were typically left for future phases, to which many businesses never managed to get back around.

Those same companies are now heading back to the drawing board, recognizing that technology is simply a tool, and that without meaningful procedures it is challenging to gain the originally anticipated value. This awareness is leading companies to solicit external support as they look to enhance what they started by implementing process improvements and industry best practices around their already installed business systems.

These companies are now experiencing tremendous benefits from operational improvements across functional areas. Without process improvement, technology as a pure stand-alone is doomed to failure.

The Environment is Changing

It is apparent that things have changed dramatically over the past 18 months. As we look at the trends discussed above we can see a clear movement toward true collaboration. No longer are the majority of initiatives that are being embraced internally focused. Market conditions, technical developments and customer demands are prompting sweeping changes throughout industry. It is now clear that many, if not all, of these forces will continue to affect manufacturing. In such an environment, new business models are certain to emerge.

As we look across the trends, there are a number of common themes. Companies have waited around for things to change. In doing so they have witnessed tough conditions lasting far longer than anyone had originally anticipated. Rather than continuing to stand still while slipping further behind, leading businesses are driving toward future success by being decisive and committing themselves to take action now.

With the momentum under way, it can be predicted that value-based trends are not going to go away any time soon. Companies have grown smarter and more cautious about investing their money, and this has not changed, even with the most recent positive turn in the economy. It will be quite some time — if ever — before executives are once again free to invest company money without demonstrating value in the form of measurable results.

Today's most successful businesses believe that if they are not moving ahead, they are falling behind. Is your business watching, or are you participating? The competitive advantages of the past may no longer be enough to keep your organization current as the climate evolves. Does your organization plan to address issues, increase efficiencies and optimize profits? The competitors understand why they must evolve. Do you?

About the Author: David Wechsler is senior vice president, North Business Unit leader and National Supply Chain Management Practice leader for Hitachi Consulting of Dallas, TX, a global business and IT consulting company. You can e-mail him at dwechsler@hitachiconsulting.com.

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