Manufacturers turn to IT to beat downturn

The really hot topic for hundreds of the world’s leading manufacturers is analytics – software containing algorithms for analysing manufacturing processes

IT will be a key factor in the ability of manufacturing companies to cope with a downturn by enabling them to cut costs, build longer and more complex supply chains and respond faster to changing demand.

Technology already underpins the move to offshore and demand-led production by making it possible for manufacturers to communicate with far-flung suppliers, manage shorter product lifecycles and collaborate more effectively with business partners.

ARC Advisory Group, a manufacturing technology specialist, recently completed a worldwide enterprise IT survey into how manufacturing companies will be spending their IT budgets in the coming year. Top of users' shopping lists are systems to support supply chain processes, followed by technology to run their manufacturing operations better.

But the really hot topic for hundreds of the world's leading manufacturers, says Simon Bragg, ARC's European director, is analytics - software containing algorithms for analysing manufacturing processes.

"Rather than putting in a multimillion-pound ERP [enterprise resource planning] system designed to solve all their problems, companies are looking more closely into the question of why they are screwing up," Bragg explains.

Business process optimisation is not a new idea. When Toyota supplanted General Motors as the world's biggest car maker, the Japanese company's success was ascribed to its adoption of lean thinking – a determination to cut out waste, an emphasis on making small, continuous improvements and an insistence on customer service.

It is no surprise that manufacturers have caught on to continuous improvement, says Bragg. "You ought to be more interested in tools that tell you under what circumstances your processes break, on which products, with which operator, and at what time, so that that you can see if there is a common pattern."

Previously expensive analytical software, affordable by only the biggest companies, has got a lot cheaper. But its wider application has brought the problem of information overload. Business analysts struggle to interpret the flood of data now available to them.

"The tools have gotten faster, bigger and more capable," says Vince Wiggins, vice-president of scientific development for data analysis software company StataCorp. "But they are still tools and require skilled craftsmen to wield them."

Meanwhile, for all the work in this area, Bragg is not convinced that IT developers have really cottoned on to the potential of analytics. "It is not clear to me that IT vendors really understand the tools that could be used with their data," he says.

The wave of investment in big-ticket ERP systems may be over, but manufacturers are still the largest group of ERP users, representing around 40% of the market. During the 1990s many of them struggled to make their big deployments work, but that looks like a thing of the past.

"You'll always find a company that's having a problem with an ERP system, but the era of the big cock-up is over," says Bragg. "People have moved on to relatively small projects with a payback of a year or two."

Build to order is one trend that is driving IT innovation in many industries. For Dell Computer, the company that first showed manufacturers how to link customer ordering systems with manufacturing to drive down inventory levels, the idea is nothing new.

"Within one minute of receiving an order, whether by phone or internet, a signal is transmitted to suppliers that tells them what to deliver to Dell's manufacturing facilities," says Nicky Hartery, vice-president of manufacturing operations at Dell. "It is vital to design, optimise and operate processes from receipt of order through to customer delivery as a single integrated system."

Car makers are still struggling to match that level of automation, but they are being driven on by overcapacity and competition from emerging economies.

Big disasters may belong to the past, but there are challenges, says Bragg, especially in the continuous process industries. "Take the example of a mining company used to operating in Australia. They move to Peru where there is no satellite communications and they need to train local Peruvians how to do things."

Closer to home, all manufacturing companies are keen to improve their supply chain performance. Some argue that an efficient supply chain is the best competitive edge a company can have, linking a manufacturer with its suppliers and its customers and an essential element in profitability.

Supply chain partners have two main aims: to keep the amount of product in the chain as low as possible, and to know where it is at all times. Effective information flows from one end of the supply chain to the other are critical to keeping tabs on goods.

But that's no easy matter when up to 40 organisations around the world may be involved in a single consignment, which might also have a lead time of up to 60 days. At the sharp end, data capture technologies such as radio frequency identification (RFID), barcodes and voice recognition are being deployed in warehouses and on trucks to capture supply chain information.

Hand-held voice terminals are now widely used in warehouses to direct workers picking and putting away goods, while RFID is increasingly deployed in the automotive industry to track parts and finished vehicles.

Dutch car handling company Broekman, for example, has trialled RFID to track 40,000 vehicles from 15 manufacturers at its Rotterdam facility. Tags are placed inside the vehicles to protect them from the elements.

But the biggest spur to RFID deployment remains grocery chains such as Wal-Mart in the US and Metro in Germany. They have insisted that suppliers of food and fast-moving consumer goods tag their containers to facilitate handling and reordering processes.

Although the cost of RFID tags has fallen heavily they are still not cheap enough to slap on any but the most expensive supermarket lines such as razor blades and clothes.

Some supply chains are now managed by 'control towers' manned by logistics specialists who monitor and co-ordinate activities. Their involvement begins with the placing of a purchase order - with a supplier in China, for example - and runs through to the arrival of the goods at a UK distribution centre.

Event management software provides an insight into incidents within a supply chain. With an independent platform it is possible to exchange information with all the parties involved in the logistics process and consolidate data to obtain a single view of what is going on.

This intensive monitoring enables companies to react to events and redefine their supply chains. Mick Jones, divisional managing director of DHL International Supply Chain, says, "It gives a company greatly increased control and the ability to really understand its cost base from end to end so that it can see the impact of its decisions on costs. It is an investment in understanding and mapping the supply chain."

It helps that supply chain software now places more emphasis on usability. Specialist firm Manhattan Associates has introduced weather information, maps and shipping data into displays that indicate the whereabouts and status of goods in the supply chain.

"Users want personalised information structured for them," explains executive vice-president Eddie Capel. "Systems have to be capable of handling unstructured data and social networking applications."

Warehouse systems and transport management software need to dovetail with one another, while business communications and freight documentation must be exchanged as seamlessly as possible, using standard formats shared by all supply chain participants.

But the presence of supply chain members without access to equal levels of technology means integration is not always easy. Factories in developing countries may rely on spreadsheets, faxes or the post to transfer product information, so supply chain networks must be able to cater for a variety of formats.

Sharing information

Electronic Data Interchange (EDI) standards, which cover the exchange of business documents such as orders, manifests and invoices, have been a mainstay of supply chain communications for decades, but in the past they have relied on expensive, proprietary software.

The advent of web-based business-to-business portals containing e-catalogues and procurement software is a cheaper alternative. Although some large companies envisaged trading entirely through so-called online exchanges at one stage, their experiments proved over-optimistic.

Nonetheless many organisations are migrating to standards such as the AS2 protocol for embedding EDI documents into XML. Wal-Mart, for example, requires its trading partners to use AS2.

One of the major challenges for any manufacturing company is how best to manage its products, from conception to the end of life, especially when the life of so many products is much shorter than it used to be.

Product lifecycle management software helps here by providing a single database of all the information needed to manufacture an item. Specifications, designs, bills of materials, engineering reports and so on are held centrally and made available to engineers both inside and outside a company. Packages include workflow features that help in approving changes and ensuring data is kept up to date.

The rewards for manufacturing companies that make the right decisions about IT are clear. They will be more competitive because they have a greater chance of having their goods available at the right time and at the right price, and they will be more responsive to market demands.

"For most manufacturing companies the data is there," says Bragg. "Now it is a question of how do we use it to improve our processes?"

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