Fast order from chaos: the high tech industry

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By Alexander Renz, Director of Product Management, Infor.
High Tech is most probably the most dynamic industry to be in. Over the last few years, firms have had to deal with volatile demand as consumers preferences have rapidly changed in view of innovative products and services.

Market velocity is so high in this sector that products and entire companies can go from "high flier" to "crash and burn" very quickly. Even leading companies with strong brands have to continue to develop revolutionary products and new business models to stay relevant.

The results of a recent IDC Manufacturing Insights survey[i] suggest that manufacturers have learned some hard lessons from the chaotic market conditions of the past few years. Cost containment initiatives are important, but they are not sufficient. Being lean and mean on its own does not make you a winner.

Investment in product innovation is at the core of these growth strategies. No manufacturing industry segment spends more on research and development than High Tech.  Nearly 80% of the High Tech respondents in the IDC survey said that the key to sustained growth is through product innovation.

However, economic turmoil and a lack of consumer confidence have forced the industry to tighten R&D budgets. This requires companies to do an even better job at portfolio management to adequately fund fewer projects with the best market opportunities. It also requires better integration of product development with sales and marketing, supply chain management and sourcing to fully exploit Time-to-Market advantages and design products for supply.

Demand volatility has risen sharply and high-tech manufacturers have to cope with increasing market complexity and uncertainty. To counter volatility and improve customer fulfilment, manufacturers need to find new ways to not only better forecast and sense changes in demand, but to more proactively shape demand. According to the research more than 40% of high-tech manufacturers will undertake initiatives to improve demand management capabilities over the next three years.

Another key initiative in keeping development costs under control is to invest in supply chain technologies and optimize sourcing.  With the increasing complexity in High Tech supply chains, more than 60% of respondents are focusing their cost containment initiatives outside the four walls of their enterprise. The key strategy is to reduce the number of suppliers, next to sourcing components from lower cost regions.

However, low cost is not enough in the hyper competitive High Tech industry and it needs to be combined with an agile, flexible supply chain that can respond to changes in demand.  Over the next three years, high-tech manufacturers will be busy identifying how supply chains should be better structured to respond to fluctuating demand at overall lower cost. Supply Chain Segmentation strategies will employ various models optimized for cost, flexibility or lead-time depending on the product and lifecycle stage. Supply Chain Management and Sourcing will become a critical weapon to not only lower costs and protect margins, but also leverage margin improvements resulting from product innovation and Time-to-Market leadership.

IT systems are critical tools for high-tech manufacturers to manage the increasing complexity in their business and deliver against these initiatives.   IDC Manufacturing Insights research indicates that many High Tech companies have not achieved operational excellence as they struggle with data accuracy, information silos and business process integration. Almost 50% of survey respondents find their existing ERP system too complex to customize and too difficult to integrate with other systems.

A large portion of survey respondents describe their ERP systems as "Financial ERP" systems that mainly serve as a system of record and do little to support the core operational needs of the business. A lack of industry specific capabilities is cited as the main reason companies have to heavily customize their systems and interface them to complementary systems.

This results in a complex system landscape that is difficult to manage and maintain, let alone upgrade.

In view of these results it is not surprising that close to 80% of High Tech companies feel that their current ERP system does not allow them to react quickly enough to changing business needs. But companies seem determined to fixing the issue given its strategic importance.  Nearly 50% of the high-tech respondents expect their company will undertake specific initiatives aimed at better aligning IT with the business over the next three years. But how do you get there?

Our research has shown that Financial ERP systems improve IT efficiency over custom developed systems, but do little to support the needs of the business. Best-of-Breed applications can help with improved business alignment, but typically result in inconsistent data, information silos and a lack of process integration.

But there is a better option: "Operational ERP" systems built to support the specific operational needs of the High Tech industry without compromising on financial management and compliance. Because such applications come with High Tech Industry best practice built in, they can be implemented faster with fewer customizations, require far fewer integrations and can be rapidly reconfigured to enable business process change and innovation.

63% of survey respondents plan to consolidate their ERP system landscape and support their global business through a single global instance. Why? Because operations require multi-site planning and execution capabilities to orchestrate increasingly complex processes. Strategic sourcing and shared services promise significant cost savings across organisational boundaries. Global visibility and the sharing of best practices in pursuit of Operational Excellence become a reality.

But even more importantly, a single global instance of Operational ERP is a key foundation for growth strategies. Over 60% of survey respondents mentioned the inability of their current ERP system to support fast decision making when asked about major limitations of their current systems. Almost 50% cited a lack of support for collaboration and social networking capabilities. Unlike traditional ERP systems, which have treated reporting and analysis as an after-thought, next generation solutions deliver in-context Business Intelligence and collaboration built into the process. Next generation solutions take a holistic view of business processes beyond planning and transaction management by providing insight for every role in the organisation.

High-tech manufacturers believe the major barrier to effective decision making comes from the inaccessibility of accurate data, as it is stored in too many different IT systems and locked up behind rigid organisation and information silos. They want to overcome current system fragmentation and encourage a more collaborative environment with greater visibility and easier access to the right information.

As a result they recognise the importance of modernising traditional IT, leveraging what IDC calls the "four IT forces": cloud computing, social business, mobility, and big data. Next generation operational ERP fosters collaboration, enables rapid decision-making and coordinated action across on premise and cloud services by embracing the social enterprise, enterprise mobility and 'Big Data'.

Nearly 95% of respondents believe these four forces will change the way they work in the near future, and more than 40% believe these will completely change the way the business is managed.

IDC Manufacturing Insights expects High-Tech manufacturers to make foundational investments in these technologies to improve the value of their IT systems and in particular their ERP.
[i] IDC Manufacturing Insights In Pursuit of Operational Excellence: Accelerating Business Change Through Next-Generation ERP (IDC #IDCWP47T) 2012.  378 interviews were carried out across the automotive, aerospace, industrial machinery, and High Tech industries in United States, UK, France, Germany, Italy, Brazil, Australia, China, India, Japan, Qatar, Saudi Arabia, UAE, and Russia.

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