'Innovation key in current low growth economy'

MUMBAI, INDIA: Manufacturers are investing in product innovation and added value services as a means to compete and drive growth, according to IDC Manufacturing Insights.

In its white paper — In Pursuit of Operational Excellence: Accelerating Business Change Through Next Generation ERP, sponsored by Infor — it said that while cost containment remains important in this low growth economy, it is taking a back seat to initiatives which will help manufacturers differentiate their offerings and drive competitiveness.

The white paper, based on global research findings, also reveals that innovation-led business strategies are currently hampered by inadequate business processes and IT systems, which are crucial when it comes to facilitating the working practices and communications necessary to develop new offerings quickly, collaboratively and cost effectively.

In fact, according to 60 per cent of manufacturers, ERP in particular falls short of optimising the decision-making necessary for operational excellence. Top of manufacturers’ wish lists for improved systems are social networking-style features within ERP to facilitate timely, accurate, informed decisions.

The research was conducted in October 2011 among 378 manufacturers in the automotive, industrial machinery, high-tech electronics, and aerospace industries in the United States, UK, France, Germany, Italy, Brazil, Australia, China, India, Japan, Qatar, Saudi Arabia, UAE, and Russia.

The white paper highlights that the majority of manufacturers around the globe are balancing growth strategies together with a focus on cost cutting. However, while this balance is weighted in favour of sustained growth in APAC, Russia, the Middle East, and the Americas, in Western Europe, particularly Germany, Italy, Spain and France, they place greater emphasis on cost control, perhaps an indication of the deepening eurozone crisis.

Interestingly, the UK bucks this regional trend, with the vast majority of UK manufacturers investing in sustained growth over cost cutting.

The white paper highlights that product is king when it comes to growth, as innovation (63 per cent) and added value services to products (58 per cent) rank higher than expansion into emerging markets (42 per cent), with product innovation significantly higher in the automotive (78 per cent) and high-tech electronics (75 per cent) industries.

Cost containment strategies across the board have moved out of the plant and into the supply chain. Optimizing production is a cost priority for only 11 per cent of manufacturers, indicating that savings have been exhausted, while reducing the number of suppliers (77 per cent) and shortening the supply chain (55 per cent) rank highest.

The white paper also focuses on the criteria for innovation, and respondents point to faster business processes (85 per cent), access to real-time information (60 per cent) and improved collaboration (60 per cent) as critical in this quest. However, 60 per cent of manufacturers claim that their systems fail to support the fast, informed decision-making necessary to innovate, with 35 per cent heralding mobile and social networking as crucial to transforming the way manufacturers work.

Looking ahead to the next three years, speed is a critical component of manufacturers’ growth strategies. Reacting faster to changes demanded by the business, particularly in aerospace (71 per cent) and high-tech electronics (78 per cent), and streamlining processes to achieve operational excellence (72 per cent) top manufacturers’ wish lists. More detailed insight (58 per cent) and improved collaboration (42 per cent) also dominate short to medium term ERP needs.

“The current economic headwinds have brought with them lower business growth, presenting new challenges for manufacturers looking to compete on a global stage,” said Pierfrancesco Manenti, head of IDC Manufacturing Insights, EMEA.

“While active cost management remains crucial, companies can only truly differentiate themselves through innovating with products and services. Smarter processes and IT systems represent a substantial source of savings, differentiation and agility — helping to make informed decisions and establish a strong foundation to encouraging innovation where the company meets the customer,” he added.