Published on February 14, 2014
2014 Australian Complex Manufacturing and Enterprise Technology Benchmark Report WHITE PAPER Cincom In-depth Analysis and Review SIMPLIFICATION THROUGH INNOVATION®
2014 Australian Complex Manufacturing and Enterprise Technology Benchmark Report Table of Contents Preface from Greg Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction: Australia’s Changing Economy . . . . . . . . . 2 The Outlook for Complex Manufacturers . . . . . . . . . . . . 2 WHITE PAPER Cincom In-depth Analysis and Review How Is the Role of IT Changing in Complex Manufacturing? . . . . . . . . . . . . . . . . . . . . . . . 3 Cincom’s Survey of This Unique Market Segment . . . . . 3 Industry Growth Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Top Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Strategic Improvement Focus . . . . . . . . . . . . . . . . . . . . . . 5 Current Systems Deployed . . . . . . . . . . . . . . . . . . . . . . . . 5 Cincom Research Methodology . . . . . . . . . . . . . . . . . . . . 6 About Cincom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 Preface from Greg Mills, Cincom ANZ Country Manager Cincom Systems of Australia is pleased to release its second survey of Australian complex manufacturers. This segment of the Australian market is comprised of highly innovative industries that produce and distribute products in the defence, heavy/industrial equipment and medical spaces. The purpose of the survey is to monitor ongoing trends in the industry so that decision-makers can compare their positions in respect to the challenges facing the broader industry group. The report also reveals certain trends in how manufacturers see the Australian market and the problems that they face. Of particular interest are the expectations of business growth and the top priorities facing organisations. Compared to the results of the previous survey, it appears that the business outlook for manufacturers is not improving with a decline in the expectations for growth and increasing challenges in keeping costs under control. As reflected in the responses, more businesses are now focusing on the issues of business execution in improving the sales and supply-chain process and less on planning. On the information-technology front, the majority of businesses are running Enterprise Resource Planning (ERP) back-office systems. However, some of the newer IT technologies such as business process management and mobile solutions are in use at less than a quarter of manufacturing businesses. The pace of IT innovation in manufacturing appears to be lagging behind other sectors since there is a reasonable level of satisfaction with current systems, and the majority has no plans for improvement. Cincom intends to conduct future surveys that will provide a longer-term view of the trends for complex manufacturers. I would like to thank all of the participants who contributed to these survey results. A more detailed analysis is provided on the following pages.
2 Introduction: Australia’s Changing Economy The Australian economy has experienced some enormous changes over the past year. The high Aussie dollar has been the final blow for many manufacturers, and along with regulatory concerns, has increased the challenges in keeping costs under control. Additionally, in September, the Australian Labor Party suffered a historic defeat when the country elected a coalition government. Currently, the political climate is in flux whilst waiting to see what this will mean to all areas of public policy. However, we do know that despite the above factors: • Consumer confidence, an indicator designed to measure the degree of optimism consumers have about the overall state of the economy, is rising, increasing to 110.35 in November (up from 102.2 in June). • Interest rates have come down from 3.5 per cent last June to 2.75 per cent with expectations of further cuts before the end of the financial year. • The Australian dollar has fallen to around US90 cents, which will relieve pressure on struggling industries such as manufacturing, education services and tourism, all of which are significant employers. So the logical question here is: Why do businesses have a general lack of confidence? Lack of confidence is typically consistent with firms being uncertain about the future and therefore avoiding risks in their decisionmaking. Structural changes in the economy, the previously high exchange rate, the political environment and increased regulatory burden are all likely causes that have affected the willingness of some firms to expand. The Outlook for Complex Manufacturers Where does complex manufacturing fit within this changing economy – and what’s the outlook for business growth in 2014 and beyond? Complex manufacturers’ products are highly engineered to custom order requirements, such as those in the following industries: • Industrial equipment and machinery • High technology, electronics and medical devices • Transportation equipment and vehicles • Aerospace and defence equipment and systems Common to these businesses is that their products are based on customer-specific proposals, contracts or projects that require deeper functionality than massproduction manufacturing. Strict regulatory compliance and quality control issues, higher costs and demanding worldwide distribution requirements are just a few of the challenges facing highly engineered manufacturers and contributing to the often razor-thin margins of this manufacturing segment. Process improvement, automation and business-issue simplification can greatly improve the complex manufacturer’s entire enterprise. As business complexity increases, the need for an effective ERP system to tie it all together also increases. According to industry experts, ERP and related systems will continue to evolve to suit business needs and will remain highly relevant throughout 2014.
3 How Is the Role of IT Changing in Complex Manufacturing? IT is responsible for the leadership, coordination and implementation of technologies, systems and related activities, often for a global multi-organisational structure. As economies, markets and customer demands change, it’s no easy feat to stay on top of the technologies needed to ensure business growth. Technologies such as: • 3D printing – This is not a new technology, but over the past few years, 3D printing has developed into a real alternative to the traditional casting or machining of parts and now has a real potential to disrupt many of the notions we have about manufacturing and plant operation. Some high-growth industries for 3D are: medical devices, automotive, maintenance, repair and overhaul (MRO) and aerospace markets – all part of the complex manufacturing landscape. • Incorporation of Configure, Price, Quote (CPQ) sales functionality into traditional ERP systems – Advanced configuration guides designed specifically for complex, customised products – coupled with dynamic, real-time pricing calculations tied directly into company financial systems extend traditional core ERP functionality and ensure fast, accurate quotes. CPQ capabilities integrated with ERP functionality provide customers with exactly what they ordered in a much more timely manner than with traditional, siloed systems. • Mobile device use for operations and warehouse functions – According to a survey undertaken by Cincom Australia in 2012, mobile is already in ERP. Smartphones are connecting field sales to back-office apps, and tablets are being used in field service to help with diagnostics, part inventory and schematics for complex products. But what about on the shop floor? Ray Wang, CEO of Constellation Research, cites three specific areas where mobility delivers potential advantage: 1) safety, quality or compliance, 2) information delivery and 3) approvals and routings. More and more, workers are being asked to perform multiple duties that require multiple applications and wide-ranging data access. Together with ERP, mobile devices are maximising the effectiveness of the employee and consequently the entire manufacturing operation. What’s needed is the ability to manage technologies and systems for various sites, organisations and subsidiaries by rolling them all into one central location. How close are complex manufacturers to doing this? Cincom’s Survey of This Unique Market Segment Cincom has been working with the world’s manufacturing community for 45 years. Recently we conducted a survey that looks specifically at this market segment and identified some key insights for 2014. Insights such as: • The majority of respondents are driven by growing their revenue and the need to reduce manufacturing costs. • The method they are using to accomplish the above is by focusing on business execution (improving the sales and supply-chain processes) and focusing less on planning. • On the information-technology front, the majority of businesses are running Enterprise Resource Planning (ERP) back-office systems. However, some of the newer IT technologies such as business process management and mobile solutions are in use at less than a quarter of manufacturing businesses (even though many of these newer technologies have great potential to reduce manufacturing costs and improve revenue). • The pace of IT innovation in manufacturing appears to be lagging behind other sectors since there is a reasonable level of satisfaction with current systems, and the majority has no plans for improvement. A more in-depth analysis of the survey results can be found on the following pages.
4 Industry Growth Analysis There has been a significant shift in the respondents’ views on growth potential. It’s important to note that in contrast to other reported business surveys, the growth outlook for complex manufacturers has declined over the past eight months rather than improved. More than a quarter of businesses expect either no growth or negative growth, and nearly half expect growth of only around five per cent. The decline in growth expectations of greater than 10 per cent is even more pronounced with only 12 per cent of participants expecting growth of greater than 12 per cent compared to nearly a third in the previous survey. Top Pressures The majority of respondents cited their top business pressure as “growing revenue” closely followed by “containing cost,” which was only 7 per cent behind. These two answers were also recorded as the top pressures earlier in the year. This outlook could be attributed to the respondents’ declining growth expectations. Since the opportunity for business has declined, there is a shift in focus from external, customer-facing improvements to improving the productivity of existing resources and containing costs within the organisation. Of concern is that the internal focus of business to contain costs may mean that opportunities for growth through improved customerengagement processes may be lost. The remaining responses were spread broadly across other areas of business operations. Interestingly, the issue that was recorded the least changed from “improving supply-chain efficiency” in February to “retaining staff” in November. “Supply-chain efficiency” actually more than doubled from the previous survey suggesting that improving processes in this area is growing in importance for many businesses over the last year, whereas “Retaining Staff” remains as a low-pressure issue as labour market conditions ease for employers. Other pressures mentioned in the recent survey include shrinking market, marketing, budget, competition from Asia, manufacturing process and exports.
5 Strategic Improvement Focus Current Systems Deployed The majority of complex manufacturing and enterprises today are focusing on strategies that will help their business processes improve in the following areas: Sales, Supply Chain, Planning and Product Design and Development. Cincom’s benchmarking process measures the enabling technologies and services that are currently deployed within respondent companies. In the February results, “Planning” clearly topped the list of strategic priorities of businesses in the sample with Sales and Product Design and Development well behind in focus. The latest survey, however, indicates that businesses have become broader in their strategic focus areas. “Sales” processes topped the list for improvement with 26 per cent followed by “Warehousing and Supply Chain” at 20 per cent. This complements the results above that saw Supply Chain Efficiency increasingly becoming a key pressure. Next to your responses, the following table shows the percentage of composite industry benchmark that currently has selected the technology in place. The shift in focus to improved sales and warehousing and supply chain is likely attributable to dealing with the increasing competitive pressures that manufacturers are facing. These pressures are coming from business consumers demanding that businesses be easier to deal with, the ability to source materials easily over the internet and the ongoing competitiveness of overseas suppliers. The majority of respondents have put in place the standard “back office” and “front office” systems for managing their organisations. Conversely it is still of concern that over a third of companies surveyed have not deployed these systems. In a follow-up question, nearly 60 per cent of participants said that they have no plans to deploy new IT technologies. This may be attributable to a number of reasons including a lack of knowledge of how business processes can be improved by the deployment of new IT technologies or a cost focus driving a lack of innovation in this area. As a call to action in reviewing business processes, organisations should consider how IT solutions can support businessprocess innovation and the demand of external customers and employees to support the major trends of BYOD (Bring your Own Device), customer portals and anywhere/anytime computing.
6 Cincom Research Methodology This report has been prepared based on the results of Cincom’s biannual industry survey. Respondents were asked questions relating to their business processes and performance, and the information was then analysed and categorised by a sub-industry group. Results have been measured and individual answers have been recorded next to both industry trends and the results of Cincom’s previous survey collected in February 2013. About Cincom For 45 years, Cincom has helped thousands of clients worldwide by solving complex business problems with its software and services. Cincom offers value-add ERP and CRM solutions that are integrated seamlessly to the Microsoft Dynamics® AX and Microsoft Dynamics® CRM suites. We partner with Microsoft Dynamics® to offer flexible, fast-to-deploy solutions that give your people and business the power to stay ahead of the curve. For more information about Cincom’s solutions and services, contact Cincom at 1800 022 871, send an e-mail to firstname.lastname@example.org or visit the company’s website at www.cincom.com.au. Cincom is a Microsoft® Global Independent Software Vendor. Cincom, the Quadrant Logo and Simplification Through Innovation are registered trademarks of Cincom Systems, Inc. Microsoft and Microsoft Dynamics are registered trademarks of Microsoft Corporation. All other trademarks belong to their respective companies. © 2014 Cincom Systems, Inc. FORM CWAU1401005 01/14 Printed in U.S.A. All Rights Reserved World Headquarters • Cincinnati, OH USA US 1-800-2CINCOM (1-800-224-6266) • International 1-513-612-2769 Fax 1-513-612-2000 • E-mail email@example.com • www.cincom.com
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