Manufacturing: Back on the Rebound

The turnaround in the manufacturing sector has been a driving force in

converting people to the belief that India is really shining. And there can be

little doubt that the increasing implementation of IT has done its share of the

good work in resuscitating the industry back to health. No wonder then that the

total IT spending in the sector jumped up by nearly 40% in FY 2003-04-at Rs

3,252 crore, it contributed 10% of the total domestic IT pie.

However, many believe that this is only the tip of the proverbial iceberg and

that the domain still has huge potential for much more IT adoption. Gartner

estimates justify such prognosis-the penetration levels in the sector for ERP

at 37%, 15% for CRM and 10% for SCM glaringly highlighting the still-untapped

potential. One reason for this disparity between potential and adoption could be

that the manufacturing industry has two distinct categories, viz. process and

discrete manufacturing. While discrete manufacturing would include engineering,

automobile, auto ancillaries, steel and the construction industries; oil and

gas, paint, chemical and textile would come under process manufacturing. FY

2003-04 saw a marked difference in the pattern of IT adoption and usage by these

categories.

To

generalize, process manufacturers were spending more on IT than discrete

manufacturers. This was because discrete manufacturing players were typically

the early IT adopters and already had in place enterprise applications like ERP

and SCM. Therefore, they were investing only on high-value IT products and

services like CAD/CAM/CAE as well as PLM and PDM solutions. In some cases, they

were even looking at upgrading: for instance, some engineering and forging

industries moved from 2D CAD tools to 3D modeling software. The process

industry, on the other hand, barring a few large players, focused more on basic

computerization during the year. In terms of usage, therefore, the process

industry spent more on hardware and networking as well as on various kinds of

enterprise applications.

WTO norms played a key role in upping the IT ante for the manufacturing

sector. Many of the Indian manufacturing companies were Tier 1 or Tier 2

suppliers to OEMs in India or abroad. The need to reduce time-to-market and

product life cycles put pressure on manufacturers to integrate with OEMs (both

Indian and MNCs), Tier I suppliers, sub-contractors and distributors during

product development and process manufacturing. The other key operational

business drivers for manufacturing companies were the need to ramp up

operational efficiency and capital productivity while paring down fixed and

variable costs. Besides, process manufacturing companies wanted transactional

systems that could integrate with their core processes-sales, manufacturing,

financial, procurement, and inventory and supply chain-and this was what

motivated manufacturers during FY 2003-04 to implement ERP systems.

One large area of growth in the manufacturing sector was the SMEs and these

spread across both discrete and process manufacturers. Vendors active on the

manufacturing front like EDS, PTC, Catia, Autodesk to SAP, Oracle, Navision and

ICICI Infotech courted the SMEs with untiring vigor. As a result, IDC estimates

that SME manufacturing companies spent 59.2% on IT hardware, 22.5% on IT

services, 11.3% on software and 7% on associated activities. In many cases,

large OEMs put pressure on their supply chains, forcing even the SMEs to

streamline their operations, with this, incidentally, driving up the demand for

ERP in the SME sector.

A shrinking product lifecycle, mass customization of products and increased

globalization were other key drivers towards increasing software adoption by the

manufacturing industry. This led in particular to the PLM initiatives being

increasingly adopted by many companies. Companies looked at PLM as a strategic

business approach for collaborative creation, management, dissemination, and use

of product data across the extended enterprise from concept to end of life-integrating

people, processes, and information.

A major trend that emerged in the manufacturing industry in FY 2003-04 was

that of outsourcing parts or operations to specialized vendors who provide more

cost effective and/or quality products than those manufactured in-house. In some

high-profile cases, Dabur and Indo Rama Synthetics outsourced their entire IT

infrastructure to Accenture, while ABB India outsourced to IBM as part of their

global arrangement.

e-sourcing helped companies reorganize the purchase function, and supported

aggregated buying across business units with the aid of Internet-based tools or

B2C Internet portals, besides offering substantial price savings and cycle time

reduction in the sourcing process. Being Internet-based, more global suppliers

participate compared to the traditional strategic sourcing process. Reduction in

cycle time is brought about by shortening the durations spent negotiating, by

expediting information gathering, and through faster communication channels

among buyers and sellers. e-sourcing caught up in India with many successful

implementations; for example, Dabur saved Rs 2.5 crore with six reverse auction

deals, Tata Motors saved Rs 22 crore on transactions of Rs 362 crore, while the

Kirloskar group saved Rs 7 crore through reverse auctions worth Rs 50 crore.

Rajneesh De in Mumbai