THE GROWTH DRIVERS: Package Perfect

Every ten minutes, ‘a Josh machine’ or an Ikon rolls out from Ford’s

car plant near Chennai. At another location in the vicinity, engineers at

Hyundai beam at the Accents that purr out of the shop floors with practiced

ease. Information technology has simplified production processes not just in

automobile companies but across the manufacturing industry. Manufacturing units

demand huge periodic investments, as raw materials need to be continuously

allotted to specific components, assembled on the shop floor and later placed on

an IT backbone. The process is painstaking, expensive and calls for precision

planning at every step. Although IT has revolutionized manufacturing processes,

its adoption in India has been extremely slow. The lack of best practices among

some large companies that have implemented high-end applications like ERP has

prevented such applications from being optimally used. Besides, in most cases,

the use of IT in the manufacturing sector is restricted to rudimentary

practices.

Indian companies first felt the need for contemporary IT tools and learnt of

their benefits when MNCs entered the country in the mid 1990s. Gradually,

manufacturing companies began to adopt technologies like ERP, CRM and SCM to

improve market competitiveness within tightly governed margins.

According to Professor Jim Womack, president, Lean Enterprise Institute,

"Severe competition for Indian manufacturing comes from MNCs that invest

heavily in IT to improve their processes." While Indian companies are keen

to speed up IT initiatives, cash inflow is a problem. In a recently released

Nasscom report, "The global economic slowdown has led to a dip in IT

purchases, both at the international and domestic industry levels. This has led

to the slower growth rate of the IT industry itself in 2001-02." As per a

DQ-IDC survey, 12% of IT buying in 2001-02 was from the manufacturing segment.

Homegrown versus best of breed



IT solution providers are faced with selling their solutions to

manufacturing clients with limited IT infrastructure. A decade ago, IT was

predominantly used for smaller applications like payroll processing, raising

bill of material etc, which were managed by a small group of people that

constituted what is called an EDP department. When IT invaded the business space

in the mid 90’s, new technologies like ERP faced stiff resistance from IT

managers who had developed in-house solutions. As a result of this, most

manufacturing and enterprise segments voted against applications like ERP. Says

S Srinivasan, GM — business strategy and systems, Sundaram Fasteners, "An

auto ancillary manufacturing company like ours needs an enterprise-wide solution

that matches our line of business. A comprehensive solution meeting all our

needs has not been found as yet. Besides, there is statistical evidence that one

third of all enterprise implementation fails." 

Srinivasan believes that most manufacturing companies will have to completely

overhaul their business processes in favor of an ERP solution. According to him,

implementations fail because of the limited nature of BPR’s and defective

databases leading to duplication of data.  

Balu Srinivasan, executive director, Ford Information Technology Services,

begs to differ. He says; "Legacy systems exist because most CIOs opposed

the adoption of enterprise applications when they first appeared in India. But

when concepts like 24/7, customer retention, call centers etc came in with their

multinational counterparts, many Indian enterprises realized their shortcomings

on the IT front. They found themselves in repression as they addressed the

market without modern IT tools. "Nevertheless, legacy dependence brings

forth good opportunities for IT vendors who can tap the latent potential of the

manufacturing segment," adds Balu. 

In the light of these arguments, fiscal 2002-03 will be a year of migration

or modernization for the manufacturing sector. Vendors will need to offer

packages that are more agile and which easily interact with their clients’

existing infrastructure. Despite dwindling IT budgets, the key driver that will

hasten IT adoption will be the competitive advantage of the package offered so

far. Comments George John, head- corporate marketing, Ramco Systems, "We

strongly feel that manufacturing will continue to be a driving force for the ERP

market. ERP products in the future will offer more industry specific

functionality, and flexibility for configuration as per client

requirements." Manufacturing is said to account for 65% of Ramco’s total

revenues. 

Demand-driven  



According to IDC INdia, the manufacturing segment will spend an estimated

49.5% on hardware, 35.1% on software and 12.7% on services during 2002-03. This

indicates that the manufacturing segment will be a lucrative bet for IT solution

providers and system integrators as well. On the software front, major demand

will come in from plant and workflow automation projects. For instance, a plant

management solutions will connect a company’s corporate office with its

manufacturing facilities, however geographically dispersed. Several

manufacturing companies are investing heavily on integrated enterprise

solutions. These applications cut supply chain costs and maximize asset

effectiveness. Customer support is an area that the manufacturing segment is

focusing on intently. For instance, Ford Motors India has put in place a concept

called Intensive Customer Concern Definitions (ICCD). This allows the company to

receive unfiltered feedback from customers, which is then routed to the quality

and manufacturing department.

Industry-specific approach



Manufacturing processes fall into three broad categories - process, discrete

and hybrid. Vendors who have a presence in all these areas are better positioned

to address new demands in this segment. In the recently concluded National

Manufacturing Week, held in Chicago, a clear message had been driven home—

vendors of ERP will roll out a slew of industry focused packages in the

manufacturing space in the coming year. Also, vendors will take a three-tier

approach in marketing their solutions. For instance, tier one will include very

large enterprises where IT spending will not be an issue, tier two will approach

large enterprises. The third tier will be on small and medium businesses, which

are slow in adopting technologies that govern large enterprises. Hence most IT

vendors are expected to adopt industry specific SME strategies and will push

cheaper and stable technologies that brings down the total cost of ownership (TCO)

of IT implementation.

Team DQ