Manufacturing is finally garnering its long overdue share of the application software budget, claiming the No. 1 spot ahead of enterprise resource planning (ERP). The primary driver of this rediscovery of manufacturing is the need for asset productivity in an increasingly demand-driven economy in which manufacturing agility, rather than expensive and risky finished-goods inventory, has become the key to delivering the holy grail of the "profitable perfect order."
Put simply, this means getting the right product to the right customer at the right time-and doing it profitably. Much shorter product lifecycles and order lead times, combined with a proliferation of configurations, have made it increasingly expensive and risky to keep inventory of finished goods. With overcapacity in many industries, capital investments haven't been possible to adapt plants to accommodate higher product mix and more frequent changeovers. Manufacturing operations software can help wring the most out of both physical and human assets, and that's why manufacturing software investment priorities have risen so dramatically. Software applications that reduce manufacturing cycle times and change-overs, catch quality issues during production rather than after, support lean inventory management and production scheduling, and keep assets running at their optimal levels will all see an increased level of investment this year.
Who Is Delivering The Goods?
A glance at the chart below suggests that quality management (26%) and manufacturing execution systems (MES) (25%) vendors will be the primary beneficiaries of the rediscovery of manufacturing, with over 50% of the manufacturing operations budget being associated with these traditional manufacturing software categories.
Manufacturing Operations Software Categories, 2007
However, our research over the last year has revealed a significant change in the dynamics of the manufacturing software market:
- The large automation vendors finally woke up to the fact that they can leverage their global supply chain and services organizations to address the growing need for enterprise manufacturing execution and intelligence software.
- ERP vendors also woke up to their growth opportunity in the untapped market of plant workers (see also "Different Priorities").
As this plays out, automation vendors and pure-play manufacturing independent software vendors (ISVs) are going to have to increase their investments in both functionality and services to support multi-site rollouts, as ERP vendors apply their R&D and marketing prowess on extending their footprints deeper into manufacturing. Paper-on-glass MES (meaning there is little automation -- still paper-intensive), enterprise quality management and enterprise manufacturing intelligence (EMI) are already being addressed by some ERP vendors, and automation vendors are coming to terms with the realization that their biggest competitor may actually be the incumbent ERP.
Despite developments from both of these significant vendor camps, our research also shows that almost two-thirds of the manufacturing investment will be on in-house custom applications development, or on the extensive customization of various manufacturing applications.
In short, it's a market ripe for efficient development of composite applications, and for third-party service providers that can step up to support multi-site rollouts of these composite applications integrated with ERP.
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