Ahh, the halcyon days of 2004. Sure it was no 1998, but it was sure better than 2001. Manufacturers were so sure that the turn-of-the-century recession was over that more than 90% of them told IW/MPI Census of Manufacturers surveyors that they would maintain their current annual investment in IT or spend even more in 2005. Those planning to spend the most -- those above the 75th percentile -- said they would invest 3% to 5% of sales on IT in 2004. IndustryWeek reported this good news with the headline "The Juice Flows Again."
Well, the juice is drying up.
Results from the 2005 IW/MPI Census of Manufacturers are that 87.6% of plants (590 respondents in 2005; 584 in 2004) will maintain or increase spending on IT in 2006. A greater portion than last year will cut IT investment (12.3% vs. 8.4%), and those that are cutting are slashing deeper. Even those that are planning to invest the most this year are investing less -- the top percentile for IT investment as a percentage of sales dropped to 2.1% in the 2005 Census.
| By The Numbers Results from the 2005 IW/MPI Census of Manufacturers |
"Fundamentally, manufacturers over the last couple of years have expected to increase their spend, but in actuality they have underspent their budgets," Shepherd says. "There's hangover from the last recession. It's politically unpopular to spend money."
Shepherd says spending on IT plummeted during the recession, and corporate executives know there is pent-up demand and are approving budget plans for projects. But when it comes to actually spending the money during the year, projects are being halted by a higher level of scrutiny.
"There's a higher level of ROI ...," he says. "You basically have to put your career on the line, sign in blood and promise your first-born son."
Also, some IT functions once handled at the plant level at many companies -- such as finance or order management -- have been elevated to centralized deployment, in part for more comprehensive tracking required by Sarbanes-Oxley.
The result of this pullback from investment: Plants are less competitive, Shepherd says. He sees many plants still using 1980s-era MRP systems that support push rather than pull production. "You have a lot of companies that want to implement lean, but they don't have upgraded processes."
Also, the need to operate globally has spread quickly and deeply into U.S. manufacturing to the point that all manufacturers are dealing with overseas customers or suppliers at some level. Yet, much of the pre-recession IT infrastructure used in plants computes and tracks in U.S. currency only.
Finally, customers are asking for more visibility and collaboration, but manufacturers with outdated IT can't provide these.
"There are clearly a lot of cases where they aren't moving as quickly as they should -- as quickly as the market would like them to," Shepherd says.
By The Numbers -- Results From The IW/MPI Census Of Manufacturers
Please indicate the level of information-technology spending (as a percentage of sales) for 2005:
| Plants | 526 |
| 25th percentile | 0.5% |
| Median | 1.0% |
| 75th percentile | 2.1% |
| Mean | 2.5% |
| Plants | Percent | |
| Decrease more than 20% | 11 | 1.9% |
| Decrease 11 - 20% | 8 | 1.4% |
| Decrease 1 - 10% | 20 | 3.4% |
| Stay the same | 325 | 55.7% |
| Increase 1 - 10% | 178 | 30.5% |
| Increase 11 - 20% | 32 | 5.5% |
| Increase more than 20% | 10 | 1.7% |
| Total | 584 | 100.00 |
| Plants | Percent | |
| Financial management systems | 308 | 51.5% |
| Design systems (e.g., CAD, CAE) | 285 | 47.7% |
| Material requirements planning (MRP) | 219 | 36.6% |
| Electronic data interchange (EDI) | 191 | 31.9% |
| Online purchasing | 188 | 31.4% |
| Manufacturing resource planning (MRP II) | 178 | 29.8% |
| Enterprise Resource Planning (ERP) | 157 | 26.3% |
| Customer relationship management | 156 | 26.1% |
| Demand-planning/forecasting systems | 128 | 21.4% |
| Online selling | 105 | 17.6% |
| Mobile management (wireless systems) | 103 | 17.2% |
| Product data management (PDM) | 94 | 15.7% |
| Supply-chain management | 78 | 13.0% |
| Asset management (e.g., CMMS) | 70 | 11.7% |
| Transportation management systems | 63 | 10.5% |
| Warehouse management systems (WMS) | 63 | 10.5% |
| Manufacturing execution systems (MES) | 44 | 7.4% |
| RFID systems | 22 | 3.7% |
| ERP II | 21 | 3.5% |
| Product lifecycle management (PLM) | 19 | 3.2% |
| None of these | 44 | 7.4% |
| Plants | Percent | |
| ERP | 43 | 17.0% |
| CAD/design software | 17 | 6.7% |
| RFID | 14 | 5.5% |
| CRM | 13 | 5.1% |
| WMS | 12 | 4.7% |
| Servers and routers | 10 | 4.0% |
| Barcoding | 9 | 3.6% |
| Financial management/accounting systems | 9 | 3.6% |
| MRP | 9 | 3.6% |
| MRP II | 8 | 3.2% |
| Production/workflow control | 8 | 3.2% |
| MES | 7 | 2.8% |
| Mobile management/wireless | 7 | 2.8% |
| Other online | 7 | 2.8% |
| Hardware/computers | 6 | 2.4% |
| Online selling | 6 | 2.4% |
| EDI | 3 | 1.2% |
| PDM | 3 | 1.2% |
| Demand planning | 2 | 0.8% |
| Asset management | 2 | 0.8% |
| CNC machines | 2 | 0.8% |
| HR/time and attendance software | 2 | 0.8% |
| Online purchasing | 2 | 0.8% |
| Quoting/costing software | 2 | 0.8% |
| Supply-chain management | 2 | 0.8% |
| Telecom | 2 | 0.8% |
| Others | 26 | 10.3% |
| None/unknown/undecided | 20 | 7.9% |
| Total | 253 | 100.0% |
