Manufacturers Bid Farewell to Unprofitable Projects

Feb. 9, 2011
Discrete manufacturers are returning to basics and focusing on protecting their existing client-base and market share from increased competition.

In the aftermath of the recession, companies are being forced to quickly regain their footing as the industry continues to rebuild and move forward. And, for a majority of discrete manufacturers, that means refocusing resources on customer retention and growth, rather than new customer acquisition.

According to a recent study conducted by IDC Manufacturing Insights on behalf of Infor and IBM with over 700 small and medium-sized enterprises in the discrete manufacturing industry, companies are shifting gears to succeed in this new business environment. New initiatives are moving to the forefront of many manufacturers agendas to enable them to achieve their goals, such as operational excellence and customer satisfaction.

However, increasing complexities in the marketplace are making it even harder for manufacturers to keep up with increased demand. For example, global competition, fast-paced business environments and unstable raw material prices are just some of the challenges that medium-sized discrete manufacturers are trying to combat to emerge stronger and leaner post-recession.

Manufacturers across the globe recognize they need to make changes in order to remain competitive.

Project Management is Key

As such, discrete manufacturers are returning to basics and focusing on protecting their existing client-base and market share from increased competition. To do this however, they have to improve the bid and project management process -- which is essential for profitability and customer satisfaction.

So bid and project management will be taking center stage this year, particularly for those in the industrial equipment and hi-tech sectors. However, most manufacturers admit there is a substantial gap between where their bid and project management capabilities are currently, and where they need to be to succeed in today's economy.

Properly Managing Risk

Every time a new project is taken on there is a risk. Manufacturers need to understand customer requirements at the beginning of a project because every project requires an investment in financials, manufacturing, people and resources, and a failed project could have a significant impact on customer satisfaction and productivity.

In places where high capital investment items are produced, well managed bid and project management makes an enormous impact on the bottom line. However, traditional bid and project management tends to fall short of achieving this best practice. And, with customer retention strategies demanding increased investment, the contingency to absorb these inefficiencies simply isn't there -- any deviation from best practice eats directly into a manufacturer's profitability.

In addition, as raw materials costs continue to rise, particularly for the metal fabrication industry, and prices continue to be driven down, the only viable approach to increasing profitability is to 'turn up' the efficiency of the manufacturing process itself. While cost cutting and productivity optimization have always been a focus, manufacturers must now look far and wide at where additional savings can be derived, and based on the IDC findings, bid and project profitability is unchartered territory for many.

The Importance of Technology

The biggest challenge in bridging this gap it seems, is system capabilities. While traditional Material Requirements Planning (MRP) based Enterprise Resource Planning (ERP) systems are effective in supporting production, managing inventory and tracking costs, many fall short of meeting today's new complex requirements.

Most of those surveyed recognize ERP as beneficial to a number of business initiatives from improved decision-making and overall profitability to inventory optimization and sales revenue growth. However, only a few respondents perceived ERP to add value to bid and project management.

If you're one of the many manufacturers who have an ERP system which is five to 10 years old, it is likely that you also face a vast gap between the system capabilities of your ERP and business requirements to boost bid and project profitability.

It is important to note that solutions are continually evolving and companies offer products with functionally built-in to maximize profitability from bid and project management. And, these are flexible enough to fit individual business requirements and evolve with business demands, while offering low total cost of ownership (TCO).

While historically discrete manufacturers may not think ERP systems can service this sector properly, their existing ERP systems can be reconfigured to help them solve a variety of challenges. Successfully managing bid and project management is a critical business need and ERP systems are capable of helping handle it.

Investing in the Future

Increasing complexity and unfavorable economic conditions has lead to a great deal of uncertainty throughout the discrete manufacturing sector. As a result, discrete manufacturers should think about investing in IT systems that can streamline and automate processes wherever possible, adjust easily to change, and extract valuable real-time business intelligence from all the data business applications generate.

The adoption of IT will be critical to provide better service and ERP systems will prove invaluable for discrete manufacturers that want to remain competition post-recession. Technology investment will be key to achieving business goals outlined in the study such as customer fulfilment, bid and project management and demand planning.

Andrew Kinder is director of Solutions Marketing for EMEA, Infor.

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