E-Commentary -- Tech Benefits No Myth For Manufacturing

Dec. 21, 2004
Various software applications help bottom line.

Downward pricing pressure. Foreign competition. It comes as no surprise to anyone making products in the United States that these are the most pressing challenges facing manufacturers that responded to this year's Census of Manufacturers. No matter what business you're in -- high tech, automotive, furniture, aircraft components -- you must constantly confront the Scylla and Charybdis of cost and foreign competition that have loomed over U.S. manufacturing for the last decade or two. Of course, the tandem pressures -- like the mythical giant rock and whirlpool that threatened Jason and the Argonauts -- are closely related. Any way you do the math, foreign competition means lower prices. Nothing new here, you say? Maybe not, but the real news is that many manufacturers are finding creative ways to cope. Some are adding value for the customer via extra services or tighter order-to-ship times. Others are creating new products. Still others are entering untapped markets. As far as cutting costs goes, though, most companies have pared down to the gunwales -- to run a tighter ship, they'd have to throw the masts overboard. I wish I could report that information technology could play Hera, guiding manufacturers on a profitable course to find the Golden Fleece. Unfortunately, the real world doesn't work the way of the mythical one. Nonetheless, some manufacturers have found ways to harness the power of IT to help them compete, reduce costs, and turn a profit from their operations. According to the IW/MPI Census, for example, of 482 plants that use electronic data interchange (EDI), 357, or 74%, reported they obtained some or major improvement in profitability from its use. Basically, this is a technology that's been around for a while, yet it's still useful in allowing manufacturers to transmit invoices and other forms and data electronically, thereby helping them maintain a close business connection with their customers and suppliers. Another technology that manufacturers say they're getting a big bang out of is computer-aided-design (CAD) and other design systems. Of 595 plants using CAD, all but 65, or about 89% said they were getting some or major improvement in profitability from this technology. CAD enables them to work in a more integrated fashion with customers and suppliers. In the old days, manufacturers relied heavily on paper designs going back and forth through the mail or via messenger or fax, a much slower process. Today, designs are shared instantaneously over the Internet, requiring fewer time-consuming and costly iterations. A new wrinkle to all of this is the growing use of virtual prototyping, where the customer gets to examine the look and feel of a product or design before signing off on it. That way, mistakes or unwanted features can be eliminated before a single mock-up or prototype is built. Does all this mean that manufacturers are suddenly lining up to spend on technology like so many ouzo-sodden Argonauts on shore leave? Not quite. In this year's survey, only one out of five plants (21.5%) expect to boost their tech spending by more than 5% next year. A larger number (39.9%) plan to increase their investment in technology by a more sobering 5% or less. That's not exactly a groundswell, but coming off the last couple of years of rampant slashing of IT budgets, it's a fresh sign that manufacturers once again are starting to consider technology as a whetstone for sharpening their competitiveness. Doug Bartholomew is a former IndustryWeek Senior Technology Editor. He is based in San Francisco.

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