Innovation Crucial in Current Low-Growth Economy, Manufacturers Say

Manufacturers are investing in product innovation and added-value services as a means to compete and drive growth according to IDC Manufacturing Insights' latest report, “In Pursuit of Operational Excellence: Accelerating Business Change Through Next Generation ERP.” It highlights that while cost containment remains important in this low-growth economy, it is taking a back seat to initiatives which will help manufacturers differentiate their offerings and drive competitiveness.

The report, sponsored by business software provider Infor, reveals that innovation-led business strategies are currently hampered by inadequate business processes and IT systems, which are crucial when it comes to facilitating the working practices and communications necessary to develop new offerings quickly, collaboratively and cost effectively. In fact, according to 60 percent of manufacturers, ERP in particular falls short of optimizing the decision-making necessary for operational excellence. Top of manufacturers' wish lists for improved systems are social networking-style features within ERP to facilitate timely, accurate, informed decisions.

The research was conducted in October 2011 among 378 manufacturers in the automotive, industrial machinery, high-tech electronics, and aerospace industries in the United States, UK, France, Germany, Italy, Brazil, Australia, China, India, Japan, Qatar, Saudi Arabia, UAE, and Russia.

Among other findings of the research:

• The majority of manufacturers around the globe are balancing growth strategies together with a focus on cost cutting. However, while this balance is weighted in favor of sustained growth in APAC, Russia, the Middle East, and the Americas, in Western Europe, particularly Germany, Italy, Spain and France, they place greater emphasis on cost control, perhaps an indication of the deepening eurozone crisis. Interestingly, the UK bucks this regional trend, with the vast majority of UK manufacturers investing in sustained growth over cost cutting.

• The white paper highlights that product is king when it comes to growth, as innovation (63 percent) and added-value services to products (58 percent) rank higher than expansion into emerging markets (42 percent), with product innovation significantly higher in the automotive (78 percent) and high-tech electronics (75 percent) industries.

• Cost containment strategies across the board have moved out of the plant and into the supply chain. Optimizing production is a cost priority for only 11 percent of manufacturers, indicating that savings have been exhausted, while reducing the number of suppliers (77 percent) and shortening the supply chain (55 percent) rank highest.

• The report also focuses on the criteria for innovation, and respondents point to faster business processes (85 percent), access to real-time information (60 percent) and improved collaboration (60 percent) as critical in this quest. However, 60 percent of manufacturers claim that their systems fail to support the fast, informed decision-making necessary to innovate, with 35 percent heralding mobile and social networking as crucial to transforming the way manufacturers work.

• Looking ahead to the next three years, speed is a critical component of manufacturers' growth strategies. Reacting faster to changes demanded by the business, particularly in aerospace (71 percent) and high-tech electronics (78 percent), and streamlining processes to achieve operational excellence (72 percent) top manufacturers' wish lists. More detailed insight (58 percent) and improved collaboration (42 percent) also dominate short to medium term ERP needs.

"The current economic headwinds have brought with them lower business growth, presenting new challenges for manufacturers looking to compete on a global stage," said Pierfrancesco Manenti, head of IDC Manufacturing Insights, Europe, Middle East & Africa. "While active cost management remains crucial, companies can only truly differentiate themselves through innovating with products and services. Smarter processes and IT systems represent a substantial source of savings, differentiation and agility – helping to make informed decisions and establish a strong foundation to encouraging innovation where the company meets the customer."

Source: IDC Manufacturing Insights