The UK manufacturing industry is facing some of the biggest challenges in its history
Increased raw material and energy prices are driving up the cost of production, while increased competition from burgeoning markets such as China are driving down prices, says Karl Deacon, Vice President, Outsourcing, Capgemini.
20 April 2006
Publication
Globalisation is bringing increased rivalries and opening up new and fast-growing markets. In response, the manufacturing sector continues to consolidate to gain economies of scale.
It is also diversifying, launching new products for new markets, stabilising revenue and increasing shareholder value.
Offshore capabilities and the emergence of different channels are helping manufacturers to reach alternative customers and sourcing options.
But there are several challenges that manufacturing businesses have to consider in the current market. Increasingly savvy, demanding clients with high expectations of service quality are driving demand.
And while many internal processes, such as forecasting, order management and finance have been automated, manual and inefficient processes still exist – and they can vary across partner relationships.
Management of logistics providers, for example, is being made more difficult because many companies are outsourcing their inventory and distribution to third parties, relying on vendors to manage significant business processes.
It can be a tricky situation. Economic fluctuations and cyclical markets require companies to be able to change production capacity quickly and increase the need for flexible manufacturing operations.
And the inevitable expansion and fragmentation of supply chains that is being witnessed in the manufacturing industry brings its own challenges, as more organisations make use of their own systems.
The range of diverging infrastructures can lead to disparate systems that have not kept up with manufacturing business needs. And in such a rapidly changing business environment, manufacturing companies are finding that today’s application systems and business processes do not provide the flexibility, interoperability, functionality and cost-effectiveness that business needs to stay competitive.
Manufacturers to date have done well to solve problems that lie within the four walls of their organisation. They have also adopted open standards for supply chain solutions.
But the industry needs to adapt to a far larger market that includes more players – this means creating a technology-enabled platform that is broad and structured.
Technology vendors are beginning to move towards a service- oriented architecture (SOA) approach, making use of standards to deal with service management and operations – and common data and processes that can be reused. The idea is not new; it is just that the technology has now caught up.
Service-orientation makes it possible to build software and IT infrastructures that work hand-in-hand with current platform architectures; using the same base communication mechanisms within an application as those used between applications and trading partners.
Technology leaders need to recognise that SOA can be used across the manufacturing industry to develop a service-oriented platform to link and co-ordinate the activities of the customer, the manufacturer and the logistics provider. It can be used to assess results in near real time, so that the business can adjust activities and respond more quickly to changes in the market.
One way in which manufacturers can transform technology infrastructures using SOA is to use outsourcing to gain access to broad service-oriented expertise. Outsourcing partners can apply new architectures and operational tools from key companies, such as SAP, Intel, HP and Cisco.
Manufacturers can also take advantage of being able to outsource with partners who deliver from different locations, freeing up cash and resources to accelerate growth with less risk. Cost savings can be re-invested in areas of the organisation that drive growth and ultimately transform the business.
Whether manufacturers look in-house, or to a sourcing partner, it is vital that the industry continues to create common technology standards that facilitate the management of information cohesively.
Such an approach will not only create efficiencies, increase productivity and improve customer service; it will help to fuel growth and innovation, and to align business objectives.
The manufacturing sector and its most significant companies will only be able to compete successfully by ensuring that their computer systems not only improve business processes – but are also effective in meeting the key challenges ahead.
