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An off and on challenge: fully-optimised ERP has never been so vital

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An Off and On ChallengeGavinOberholzerProfile2 (1)Returning manufacturers are recognising that a fully-optimised ERP system has never been so vital says Gavin Oberholzer, HSO…

Life and business can be unpredictable at times. Whereas a decade ago, many UK manufacturers were offshoring their production lines, now a significant number are bringing their operations back to the UK.

At first, the promise of offshoring seemed too good to miss. There were reports of overheads cut by around three-quarters. But inevitably wage bills in fast-developing countries began to rocket – at one stage the cost of Chinese labour was rising 20% year on year. This put the cost/quality ratio out of kilter.

There was also the problem of protecting intellectual property. Cheap copies of products flooded the market and brands became diluted. At home, markets became more demanding still wanting a fast response to changing situations such as the weather or fashion trends. Flexibility and agility became the industry watchwords and the tide began to turn.

For example, a study by Lloyds Bank published late last year predicted that Britain’s car manufacturers, will create 50,000 new jobs over the next two years as they bring production back to the UK.  But the big return won’t be without problems. The challenge will be to combine the advantages, namely being closer to customers, supply chains and centres of research, with a determination to overcome the issues that made offshoring so attractive in the first place.

Despite increasing wage bills for offshore operations, higher onshore labour costs will still need to be absorbed.  To survive, many manufacturers are focusing on technology such as increased automation and advanced robotics. They are also using every means to reduce waste, energy and materials, introducing disruptive technologies such as 3D printing and gaining increased insight through connected sensors and big data analysis.

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It’s leading to an environment more interconnected, complex and data-driven than ever before.  According to a report by UK Government Office for Science, The Future of Manufacturing, although manufacturing has traditionally been understood as the production process in which raw materials are transformed into physical products, it’s now clear that physical production is at the centre of a wider manufacturing value chain. Manufacturers are increasingly using this to generate new and additional revenue, with production playing a central role in allowing other value-creating activities to occur. This typically involves supporting or complementary products.

This trend isn’t new; even as far back as 2009, Rolls Royce was reporting that almost half its revenue (49%) came from services.  However, the onshore move looks set to help build momentum in the provision of service.

It is all leading to an urgent need for over-arching control and information, enabling leaner workflow and agility across all functions including production, warehousing, projects, asset management, change management, demand forecasting and servicing. Put simply, never before has it been more essential to ensure that ERP systems are optimised to provide the information needed to achieve this across an entire organisation and its partners, where appropriate. Thankfully, the vendors of industry standard solutions are adding to their capabilities all the time.

A newly-published report by Forrester into the future of ERP, Global, Industry and Technology Forces Shape the ERP Landscape, charts the way the technology is changing accordingly to meet these new challenges. It points out that traditionally, ERP has been used as a tool to plan operations in terms of process management and cost retrenchment. However, now vendors are incorporating more up-to-the-minute capabilities to enable new business models and revenue streams.  A ‘one size fits all’ approach is no longer adequate. The right implementation partners can help fill in the gaps of industry standard solutions to tailor them to specific industry needs.

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Even those organisations already running ERP will benefit from upgrading. The Aberdeen Group recently found that the average ERP in a mid-sized organisation is more than seven years old. Yet, think how much has changed in the industry during that time.

An onshoring company needs to keep a very tight control of its margins, so must measure the impact of every new activity on the entire organisation. If a business is making a transition from selling products to selling services, the products that they manufacture now become assets and those assets now have maintenance programmes, new revenue buckets and streams attached to them. These all need to be assessed and controlled, with a centralised source of constantly updated data.

Most manufacturers recognise that it’s no good relying on technology designed to address the problems of the past. They have learnt from their offshore experience, but moving back will mean taking advantage of every new technological advance to maintain their profitability. As many depend upon ERP to run their business, it stands to reason that upgrading or tailoring to optimise the system could prove the answer.