IT strategies for SMEs

Design-to-delivery cycle time is rapidly collapsing along with prices and margins, which is hurting RoI. As a result, businesses are being forced to increase customer and market focus and leverage seamless technology solutions to stay competitive, says Deepak Shikarpur

Today’s economy presents a new set of challenges for the manufacturing industry. Global competition has empowered customers who now constantly demand new and better quality products. In the Indian manufacturing context, small is not beautiful as far as business complexities are concerned. However, the need of IT is as compelling for small businesses as it is for larger outfits. While manufacturers struggle with the marketing of innovative products and services to augment the perceived value of their products, they must simultaneously battle product commoditisation and customer demands to lower prices. For example, heated price wars in the semiconductor market have compromised product margins and top line growth. In the pharmaceutical industry, the introduction of generic substitutes for branded prescription drugs can result in price reductions of more than 50 percent.

In environments such as this, manufacturers need to drive innovation in their products and reduce time-to-market to be able to charge price premiums on their products.

IT solutions for SMEs

Trends in solution allocations are a good parameter of how technology spending is affected due to changes in priorities and business within organisations.

Corporate administration: This feature supports administrative functions for basic business operations, including accounting, payroll, human resources, and general office automation and procurement.

Manufacturing operations: This feature supports the core operational area for manufacturers, involving design and production of products. This solution area includes solutions targeted at plant-level business and manufacturing processes, including specific machine and tooling operations.

Customer interface: This feature allows manufacturers to target, track, market, and respond to customers. These include providing product and customer support, as well
as direct marketing and selling.

Supply chain: This feature supports the company’s process for planning, implementing, and controlling the flow of goods, services, and information from suppliers to customers, including processes associated with inbound, outbound, internal, and external movements, and the return of products for repair and recall purposes.

ERP—does it fulfil SME needs?

Companies are resorting to ERP as a means to achieve internal business objectives and a higher RoI. The primary reasons why companies go in for an ERP solution are:

• To improve financial processes and management.
• To enable effective management of a company’s operations.
• To helps in optimal management of resources.

Thus, a comprehensive ERP solution that is affordable, convenient, simple, flexible, friendly and cost-effective with reduced training and implementation time is the need of the day.

SMEs have high expectations from an ERP offering. It practically covers all aspects of the business. But they are unwilling to pay a high price. So there lies the Catch-22 situation.

Expectations

Investments in manufacturing activities in the developing world will generally depend on strategic partnerships. To contend with globalisation pressures, manufacturers are employing numerous strategic imperatives, including the incorporation of a global perspective on their corporate and product strategy; the centralisation of global operations to achieve major economies of scale; the alignment of business units and business processes on a global basis; and the development of worldwide supply chain systems that easily adapt to divergent cultures, regulations and customer preferences.

The manufacturing vertical market continues to operate in survival mode, and IT spending, which is closely aligned with business objectives and business results, reflects the frugality with which manufacturers approach capital

spending and operational expenses. Uncertainty about the after-effects of the war in Iraq and fear of a continued economic slowdown or a dip into a second recession make it unlikely that manufacturing business conditions will improve dramatically in 2003.

The following top IT priorities suggest that manufacturers should remain focused on practical back-to-basics solutions and technologies that help them address their most salient business and technology issues:

Get more out of enterprise data: Just as with other industries, the manufacturing vertical market needs to overcome problems associated with ‘siloed’ IT architectures that result in multiple versions of data, making it almost impossible to access ‘truth’. The global nature of the industry, the glut of mergers and acquisitions, ‘siloed’ business and functional units, and a lack of communication with the numerous suppliers and customers exacerbate this problem.

Pry more value out of existing IT investments: There are a few hot new applications or technologies in the market, and manufacturers are not inclined to invest heavily in them beyond business case development or pilots. With limited tolerance for risk, they prefer to spend more on incremental investments that drive additional benefits or RoI from previous IT purchases.

Cautiously experiment with new technologies: Despite limited tolerance of risk, manufacturers are exhibiting incipient signs that they are ready to test drive new technologies. The interest in Web services is an unambiguous indicator. Throughout 2001 to 2002, manufacturers’ interest in Web services lagged those of industries, such as healthcare, that can be described as trailing-edge technology adopters. This year, Web services is one of the most important priorities for manufacturers. However, this data should not compel IT vendors and service providers to anticipate wholesale adoption of Web services in this vertical market.

Rethink and streamline IT architecture: In line with corporate directives to cut costs, manufacturers are endeavouring to categorise, weed out, upgrade, and integrate the numerous applications and technologies in their IT portfolios. A more streamlined portfolio would help cut the cost of internal and external services for activities such as system integration, application development and product support and would foster more efficient and effective IT decisions in the future.

Do it all in a secure way: Security is the most critical priority for manufacturers across the board. Survey data indicates that manufacturers anticipate the government to issue regulations that would require more stringent IT security norms in the coming year. Trading partners, likewise, are increasingly demanding manufacturers to demonstrate the security of information systems before partners share data and transactions. Indeed, manufacturers have a personal interest in securing intellectual property and operational data that, if compromised, could undermine their competitive advantage in the industry.

Deepak Shikarpur is the executive director of CSI. He can be reached at deepakshikarpur@yahoo.com