It is a common scenario… A manufacturer’s legacy accounting and business management system is essentially a series of independent spreadsheets, which are difficult to maintain and often accurate for only one or two weeks. The department uses a manual process for invoicing, slowing payments. Inventory forecasting and demand planning are also performed manually, resulting in overstock of lesser-used parts and a shortage of more critical items.
These highly inefficient, cumbersome processes compromise the ability of management to make informed decisions. Sales personnel lack a clear view of current leads and opportunities; the accounting department’s slow invoice payments damage vendor relationships; inventory steadily becomes obsolete.
What is lacking in such an environment is a comprehensive, integrated strategy for information technology. Contrary to the common perception that they are at the forefront of technology and innovation, however, U.S.-based manufacturers are lagging behind their non-U.S. competitors in their use of information technology.
As noted in the 2015 Manufacturing & Distribution Monitor report on information technology, U.S. manufacturers dedicate about 3.7% of revenue to IT, three quarters of which is spent on operational expenses. In its report, IT Spending and Staffing Outlook for 2017, Computer Economics found that IT spending growth is actually trailing corporate revenue growth across the board.
IT governance can be difficult at companies large and small. With limited resources, small companies may find it challenging to do more than manage the fundamentals of IT infrastructure; large companies often have to deal with multiple, discrete applications that are decades old and managed by an ever-shrinking number of people who understand them.
Ideally, manufacturers should spend 50% of their IT budgets on maintenance and 50% on strategic technology initiatives. To take advantage of the opportunities that IT offers, budgets need to increase—or priorities need to shift.
RECOGNIZING THE TECHNOLOGY SHIFT
Clearly, companies that are not utilizing technology strategically cannot maintain an advantage over their competitors for long. Manufacturers and distributors need to invest in solutions that may well revolutionize their entire technology platform. Customer expectations have changed, and organizations must update their infrastructure and systems or risk being left behind.
As collaboration and innovation technologies become more widespread, they are eliminating barriers for organizations and changing how they go to market. Systems now have sophisticated workflow capabilities that can be customized to an organization’s business model and bring efficiencies to their processes that enable them to be more competitive.
TRANSFORMING THROUGH TECHNOLOGY
Before companies will allow their IT budgets to shift priorities or increase to accommodate new technologies, a case will have to be made to support the return on such investments.
A team should be assembled to identify ways to leverage technologies. Members should include personnel from multiple levels in the company. With proper due diligence, analysis and review, management and the team can ensure that IT resources are aligned with business requirements.
A customer relationship management system can provide a single view of the customer base and should prove very helpful in learning customer needs and priorities. How a company competes in the marketplace also can help focus the team’s efforts to identify opportunities.
Management should also consider outsourcing commodity requirements. This will help reduce or shift IT spending to strategic projects.
Such technology-based transformations take on average about 12-18 months to fully implement. It is, as they say, a marathon, not a sprint. Consider placing a higher priority on those ideas that directly support how the company competes in the market. Management should develop an IT road map of approved, prioritized IT projects and review it on a quarterly basis.
How a company leverages technology has an impact that is felt by a broad array of internal and external stakeholders. With so much riding on how IT is utilized― providing products and services, increasing efficiencies, optimizing product usage, customizing client engagement― management must allow IT leaders to play a primary role in the strategic direction of the company.
For more information on RSM US LLP’s technology management consulting practice, please contact George Casey.
PRINCIPAL, RSM US LLP