Cover story: Manufacturing - The office is dead, long live the shopfloor
Last month Booz Allen and Hamilton produced a report whose title says it all for many of us thinking about the manufacturing area: Why Be In Manufacturing?
Last month Booz Allen and Hamilton produced a report whose title says it all for many of us thinking about the manufacturing area: Why Be In Manufacturing?
After all, manufacturing is so 19th century, and surely if it’s to be done at all it’ll be in the Far East or other low-cost places, safely out of sight and mind? Plus anyone reading the newspapers over the last 12 months will hardly need reminding of the depressing drip-drip-drip of stories of closures and cutbacks: Vauxhall, Ford, Rover, Motorola, Ericsson.
The smart consultant leaving college should stay away from manufacturing. There’s no money in it. No money in it? How about a nice round figure – say $14bn? That’s what the industrial sector represents in business for IBM globally, says Bill Payne, VP industrial business innovation services for IBM Global Services’ North Region (which includes UK, Netherlands, South Africa, and Ireland).
The truth is manufacturing is still huge, metal still needs to be righteously bashed and moulded into useful products, companies still need technology to do so, and the romance between manufacturing and management consultancy is far from over.
As Booz Allen says: “Many prominent companies like GE and IBM have concluded that manufacturing can be done economically on a sustainable basis. Defining core segments, conducting a rigorous make-versus-buy analysis, and applying best practices across operations are key to achieving this goal. In addition, companies must be prepared to invest in technologies and businesses where earning potential exists.”
Issues IBM sees in manufacturing at the moment are cost reduction, and “receiving less air time, speed to market, reliability, and controlled flexibility”. Quality is still very much a pressure point in global manufacturing, Payne believes. “Manufacturers could gain 50% profit margin on average if they could eliminate quality costs.”
But what about the homeland of the Industrial Revolution itself? Seems like we still do make stuff – but not as much as we did, and what we do make and build is tightly interwoven with global factors. “It’s a tough marketplace for manufacturing companies – they’re facing the double whammy of trying to export to a euro zone against a string pound and trying to buy raw materials on a string dollar,” says Paul Eggleton, business development manager within the discrete manufacturing sector of SAP UK’s Industries arm.
“UK manufacturing companies are getting fewer and fewer through globalisation. The decision they’re all trying to solve is: do I want to be cleverly making the machines or cleverly servicing the machines someone else has made in 20 years’ time?”
But somewhere – if not Tipton, then Thailand – Swarfega will still be on the shopping list. “Manufacturing has to take place somewhere – and so someone someplace has to be doing well,” Rob Morgan, UK head of supply chain at Arthur Andersen, points out.
The UK as a venue for low cost, high volume manufacturing by multinationals – attracted because of the UK’s closeness to Europe, employment law and efficiency – was typified by the building of assembly plants here by global firms like Sweden’s Ericsson and the US’ Motorola, which, as a by-product of the world slowdown and their own problems, they closed or radically scaled back on in the second quarter.
Does that mean no-one will wear an overall again in the land of George Stevenson and Joseph Priestley? Not necessarily, seems the general conclusion, but it’s not going to be ‘I’m Alright Jack’ and ‘Red Robbo’ ever again.
“There still is a manufacturing sector in the UK, but not as it used to be,” says Stuart Smith, head of business development for manufacturing consultancy the Bourton Group. “Innovation and the integration of the global supply chain means a blurring of the line between manufacturing and service.”
Mike Bendall, director of quality assurance consultancy Qualsys, which does a lot of work in manufacturing, agrees. “Globalisation means a contraction in the number of manufacturers, yes, but it also means a huge proliferation in the number of sub-contractors,” he points out. But the old guard have certainly had their day. “You see organisations happy and successful in national protected markets trying to compete in a world situation,” he adds.
“You have to be seen as an international, global business,” says Andrew Morris-Richardson, the financial director of a real live UK manufacturer, Abacus Lighting of Nottingham. It has used IBM consultancy, SAP and the web to offer itself as a true international competitor, something borne out when the firm won the contract to help light up the new international airport in Hong Kong.
“Within the UK you can see some excellent, shining companies – and some not so good. The UK manufacturing market does not enjoy some of the competitive advantages of the rest of Western Europe,” says Henk De Jonge, head of manufacturing at Celerant Consulting. Formerly Cambridge Management Consultants, Celerant is a specialist consulting firm targeting the energy, process, fast moving consumer goods and discrete manufacturing sectors, with clients such as Ericsson and Shell. “There is much more emphasis on productivity and labour cost issues instead of building more complex products or added value, but the UK is still moving generally in that direction, too.”
Says IBM’s Payne: “The UK is still one of the largest manufacturing markets in the world, but the speed of the current slowdown shows the impact of a global economy we’ve not seen before. Everyone I speak to is surprised at the speed.”
There are factors beyond the strong euro or a wobbly Nasdaq affecting manufacturing, of course. There is a much tighter supply chain than five years ago, because companies know week by week what the numbers are now, thanks, of course, to all that technology we’ve sold them in the last five years; and there is an unstoppable evolution to greater and greater market transparency – a transformation into an asset-based manufacturing industry, where big questions and big assumptions are being looked at yet again. Ford, for example, is believed to make 80% of its profits from its financial portfolio, rather than from putting tin on wheels.
In reality, we’re seeing a combination of global and local factors at play in the UK manufacturing story. With Motorola, for example, workforce problems came from its own flexibility, its own ability to see where it was going to be able to change capacity at a stroke; and it’s also a fact that it’s just easier to sack people in the UK than it is in Germany or France (ask Marks & Spencer), so this geography may see cuts first every time.
But there’s an element of plus ca change in manufacturing; the same worries of a generation ago never really go away. “We’re moving out of a value-generation zone back into a business efficiency one where there’s renewed interest in cutting costs. Most executives took their eyes off the business efficiency screen for a while there,” says Payne.
For Roddy Martin, service director for manufacturing specialist research firm AMR Research in Boston, that abdication can’t end too soon. “It’s been too easy for us in manufacturing to pick up our problems and just ship ’em all off to Asia, hide them, instead of focusing on what always matters – operational excellence. Reduction of waste, reduction of variability, producing to schedule, shortening of lead times and changeover, reducing costs of regulatory compliance – those are and remain the challenges in manufacturing.”
Greg Caster, a partner within Accenture’s supply chain practice for UK and Ireland, agrees. “The big folks are getting back to factory basics, building intelligence into their products, and asking how they can design and manufacture quicker,” he says.
Undoubtedly so. But you could forgive a manufacturer for forgetting all that good stuff, as he was probably deafened by all the clamour over our sector’s last magic bullet – anyone here remember Enterprise Resource Planning (ERP)? Just kidding – you sent the kids to public school on it, after all. What are we going to do in the post-ERP universe? A question that surely we have to ask the company most strongly associated with the whole ERP explosion. So what does SAP think? “We’re positioning R/3 as more than ERP,” says the firm’s Eggleton. No surprises there, perhaps. But to be fair, SAP has taken great pains to carve out a convincing e-business platform message with its whole mySAP.com portal and push into customer relationship management (CRM). “There’s been a shift in where people are looking to invest their money. Eighteen months ago it was all ERP; now people are looking to the front office. But to make e-business and CRM technology work you need a strong ERP backbone,” he adds.
AMR’s Martin has a powerful analogy for thinking about this problem. “ERP drained the swamp and showed us where the rocks were,” he says. “Now we have to blow them up.”
Looking back, Eggleton says that many authorities agree that ERP was a success in terms of added value to customers. “Businesses got a new view of the truth,” he says. “Where ERP didn’t work was where companies didn’t also take a fundamental look at what they were doing, and thus did not change their processes or practices fundamentally enough.”
Qualsys’ Bendall bluntly responds: “Most big ideas – quality management included – are never implemented properly. You can’t implement big wodges of software without really understanding the processes and rat runs underneath which in all organisations are how things really get done.”
Celerant’s De Jonge says: “We’ve finished the period of strong technology push. It’s no longer about blindly putting in lots of IT systems, it’s now much more about business pull. Too many installations got done in line with the tool’s capabilities, not what was strictly appropriate for that client.” ERP systems cost buyers “tremendous” amounts of money, says De Jonge. Add to that the value represented in legacy systems not being properly exploited, and you have opportunity. “If the customer feels that a blanket solution was installed which was not really customised for his needs, but that he still feels it’s a great tool that can help him, what’s needed is an interface to that and the legacy systems behind it. It’s no longer about big trends like ERP, but about capitalising on existing investment.”
This theme is echoed by Richard Montalvo, regional director for North Europe for IBM spin-off Mapics, a manufacturing software stalwart. “Perhaps the term ‘ERP’ has some negative connotations – customers who bought ERP have learned a lot and are a lot more savvy. But manufacturing companies are still looking for technology solutions to help run their businesses better, and they don’t really care if that’s labelled ERP, ERP II, or ERM. Companies are still going to market to get systems to reduce inventory, and reduce work-in-progress, and there are new pressure points in supply chain and CRM.”
ERP: dead or alive? Whatever – this isn’t the right forum for raking over the ERP coals. Suffice it to say that Paul Rankine, a management consultant for specialist Guildford-based benchmarking consultancy Compass, speaks for many when he says: “A lot of companies got burnt with ERP. It’s just now, post Y2K, they’re lifting their heads up and asking, ‘What next?'”
Leek Van Der Maas, vice president of global alliances for former ERP giant Baan, now part of Invensys, says the “next big thing” will be “information across the company from the sensor to the boardroom so companies can really move from building to stock to building to order”.
AMR’s Martin has a more galactic vision of the same concept. “We’re going to see true e-business based process re-engineering,” he says. “Now companies have ‘drained the swamp’ they can finally see where the real functional silos are – using the Internet and the process technologies it can provide in the way of company ‘glue’,” he says. Consultants will have excellent opportunities to help firms truly transform themselves.
Using such jargon may make you uncomfortable or not: that doesn’t change the situation. The trick is to explain to the customer what you can do for him now.
And don’t be surprised if he doesn’t want to take your calls. “Customers are now very cost-sensitive and quite suspicious of IT solutions based on failed projects. There aren’t that many companies out there that have seen significant return on their ERP investment,” says Sam Brown, solutions marketing director for Manugistics.
“It’s fair to say clients are looking for faster implementations,” says Accenture’s Caster. “They want consultants to take more risk and not just look for fee for service.”
Celerant’s De Jonge also sees great opportunities for consultants in manufacturing. “There’s great pressure and enormous pain being felt by customers. But you can only help if you understand their particular pressure and pain, and do not come in with generic templates. Make him feel you could stand in his shoes.”
Mapics’ Montalvo heartily agrees. “Customers are looking for their management consultant to lead them,” he stresses. “They want to trust your practical experience from previous projects. Customers don’t have many ways of getting that sort of information or insight other than through you.” But what to sell them, in this post ERP, maybe even post e-business world? For SAP’s Eggleton, the opportunity also lies in the gap between the established back end systems and the front end. “There’s far too much ‘swivelware’ out there,” he jokes, referring to a human link between the fancy front end web system and the actual engine room.
That’s a generic observation, though, of much of business itself; what of the metal bashers? “The big concept now is supply chain, or supply network,” says Eggleton. The nexus of CRM, supply chain automation, and backbone ERP is the hot spot now, he says. “But you have to be approaching that external facing system if you’re a manufacturer in an integrated way. There’s need for much integration work there.” Some of it – surprise! – is still ERP. “Six months ago we started to see resurgence in our ERP work,” says Accenture’s Caster. “ERP is the plumbing people need to have in place before they start tackling exchanges properly.”
Mark Porter, head of manufacturing for Cap Gemini Ernst & Young in London, agrees: “We’re still strongly selling Baan, Oracle, and SAP, and still putting together those business cases.” But CRM and electronic exchanges are growing in importance to the company, he says.
CRM is also cited by Bourton’s Smith as a hot spot. “CRM’s a big issue. People don’t really understand what customers want, and when they find out they’re not always too happy because it may not be what they wanted to hear. Consultants can really help by getting organisations to build structures that expose companies to those customers as much as possible.” There may even be undiscovered territory. “I don’t think there’s ever been as much attention given to the real metal bashing side of the business as there has been in technology or process industries,” adds Rankine.
If there are many remaining areas of opportunity, how do we unlock the chequebook in the current climate? Certainly, fancy buzzwords won’t be enough any more. Return on investment is back, big time. “Clients want to know about results in days and weeks now, not concepts or quarters,” says Celerant’s De Jonge.
Some concepts are still motivating the market. Baan is not the only company saying ERP is coming back in style – so does SAP. “Many consultants are coming back to us because they see customers putting investment away from e-business back into the core ERP range,” says Eggleton.
You may agree or disagree with that, but surely you won’t qualify Eggleton’s next statement too much: “Pain in manufacturing can translate into opportunity.” And the opportunity for management consultancy is getting them over the River Jordan. “Most customers want you to take them by the hand and get them to the other side – not just come in and write a report,” says Bendall of Qualsys.
“Clients want to see some skin in the game, and actually help execute,” adds Accenture’s Caster. He says Accenture is looking into how to do this, with strategies ranging from taking charge of run time components as well as design and build, and even “putting our fees at risk” in terms of delivery.
From a customer viewpoint, Abacus Lighting’s Morris-Richardson backs up the suggestion that trust and usefulness are what the punters need from consultants. “Consultants don’t know your business as well as you do; what they’re bringing to the table is expertise from other areas and resources if they’re a big global company. But they’ve still got to be able to integrate well with your team. We want to see what they’ve achieved before as well, what they’ve delivered for other businesses in terms of results.”
One thing seems sure: the days of the mega-project where you get to train all that year’s graduate intake are gone for good. “Don’t try and expand projects or get more bodies in the door,” says Montalvo of Mapics. “You only get away with that once. Projects may be smaller but that can be good for the consultant.”
Why be in manufacturing, then? Though it might not suit everybody, it’s still an exciting and challenging area. As Qualsys’ Bendall says, in from the heart terms: “There’s something nice about working in a more macho environment than an office with lots of screens around. You get people from lots of different backgrounds and there’s way more edge to it all.”
More macro-economically, Compass’ Rankine asks a question all of us have probably asked at some point: “If we continue to ignore manufacturing, where’s our industrial base going to be?” The verdict’s clear for that newly-minted consultant: Go manufacturing, young man!
Industrial trends look gloomy to CBI
The March survey of industrial trends carried out by the Confederation of British Industry was particularly gloomy. Total demand for manufactured goods fell for the second consecutive month and expectation for the upcoming period were also poor, said the group.
Of the 894 UK manufacturers surveyed, 15% said total order books were above normal, but 38% said they were below. The balance of -23% compares with -16% in February, and is the most negative figure reported since July 1999. And over the next four months output is expected to be little changed. While 26% of respondents said volume of output would increase, 23% said it would fall giving a balance of +3%, the weakest figure since November 2000.
The news came just before figures from the Office for National Statistics showing UK manufacturing falling in March by 0.3% compared to February, but up 0.4% year on year. If energy is included in the total, says the Government, manufacturing fell 0.2% in March.
Industrialists see IT as key enabler
Brave New Work, the Bourton Group’s 12th annual survey in trends and opinions in industry for 2000, says that industrialists increasingly see information technology as the key enabler to improved performance, with “investment intentions in IT now equal to those in more traditional plant and equipment”.
The survey also suggested manufacturers view globalisation optimistically, as an “opportunity not a threat” and that 80% are already actively sourcing or planning to source goods and materials.
Half of respondents said they were using the web to market or promote their businesses but only 30% agreed with the statement that they were changing the culture of their business to suit e-business.
Almost two-thirds of companies said they are looking for leadership and innovation skills to cope with the rate of change and increased competition: but next priorities were “a balanced strategy” and “investment in IT and communications technology”.
Bourton surveyed 298 companies of 100 staff and above in early 2000.