Wednesday, January 07, 2009

Manufacturers Go Back to Basics in 2009

Manufacturers Go Back to Basics in 2009

Posted on Monday, January 05, 2009 5:02:11 PM

Businesses will need to optimize existing manufacturing assets while looking to alternative tools to boost their technology infrastructures.With few signs of an economic recovery on the immediate horizon, manufacturers will continue to do more with less in 2009, industry experts said today.

Technology budgets will not vanish, observers said, but moving forward the emphasis will not be on standard infrastructure upgrades, but instead on technologies that lower the cost of doing business.

With that in mind, industry experts are predicting that technology investments in 2009 will center on optimizing existing assets, right-sizing the supply chain, increasing sustainability efforts, and optimizing product lifecycle management and knowledge management.

The roadblocks have been well-documented. According to the Institute for Supply Management (ISM), the manufacturing sector failed to grow in December for the fifth consecutive month, and the overall economy contracted for the third consecutive month. In addition, new orders have contracted for 13 consecutive months and are at the lowest level on record, dating to January 1948. In addition, order backlogs have fallen to the lowest level since the ISM began its Backlog of Orders Index in January 1993. As a result, manufacturers are reducing inventories and shutting down capacity to offset the slower rate of activity, ISM reported last week.

A recent report from analyst firm Manufacturing Insights, titled, “Worldwide Manufacturing 2009 Top 10 Predictions,” offers a twist on the doomsday predictions. “The downturn represents an opportunity for manufacturing companies to recalibrate their operations,” the report states. “Channel partners can be rationalized, inventories reduced, production assets modernized, and, most importantly, supply and demand can be rebalanced in preparation for a recovery.”

For the past five years, manufacturers have earned a return on assets by outsourcing, selling off plants, and doing things that got assets off the books to lower cost and manage return on assets, Bob Parker, group vice president at Manufacturing Insights, told Managing Automation.

“What’s changing is, this is an economic situation created by a financial crisis, which means the days of lots of liquidity and plenty of capital available to invest are gone,” Parker said. “So there is an emphasis on technology that helps deliver higher performance from the fixed assets they already have.”

Parker predicted that manufacturers will delay major enterprise application deployments, an assertion that AMR Research supported with a recent forecast indicating low single-digit growth for the enterprise software market in 2009 as a result of cost containment initiatives at customer sites.

Indeed, an October 2008 Managing Automation Outlook poll found that in the United States, about 30% of respondents said they will increase their technology budgets anywhere from 5% to more than 10%, compared with about 55% the prior year saying so. The technology areas in which manufacturers plan to spend in 2009 include: wireless communications, manufacturing intelligence software, business intelligence applications, and, despite AMR’s prediction, even ERP.

Where infrastructure investments are needed, however, manufacturers will increasingly turn to cloud computing, software–as-a-service, open source, and Web 2.0 tools as alternatives to traditional client/server deployment, experts say.

While most of the technology in play in 2009 will aim to reduce the cost of doing business, some breakout areas of innovation will begin to surface in 2009, particularly in digital manufacturing, an area Manufacturing Insights calls “Operations Technology.”

By investing in PLM and digital manufacturing technology, and understanding how a production process can change, manufacturers will become agile enough to allow shared manufacturing capacity — that is, the ability to create another manufacturer’s product, Parker said.

“The idea of manufacturing as a competitive weapon, especially if you can think [beyond the notion of] ‘it’s my plant and the only products [made here] are my products,’ can be extremely valuable,” Parker said.

Going forward, “we see the investment in digital manufacturing as an overall product lifecycle investment that will be a sacred cow that survives the ax,” Parker said.Manufacturing technoloy, technology budgets, Manufacturing contractionBusinesses will need to optimize existing manufacturing assets while looking to alternative tools to boost their technology infrastructures.