More manufacturers are in the market for enterprise resource planning (ERP) systems in 2016 to improve customer service and response times, according to a new survey from the professional services firm Sikich LLP (https://www.sikich.com/) .
Three figures from the Sikich 2016 Manufacturing Report stand out, indicating a bull market for manufacturing ERP vendors:
- 29% of manufacturers report being more optimistic for the U.S.
economy compared to the last 12 months
- Another 31% of manufacturers of manufacturers believe the world economy will grow over the next 12
- 40% of manufacturers expect their industry will expand over the next 12 months
Positive figures in each of those areas national and global economies, and industry expansion are
all indicators of expanding buyside budgets.
But what will they require of ERP?
ERP Drivers: Growth through Improved Customer Experience, Reduced Costs.
Some 44% of manufacturers see organic growth in the existing domestic market will be their main opportunity for growth. Another 14% sees merger and acquisition (M&A) as an opportunity for growth, despite a recent boom with M&A activity.
While manufacturers plan for growth, they are doubly sensitive to hindrances to growth, chief among them, cost pressures, with:
- 44% of manufacturers saying cutting operational costs is a top priority
- 47% expecting an increase in material costs of up to 5%
- Fully 85% expecting an increase in labor costs form 1 to 4%
- 49% expecting average wages for employees to increase 1 to 2%
Given those two drivers, it is no surprise that Sikich found that the top two business drivers impacting technology strategy among manufacturers are response times and customer issues (51%) and a drive to reduce costs (38%).
So, some marketing indicators are more bear than bull. But the good news for ERP vendors is that manufacturers have technology strategy; rather than tightening their belts in that area, they look to technology solutions for improved customer experience and cost reductions.
And they seem to be surrendering the idea that outdated technology is better than no technology at all. Al Galinot, a partner for Microsoft Dynamics AX in Sikich’s technology practice and an author of the report, observes that manufacturers are looking to replace ERP systems for numerous reasons, including:
- Outdated legacy products
- A desire to serve customers better
- And to gain new insights into processes
Given a so-so recovery since 2008, “a lot of manufacturers delayed upgrades to their ERPs,” explains Galinot. “It used to go in seven-year cycles, but the delay has resulted in many older, legacy type systems that are bumping up against compliance issues because support is running out.”
Older systems generally lacked certain functionality that a company desired, requiring other products to be cobbled to the core system or computer code written to fill gaps hardly the tight integration being engineered into solutions like the new Dynamics AX, which launched with a marketplace of dozens of pre-built alternatives provided by partners.
And of course, the OEM software itself evolves continuously consider Dynamics NAV’s once-a-year release cadence and lower impact upgrades. A company using an older ERP because it has “never let them down” simply has no idea what native multicurrency capabilities feel like. Certainly the user of a four-year-old Dynamics NAV installation who is unable to use a tablet or phone to conduct business wishes there were something like the Universal App. Therein lies productivity and in productivity is the opportunity for growth.
Galino describes “an incredible amount of inherent functionality” in up-to-date ERP systems and in CRM. that legacy systems did not have, Galinot says. If an improved customer experience is truly a driver, then, Microsoft Dynamics CRM or Dynamics CRM Online gives manufacturers a 360 degree view of their customers, which can deepen the manufacturer/customer relationship. “Before a sales call, for example, a sales person can look at sales volume, whether the client is on a credit hold or has had issues with a previous order,” Galinot says. And they can do that on a phone or tablet.
Similarly, manufacturers can improve response times and cut costs by using their new ERPs to automate manual tasks, such as inventory. Instead of performing manual inventory on a monthly, quarterly and annual basis (the periodic methodology), a manufacturer can track input and output of inventory (perpetual methodology) to free up staff to produce more product.