June 1996 € Volume 6 € Number 6

Real World

Most manufacturers oblivious to technology's payback

Despite the fact that midsize U.S. manufacturers, on average, will spend more than a quarter of a million dollars on technology in 1996, fewer than one in six has ever attempted to quantify technology's return on investment (ROI). A study of 3,200 manufacturing executives, representing companies with annual sales between $10 million and $500 million, found that only 15 percent had ever attempted to determine the payback on their technology investment.

"Given the rate at which technology has proliferated in recent years, it's little wonder that so few companies have taken the time to determine the soundness of their buying decisions," says Michael Cantwell, national director for manufacturing and distribution for Chicago-based management consulting firm Grant Thornton LLP, which conducted the survey. "Yet it's due to these rapid developments and the vast number of product options that companies should proceed cautiously."

To determine its technology ROI, a company must first assess the shortcomings of its existing systems and establish clear and precise goals for improvement. A monetary value must then be assessed for every improvement -- and for every failed improvement -- so that payback can be determined.

The study indicated that 35 percent of manufacturers invest in technology to increase productivity, 15 percent to improve communications, and 14 percent to increase agility.

Asked to cite the benefits of information technology, most singled out access and accuracy of data (52 percent), followed by labor force benefits (41 percent) and speed and efficiency (31 percent). Among the most commonly cited drawbacks are expense (27 percent), a shortage of qualified personnel (18 percent) and the validity of information (14 percent).

But without taking steps to determine a company's actual technology ROI, such praise and criticism are only perceptions, said Cantwell. "As with any major business strategy, technology's contribution is only as real as its impact on the bottom line."


Manufacturers join to form Supply-Chain Council

Fifty-four of the world's largest manufacturers have joined to form the Supply-Chain Council and have begun formulating a cross-industry supply chain process reference model. The model will identify common supply chain management processes and match these against "best practices," benchmarking performance data and suitable software applications, providing manufacturers and their vendors with a framework necessary to target specific improvements and to measure progress.

Among the council's members are Amoco, Procter & Gamble, L.L. Bean, Lucent Technologies, Nabisco, Bristol-Myers Squibb, Eastman Kodak and Texas Instruments. The council is being organized by international operations management consulting firm Pittiglio Rabin Todd & McGrath (PRTM) and by Boston-based Advanced Manufacturing Research (AMR), a research firm focusing on manufacturing and supply chain application software products.

"Manufacturing quality is no longer the key competitive differentiator," said Jim Shepherd, vice president of research at AMR. "Success now depends on the ability to meet customer demands for delivery, quantities and options. As a result, companies are scrambling to improve supply chain performance simply to remain competitive. A common framework outlining terminology and a consistent perspective is vital to make this happen."

Mr. Postman, look and see . . .

The U.S. Postal Service, despite competition from electronic communications technologies and overnight courier services, still carries the bulk of the bills, invoices and statements that comprise the lifeblood of business, according to a survey conducted by the Gallup Organization of large and mid-sized U.S. companies.

Overall, 90 percent of the surveyed companies relied primarily on the mail to deliver the paperwork of commerce. Thirty-six percent also deliver bills at the point-of-sale, 30 percent by E-mail or EDI, 30 percent by fax and 27 percent by overnight delivery services. On average, the surveyed companies send out 314,000 bills, statements and invoices each year.

Manufacturing Industry CPAs form association

CPA's specializing in advising the manufacturing industry met in Las Vegas early this year to finalize the formation of the CPA Manufacturing Services Association (MSA). In establishing the association's focus, the consultants emphasized sharing information on meeting the challenges facing manufacturers now, and those they will face in the future, including:
"In the next five years, manufacturers of all sizes will be faced with change unequaled since the industrial revolution," said MSA president Jeff Kvilhaug of Larson, Allen, Weishair & Co., St. Paul, Minn. "The globalization of business, increased competition for a sophisticated work force, advances in technology, the customer's demand for products better, faster and cheaper, and other trends translate into a tremendous opportunity for those who embrace it, and shrinking market shares and profits for those that resist."

What makes a company best-in-class?

What distinguishes the best companies from all the rest? The leaders are more apt to define their products with supplier input, to creatively align development efforts with strategic goals, and to define various aspects of their products in multiple ways, according to a survey of product development practices conducted by Product Development Consulting (PDC) and the Management Roundtable.

Of the 335 companies taking part in the survey, 81 were defined as best-in-class, based on market share, sales and qualitative success factors. Respondents represented a cross-section of industries, including medical, hardware and software, communication and instrumentation companies.

The survey found that the best-in-class companies were more than twice as likely as their competitors to have a supplier representative on-site for product development collaboration, to share strategic and product planning with vendors, and to solicit suppliers' input on product plans.

"Best-in-class companies are moving beyond traditional internal boundaries, actually bringing suppliers into the definition process," said PDC principal John Carter. "But even though these companies are far ahead in supplier partnering practices, there's still ample room for improvement."

Top concern for IS honchos? Aligning technology with strategy

Information systems executives are most concerned with ensuring that their technology goals are consistent with those of the overall business. They also believe that more effectively organizing and using the company's data is a critical IS activity for 1996.

These are the highlights of Computer Science Corporation's ninth annual "Critical Issues of IS Management" survey.

Survey results show that "aligning IS and corporate goals" is the primary challenge for North American IS executives, just edging out "organizing and utilizing data." Rounding out the top five: "instituting cross-functional systems," "using information technology for competitive breakthroughs," and, tied for fifth, "integrating systems" and "capitalizing on advances in information technology."

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