Survival of the fittest
March 2010
IT in Manufacturing
Gavin Halse, MD Apply IT
What should the IT priorities be during a recession?
Today the CIO in a struggling manufacturing company must do more with less as the company faces the future uncertainly.
Times are tough in mining and manufacturing with some companies forced to take unprecedented steps to protect their businesses during the worst economic downturn this generation has experienced. Preserving cash, reducing fixed costs, delaying capital projects, seeking government protection and downsizing the workforce – these are the challenges that confront today’s managers.
Yet, a few companies are accelerating their growth because their marketing mix allows them to thrive in a downturn. They benefit because they might have large cash reserves, raw material prices fall, they are positioned to profit from government investment, or their markets suddenly grow as consumers switch to alternative products.
Today the CIO in a struggling manufacturing company is forced to do more with less as the company faces a future of uncertainty. The question is what should the IT priorities be during a recession? This uncertainty is not new to the IT sector either, after all, they must cope with the fundamental shifts in technology that occur every three years or so. IT companies that survived the turmoil post-Y2K are now well positioned to diversify to service those sectors that are prospering in the current economic environment. The bad news for manufacturing is that scarce IT resources will become even scarcer as IT companies seek new, potentially more lucrative lines of business that are less affected by the downturn.
Manufacturing CIOs, now faced with the task of radical cost reductions in their ailing businesses, may be tempted to cut IT to an absolute minimum. Perhaps they should consider the following three realities before over-reacting:
Relationships matter
When cutting costs, be careful not to damage the IT relationships that truly create value in your company. These relationships may have evolved over years. Changing vendors as a result of contract termination or downsizing can take a long time, and cost far more than may first be evident. Rather try to negotiate with your IT partner and be sure you understand the underlying dynamics of their business. If you cut their revenue stream too radically will you force them to go elsewhere leaving you with all the previous headaches associated with changing vendors?
Cut costs in IT commodities and keep investing in IT differentiators
Commodity services can be substituted relatively easily so these are the areas that should be cut back first. Connectivity, bandwidth and cheaper hardware are areas where cost savings can be realised, often with improved quality and service levels. Sweat these assets more. Be careful, however, when planning cutbacks on application support, system development and line-of-business applications such as ERP and CRM which are fundamental to successful manufacturing. If you cut back these areas too far, it may result in breaking the delicate, integrated software ecosystem that your business relies on. Rebuilding this is costly and takes time.
Have a long-term perspective
The economy will turn again. With this in mind try and maintain your IT systems as far as possible; they are the key to responding quickly when it does. The challenge for the manufacturing CIO now is to understand and communicate clearly the value that IT is adding to the company’s operations and ensuring that this remains intact in an environment where cut-backs are inevitable.
For more information contact Gavin Halse, ApplyIT, +27 (0)31 275 8080, [email protected], www.applyit.com
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