The current recession has renewed focus on innovation as a means of gaining competitive edge. While cost reduction strategies can deliver short term survival, it is new revenue streams and process transformation driven by innovation that ensures growth says Phil Burgess, Business Consulting Director, Infor.
This is especially true of manufacturing where new revenue streams depend on new product development or reconfiguration. Likewise, the evolution of processes can make a huge difference to profitability. However, for innovation to be truly effective, it must be based on strong collaboration. Engineering, research and development (R&D), design, manufacture, operations, sales and marketing must all be involved if innovation is to be maximised.
For most businesses collaboration doesn’t extend too far beyond e-mail, a tool which is far from ideal for this purpose. E-mail is unstructured, with minimal integration into other crucial systems such as ERP or cost control. Tracking information across e-mail can become very difficult and while it affords strong communication, e-mail does not initiate transactions and cannot act as a source for automatically inputted information. Re-keying e-mail-based data can become labour-intensive.
Another pitfall experienced by many companies is that innovation is usually approached in departmental isolation. A recent Engineering Employers Federation (EEF) survey on innovation showed that most companies actively innovate across some area of their business, such as product development, process improvement or marketing and distribution. However, innovation across the whole company is incredibly rare.
Traditionally innovation focuses heavily on the development of new products. However a lack of inter-departmental collaboration threatens to create unsellable or ‘unmakeable’ products. An unsellable unit arises from design or manufacturing developing products that have no commercial application. There is a catalogue of examples on TV programmes such as Dragon’s Den where a designer’s idea of a ‘gap in the market’ is found to be beaten by the fact there is no market in the gap.
By comparison, sales and marketing teams often develop briefs for new products or services which they believe will deliver huge commercial opportunity, only for such projects to be found to be impossible from a design and manufacture standpoint.
Before realising a product or service is either unsellable or unmakeable, a company may dedicate huge amounts of resource. Discovering a product cannot be manufactured or sold may not happen until large financial commitments have been made?pharmaceutical research and development is a strong example. At the most extreme, whilst these products are just ideas, they can still kill a company, especially in a recession where innovation must meet customer requirement.
The integration of PLM and ERP systems can deliver a focused, collaborative approach to achieving innovation. By pulling together data across relevant departments and business processes it can control and harness innovation by making sure the end product or service has both a market and a profitable means of production. This control begins at the earliest stage of new product development. Throughout early design the discipline of PLM comes into its own. Between the first prototype and a production-capable product there will be many versions of the new innovation.
Each of them will incur different costs of production and distribution. These costs need to be pulled across to the ERP system in order to assess if any given version is viable. As these initial iterations evolve the business can become more confident that there is commercial scope for the innovation. Issues of manufacture now arise. Materials will need to be sourced and the processes of manufacture must be factored in at the correct scale.
Marketing may now begin to focus on a launch. Late product launches or products that don’t meet expectations are a major cause of product failures. Following a successful launch, customer feedback on the product/service, innovation will inevitably lead to new iterations and possible change.
These changes will of course have a cost impact and therefore integration of ERP with financial systems is critical to ensure that newer versions of a given innovation do not turn a profitable idea into a loss. And thus we find ourselves once again calling on integrated ERP and PLM to assess if these new versions are viable.
As the above, radically simplified scenario shows, integrated ERP and PLM can boost the management of innovation. The more electronic the processes and communication between suppliers, production, design and sales systems, the less scope for errors.
In addition the time savings offered by automation cannot be overlooked?if collaboration becomes more effective as the pool of collaborators grows, then it can also become weighed down by a greater pool of people needing to re-enter information into different systems. Consequently the possible time savings from an integrated system on a large innovation project can be huge.
The integration between PLM and ERP can also help to eliminate data entry errors. Roughly 65% of all discrete manufacturing Bill of Materials contain errors and this can add up to 50% to the upfront cost of many complex manufactured products. Another advantage of an integrated ERP and PLM system is that is can begin to reduce and in some cases, eliminate the buffers and safety nets put in place. Innovation is inherently risky and managers often respond to this by increasing the safety nets around a project.
While understandable, this is usually a cause of significant expense. Buffer stocks of components in inventory and redundant production capability, increase the cost of innovation without delivering improved return on the investment. Both can be reduced by effective, integrated ERP and PLM.
New ideas are the lifeblood of businesses, especially manufacturing. However, they are also risky ventures that can disrupt a business. Even if the change brought by a new idea is entirely positive, there is always the scope to do better and do more.
Technical innovation, responsiveness to changing customer demands, improved processes?these are all important goals for manufacturers in the recession. However, it is becoming clear that with an integrated ERP and PLM backbone, they are more than goals?they are dynamic elements of an integrated, intelligent manufacturing capability that can deliver growth even in tough trading conditions and beyond.