Manufacturers are examining their internal systems to help combat external threats, such as supply chain disruptions. When a company is hit by labor shortages, higher production costs abroad and a pandemic, it can be an opportunity to rethink everything. Many companies are doing just that, looking at their IT, their cybersecurity, their extended supply chain, and even the business model itself.
Companies look to their core systems to see if those systems can help overcome external stresses. “Everyone seems to be struggling with the same issues. In the last 18 months I have never seen such a demand for support around ERP systems,” said Russell Clarkson, managing director at BDO focused on digital transformation. Design news. “Is it because people are on outdated systems or because people work remotely. A lot comes down to data transparency. They are dealing with remote events and they need to access data for supply chain issues.”
Moving internal systems to the cloud
When companies look at their internal IT, many decide that the burden of managing a system internally is pointless. “Some say, when it’s time to replace, let’s see what’s out there. We’re seeing a big shift from on-premises to cloud software to remove some of the infrastructure risks,” said Clarkson. “It’s difficult to hire IT resources. A cloud environment avoids some of these issues. As networks move and open, they realize they can pay more attention to their customer connections.”
In the past, many companies shunned cloud IT infrastructure because of the risk. As they learn more, they discover that there may be less risk with cloud-based IT. “The cloud is not risk-free, but you do get risk reduction. You have the advantage of a piece of software run by a group that has a deeper IT bank than yours,” says Clarkson. “If you have software on-premises, you’re responsible for protecting yourself. Last year, a customer was hit by a ransomware attack. Because they were a government supplier, that caused serious problems.”
Even before companies take a closer look at their internal systems, they are looking to simplify their operations. “The most successful manufacturers want to simplify first before looking at ERP. They ask: which products, which markets and which suppliers do we need? Let’s look at our operations,” Clarkson said. “We have a customer who sells in the outdoor market with a lot of SKUs. They look at the volume. They have onshore and offshore suppliers. They cannot rely on the timing of deliveries offshore. Delivery times are up to 30% to 40%. So they’re looking at which of their SKUs make sense.”
Researching operations can involve looking at which customers are the most profitable and how the business model itself works. “We have a client looking at his business from a GEO management perspective. Who are my best customers and how do I reward them? The best customers can have a dedicated salesperson,” says Clarkson. “There are things you can do to ensure that customer costs align with customer benefits. Disruptions ensure that companies focus on their core business. What do you need to do to expand? We recommend that manufacturers look at the underlying business model before making a change.”
While the pandemic has forced change, there were many of the needed changes before the pandemic hit. “When they look at a problem, they should ask if it is pandemic-related? Is the supply chain problem caused by the pandemic?” said Clarkson. “They take a closer look at what they are doing and use analytics on sales and operations. If the system isn’t what it should be, you might be speeding up a bad system.”
Is reshoring the answer?
Today, looking at operations requires a hard look at where products are produced. “I don’t have a customer who isn’t looking for reshoring. I think everyone is wondering what should be put back,” Clarkson said. “We have a number of manufacturers who want to bring production closer. I think you will see a lot of reshoring.”
Reshoring demands are growing as the problems associated with remote manufacturing sites pile up. “One of our groups is involved in the choice of location. What they see is that people are looking at where they want their production to be. Sites are a major capital project. There are transportation and labor considerations,” Clarkson said. “A customer says the shipment will show up, but they never know what it is that will show up. The level of frustration is mounting. A year ago, a shipping container cost $4,000 and now it’s $20,000 You can’t pass on all those costs to your customers.”
Companies are considering reshoring to solve multiple problems. “They have to deal with so many economic issues. They’re used to being in control,” Clarkson says. “Now that they have the pandemic, they have been hit by port problems, transport, labor and even Brexit for the past 18 to 20 months. People are making more difficult decisions because the problems are bigger than in the past.”