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mfg-emplOur business revolves to a large extent around manufacturing – we implement business management software systems for companies who make and distribute a wide range of products – and have for nearly 30 years.  So of course, the topic is bound to come up in this blog from time to time…

In spite of the concerns about a modern day downturn in manufacturing, the truth is that thousands of factory jobs are going unfulfilled across the U.S., according to Anna Sussman in the Sept. 2, 2016 Wall Street Journal.  In fact, the number of unfilled jobs has been rising since 2009 and stands today at its highest level in 15 years according to the Labor Department.

The reason?  Factory work has evolved tremendously during that period, and today’s new advanced machinery and automation systems require a new set of skills.  Those lower-skilled jobs of workers laid off in recent decades due to recession, offshoring and technology aren’t coming back, and the ones that have replaced them are causing a mismatch and a growing problem for the economy, limiting some companies’ ability to boost productivity while weighing on growth.

At Ohio’s Kyocera Precision Tools, production is now twice what it was 25 years ago with just half the staff, thanks to higher-skilled workers and expensive new CNC machine tools.  There, managers struggle to find workers with the electrical and mechanical skills required to run their complex machinery.

The Journal notes that this is mirrored in manufacturing jobs across the country, where openings have averaged 353,000 jobs per month, up from 122,000 in 2009.

In 2000, 53% of manufacturing workers had no education past high school.  15 years later, that figure was just 44% while the share with a college (or higher) degree increased by 8%.  Increasingly, factory jobs are high-skill jobs, and such ‘upskilling’ in manufacturing “mirrors a broader bias in the economy toward more educated workers,” notes the Journal.

But companies say education and training systems have not kept up with industry needs, and therein we think, lay both the problem and the opportunity.  As the Journal points out… “As manufacturing lost jobs to technology and outsourcing, young people pursued college degrees or jobs in the growing services sector.  Colleges and high schools reduced their focus on technical education.”

Yet 8 in 10 manufacturing execs say the growing skills gap will affect their ability to keep up with customer demand according to a recent study by Deloitte.

With workers and educational institutions slow to adapt, companies can spend months searching for appropriate candidates.  And these are good jobs, paying about $25 per hour or more.  The solution is not the simple one of “pay more” experts say.  As the president of Akron Tool & Die succinctly noted when interviewed, he would only lose a bidding war to bigger firms in his area and it won’t solve the problem of too few skilled workers.

We would add that it’s high time to look at the apprenticeship models of countries like Germany, where they recognize that not everyone is, nor should be, destined for college.  And company/school educational programs are showing promise in many communities today.

But it will take all these and more in a concerted effort to solve the problem, and we can’t start moving soon enough.

 

Trends_supply chainAccording to the Trends e-magazine, business today is moving from the “transition phase” of digital supply chain technologies (to improve service levels and reduce costs) to the “deployment phase.”  This phase includes the latest technologies like mobile networks, sensors, advanced analytics (“big data”) and the cloud – and the results, they claim, are enabling companies to generate “dramatically better returns on their investments.”

According to a recent study by the Boston Consulting Group, leaders in digital supply chain already enjoy competitive advantages that include improved product availability (by 10%), 25% faster response times to market changes, 30% better working-capital reductions, as well as higher margins and faster cash conversion from sales.

The study suggests three important strategies companies can apply to achieve these results:

  1. Fix performance gaps. Examples cited included using “advanced analytics” to calculate optimal inventory allocations and forecast demand.  That’s tough to do with traditional ERP they note, if the data is static and monolithic.  So they suggest employing add-in tools – many are available in today’s marketplace — that “ride on top of legacy (ERP) systems.”  Thus, they use the newest tools on top of proven systems to better analyze sales trends, production and their respective supply chains. Another tool finally beginning to show results, not just promise, is RFID, as it’s being applied to analyzing large volumes of data.  Utilizing RDID gates in its stores helped one large European retailer to better track and manage its in-store replenishment, resulting in drastically increased on-shelf availability of product.  The RFID sensors relay massive amounts of data and improve replenishment, resulting in sales increases of 2.5% and cost decreases of 4%, they report.
  1. Innovating business processes. Automated replenishment is one such example: Amazon now offers the Dash Button, an internet-enabled device that users press to reorder laundry detergent, diapers and other household goods.  The idea has now spread to other products. At the same time, businesses are using “big data” initiatives to monitor control points all across their global supply chains along with advanced allocation algorithms to decide which customers should receive goods that are in limited supply, to track down components in real time, to predict delivery times more accurately, to quickly reroute parts around disruptions and become more customer-centric in supply and demand, resulting in improved margins and more dynamic product routings.
  1. And finally: Disrupt the supply chain. Companies are using digital supply chain technologies to find new routes to customers, decentralize activities and speed up delivery.  They’re developing direct-to-customer in-house capabilities, doing automated (and robot) order fulfillment “to enable small-scale distribution for 10% of the cost possible a decade ago.”  Not to mention 3-D manufacturing (a topic we’ve covered several times here), as well as mobile 3-D printing where a delivery truck can print a customer’s order from a data file sent to the nearest vehicle to get items to shoppers faster, using less warehouse space.

All these innovations and more mean the future of supply chain innovation and digital disruption are happening, at least on a large-company scale, now.  And that inevitably leads to similar technologies penetrating the SMB space soon enough.

 

strategy_erpMost of us in the business software and ERP industry frequently remind prospective clients of the importance of aligning your business goals with your ERP choices.  If the corporate strategy and planned business direction are not given due consideration in advance of a business software implementation, there is bound to be trouble.  Disconnects, failing to solve the real problems, or simply replicating past processes or mistakes with new tools – all can be the result of failing to put the horse before the cart.

Today we’ll share the advice of another ERP blogger, Eric Kimberling, and what he describes (here) as five key steps to defining a well-aligned enterprise strategy:

  1. Clearly define or understand your corporate strategy. Many clients have a pretty well defined corporate growth strategy.  Not all can translate those into a meaningful IT strategy.  The key is to let overall strategy drive your business technology purchasing decision(s).  As Kimberling notes, “best-in-class organizations clearly define their corporate strategy and convert into meaningful objectives that can provide clear direction on enterprise application decisions.”
  2. Translate your corporate strategy into an operational and business process strategy. Focus on the essentials of business process management and on building-shared service business processes throughout the organization — and be sure they are clearly communicated to all involved parties.  In other words, and simply put, figure out what’s important to your company, and focus on the tasks, processes and tools that will help you get there.
  3. Translate your business processes into organizational change strategies. After comparing your current state to your “to be” future state, be sure you’ve defined how your organizational change initiatives will support that future way of doing business.  Look at your team’s skills, roles, tools and methods when analyzing the changes ahead.
  4. Define how technology can support the above three items. Only at this point does technology even really begin to come into play.  Technology is there to support people, and the execution of the corporate and operational strategy.
  5. Define strategic KPIs and benefits realization plans to maximize your return on investment (ROI). Kimberling’s point here is well taken, verbatim.  Too many companies often fail to do this.  Set a few measurable benchmarks for future performance success – so you know when you’ve reached a key goal.  Broadcast them.  And then use your technology to support the efforts of all in reaching them.

Remember, strategy, then people, then technology.

 

 

ocmBuried in a recent report on Organizational Change Management (OCM) from Denver based Panorama Consulting are five points that those of us who implement these systems would like to see every potential client embrace.

All too often we see ERP implementations viewed by their buyers as “a computer project” or a technology project – and that’s just so wrong.  It’s a BUSINESS project, and needs to be viewed at all times as the strategic business investment that ERP truly is.  Panorama’s report drives home five key reasons which we’d like to reprise for our readers today (with a healthy dose of our own commentary based on 30 years’ experience mixed in).

  1. Executive support needs to be focused on getting the job done right – not just “getting it up and running as quickly as possible.” Firms focused on getting it right understand the need for a balance between short-term implementation costs and long-term benefits.
  2. Business processes need to be well-defined up front. Given the amazing array of capabilities in today’s modern ERP systems, it is tempting to look solely to “how the software does things out of the box” to define your future stage.  That’s usually wrong too.  Successful businesses define how they want their processes to look first – because that is after all one of the keys to their competitive advantage — and then adapt the software to those processes, and not the other way around.
  3. Organizational change management is about more than just “training.” OCM is a structured approach to moving the business forward from its current state to a future state by taking stock of current processes and how they can be improved to deliver better future results.  Each stakeholder in an ERP project has a role in the process.   Stakeholders need to be empowered to embrace the change processes, contribute to them, and execute the changes.  An ERP implementation is the perfect time for all the above.  There is a lot of multi-directional communication required to make this happen successfully.
  4. Just getting the “tech part” of an ERP implementation alone is a daunting task. But much more is required.  Panorama says this one perfectly in our opinion, so we’ll quote them here: “Organizations need to focus on user acceptance testing, conference room pilots and other forms of testing the software against desired business processes and requirements.”  It’s not enough to make sure the software steps work or the modification doesn’t blow up – the business use must be vetted, validated and tested.  Otherwise, what’s the purpose of change?
  5. Benefits realization is focused on real business results. Tech-focused projects tend to set the bar relatively low: does it work as well as the old system?  Is it technically sound?  A business-focused project is more concerned with the higher vision of ensuring that the company is achieving tangible, measure improvement.  They set baselines for KPIs, and then use their implementation process – and many months thereafter – to tweak goals and performance.  What you don’t measure, you don’t improve – that’s the business-focused way of looking at ERP.

We wish every prospective customer would approach the purchase of their new or upgraded system with these considerations in mind – they’d be a lot happier, and more successful, in the end.

future_mfgRecently, Trends e-magazine published a report that threads together the four phases of what they see as the ongoing continuum of the Industrial Revolution.  They defined phase one as the period from about 1770-1870 – think machines, railroads, bridges and intra-national connections.  The second phase was the following century, roughly 1870-1970, and encompassed first the steel revolution and later the mass-production revolution.

Their Third Industrial Revolution “was propelled by the rise of the Digital Age,” which created even more sophisticated automation and connectivity based on microprocessors and the Internet.  That phase started in the 1970s, and Trends editors refer to this as the “installation phase,” where in each revolution’s phase, the big profits are made by tech companies – be they chipmakers or railroad companies.

The newest wave, what they call the Fourth Industrial Revolution is being driven by “extreme automation and connectivity.”  Here, think practically free computing (open-source, cheap tools, etc.) coupled with almost unlimited bandwidth.  The future implications of A.I. (artificial intelligence) and ‘big data’ will only deepen the penetration and effects.  In this new “Deployment Phase,” the big profits will come “from companies imaginatively using the core technology, rather than creating it.  This will occur in everything from healthcare to agribusiness to professional services.

The transformation of manufacturing taking place today has been noted by McKinsey and BCG as the next phase in the digitization of manufacturing and is being driven by four key ‘disruptions’:

  1. The astonishing rise in data volumes, computational power and wide area networks.
  2. The emergence of analytics and business intelligence (B.I.) capabilities.
  3. New forms of human-machine interaction, like touch interfaces and augmented reality.
  4. Improvements in transferring digital instructions to the physical world, like robotics and 3-D printing (of which we’ve written several times here previously).

Trends editors see these as the logical next steps of three prior stages:

  1. Lean in the 1970s
  2. Outsourcing in the 1990s
  3. The automation wave of the 2000s

Together these changes will transform real-world manufacturing – and actually, already are.  In big data, new sensors help gold producers in Africa increase yields by 4%… in advanced analytics, configurators coupled with purchasing data help a big car-maker identify which options customers are willing to pay for, thus reducing possible combinations by three orders of magnitude and reducing costs dramatically…  Man-machine interfaces help a German firm develop systems for order picking that use augmented reality headsets to locate items more quickly and precisely with both hands free, while integrated cameras capture serial and lot numbers that reduce errors by 40%… and finally, digital transfer systems allow a new car company called Local Motors to build cars almost entirely through 3-D printing with designs crowdsourced from its online community, while Fiat and GM use it for rapid prototyping and minimizing time to market.

In other words, the future is already here.

 

invest techTechnology and ERP systems are too often presented as the panacea that will cure all your business ills.  But the fact is, technology without the right planning could actually end up hindering your efforts.  Recently, the folks at Panorama Consulting suggested four things a company should do before making a tech-investment leap.  We concur wholeheartedly and thus share their thoughts (and  few of our own) with you today.

  1. Without business process reengineering, new technology will simply pave the cow paths. Too often, companies jump into their enterprise software initiatives without redefining their business processes (in other words, simply automating already broken business processes). Business process reengineering is an important first step and foundation to an effective ERP implementation, so even if technology is a key part of your roadmap, make sure that you’ve done the heavy lifting to redefine key business processes prior to implementing a new system.
  2. Technology is useless without the right guiding enterprise and IT strategy. It’s easy to quickly embark on a new technology system because it will be an improvement over what you currently have – regardless of whether or not it fits into your strategic plan. There are simply too many options and variables to consider in the technology space, which can cause some to stumble when those decisions don’t fit your overall strategy. (Thus, we would add, be sure you have your strategic and business goals properly defined well ahead of your cash investment.)
  3. Organizational change management is what ultimately drives transformation – not technology. People and processes drive change.  (And here then we would add: This is where the “technology is not a cure-all” thinking comes into play.  You can’t throw tech at a people/process problem.  First define the problem, then map the process (old vs. proposed new), then factor in everyone’s feelings and input about proposed changes, and then, maybe… look at how technology can help improve your lot.)
  4. Even if it really is time for a new ERP system, the other non-technical aspects of your initiative will drive true business transformation. (Our comment: Technology is just one component of your transformation.  Be sure it serves your people/process needs first, and not the other way around.  Look at all your needs from all angles, and given the typical cost constraints under which most companies labor, choose your targets judiciously.  Map out just 2 or 3 key strategic objectives for starters, and build slowly from there.  Take it slow, keep it go, as my old Slovenian grandpa used to say.)

You can find the full text of Panorama’s thoughts here.

 

 

mfg renIn our prior post we looked at what Trends e-magazine editors had to say about the intersection of tech and jobs in the 21st century, noting news both good and bad.  As promised at the end of that post, we’ll drop the other shoe today by talking in some fairly positive tones about what’s happening in manufacturing lately where output is up significantly despite admittedly fewer jobs.

While manufacturing jobs will likely never return to their all-time 1970s highs, the manufacturing sector remains a welcome bulwark of the American economy, in terms of output and profitability, much to the benefit of all of us.  Consider the following…

Two years ago, according to the Reshoring Initiative the U.S. added 60,000 manufacturing jobs (versus 12,000 the year before).  At the same time, we offshored about 50,000, resulting in a net gain (and versus 150,000 the year prior).  Is this a trend?  Perhaps: that 10,000 job gain in 2014 was the first in at least twenty years.

Even more important than offshoring may be the impact of technology.  The U.S. manufacturing workforce peaked at 19.5 million in 1979 with output (in constant dollars) around $1.1 trillion.  By 2010, U.S. output was $2 trillion with only 11.5 million workers.  So while output nearly doubled, employment fell 42%.  That output, by the way, surpasses that of Germany, South Korea, France, Russia, Brazil and the UK combined.  Remember that when you hear that America doesn’t product anything anymore.

That the U.S. continuously seems to increase output with fewer workers – in other words, we improve productivity – should be seen as a sign of “economic strength and vitality, not economic weakness,” note the editors of Trends.  Advances in technology in and around the factory floor have given rise to more output with fewer people, but with greater skills and training than in the past.

Output per worker in constant dollars more than doubled between 1955 and 1997, then more than doubled again in only 13 more years.  In 2014 (according to a 2015 study) it was at an all time high of $171,538.

And if you look at output by profit per worker, they’re about 20% above where they were before the great recession, and nearly double those of the 1990s.  All this improvement in productivity leads Trends editors a few key conclusions:

  1. U.S. manufacturing will continue to become more cost-competitive through at least 2025, due to high labor productivity, low real-estate costs, cheap energy, low-cost access to raw materials and robust export demand.
  2. Cost and revenue drivers beyond production costs will favor a U.S. rebound. The U.S. suffers from fewer language barriers and time zones than manufacturers in China and developing countries.  Domestic production can result in small, more efficient (less risky) order sizes, and eliminates shipping costs and import duties.
  3. Manufacturing will continue to benefit from consumer-level patriotism and the pursuit of positive corporate images. Nearly half of all Americans according to a 2013 Gallup poll make a ‘special effort’ to buy American, and 64% said they would pay more versus a foreign product.  Walmart has engaged in an ambitious plan to buy an additional $250 billion in U.S. product over the next decade.
  4. American manufacturing will have to overcome a few barriers however… Alot of regulatory and compliance burdens … building a better-coordinated supply chain… rebuilding the human capital necessary to 21st century manufacturing. There are great opportunities for those who can master the new skill sets.

You can read the full Trends piece here.