Written byJohn Hammann, Industry Principal for Manufacturing, SAP UK
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Manufacturing – the current landscape
British industrial output rose in April for a third consecutive month, shown by a recent survey from EEF, the manufacturers’ organisation, and advisory firm BDO, underlining the slow but steady nature of the country's recovery so far this year.
Historically, the UK manufacturing industry’s credentials have stacked-up well in terms of its overall value to the country. A sentiment underlined by the fact manufacturing generates between 11 and 12 percent of the UK’s overall wealth, 60 percent of exports and 2.6 million jobs.
On the other hand, global manufacturing must be cautious with its optimism. The closely-watched ISM index of US factories tumbled far below expectations. It’s the lowest since the depths of the crisis in mid-2009 and a clear sign that US budget cuts are starting to squeeze the economy. The news came just hours after HSBC said its index for China had also fallen, a major inflexion point for the world’s industrial workshop.
Spotlight on innovation
From conversations with partners and customers, it’s evident that businesses are confident in their own ability to drive growth and they have identified a number of opportunities to help deliver it. For the majority of UK manufacturers, innovation plays a critical role with 82 percent considering it “important” in helping achieve growth in 2013 and beyond, according to the findings of SAP’s Manufacturing Success research.
Despite all the signs pointing towards a continued investment in innovation, manufacturers appear to be divided on the merits. Some organisations remain focussed on investing to innovate and grow, while others take the primary stance of protecting themselves against risk. However, while investing in innovation is a calculated risk, it’s a risk that can bring benefits through improved business processes and product development.
Innovation nation
While the current economic climate is a significant barrier for firms achieving immediate growth, interestingly it’s also the biggest driver in motivating businesses to innovate. Other significant drivers of innovation include changing customer demands, increasing sales and cost reduction/need for increased efficiency.
External pressures are forcing manufacturers to re-evaluate their processes and how they do business with their customers. It is how companies do business with others where organisations should place a greater deal of significance when looking to drive innovation.
In order to effectively innovate, it’s important for firms to build close relationships with their customers and also understand their customers’ customer. Having greater visibility of the supplier-buyer network is not easy to achieve, but true innovation is often built from a solid understanding of industry dynamics, drivers and relationships.
In the modern manufacturing environment, being able to develop creative ideas, address new and complex problems and deliver innovative products and services to global markets will be the capabilities most coveted by both countries and companies. But even more essential for innovation to flourish will be access to a workforce capable of driving it.
Next steps in innovation
With a plethora of technologies now available, manufacturers are able to harness a greater understanding of customers and their changing demands, greater innovation can allow businesses to form more valuable partnerships within their business network.
As a result, manufacturers can look beyond their own company to build their strength, allowing them to better integrate with suppliers, customers and even their competitors. However, in order for innovation to be most effective in the year ahead and beyond, businesses must have the right technology foundations in place to support their desired growth.
While organisations may have the desire and optimism to change their business, without the right tools in place to execute their objectives, their ambitions are unlikely to become a reality.
Manufacturers exploring the notion of investment in innovation, have an abundance of choices which to choose from, but breakthrough R&D and incremental improvements to existing products and services seem to be the most popular.
Through continued investment and innovation we will start to see some breakthrough with new data technologies and disruptive technologies impacting on not only the products but also to the process.
In a recent report released by KPMG, they have suggested 68 percent of manufacturers will invest in incremental R&D and 31 percent in breakthrough innovation in 2013 and further. The report also suggests that nearly half of large global manufacturers are planning mergers or acquisitions in order to compete in the industry.
Central to this is not thinking about innovation in individual silos, incorporating historical considerations such as products and services, but also in terms of thinking differently about business operations, processes, technologies and talent.
Dynamic manufacturers who put innovation at the forefront of their industries will be best placed to react to the changing marketplace and will emerge from the economic storm stronger than ever. The manufacturing industry is at a tipping point, we must react to the needs of our customers and partners. Innovation is at the forefront of this call to arms.
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