Many medium sized New Zealand manufacturing firms are going through a major growth spurt but preferring to invest in new factories and machinery rather than upgrade ancient computers or move into e-commerce.

Market conditions and budget priorities have resulted in many mainstream businesses continuing to do what they’ve always done rather than venturing into leading edge technology believes Gartner Group New Zealand consultant Michelle Caminos. 

“They just don’t see the need to move into ERP or supply chain management. They’ve already developed relationships and a method that works for them. While they might need to expand communication they need to prioritise and the money has to go into expanding the plant first,” she says.

“To change to an e-business model would require a push from customers or suppliers saying, ‘we want to work with you but it’s costing us too much on a per transaction basis and we need you to move into e-business’,” says Ms Caminos.

Supply chain management won’t pick up across the region until about 2003-2004 because the users aren’t ready yet.  CRM is being talked about right now but adopted in small bites and while ERP in New Zealand is a very mature it is stagnant. “We’re forecasting negative growth for ERP – it’s pretty much a saturated market,” says Ms Caminos 

She says supply chain technology in particular is in the ‘trough of disillusionment” on Gartner’s Hype Curve. “Everyone jumps on the bandwagon, it becomes very exciting and then you start to hear it’s not really living up to expectations. Worldwide people are thinking twice about e-business because of what’s been happening over the past 24 months,” she says.

Geac national sales manager Greg Twiname says he’s dealing with at least five companies who’re experiencing 40 per cent annual growth and need enterprise resource planning (ERP) and stock management tools but are instead investing in new factories, warehouse space, lathes, machinery and trucks.

“While their computer and e-commerce systems are absolutely creaking, technology is still not considered a priority.”  That’s partly because they need to expand to meet demand but it’s also tied up with the lack of communication between IT departments and senior management who would rather go for things they can touch rather than something ‘more esoteric’ like an e-commerce solution.

“They see e-commerce and ERP systems as costs whereas expenditure on a new factory or plant or even a truck is viewed as opportunity,” says Mr Twiname.

He says vendors have to work a lot harder to prove return on e-commerce investment. “It’s much harder to quantify customer satisfaction or increased speed of transaction. If you buy a lathe you can say that will result in ‘x-number’ more turnings per year and you are hit with hard numbers. It’s much easier to prove the ROI on a piece of machinery.”

And while IT managers in large corporations have increasingly been reporting directly to boards over recent years, in medium sized businesses the IT manager typically reports to the finance manager.  This he says creates difficulties making a business case to the board. “IT is not close enough to convince traditional board members who’re often aged into their 60s and have difficulty understanding the value of e-commerce technology anyhow.”

The dilemma is many of these traditional manufacturing companies in timber, plastics, food manufacturing and metal fabrication are running at capacity and to capitalize on the growth curve they need to expand production so they can sell more product. If they invest in e-commerce to become more efficient they might sell more but not be able to keep up. 

“It’s a hard call to go with e-commerce before new facilities. You might need to do both but only have the money for one. The fact is you can still hire someone to punch in the orders manually but you can’t do without new lathes or moulding machines so you delay the computer systems for a couple of years. That’s part of the reason why e-commerce and ERP are stalled in New Zealand at the moment because we’re standing at the back of the line and there’s a pressure on funds,” suggests Mr Twiname.

He says “it’s a classic problem” but believes such companies will be ready to make those investments in a couple of years. “Growing at 40 per cent is not a bad problem to have.”

Gartner predicts a nine percent growth in investment in supply chain management by 2006 with most of that happening from 2005 onwards, ERP is stalled at 2 per cent growth over that period and much of that growth will be in ERP2 which is about web enabling, better integration and services rather than new licenses. By the same token CRM will grow 13 per cent over the next three years. “A lot of companies will be using this to help sort out their own internal systems and processes by adopting a modular approach,” says consultant Michelle Caminos.

In New Zealand the large deals we saw 12-18 months ago are not happening, instead companies are looking to make better use of what they currently have and becoming more efficient with communications. They’re looking at enterprise integration and better management of what they already have without expanding their IT infrastructure. There’s also a move to outsourcing,” she says.

The new caution is a global reaction to uncertainty in the market. “Many companies jumped into creating an external face to their partners, suppliers and customers but didn’t have it fully tied into their back-end systems including CRM, financials, document management, manufacturing and delivery systems. What they’re doing now is tying that into electronic real-time interaction so they can communicate better internally.”

While projects are still happening rather than full blown deals users are taking smaller chunks, for example implementing only one module of a CRM project at a time which have a quick ROI.

For more information on ERP click here 

By Keith Newman