Vertical Focus

IT is key in controlling manufacturing costs

The manufacturing industry is expected to bounce back in 2010 riding on the key IT initiatives and new technology spending it undertook in 2009. By N Geetha

While the economic downturn resulted in a deep recession that has taken its toll across industries, it has had a cascading effect on the manufacturing sector where investments were impacted. The industry had to invariably bring in stringent measures in terms of handling its excess inventory, reducing import cost and optimizing its resources internally in meeting targets. A strange phenomenon that one observed in the manufacturing sector was that the top management drove the point home that growth rate should not be adversely impacted for any reason. Amidst the challenges and investment constraints be it OPEX/CAPEX, most companies in this vertical are found to have grown during the calendar year (growth in top line) while the bottom line is still being impacted.

Most CIOs of the manufacturing sector be it automotive, FMCG and likes, have been capitalizing the opportunity to exhibit the importance of their role in driving growth where IT is felt to be imperative and indispensable in achieving growth targets.

From a growth point of view, Honda Motor's CIO, Hilal Khan opined that the manufacturing industry had been the victim of the recession where the bottom-line was impacted. “It was a difficult situation for most segments—luxury, mid-range car or small cars, were impacted. While we noticed a top line growth in certain premium segments, the overall market did hit our bottom-line growth,” maintained Khan.

The first few quarters of 2009 were a challenging period for Godrej Industries as well as they noticed the erosion of bottom line. As Mani Mulki, CIO, Godrej Industries pointed out—the challenge has been in terms of handling excess inventory owing to forward purchase and the increase in the inputs cost of raw material, which called for the highest level of IT usage to increase operational efficiency. Despite the economic constraints, Godrej still posted 15-20% growth in 2009 by optimizing systems and processes and effective use of IT.

Rajesh Uppal, CIO, Maruti Suzuki, admitted that this phase [2009] was the toughest, which saw a dip in growth. Overall Maruti covered new ground by tapping the government vertical and rural market and was still able to post 15% growth in 2009. Uppal observed, “We tried to go after new markets in government and upcountry, which has paid off in increasing our car sales.”

Interestingly, 2009 was a significant year for Hero Honda Motors Ltd (HHML) as it managed to grab the leading position in the two-wheeler segment with cumulative sales of 25 million units. According to Vijay Sethi, CIO, Hero Honda, the growth was driven by new product launches, refreshed product portfolio, brand performance and an ever-expanding network of urban and rural markets.

Some key business strategic initiatives

Maruti focused on the facts like how to manage cost and have healthy growth, which is definitely a major responsibility as it called for signing stricter SLAs with partners.

Khan made an important point that the recession had created an opportunity for CIOs. He believed in doing good handholding of its dealers by creating processes and systems, address measurable tangible and intangible benefits, integrate processes more intricately to ensure quality, effective inventory and efficient delivery mechanism.

“Taking the business priorities into account we needed to further technology-enable a number of processes with our dealers and suppliers as improving technology within the organization alone cannot be a panacea for all issues in a supply or demand chain—the dealers and suppliers needed to be brought further into the ambit of 'technology chain' of the organization as well,” added Sethi.

Let us examine some of the key IT initiatives that manufacturing companies took in 2009.

2009 witnessed certain IT deployments and strategic initiatives by the CIOs and certain crucial decisions on IT were imperative despite the recession. While the industry was vociferous about the frozen budgets, contrary to its expectations or opinions, many CIOs decided to go in for solutions for consolidation purpose.

According to Khan, in 2009 he spent considerable time in integrating the software applications related to sales, pre-sales and purchase making more sense to the dealers. “We deployed dealer management solutions which were developed in-house based on .Net and SQL database to integrate other applications into it including—accounting, spare parts, inventory, sales, procurement etc., with a need to bring in more transparency in our transaction with our 108 dealers and the end-customers,” said Khan. The entire process of developing and implementing took nine months for Honda Motors. In another initiative, Khan and the team devised a software application around insurance policy for vehicles to bring in the operational benefit to its customers that addressed service, spare parts, endorsement policy and renewal of policies.

For the two wheeler manufacturer Hero Honda saw intricate IT deployments in 2009 wherein, Sethi and his team implemented Product Lifecycle Management solution for their organization, upgraded to the latest version of SAP, set-up a knowledge management portal and upgraded the existing portal for dealers and supplier vendors. Sethi said, “We initiated a dealer management system to connect to our dealers, with considerable focus on Business Intelligence tools, workflow management and mobile applications in additional to a thrust on Green IT.”

Godrej's focus has been to bring in better processes and have complete business transformation with newer innovations. Mulki found it essential to have an alliance with HP to bring in this transformation and the focus has been to ensure that the transformation or outsourcing happens smoothly. “We have completely outsourced to HP which will be done in a phased manner with regard to infrastructure and application piece,” said Mulki. Further Godrej Group deployed business analytics tools from BusinessObjects and also spent time of harnessing Web 2.0 technology with a social network framework. Mulki said, “We used Web 2.0 for intranet application, collaborating tools, blogs and created a virtual workplace and the benefits that we witnessed was to bring a change in culture in our communication process.”

Likewise Maruti focused on SCM and CRM applications and invested in analytics and BI.

While the manufacturing sector had shown some inclination towards spending on IT during 2009, 2010 seem to be an exciting year for most.

Roadmap for 2010

The CIOs of this sector have set their agenda in place and working towards their priority areas in 2010. For instance, Hero Honda would has investments earmarked for customer facing applications such as dealer management systems, BI, internal efficiency related applications, while enhancing the existing ones and so on. Sethi said, “While information security, compliance and Green IT are our key focus areas, from a business perspective we would focus more on user training and awareness so that users can extract maximum out of our IT investments.”

While continuing the debate on increasing IT spend, Uppal found the company's focus to be on improving R&D capabilities in the domestic market to get more competitive. “From an IT perspective, I would deploy more applications towards ensuring scalability be it with regard to product life cycle management, data management, CRM, BI and ERP,” said Uppal and added, he would integrate all systems into one and work towards tighter SLAs with partners.

Khan will spend his energy in optimizing existing IT resources and integrating of all its applications and that is why he is contemplating outsourcing his complete IT infrastructure to a third party service provider so that he can focus on strategic business areas.

Mulki's task would be to bring in the investments to take IT to the greater level of facilitating an easy decision making process. “Developing a dashboard and harness IT to get prepared to address newer challenges resulting for the mergers and acquisitions is the agenda for 2010,” maintained Mulki.

With the year witnessing the entry of new international brands in vehicles and newer product lines into the Indian market molded with newer sophisticated technologies, CIOs are trying to gear up to match them with newer technological capabilities.

geetha.nandikothur@expressindia.com