Digital transformation in manufacturing is a top priority, but funding obstacles exist. Manufacturing IT budgets could hold the key to finding the funds to drive the future of manufacturing. By Dan Fernandez
According to the World Economic Forum, more than 70% of manufacturing companies are stalled at the first steps of digital transformation, unable to move past the pilot stage. The impact of the COVID-19 pandemic accelerated the journey for many manufacturing organizations, exposed areas of weakness, and provided a springboard for expanding digital transformation initiatives. In a recent survey of manufacturing CFOs, 89% cited digital transformation in their top-five list of priorities, nearly half (46%) of respondents stated it was a primary driver of increased technology spend, and 73% reported that the pandemic led to increased spending in digital transformation initiatives. And for good reason. Digital transformation offers a slew of benefits for manufacturing organizations across production, supply, fulfillment, and customer experience.
The power of digital transformation for manufacturers
Technologies like automation, 3D printing, and digital twinning help manufacturers move from idea to market-ready faster, with more efficient processes and tech-driven efficiencies. Getting to market faster with innovative and highly customized products helps manufacturers take the lead in an increasingly competitive marketplace where technical acumen drives market dominance. Digital transformation also gives manufacturers the infrastructure and agility to extract actionable insights from IoT sensors, mobile, and other sources to make data-driven decisions. Digital transformation isn’t just for internal improvements; it also allows manufacturing organizations to design more immersive, personalized customer-facing experiences that create frictionless buying journeys.
Of surveyed manufacturing executives planning on investing in digital technology, 24% see digital twin technology as the most important technology in which they will invest in 2021. Digital twinning combines VR/AR, 3D modeling, and data modeling to bridge the physical and digital worlds. It enables manufacturers to accelerate product development with quick prototyping, monitor processes to drive improvements, and design highly customized products around specific use cases. Implementation could greatly reduce consumer prices through reduced production timelines and cost to manufacture products. Digital twin technology depends on digital transformation to provide infrastructure to crunch large data sets, supply real-time updates, and generate lifelike visualizations.
Greater than 70% of manufacturing companies are stalled at the first steps of digital transformation
What’s standing in the way of success?
Although digital transformation is a key driver of increased technology spend, manufacturing IT leaders still struggle to make progress. “[Manufacturers] run their environment in kind of a mode where it’s really you run it until it fails,” explains Tom Grooms, former global CIO at organizations like Medtronic, Valspar, and CF Industries. He goes on to say that “[m]anufacturing needs to run in a very tight, lean way, and they don’t have the luxury of really having … extra resources, or they don’t have the luxury of having dollars that go to things that they don’t get any value from.” Lack of resources/knowledge to scale was noted by 45% of surveyed IT leaders as a top challenge to technology adoption. With more funding comes a greater ability to fill skills gaps for scarce, expensive expertise to support new technology. The agility possible from a fully funded and resourced digital transformation initiative can shift the balance of IT’s workload from 90% spent on ongoing operations and enhancements to more time focused on using technology that underpins broad strategic goals while reducing the labor and increasing the efficacy of security, compliance, and regulatory housekeeping.
ERP support fees can represent up to 22% of annual licensing costs and consume a large part of manufacturing IT budgets. In exchange for their fees, manufacturers that depend on speed and agility often get slow ticket resolution and bare-bones support for the more mature, highly customized software releases that power their core business. Many resort to self-support that diverts skilled internal resources to care and feed systems when vendor support falls short. The accumulated spend to keep the ERP lights on hinders budget and resources better allocated to pursuing strategic goals. One-quarter (26%) of surveyed manufacturing CFOs responded that they would opt to cancel major ERP reimplementation and migration projects due to lack of clear business value.
Manufacturing IT leaders are looking for ways to turn that spend into value-driven activities that support growth and competitiveness. By delaying unnecessary ERP upgrades/updates and getting more value out of their ERP support spend, manufacturing IT leaders can fund innovation without growing the budget. By freeing up budget and resources from excessive annual support fees, self-support duties, and forced upgrades, manufacturing CIOs can reallocate resources to innovate at the edges of ERP software and explore SaaS, cloud, and hybrid options.
How manufacturers can prioritize digital transformation
However, the key to achieving successful digital transformation lies in prioritizing funding and resources to support the technologies that will drive the enterprise forward.
Third-party support is a proven way to maintain core ERP software while pursuing cloud, AI/ML, and IoT technologies. While describing his journey to third-party support for SAP, Grooms maintained that before third-party support, it took all of their efforts just to maintain the environment that they had, and stated that third-party software support “unlocked a lot of areas that we hadn’t been able to get to.” Grooms went on to say that “[third-party support] provided so much relief for us that we’re now able to begin doing things that people wanted us to do, not just those things that we just had to do because we had no other way to get through the day to keep the lights on.” Choosing third-party support for ERP can deliver an instant 50% reduction in annual enterprise software maintenance and up to a 90% reduction in total support costs. Manufacturing IT leaders can reinvest those funds in digital transformation initiatives. With freed funds and resources, manufacturers can implement the processes, technologies, and skillsets needed to increase agility, improve resilience, and establish competitive differentiation.
How are manufacturers using third-party support for ERP to meet business goals? Browse stories of manufacturers who are taking back their IT roadmaps and funding strategic priorities with third-party support for ERP.
And learn more about how third-party support for SAP, Oracle, or JD Edwards from Rimini Street helps manufacturing IT leaders achieve strategic priorities.