The challenging state of the manufacturing sector during this economic downturn has received plenty of press over the last two years. In recent months, we’re hearing mixed signals on whether or not manufacturers are beginning a sustainable recovery.
We aren’t economists, but based on what we’re seeing, manufacturers may finally be loosening their pursestrings to invest more in their operations and enterprise level manufacturing software.
Fourth quarter is usually the busiest time of year for our manufacturing enterprise, ERP, and CRM software selection services as companies plan and budget for purchasing and implementing software the following year. However, the current fourth quarter seems abnormally busy. Over the last four to six weeks, demand for our software selection services is spiking dramatically and may be an indicator of broader investment in manufacturing technologies.
So why is this? There seem to be a number of driving factors.
#1: Misalignment Between Manufacturing Software and Operations
Before the recession officially began in late 2007, manufacturers were feeling the combined pains of global competition, evolving manufacturing and production models, and significant merger and acquisition activity. During this time, many manufacturers faced competing priorities and neglected to assess their enterprise software. Then the recession hit and IT budgets were put on hold, deferring necessary investments in ERP, CRM, warehouse management, and other enterprise solutions.
In the meantime, manufacturers’ operations became more misaligned with their manufacturing software. Business models changed, supply chains became more complex and globalized, and companies were acquired. While of these changes impacted operations throughout the 2000s, their manufacturing enterprise software did not keep up with the changes. This misalignment is one key reason for the current spike in demand for manufacturing software selection services.
#2: Cost Pressures Can Be Addressed by Manufacturing Software
It may sound counter-intuitive, but the fact that sales are flat and costs are under pressure are also driving the need for manufacturing software solutions. When the recession began, companies temporarily put enterprise software investments on hold until things improved. Now that the recovery may not be dramatic and costs will likely remain under pressure for the foreseeable future, manufacturers are leveraging ERP, CRM, warehouse management, and other enterprise software as potential mechanisms to drive down long-term costs and increase revenue.
In addition, the recession forced many (if not most) manufacturing companies to shed employees. These newer and leaner organizations are exposing and magnifying the weaknesses and inefficiencies of supply chains since there are less people to run the operations. Here again, manufacturing software such as ERP is an opportunity to create efficiencies and act as a surrogate for displaced employees.
The result is pent-up demand for enterprise software solutions that will help manufacturers reduce costs, grow revenue, and scale for potential merger and acquisition activity, which appears to be accelerating in more mature and competitive manufacturing verticals.
We are finding that this increasing demand for manufacturing enterprise software and ERP is widespread. Companies ranging from medical device to film equipment to consumer product manufacturers are expressing interest in our evaluation and selection services. Some are under $100 million in annual revenue and 100 employees, while others are over $500 million with several hundred employees.
Manufacturers have struggled to grow revenues and contain costs, but enterprise software may be a key to helping them through stagnant economic growth. If this is indeed a trend, it will also be a welcome improvement to the ERP software industry.