Cincom In-depth Analysis and Review

2014 Australian ComplexManufacturing and EnterpriseTechnology Benchmark Report

WHITE PAPER

SIMPLIF ICATION THROUGH INNOVATION ®

Table of Contents

Preface from Greg Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Introduction: Australia’s Changing Economy . . . . . . . . . 2

The Outlook for Complex Manufacturers . . . . . . . . . . . . 2

How Is the Role of IT Changing in Complex Manufacturing? . . . . . . . . . . . . . . . . . . . . . . . 3

Cincom’s Survey of This Unique Market Segment . . . . . 3

Industry Growth Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Top Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Strategic Improvement Focus . . . . . . . . . . . . . . . . . . . . . . 5

Current Systems Deployed . . . . . . . . . . . . . . . . . . . . . . . . 5

Cincom Research Methodology . . . . . . . . . . . . . . . . . . . . 6

About Cincom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cincom In-depth Analysis and Review

2014 Australian ComplexManufacturing andEnterprise TechnologyBenchmark Report

WHITE PAPER

1

The report also reveals certain trends in howmanufacturers see the Australian market and theproblems that they face. Of particular interest are theexpectations of business growth and the top prioritiesfacing organisations.

Compared to the results of the previous survey, it appearsthat the business outlook for manufacturers is notimproving with a decline in the expectations for growthand increasing challenges in keeping costs under control.As reflected in the responses, more businesses are nowfocusing on the issues of business execution in improvingthe sales and supply-chain process and less on planning.

On the information-technology front, the majority ofbusinesses are running Enterprise Resource Planning (ERP)

back-office systems. However, some of the newer ITtechnologies such as business process management andmobile solutions are in use at less than a quarter ofmanufacturing businesses. The pace of IT innovation inmanufacturing appears to be lagging behind other sectorssince there is a reasonable level of satisfaction with currentsystems, and the majority has no plans for improvement.

Cincom intends to conduct future surveys that willprovide a longer-term view of the trends for complexmanufacturers. I would like to thank all of theparticipants who contributed to these survey results.

A more detailed analysis is provided on the following pages.

Preface from Greg Mills,Cincom ANZ Country ManagerCincom Systems of Australia is pleased to release its second survey of Australian complexmanufacturers. This segment of the Australian market is comprised of highly innovativeindustries that produce and distribute products in the defence, heavy/industrialequipment and medical spaces. The purpose of the survey is to monitor ongoing trendsin the industry so that decision-makers can compare their positions in respect to thechallenges facing the broader industry group.

2

Introduction: Australia’sChanging EconomyThe Australian economy has experienced someenormous changes over the past year. The high Aussiedollar has been the final blow for many manufacturers,and along with regulatory concerns, has increased thechallenges in keeping costs under control. Additionally,in September, the Australian Labor Party suffered ahistoric defeat when the country elected a coalitiongovernment. Currently, the political climate is in fluxwhilst waiting to see what this will mean to all areas ofpublic policy.

However, we do know that despite the above factors:

• Consumer confidence, an indicator designed tomeasure the degree of optimism consumers have aboutthe overall state of the economy, is rising, increasing to110.35 in November (up from 102.2 in June).

• Interest rates have come down from 3.5 per cent lastJune to 2.75 per cent with expectations of further cutsbefore the end of the financial year.

• The Australian dollar has fallen to around US90 cents,which will relieve pressure on struggling industriessuch as manufacturing, education services andtourism, all of which are significant employers.

So the logical question here is: Why do businesses havea general lack of confidence? Lack of confidence istypically consistent with firms being uncertain about thefuture and therefore avoiding risks in their decision-making. Structural changes in the economy, thepreviously high exchange rate, the political environmentand increased regulatory burden are all likely causes thathave affected the willingness of some firms to expand.

The Outlook for Complex Manufacturers

Where does complex manufacturing fit within thischanging economy – and what’s the outlook for businessgrowth in 2014 and beyond? Complex manufacturers’products are highly engineered to custom orderrequirements, such as those in the following industries:

• Industrial equipment and machinery

• High technology, electronics and medical devices

• Transportation equipment and vehicles

• Aerospace and defence equipment and systems

Common to these businesses is that their products arebased on customer-specific proposals, contracts orprojects that require deeper functionality than mass-production manufacturing. Strict regulatory complianceand quality control issues, higher costs and demandingworldwide distribution requirements are just a few of thechallenges facing highly engineered manufacturers andcontributing to the often razor-thin margins of thismanufacturing segment.

Process improvement, automation and business-issuesimplification can greatly improve the complexmanufacturer’s entire enterprise. As business complexityincreases, the need for an effective ERP system to tie itall together also increases. According to industryexperts, ERP and related systems will continue to evolveto suit business needs and will remain highly relevantthroughout 2014.

3

How Is the Role of IT Changing inComplex Manufacturing?

IT is responsible for the leadership, coordination andimplementation of technologies, systems and relatedactivities, often for a global multi-organisationalstructure. As economies, markets and customerdemands change, it’s no easy feat to stay on top of thetechnologies needed to ensure business growth.

Technologies such as:

• 3D printing – This is not a new technology, but overthe past few years, 3D printing has developed into areal alternative to the traditional casting or machiningof parts and now has a real potential to disrupt manyof the notions we have about manufacturing and plantoperation. Some high-growth industries for 3D are:medical devices, automotive, maintenance, repair andoverhaul (MRO) and aerospace markets – all part ofthe complex manufacturing landscape.

• Incorporation of Configure, Price, Quote (CPQ) salesfunctionality into traditional ERP systems – Advancedconfiguration guides designed specifically for complex,customised products – coupled with dynamic, real-timepricing calculations tied directly into company financialsystems extend traditional core ERP functionality andensure fast, accurate quotes. CPQ capabilities integratedwith ERP functionality provide customers with exactlywhat they ordered in a much more timely manner thanwith traditional, siloed systems.

• Mobile device use for operations and warehousefunctions – According to a survey undertaken byCincom Australia in 2012, mobile is already in ERP.Smartphones are connecting field sales to back-officeapps, and tablets are being used in field service tohelp with diagnostics, part inventory and schematicsfor complex products. But what about on the shopfloor? Ray Wang, CEO of Constellation Research, citesthree specific areas where mobility delivers potentialadvantage: 1) safety, quality or compliance, 2)information delivery and 3) approvals and routings.

More and more, workers are being asked to performmultiple duties that require multiple applications andwide-ranging data access. Together with ERP, mobiledevices are maximising the effectiveness of the employeeand consequently the entire manufacturing operation.

What’s needed is the ability to manage technologiesand systems for various sites, organisations andsubsidiaries by rolling them all into one central location.How close are complex manufacturers to doing this?

Cincom’s Survey of This Unique Market Segment

Cincom has been working with the world’smanufacturing community for 45 years. Recently weconducted a survey that looks specifically at this marketsegment and identified some key insights for 2014.

Insights such as:

• The majority of respondents are driven by growing theirrevenue and the need to reduce manufacturing costs.

• The method they are using to accomplish the above is byfocusing on business execution (improving the sales andsupply-chain processes) and focusing less on planning.

• On the information-technology front, the majority ofbusinesses are running Enterprise Resource Planning(ERP) back-office systems. However, some of the newerIT technologies such as business process managementand mobile solutions are in use at less than a quarter ofmanufacturing businesses (even though many of thesenewer technologies have great potential to reducemanufacturing costs and improve revenue).

• The pace of IT innovation in manufacturing appears tobe lagging behind other sectors since there is areasonable level of satisfaction with current systems,and the majority has no plans for improvement.

A more in-depth analysis of the survey results can befound on the following pages.

4

Industry Growth Analysis

There has been a significant shift in the respondents’views on growth potential. It’s important to note that incontrast to other reported business surveys, the growthoutlook for complex manufacturers has declined overthe past eight months rather than improved. More thana quarter of businesses expect either no growth ornegative growth, and nearly half expect growth of onlyaround five per cent. The decline in growth expectationsof greater than 10 per cent is even more pronouncedwith only 12 per cent of participants expecting growth ofgreater than 12 per cent compared to nearly a third inthe previous survey.

Top Pressures

The majority of respondents cited their top businesspressure as “growing revenue” closely followed by“containing cost,” which was only 7 per cent behind.These two answers were also recorded as the toppressures earlier in the year. This outlook could beattributed to the respondents’ declining growthexpectations. Since the opportunity for business hasdeclined, there is a shift in focus from external,customer-facing improvements to improving theproductivity of existing resources and containing costswithin the organisation. Of concern is that the internalfocus of business to contain costs may mean thatopportunities for growth through improved customer-engagement processes may be lost.

The remaining responses were spread broadly acrossother areas of business operations. Interestingly, theissue that was recorded the least changed from“improving supply-chain efficiency” in February to“retaining staff” in November. “Supply-chain efficiency”actually more than doubled from the previous surveysuggesting that improving processes in this area isgrowing in importance for many businesses over the lastyear, whereas “Retaining Staff” remains as a low-pressureissue as labour market conditions ease for employers.

Other pressures mentioned in the recent survey includeshrinking market, marketing, budget, competition fromAsia, manufacturing process and exports.

5

Strategic Improvement Focus

The majority of complex manufacturing and enterprisestoday are focusing on strategies that will help their businessprocesses improve in the following areas: Sales, SupplyChain, Planning and Product Design and Development.

In the February results, “Planning” clearly topped the listof strategic priorities of businesses in the sample withSales and Product Design and Development well behindin focus. The latest survey, however, indicates thatbusinesses have become broader in their strategic focusareas. “Sales” processes topped the list forimprovement with 26 per cent followed by“Warehousing and Supply Chain” at 20 per cent. Thiscomplements the results above that saw Supply ChainEfficiency increasingly becoming a key pressure.

The shift in focus to improved sales and warehousing andsupply chain is likely attributable to dealing with theincreasing competitive pressures that manufacturers arefacing. These pressures are coming from businessconsumers demanding that businesses be easier to dealwith, the ability to source materials easily over the internetand the ongoing competitiveness of overseas suppliers.

Current Systems Deployed

Cincom’s benchmarking process measures the enablingtechnologies and services that are currently deployedwithin respondent companies.

Next to your responses, the following table shows thepercentage of composite industry benchmark thatcurrently has selected the technology in place.

The majority of respondents have put in place thestandard “back office” and “front office” systems formanaging their organisations. Conversely it is still ofconcern that over a third of companies surveyed havenot deployed these systems. In a follow-up question,nearly 60 per cent of participants said that they have noplans to deploy new IT technologies. This may beattributable to a number of reasons including a lack ofknowledge of how business processes can be improvedby the deployment of new IT technologies or a costfocus driving a lack of innovation in this area. As a call toaction in reviewing business processes, organisationsshould consider how IT solutions can support business-process innovation and the demand of externalcustomers and employees to support the major trendsof BYOD (Bring your Own Device), customer portals andanywhere/anytime computing.

6

Cincom Research Methodology

This report has been prepared based on the results ofCincom’s biannual industry survey. Respondents wereasked questions relating to their business processes andperformance, and the information was then analysedand categorised by a sub-industry group. Results havebeen measured and individual answers have beenrecorded next to both industry trends and the results ofCincom’s previous survey collected in February 2013.

About Cincom

For 45 years, Cincom has helped thousands of clientsworldwide by solving complex business problems with itssoftware and services. Cincom offers value-add ERP andCRM solutions that are integrated seamlessly to theMicrosoft Dynamics® AX and Microsoft Dynamics® CRMsuites. We partner with Microsoft Dynamics® to offerflexible, fast-to-deploy solutions that give your peopleand business the power to stay ahead of the curve.

For more information about Cincom’s solutions andservices, contact Cincom at 1800 022 871, send an e-mailto info@cincom.com.au or visit the company’s website atwww.cincom.com.au. Cincom is a Microsoft® GlobalIndependent Software Vendor.

Cincom, the Quadrant Logo and Simplification Through Innovation are registered

trademarks of Cincom Systems, Inc. Microsoft and Microsoft Dynamics are

registered trademarks of Microsoft Corporation. All other trademarks belong to

their respective companies.

© 2014 Cincom Systems, Inc.

FORM CWAU1401005 01/14

Printed in U.S.A.

All Rights Reserved

World Headquarters • Cincinnati, OH USA

US 1-800-2CINCOM (1-800-224-6266) • International 1-513-612-2769

Fax 1-513-612-2000 • E-mail info@cincom.com • www.cincom.com