Manufacturing Software State of the Industry

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I was asked last week to participate in a roundtable discussion on the state of the Manufacturing Software Industry.   I found that the questions provided by were extremely pertinent to the current state of the manufacturing industry – as I see it.  I would welcome your feedback on the same questions.  I always want to learn more about the manufacturing industry.

What is your perception of market activity (buying activity) levels relative to historical levels?

I am seeing movement in the manufacturing sector in making technology infrastructure investments.  Pre 2009 manufacturers were purchasing industry-specific software at a steady rate; no significant deviation in buying patterns.  However in 2009, I continued to see the need for such investments, however purchases were deferred.  This has changed in 2010 due to several factors, one being that the need to improve processing is still there and in fact, the urgency of procuring software and hardware to reduce redundant overhead processes has increased since companies did not spend budget money in 2009.

Does this activity vary between the enterprise market and the small and medium-sized enterprise market?

Since I focus on midsize companies it is hard for me to gauge the variance.  However, we do have some enterprise and smaller customers that use our IT services, and we have seen an increase in IT managed services.

Does this activity vary by industry? For example, is there more activity in basic CPG and food processing relative to high tech and electronics?

Chemical manufacturing and distribution seems to be the industry that has sustained the most growth through the slow economy.  Chemical companies are buying or adding functionality to their existing software to improve their business software and processes which often includes server hardware, software, and network services.

For deals that are getting done, what are the main reasons people are buying (e.g. cheaper total cost of ownership, vendor reliability, proven experience with similar buyers, etc)?

Purchases of new technology are typically based on a couple of factors; technology upgrades with the ever improving products from the Microsoft stack and to reduce overhead processes.  Basically, do more with fewer resources and redundancy.  Manual redundancy/date entry in processing is not only labor intensive it also is very error-prone.  Microsoft Dynamics GP offers a plethora of add-on products for just about any industry with a solid inventory and financial package.  There is no need in this day and age to not have a totally integrated system with no homegrown software.   Customers are very technically savvy these days and know the value of a good software package on a good server and network.

Do you see increased adoption of SaaS? If yes, why? If not, for what reasons?

I am not seeing an adoption of SaaS by manufacturers.  Clients still want control of where their server is located and the apparent ease of access, even though this is not a real issue, just a perception.  We do have some customers that are hosted by CIS, however at this time they are not manufacturing customers.  I have had some interest in this solution, however, no matter how savvy the customer is, the issue of secure formulas and bill of materials is still at the forefront.  The mindset will need to change to trust the SaaS model just as if the server was in their building.

A growing number of manufacturers are moving offshore. Do you find manufacturers implementing modern systems just to be able to communicate with and manage their offshore plants and partners?

Overseas plant communication can be an issue for parent companies located in the USA.  Often times the ERP package the USA company is running is not offered in a localized language for the overseas company so they will run separate systems.  However, importing financial data into Dynamics is not a problem; the issue is getting the data exported and sent to the parent company in a timely manner.

How are vendors adjusting prices to compensate for the state of our economy?

Vendors have reduced pricing to spur sales at the cost of profits.  Product specials are the primary way vendors facilitate price reductions.  Specials allow vendors to state end dates to the pricing, therefore, customers do not have the mindset that this is a permanent price change.  Hence the need for complex pricing structures in their application software or the vendor has a lot of manual entries to accommodate the customer and mistakes will be made, credit memos generated and a whole lot more work is the result, further reducing profits.  I recommend a good specials module for order entry staff such as Compass, Item Price Matrix from Horizon and of course GP Extended Pricing.

Are more manufacturers implementing integrated ERP systems or best-of-breed applications? For what reasons?

Manufacturers are implementing integrated systems since they understand that when you have a best-of-breed you don’t always get what you want.  Let me explain.  If you buy an integrated system you have the options of buying the core accounting and distribution that works best for your company.  You then can buy the manufacturing package that best fits your industry and processing; food, chemical, widgets, etc.  You don’t have to compromise with functionality or integration points purchasing an integrated system.  Best-of-breed in most cases has one good set of functions; either it is financial, or manufacturing or distribution.  If you are buying a best-of-breed for a manufacturing company then I will bet that the financials and distribution are weak at best.  Most of the integrated products that work with Dynamics GP are so integrated that the end-user does not even know they are using a different product window.

Custom Information Services is a Microsoft Dynamics GP reseller in North Texas and has specialized in selling and implementing formula based software to mid-sized companies for over 20 years.

If you care to comment on the information above or have any questions please feel free to contact us at 682-367-1699.

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