This is a guest column by frequent contributor Erik Engbrecht. It's part of the SAB software discussion and represents exactly what I'd hoped to spawn with this whole imaginary company business: an interesting dialogue. That said, here's Erik:
Innovative information technology can be a critical means for a business to exploit its competitive advantage. It can also be a means to fizzle away millions of dollars for little tangible benefit. Most IT discussions center around techniques and technologies and make a implicit assumption that when correctly applied will yield significant benefits. Others place the responsibility squarely on the customer or user. Very few focus on the direct link between core competencies and critical automation. The result of this missing focus has been a shift in innovation from reducing costs by making the business more efficient to reducing costs by making IT less costly, often times through policies that adversely affect the quality of service provided to the business.
Solid American Brass is a hypothetical startup designing and manufacturing brass fixtures for homes and businesses postulated by Paul Murphy to initiate discussion on what technology decisions would be made in the absence of costly legacy systems and a deeply ingrained corporate culture. Like many businesses, SAB's idea of how it will achieve a competitive advantage with its US based design and manufacturing over incumbents with manufacturing facilities in low-wage, low environmental regulation nations is vague at best. It contains the usual references to superior quality and design combined with exception service that are near impossible to directly translate into an operational model, much less information system requirements.
Competitive advantage stems from the differences between a business and the rest of its industry. The difference between SAB and the rest of its industry is rather obvious. SAB is (1) vertically integrated, and (2) uses domestic manufacturing. This eliminates the time consuming communications and negotiations with contract manufacturers along with a myriad of barriers associated with offshore production. It blurs core competencies, as while the design house has a clear core competency in design, the contract manufacturer in manufacturing, and the distributor in distribution – the vertically integrated enterprise has no such clear focus.
Competitive advantage should also directly address customer needs. The table below lists SAB's primary customer groups along with what they need. Direct customers typically purchase items directly from SAB, while Indirect customers purchase items through third parties such as retailers.
|
Customer |
Type |
Needs |
|---|---|---|
|
Retail Stores |
Direct |
Costs near commodity prices, high volume, rapid response to orders (less need for inventory or cause for empty shelves), small but adapting product mix, high initial quality (less returns), easy installation (less returns), attractive designs and packaging, possibly exclusive designs for individual retails |
|
Large Development Companies |
Direct |
Custom designs at moderate volume, custom products must be available on short timescales, cost less important if orders can be small (i.e. low inventory costs), designs need to feel unique and add flavor to homes, different models should be interchangeable |
|
Commercial Chains (e.g. hotels, restraunts, stores, etc) |
Direct |
Similar needs to development companies, but more custom work and possibly shorter time scales, some purely decorative items may be very low volume, also some very functional items (e.g. a hood over a grill), products must withstand considerable wear, moderate volume on initial orders with small demand for replacements |
|
Contractors |
Indirect |
Easy to install, readily available through distributors, moderate to commodity pricing, rare need for custom work |
|
Interior Designers and Architects |
Indirect |
Same needs as direct customers, availability of prototype units for large bids |
|
Homeowners |
Indirect |
Cost, availability, easy to install, good instructions |
|
Construction Workers |
Indirect |
Easy to install, durable handling, consistent install procedures among models |
So what is SAB's competitive advantage? SAB's vertical integration enables it to take a product from concept to delivery in far less time than its competitors. It enables engineers to design products specifically for SAB's manufacturing processes, and to work closely with the skilled (and expensive) people on the factory floor. This advantage is translated in to financial performance by enabling SAB to quickly adapt its retail products as consumer preferences change and to profitably serve markets for custom fixtures. In addition, quality problems identified through returns or “in the field” can be quickly squashed.
From an IT perspective, this means several things:
Investment should be focused on tools that enable rapid transitions from design to engineering to production.
In order to maintain a diverse product mix while controlling costs, SAB will need to design products that look highly differentiated but that can be manufactured from the same basic inputs with minimal changes in tools.
IT operational efficiency is not a significant factor in SAB's financial performance. If it becomes one, something is terribly wrong.
Integration with retail customers' systems is critical to both ordering efficiency and product planning.
All excess time spent on normal IT infrastructure such as email, calendaring, shared drives, accounting, HR, etc. is wasteful. Outsourcing non-core functions should be seriously considered.
In other words, SAB's IT focus is on mechanical CAD/CAM, PLM, shop floor control, integration with retail customer systems, and business intelligence for demand-driven product decisions and design defect identification. Other functions should be met through outsourcing or SaaS providers.
IT will best serve SAB by enabling their designers to create custom, unique appearing products using common inputs. For example, making new dies is extremely expensive and time consuming relative to reprogramming machine tools, especially if modern CAD/CAM software is used throughout the process. Therefore CAD systems should enable SAB's designers to craft products that can be formed using common die and then machined into unique products, and CAD systems should flow flawlessly into CAM systems. The end result is that unique products fashioned from common die can be shipped almost as quickly as they can be designed. This, combined with a custom light-weight shop floor control system, will enable small jobs that are shunned by other manufacturers due to the time it takes to take a transition a product from design to manufacturing be a regular source and business and a core source of competitive advantage for SAB.
The benefits will extend well beyond design and manufacturing. The flexible production process will greatly alleviate, if not eliminate, the need for expediters and other such non-value producing personnel. Furthermore, SAB has the opportunity to win the trust of its customers by delivering quality products on time and eliminate constant badgering for production status by untrusting customers.
Ultimately, the key to success for both SAB and the IT department that serves it will be avoiding tempting distractions. A successful company knows its core competencies and focuses on them. By locating its manufacturing in the US, SAB has committed to making manufacturing its primary core competency, followed closely be design directly targeted at its manufacturing facilities and processes. It is essential that SAB's IT department not distract it with complex ERP, salesforce automation, supply chain, logistics, or other systems. Attractive, high-quality products delivered on-time to a short schedule will sell themselves.