The turnaround in the manufacturing sector has been a driving force in converting people to the belief that India is really shining. And there can be little doubt that the increasing implementation of IT has done its share of the good work in resuscitating the industry back to health. No wonder then that the total IT spending in the sector jumped up by nearly 40% in FY 2003-04-at Rs 3,252 crore, it contributed 10% of the total domestic IT pie.

However, many believe that this is only the tip of the proverbial iceberg and that the domain still has huge potential for much more IT adoption. Gartner estimates justify such prognosis-the penetration levels in the sector for ERP at 37%, 15% for CRM and 10% for SCM glaringly highlighting the still-untapped potential. One reason for this disparity between potential and adoption could be that the manufacturing industry has two distinct categories, viz. process and discrete manufacturing. While discrete manufacturing would include engineering, automobile, auto ancillaries, steel and the construction industries; oil and gas, paint, chemical and textile would come under process manufacturing. FY 2003-04 saw a marked difference in the pattern of IT adoption and usage by these categories.

To generalize, process manufacturers were spending more on IT than discrete manufacturers. This was because discrete manufacturing players were typically the early IT adopters and already had in place enterprise applications like ERP and SCM. Therefore, they were investing only on high-value IT products and services like CAD/CAM/CAE as well as PLM and PDM solutions. In some cases, they were even looking at upgrading: for instance, some engineering and forging industries moved from 2D CAD tools to 3D modeling software. The process industry, on the other hand, barring a few large players, focused more on basic computerization during the year. In terms of usage, therefore, the process industry spent more on hardware and networking as well as on various kinds of enterprise applications.

WTO norms played a key role in upping the IT ante for the manufacturing sector. Many of the Indian manufacturing companies were Tier 1 or Tier 2 suppliers to OEMs in India or abroad. The need to reduce time-to-market and product life cycles put pressure on manufacturers to integrate with OEMs (both Indian and MNCs), Tier I suppliers, sub-contractors and distributors during product development and process manufacturing. The other key operational business drivers for manufacturing companies were the need to ramp up operational efficiency and capital productivity while paring down fixed and variable costs. Besides, process manufacturing companies wanted transactional systems that could integrate with their core processes-sales, manufacturing, financial, procurement, and inventory and supply chain-and this was what motivated manufacturers during FY 2003-04 to implement ERP systems.

One large area of growth in the manufacturing sector was the SMEs and these spread across both discrete and process manufacturers. Vendors active on the manufacturing front like EDS, PTC, Catia, Autodesk to SAP, Oracle, Navision and ICICI Infotech courted the SMEs with untiring vigor. As a result, IDC estimates that SME manufacturing companies spent 59.2% on IT hardware, 22.5% on IT services, 11.3% on software and 7% on associated activities. In many cases, large OEMs put pressure on their supply chains, forcing even the SMEs to streamline their operations, with this, incidentally, driving up the demand for ERP in the SME sector.

A shrinking product lifecycle, mass customization of products and increased globalization were other key drivers towards increasing software adoption by the manufacturing industry. This led in particular to the PLM initiatives being increasingly adopted by many companies. Companies looked at PLM as a strategic business approach for collaborative creation, management, dissemination, and use of product data across the extended enterprise from concept to end of life-integrating people, processes, and information.

A major trend that emerged in the manufacturing industry in FY 2003-04 was that of outsourcing parts or operations to specialized vendors who provide more cost effective and/or quality products than those manufactured in-house. In some high-profile cases, Dabur and Indo Rama Synthetics outsourced their entire IT infrastructure to Accenture, while ABB India outsourced to IBM as part of their global arrangement.

e-sourcing helped companies reorganize the purchase function, and supported aggregated buying across business units with the aid of Internet-based tools or B2C Internet portals, besides offering substantial price savings and cycle time reduction in the sourcing process. Being Internet-based, more global suppliers participate compared to the traditional strategic sourcing process. Reduction in cycle time is brought about by shortening the durations spent negotiating, by expediting information gathering, and through faster communication channels among buyers and sellers. e-sourcing caught up in India with many successful implementations; for example, Dabur saved Rs 2.5 crore with six reverse auction deals, Tata Motors saved Rs 22 crore on transactions of Rs 362 crore, while the Kirloskar group saved Rs 7 crore through reverse auctions worth Rs 50 crore.

Rajneesh De in Mumbai