Maximizing Return on Investment Using ERP Applications

HOW INSIGHT RELATES TO MANUFACTURING

Some years back, a business team was commissioned to acquire a new technology, design a U.S. plant, and build it to manufacture a new product. In developing the business case, it was determined that in economic terms, this was going to be an attractive product line, from a performance and margin basis. Even a fledgling economist knows that high margins and lack of competition create a business opportunity for others who will, in addition to building their own capacity, also reduce the cost of manufacturing through continued research and develop into new types of equipment and technology. The business case said—build the plant, sell it out at $x/lb margin, and expand it in the first five years, during which it would continue to make outstanding margins. Then, however, the company should either sell the plant or decommission it because new manufacturing techniques would have rendered it noncompetitive from a cost-of-manufacturing standpoint.

So far, this is a great story and, in fact, was one that resulted in outstanding success. Financially, the targets were met; competitors did exactly what had been predicted; and it resulted in the anticipated downward pressure on prices. Eventually, the company abandoned the business plan and, in the ensuing years, lost everything that it had gained and more. The point here is that the same is happening today as new companies enter markets, without all of the old company baggage in business processes and IT ...