Can e-commerce save industry from recession?

As the UK manufacturing industry suffers its severest fall in activity for the last two and a half years, why, asks Adrian McNay, managing director of Frontstep UK, are only one in ten UK midmarket manufacturers operating online?

The Internet connects customers, suppliers, distributors and provides access to e-marketplaces, through which businesses can sell, buy and deliver products more efficiently. The benefits of e-business for manufacturers are well documented.

Automated, online transactions are quicker and more cost-effective. E-commerce reduces HR costs and extends the reach of company without greatly increasing its marketing budget. The ultimate and attainable goal is to cut all slack and wastage from supply chain, thereby reducing working and materials storage costs.

But it’s time for a reality check. The manufacturing industry is nowhere near this e-supply chain utopia. Manufacturing has a lot to gain, but has been sluggish in its adoption of e-business. A recent KPMG Consulting and CBI survey concluded that manufacturing lags behind other sectors when it comes to e-business, showing that manufacturing has the highest number of e-laggards and the lowest number of e-pioneers.

Research into the UK midmarket manufacturers on what is considered to be critical to future success, has repeatedly shown that e-business is low on the priority list for a market that has the most to gain from electronic trading. In the latest index, just 6% of those surveyed said that the ability to conduct business electronically was the most important factor in determining success for UK industry over the next two years.

It is time for change. A report from the Chartered Institute of Purchasing and Supply, states that there is an overall contraction in the manufacturing sector, with output and orders tumbling in the three months up to June. In the face of depleting demand and increasing competition, wouldn’t manufacturing companies benefit from a wider market offered by e-commerce?

For many manufacturers, e-business still means little more than a website that acts as a sales and marketing channel. According to Frontstep’s index, 75% of manufacturers expect to conduct less than 5% of their business online over the next 12 months.

Many manufacturers lack a clearly defined e-strategy, which is preventing them from driving e-commerce forward. Many believe that insufficient in-house resources, including a lack of expertise, compounds this problem.

Another critical factor is that many e-solutions are only suitable for large organisations. Most tier one enterprise software vendors provide small and medium manufacturers over-sized, expensive solutions – it is like using a sledge-hammer to crack a nut!

However the greatest stumbling block to e-manufacturing, particularly in the midmarket, is insufficient demand from partners, customers and suppliers. This was flagged as an obstacle by 56% of respondents to Frontstep’s index.

It seems that although many customers aren’t ready to conduct business electronically yet, they want their suppliers to have the potential to be able to operate online. So even though manufacturers are not investing in end-to-end e-supply chain systems at present, it should be a prerequisite that when making ERP and other investments, they are careful to select vendors with a strong e-business offering.

On the whole, the UK manufacturing industry is going to have to buck its ideas up. E-business is going to have to start scoring higher on the priority list if manufacturers are to meet customer needs and deliver the service their customers will shortly come to expect.

The manufacturing industry is in transition. It is talking about electronic business but has yet to live and breathe e-business. The manufacturing industry must overhaul its mindset and processes if is to develop a sustainable future in the e-business world. E-business is not an option. The manufacturer has no real choice; it’s automate or die.