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Issue Date: February 2004

Remaining competitive with a strong rand

1 February 2004

According to Charles Anderson, MD of Automated Reasoning, "Unless manufacturing companies divert more funds and attention to quality product development, the sector's sustainability could be seriously challenged, which in turn would negatively affect employment prospects and the economy as a whole."
Speaking recently to students and staff at the University of Stellenbosch, Anderson pointed out that many companies are spending vast amounts of money on systems such as ERP (enterprise resource planning) and SCM (supply chain management) but are neglecting product development, an issue that is particularly serious in the manufacturing sector.
"The results from a recent study involving Boston Consulting Group, identifies the link between a manufacturing company's business strategies for adding value and the role and systems needed for product development," Anderson continued.
The study, commissioned by US-based PTC, the developers of the Pro/Engineer software suite, for whom Automated Reasoning is the local distributor - took six months to complete and involved interviews with over 300 manufacturing companies. The report reflects that manufacturing companies are recognised for the products they develop and the more innovative and better quality these products - and the faster they can be placed in the customer's hands - the more market share and top-line revenue can be generated for their coffers.
"From a technology point of view, many manufacturers have invested in solutions focused on taking costs out of business, solutions such as financial, ERP/MRP or SCM systems. It is true that these investments are necessary to support the efficiency of the business, but they do not directly provide the top-line revenue opportunities that focused product development efforts can."
"There are a number of studies showing that an improvement in product development can lead to a dramatic increase in profitability. For instance, a 9% decrease in production costs can impact product profitability by 22% according to McKinsey - and getting a product six months faster to market can improve product profitability by 33%."
According to the Aberdeen group, companies that excel at product development introduce more products and get them to market faster than average companies. "Putting a product development strategy at the heart of what sets your company apart can undoubtedly be the key to a strong competitive advantage. Manufacturing companies must realise that superior product development actually drives sustainable competitive advantage," said Anderson.
"It is not going to help profitability and competitiveness by only trying to cut costs. I fear the manufacturing industry based its competitive edge on its ability to keep its costs low due to the weakness of the rand. However, with the strong regains of the currency during the last few months - it has gained 46% to the dollar over the last year - this edge has been taken away. Relying merely on the weakness of the rand is a very vulnerable competitive edge."
In addition to cutting costs, the Boston report also identified a further eight strategic opportunities to add value for manufacturing companies.
"Interpretations of the Boston report reflect that superior product development drives sustainable competitive advantage. This product first philosophy is built on the idea that great products make great companies. When the mission of building and sustaining great products is at the core of everything a company does, significant value will be created," he concluded.
For more information contact Charles Anderson, Automated Reasoning, 012 673 9300.


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