Study warns neglect of IT leads to production inefficiencies

Related tags Outsourcing Logistics Cost

A new report analysing IT budget and spending trends suggests that
many firms separate, to their detriment, IT investment from
investments in production capabilities.

The study, from market analyst Aberdeen​, found that by managing IT infrastructure as a cost centre, many organisations are not operating as efficiency and streamlined as possible.

As a result, the fiscal discipline that a business uses to manage its investment in production capacity, which could also enhance the productivity of the IT infrastructure, is rarely applied, and the consequent benefits are rarely realised.

This should be a serious worry to food manufacturers and suppliers that are continually being squeezed by the conflicting objectives of meeting high customer service levels and keeping inventories down. Many are turning to IT solutions such as inventory optimisation software to make significant savings along the supply chain.

But although most organisations have effective investment and cost mechanisms in place for facilities directly affecting production, in very few cases are these mechanisms applied to the organisation's computing resource.

Indeed, what Aberdeen found was that while most organisations focus on controlling IT infrastructure cost, few organisations have an effective cost control regimen for their IT resource.

They curtail investment, reduce staff, expect productivity increases, presume successful consolidation, or explore outsourcing or off-shoring, and yet do little to effectively understand either their IT infrastructure's current cost structure or the end user's actual requirements and priorities for IT support.

As a result, enterprises generally sub-optimise their IT investment, which kind of defeats the purpose of installing IT solutions to correct gaps in efficiency. Existing capabilities are therefore under-utilised, cost trade-offs unwittingly sacrifice important user requirements, and when investments are made they miss the mark.

Such factors leave Aberdeen to conservatively estimate that industry is wasting between 15 and 25 per cent of its IT investment.

The market analyst has some positive things to say, however. It suggests that if companies benchmark IT efficiency to develop a better understanding of the IT cost structure, then savings can be made.

Firms should also explore strategic outsourcing to off-load inefficient or low-value-add IT operations, and adopt consistent, firm-wide, business relevant financial metrics to gauge IT costs and value.

Finally, Aberdeen says that companies need to consolidate data centres, reduce footprints through partitioning, grid, or utility computing technology and consolidate workloads to reduce systems management, security, and operational overhead.

Implementation of traceability systems will become obligatory for all operators in the food chain in the EU from 1 January 2005. This means a business must be able to identify all of its food, food products and feed suppliers and all the businesses to which they have supplied food or feed to.

In addition, the information needs to be systematically stored, to be made available to inspection authorities, upon request. A proposal to introduce a similar system, the Public Health Security and Bioterrorism Act of 2002, has been adopted in the USA.

All this spells good business for outsourced logistics service providers (LSPs) as manufacturers and retailers increasingly look to outsource some logistics functions in their quest to gain competitive advantage.

In the European grocery retail sector alone, market analyst Datamonitor expects outsourced logistics to account for 42 per cent (€15bn) of total 2008 logistics spend, up from 39 per cent in 2003.

Related topics Processing & Packaging

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