3 Questions Manufacturers Should Ask

Recently, my team and I were discussing an audit recommendation with a client. We thought it was a no-brainer – our suggested change would make the audit process more efficient and put less of a burden on our client. We were certain the client would love our idea because it would mean fewer headaches for the company in the future.

Surprisingly, the client was not as excited about the change as we were and was hesitant to get on board. He had good reasons – the management team knew their industry was changing but were trying to craft their response. They didn’t want to make any major changes until they were sure of the way forward, and that included accounting changes. His reluctance inspired me to examine the challenges his company faces in an environment that is changing at light speed.

Earlier this month, Forbes published an article that discussed the “Fourth Industrial Revolution.” The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power and created mass production. The Third used electronics and information to automate production. We are now in the Fourth, characterized by a fusion of technologies that blurs the lines between the physical, digital and biological realms. As an example, the Forbes article highlighted a combination of technology and human labor will combine to form “cyber-physical systems” in manufacturing.

Production lines are expected to change dramatically as manufacturers move from manual labor to 3D-printing technology and robotics requiring little human involvement. Proactive manufacturers will be able to position themselves to adapt and respond to disruption in the industry. Reactive manufacturers may find themselves out of business.

I don’t have a crystal ball to see all the potential disruptions in manufacturing, but building a strong foundation can help you meet challenges with greater confidence. I’d like to suggest three questions you should ask about your business:

1. Is your IT system secure enough and robust enough for future demands?

Companies are increasing their reliance on IT systems to handle operations, as well as the amount of customer, vendor and business data stored in them. The need to safeguard confidential data is growing daily as cyber threats expand to include all companies, no matter their size. All devices that store data and are connected to the internet – from servers to 3D printers to production-line robots – are at risk from hackers. Hackers are not just stealing credit cards or social security numbers any more. They are targeting research and development files, business plans and confidential corporate communications. The need for cybersecurity is critical in today’s environment.

Also critical is the need for a system that can easily handle accounting requirements dictated by the new standards for leases and revenue recognition. Older systems with limited capabilities can cost a company time and money in the long run. Planning on the front end by evaluating your current system and upgrading as needed will help your accounting team prepare accurate financials at the end of the year. Correcting financials that have been materially misstated due to the impact of new accounting standards is likely to cost more in time, money and effort than planning ahead.

2. Are you embracing your research and development opportunities?

If you aren’t facing disruption to your business model right now because of new technology, you will in the not-so-distant future. Companies that are successfully adapting to disruption – or causing it – are thinking seriously about transformation. They are considering how they can leverage new technologies, new capabilities and new customer expectations to redefine their business. The key is often a strong emphasis on research and development (R&D). Success can be a measure of a company’s ability to analyze possibilities and demonstrate flexibility. You have only to consider the Blackberry, taxis, hotel rooms and compact discs to see stable businesses disrupted by innovation. Plus, the rules around R&D tax credits have been improved and are more advantageous than ever for a wide variety of companies.

3. Can you improve your supply chain management?

Automating the manufacturing process can help reduce inefficiencies related to employee downtime and give an opportunity for companies to improve their supply chains and reduce costs. Companies can sometimes even get R&D credits for process improvement. Involving employees from across the company, not just top executives, in this process could be helpful. You need the expertise of employees involved in day-to-day operations, as well as those in the boardroom.

In order for manufacturing companies to thrive during times of technological disruption, they need to prepare for change. Making improvements to business processes and systems today can help prepare companies to better serve their customers and remain competitive in their market.

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