Technology Issues - the JBA 1998 Beverage Industry Survey - Just Drinks
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Technology Issues – the JBA 1998 Beverage Industry Survey

24 Jan 1999

Where strategic IT investments arebeing made

Respondents were asked in which areas oftheir business are strategic IT investments being made. Respondents were only prompted ifthey could not provide any answers. The top four areas identified were mentioned insimilar proportions overall. Yet, large variances by country can be seen in Fig. 6. Thesuggestion is that strategic IT investments are being made in many key areas of thebusiness. Spain and the US appear to have more respondents making IT investments in agreater number of areas of their business.

Fig.6 – Top four areas of business wherestrategic IT investments are being made

Logistics is a key area of investment forSpain and the US in particular. This affects more wholesalers (70%) than other suppliersand more large companies (59%). An important area for Germany is Finance. Primaryproducers are more likely to be undertaking strategic IT investment in this area (52%).

Another crucial area for Spain isManagement information and, to a lesser extent, the US. Again, it is wholesalers (67%) andlarge companies (52%) who are more likely to be affected by this investment. Customerservice is a key area of investment for the US with wholesalers and large companies, yetagain, most affected (67% and 57%).

Another issue included in Fig. 6, whichattracted a reasonable number of mentions, was manufacturing. The countries most likely tobe making investment in this area were Spain and Germany with primary producers (51%) themost likely to make investments. The areas of least investment were inventory control andwarehouse (both 1%).

Strategic investment in informationtechnology may reflect the state of technological advancement of either a company or amarket, or the level of management skills in understanding and utilizing it to fulladvantage, as well as the characteristics of the market environment. Large companies aremore in need of management information as their businesses are usually more complex and aswift response, (knowing what is selling well and where or culling poorly performingbrands), can have a positive effect on profitability.

Strategic importance of integrationbetween core IT systems

Respondents were asked whether integrationbetween core IT systems in their business was of strategic importance. As illustrated inFig. 7 for Spain, France, the UK and the US the answer was a resounding yes. Integrationis of more strategic importance to suppliers to major outlets (92%) and medium to largecompanies (91% and 90%).

A lower percentage of respondents inGermany and Italy consider integration between core IT systems to be strategicallyimportant. This may be due to an underlying assumption in these markets that all new ITsystems are compatible. It was also of relatively less importance to small companies (20%answered ‘No’).

Fig.7- Strategic importance of integrationbetween core IT systems

The integration of IT systems is becomingincreasingly important as trade becomes more regional, if not global. At the present timeit will vary considerably from producers and major outlets, to smaller wholesalers.Response again reflects the present state of technological advancement.

In Europe, Germany may still be hampered bythe regional nature of its distribution systems. Information technology has come later toItaly and retailers are benefiting from the experience of others. Smaller companies areoften franchised and electronically linked into buying groups, but much of the Horecatrade has little interest in integration.

Communications technologies used inachieving business strategies

Respondents were asked to rank howimportant communications technologies were in achieving business strategies. Overall, themost important communications technologies were EDI and E-mail. The US, France and Spain(which ranked it equal with e-mail) ranked EDI as the most important technology inachieving business strategies. EDI is most important to wholesalers (49%).

E-mail was ranked as the most importantcommunications technology by the UK, Italy and Spain. It was ranked similarly acrosssupplier sectors, however, its importance increases relative to the size of the company.GroupWare/Intranet is of lower importance to Spain compared with other countries while theInternet/ Worldwide Web was ranked lower in importance in the UK. Both GroupWare/Intranetand Internet/ Worldwide Web are ranked lower in importance in the US. Both thesetechnologies are most important in Germany and to primary producers (GroupWare 23%,Internet 17%), compared with other sectors.

Fig.8 – The most important communicationstechnologies

The variation in technological advancement, not only comparingdifferent countries, but within those countries and within the various sectors makesanalysis of communications technologies an inexact science. However, whether the responseis actual or a ‘wish list’ is perhaps not important. EDI and E-mail usage isincreasing exponentially across all sectors, already creating a more flexible andresponsive business environment.

The Internet/Worldwide Web is likely to beof value to large companies in the US, rather than those who simply supply the local Statemarket; both large and small companies in the UK who seek overseas business, and vital tothose European producers or suppliers who deal across borders.

Hardware usage: now and in thefuture

Respondents were asked which hardware theyused to run their core business applications and which hardware they would be likely tochange to over the next two years.

a) Current hardware usage
As shown in Fig. 9, currently the most used hardware is IBM AS/400. Half of allprimary producers use AS/400 compared to lower proportions for other supplier sectors. Theonly exception are UK businesses which tend to use a mainframe (32%). German businessusers are split between AS/400 (20%), Windows NT Server (22%) and PC based network – Other(22%). Mainframe users tend to be suppliers to major outlets and large companies (22% and17%)

Fig.9 – Hardware usage – now and in thefuture.

b) Future hardware usage
Looking at future usage, it is apparent that most suppliers are not likely to changetheir hardware within the next two years (76%). Users of NT Servers and AS/400 are leastlikely to change (97% and 82% respectively). Any changes are most likely to be made byNovell and UNIX users moving to NT Servers (47% and 18% respectively).

Main drivers for changing corebusiness IT systems

Respondents were asked what are, or wouldbe, the main drivers for changing their core business IT systems.

Overall, as shown on Fig. 10, the maindriver is to increase efficiency (46%) followed by reducing costs (41%). Mentions ofincreasing efficiency are spread evenly across company sectors and size. Drivers forchange identified varied considerably depending on the country. Comparing across sectors,reducing costs is of much less importance to wholesalers (17%) and large companies (33%)while nearly half of primary producers and medium sized companies mentioned this issue.

The current use of hardware perhapsreflects the state of advancement of information technology in each country, and thedifficulties beverage companies face.

In the UK, for example, which is relativelywell-advanced and where price and customer service is important in order to becompetitive, there may be little extra to be gained by improving efficiency further,whereas the straightforward reduction of costs (usually manpower) is obviously going tomake the company more profitable. The UK rated increase efficiency as a much lower driverthan other countries, except Italy. The UK also ranked the EMU as very low, along withItaly. Perhaps this is because European Monetary Union is still regarded as some way offand thought to be only important to exporters, but scare-mongering about the date changeissue at the year 2000 is rife.

For Spain, the main drivers are to increaseefficiency and to be more competitive outranking other potential proponents for change andfar above the market average. To be more competitive, however, is a much lesser force forchange among wholesalers (20%) and small companies (33%) than other suppliers. In Spanishcompanies, some of which may be less well-advanced, the opportunity to increase efficiencyand be more competitive seems an answer to the stagnation in the industry. Spain, alongwith France and Germany, put more emphasis on the EMU as a driver for change. This isimportant to those many European companies which move their products across internationalborders, in particular French manufacturing companies who rely heavily on export businessand suffer from fluctuations in currency. In the different sectors and company sizes thereappears to be less significance attached to the EMU than other drivers. However, comparingacross sectors, it is primary producers (21%) and small to medium sized companies (19% and16% respectively) that attribute more importance to it.

Fig.10 – Main drivers for changing corebusiness IT systems

For Germany, the most significant drivers for change, well above themarket average, are increase efficiency and reduce costs. These large gaps, illustrated inFig. 10, may be reflective of the mood of the country. German respondents also seem muchmore aware of the Year 2000 as a reason for changing IT systems. The EMU and legislativeissues also carry more weight in Germany.

German companies are continuallyhard-pressed to make profits and beleaguered on all sides by legislation regardingmanufacturing, packaging, recycling and environmental issues as well as taxation andduties. EMU also, has a much higher profile in this country since Chancellor Kohl has hunghis hat on it, and is taking the French along with him. In the relatively stagnant Frenchdrinks market dominated by powerful suppliers, being more competitive is the only wayforward for medium sized companies. Legislation is increasingly hindering the alcoholicdrinks business in France necessitating lobbying and a well-informed response.

In France, respondents mentioned frequentlyall the main drivers for change when compared against the market average, except for Year2000 (which was equal to the market average). Increasing efficiency and being morecompetitive are the main drivers for change in French businesses. To be more competitiveis more important for medium sized companies (47%).

In Italy, all the main drivers for changeare well below the market average, except for reduce costs. Only 9% of Italian respondentsmentioned increase efficiency as a driver for change indicating that either they considerthemselves operating at peak efficiency or they are complacent about efficiency. Italiancompanies are still more traditional in the way they do business, and, perhaps helped bygeography, greater consumers of local or regionally produced brands. Those companies whichaspire to be international may already be technologically advanced and efficient.

Interestingly, the US is lower than themarket average across all categories. This is due in part to a larger spread of categoriesmentioned, including reliability and ease of use. However, even when these are taken intoconsideration it appears there are very little drivers for changing IT systems in the US.Perhaps this indicates that US suppliers have optimal IT systems or it reflects a buoyanteconomy and profitable companies.

Familiarity with the term’Enterprise Resource Planning’

Respondents were asked whether they werefamiliar with the term ‘Enterprise Resource Planning’ and if so, what did itrefer to. Overall, only 19% of respondents were aware of the term. Over half of thoserespondents did not know its meaning. Of those respondents who gave a meaning, mostdescribed it as resource planning across business.
Fig.11

As evident from Fig. 11, a third of respondents in France had heard of theterm ‘Enterprise Resource Planning’. However, of those respondents, 82% did notknow its meaning. The countries with the lowest recognition were Germany, Spain and,somewhat surprisingly, the US. The highest familiarity across sectors was within primaryproducers (22%) and large companies (28%).

The term Enterprise Resource Planning (ERP)is relatively new, and neither the name nor the acronym have yet achieved fullinternational recognition. ERP is an evolution from Manufacturing Resource Planning (MRPII), which may be a more widely known term. However, ERP does represent a significantlydifferent concept from MRP II. Essentially, it provides wider scope and functionalitydesigned to enable companies to manage many more facets of their business than is possiblewith older solutions. True ERP allows widespread integration of business processes acrossthe enterprise (large or small) to facilitate decision-making, speed processing andenhanced business results.