From Athenian battles through to WW2, the ‘pincer’ movement has long been used as a tactic across various battlefields in history. Originally discussed by Sun Tzu, the tactic involves attacking the enemy from either side of their force rather than head-on. The idea behind this is to make them panic while trying to fight fires on both fronts.
It may be creeping up insidiously, but as it stands there is a similar dilemma being faced by those working within the manufacturing sector. But it’s not an opposing warlord that is planning the attack, but instead a natural progression in both their ERP and more specific finance functions that are building to a head. Left alone, manufacturers may soon find themselves fighting on two different fronts and swiftly becoming overwhelmed.
The make-up of manufacturing
It’s worth delving into the specifics with what exactly is coming down the pipeline. A good starting point is looking at how a lot of businesses in the manufacturing space are put together.
Many are based on a legacy of acquisitions and partnerships. A viable business strategy no doubt, but one that means that there are often many different systems, ways of working and processes that need to be amalgamated into the business in order for it to work smoothly. But there is a reason why manufacturing makes up almost 20% of the UK economy; the sector is well-known for its ingenuity and this merging of new business areas often represents nothing more than a new challenge to tackle and solve.
The issue arises when these systems are looked into at a deeper level. The custom workarounds are often complex and very diverse, pulled together in different ways from organisation to organisation. This can create issues from two different areas. The first is the systems are only specifically clear to those that directly designed the necessary API links and workarounds. And they often need a lot of maintenance in order to keep working – especially when new components are added.
Secondly, the systems can sometimes result in data that is very difficult to share across different areas of the business, with, in some cases, it being siloed in its entirety. This may have previously worked for many manufacturers, but, due to the aforementioned pincer, companies built in this way need to be increasingly worried.
The first pincer – tax
We’ve just seen the advent of Making Tax Digital (MTD) passed in the UK, marking a point where all businesses (minus the delay for speciality or ‘complex’ cases) that have annual revenues of over £85,000 need to sign up to HMRC’s new, digital system for filing tax returns.
To begin with, ensuring that the MTD-compliant software which is put in place can reach all of the necessary information to accurately capture orders and revenue is by magnitudes much more difficult across disparate systems. At the very least, those homemade API solutions will need to be again recalibrated in order to work with the requirements of MTD.
Looking ahead though, there are far more fundamental tax changes coming down the pipeline; this initial MTD implementation is only laying the foundations. A more proactive, digitised reclamation was pioneered by Latin American countries from as early as 2003 in a bid to close the enormous VAT gaps that they were experiencing. To tackle this, countries such as Brazil put in place mandatory electronic invoicing and real-time reporting. Similar mandates have also been recently brought in across Europe with the likes of Spain, Hungary and Italy all bringing in their own versions of electronic invoicing and real-time transactional reporting. It stands to reason that HMRC will be closely watching these developments – something which manufacturing companies will need to address in terms of financial information being made available across their systems and being easily accessible to provide to HMRC.
The second pincer – SAP legacy deadlines
Many major manufacturers also use SAP software as the basis for their ERP systems; the beating heart of their business. Again, the ‘Frankenstein’ systems built by manufacturers are starting to face the end.
This takes the form of SAP’s deadline for supporting legacy systems: December 31, 2025. At this point, SAP systems will only work with S/4HANA, its own database and any support such as updates and security patches will cease for older systems that have not made the leap. For a modern organisation this is catastrophic – businesses need to ensure that they are running with the latest software and have fully secure systems, with the attack vectors for cyber security issues ever-broadening in modern business.
In the worst-case scenario, the systems that have previously been built in this piecemeal approach may cease to work – catastrophic for manufacturers, their customers and the wider supply chain they find themselves in. It’s clear that this represents one of the biggest obstacles manufacturers have had to face for many years.
For both advanced, digital tax systems and the necessary move to S/4HANA for those using an SAP ERP, there is a clear need for proactivity. We may be looking at long lead times for both these changes coming into effect, but the ERP is the bedrock of any organisation and therefore any change needs to be implemented with the greatest of care.
The underlying ethos of modern manufacturing needs to be the cloud – and not just separate systems brought in with this basis, but a new way of working that enables data to be shared across the business. By subscribing to this viewpoint, businesses can ensure that they can make the transition to SAP’s newest systems in an organised, loss-free manner. But more than simply keeping themselves working well internally, they can also ensure that the necessary API connections are in place for external systems such as more advanced tax regimes.
Six years may seem like a long time, but for major digital transformation projects, manufacturers need to start planning their approach now – after all, they can’t afford to simply shut down for a few months in order to make the transition. So, proactivity is the order of the day, as well as working in conjunction with experts in the ERP and financial space. That is what is going to provide peace of mind for British businesses and what will ensue they are ready to face the next stage of digital business successfully and efficiently. By taking a front-foot approach to these two issues on the horizon, manufacturers will not simply win the battle, but win the war too.