Cost or Investment? There's a Difference

July 1, 2002
Developing a strategy is the first step when considering system upgrades.
Cost or Investment? There’s a Difference

Come up with something new to sell! That’s often the directive of upper management when they’re looking for more profits. Such a focus, though, can overlook some real profit opportunities, right in material handling warehouses and distribution centers. Those opportunities can come through regular investment in new controls, software and systems.

Now I know, often, probably too often for many of you, vendors come out with new features and functions for controls, software and systems. Your hand probably moves to cover your wallet “automatically” when a salesman calls.

And we’ve sometimes cautioned against the onslaught of new features.

Applications do not need a complete changeover to new systems every year.

But they do need upgrades — probably more often than most managers would think. Technology improvements come in cycles. First it’s hardware coming out with neat capabilities. Then it’s software changing to take advantage of all the features enabled by the new hardware. Then it’s hardware advances, then software, and so on.

The best way to deal with the question of when to incorporate new features and functions is to develop a strategy. First, where are you now and where do you want to be in the next few years? Then plan regular intervals for reviewing your controls and systems and upgrade them accordingly.

To not do so can be costly, as the pharmaceutical industry is finding out. In some areas of automation, it has lagged behind. Many of its material handling operations are manual. According to Ed Rocel, Psion Teklogix, and others interviewed for this issue’s coverage of the pharma industry, the level of automation tends to be all over the place, ranging from clipboards to fairly recent models of PCs.

Now, though, the industry is finding itself in a bit of a bind because of a new FDA regulation. Plus, there are profit pressures from expiring patents, a slowdown in results from research and development, and challenges from customers over pricing. Add to this the current expectations of shareholders to raise more revenue in this economic climate, and it’s pretty hard to keep costs down and profits up.

Because of the new FDA regulation in particular, the pharma companies face the prospect of high costs. The regulation lets companies use electronically gathered data rather than paper. Eventually, that will save lots of money. In the short term, however, it can mean that these companies must make wholesale changes in their controls to take advantage of electronic recording. They can’t use old legacy systems because these systems lack specifically called-for features. Upgrading is an unattractive option because of the needs for integration, which is imperative for handling electronic data gathering. Thus, given the state of many legacy systems, it will be cheaper to buy new, even though that will cost lots of money.

In addition, the pharma industry always kept many processes as standalone, vertical systems because it was an easier way to handle required validation. But for integration, it will probably be better to buy new.

The end result for the pharma companies is that they may just break even because of the costs of catching up.

While the FDA regulation doesn’t apply to non-FDA-regulated industries, the ability to gather all process and procedure information electronically is something that can benefit any industry. If Ford and Firestone had such systems last year (and Ford is looking into installing such systems now), the tire debacle could have been less damaging.

If you’re a non-pharma company, you have an advantage. You’re already at a high state of automation and integration. Just don’t get behind. Examine your business strategies and goals, and develop a system of evaluating and installing new controls and systems on a controlled, regular basis. Money spent now can save you in the future.

Leslie Langnau, senior technical editor, [email protected]