“First you have to make sure that your business processes are robust and world class, only after that does it make sense to invest in a brand new, upgraded or different ERP system,” says Philip Nottingham. Half a year ago the experienced finance expert was hired as CFO by a.b.e. Construction Chemicals and one of his main tasks was to roll out more efficient automation. “There was a general idea that our systems were old, but there was generally more information available than we realised. That is why I have delayed the investment in a new ERP for now.”
Between 2005 and 2008 Nottingham was heavily involved in a SAP implementation Project for South African glass giant PG Group and his experience with Enterprise Resource Planning (ERP) has made him an expert in the manufacturing industry. “At a.b.e. I have tried to slow down the ERP ambitions a bit. SAP is expensive and probably out of our league and we may not need all the bells and whistles.”
Nottingham has seen many ERP salespeople come and go, so he has learned to be discerning. “A lot of the ERP reps will tell you their system will change your life, but it doesn’t and implementation is an expensive and disruptive exercise. If you carry on with outdated business practices, you’ll just be spending a lot of time and money on customizing the ERP you just bought. That is why you first need to introduce world class processes. Most of the ERP systems are world class and fairly similar. There aren’t many different ways to run a purchasing department, for example.”
a.b.e. Construction Chemicals was founded in 1932 but started operations in 1939 in Durban as a supplier of bitumen to municipalities in KwaZulu-Natal. In September 2010 it was acquired by CHRYSO Southern Africa. The CHRYSO head office is in France and the company is a member of the internationally operating Materis Group. “That brings an interesting perspective,” says Nottingham. “In South Africa they let us operate fairly autonomously. They do struggle sometimes to understand South Africa and its markets.”
One of the enigmas for foreign investors is the volatility of the rand, says Nottingham. “They don’t always understand the peculiarities of the rand and I must say, I also don’t always understand them. I have been following our currency for many years in which I have the rand seen fluctuating wildly. At the moment the rand is sliding, but people forget very quickly that is has been much worse than this. We try to make predictions based on the consensus views of the banks, but the only thing that I can promise is that I am going to be wrong. It also doesn’t always help to bring in currency experts, because they’ll probably be just as wrong.”
Nottingham, who previously worked for Murray & Roberts and SA Die and Pattern, is worried about the South African manufacturing industry. “It has gone backwards over the last few years. We have become a largely service driven economy. If you look at the successful businesses listed on the JSE they are mainly in retail and services.” According to Nottingham not enough is happening to give the competition in India and China a run for their money. “There has been the Motor Industry Development Program (MIDP) for the automotive industry, but that has been focussed on the big OEM players like Toyota, Ford and Nissan. For smaller firms, like mid-level component suppliers, it has been very difficult to survive. You have to be part of global group to keep being relevant. But that’s life.”
Like many CFOs Nottingham is on a continuous cost cutting drive to make sure competing imported concrete repair, waterproofing, flooring, adhesives, sealants and other products don’t become cheaper than a.b.e.’s range of locally produced products. “The only way to fight India and China is to become more competitive, but we don’t have a particularly productive workforce and we also don’t have a particularly low cost workforce. I don’t want to only talk doom and gloom, but there are definite challenges. Even the growing companies are not set up to employ more people. The drive is to automate and lower costs. It is a social issue. But the alternative to cost cutting is going out of business.”
The biggest structural problem is the lack of skills and proper training in South Africa, says Nottingham. “In the mid-80s artisans were exceptionally well trained by state companies like Eskom and Spoornet. Those training schools have fallen by the wayside. Eskom is now struggling with a huge shortage of skills. They might not want to admit it, but they have had to bring in expatriate labour at the new power plant Mega-Projects Medupi and Kusile. That is a huge indictment of our training system. There are people making a lot of money flying around India, Thailand and the Philippines finding welders and other artisans that speak a bit of English. The big difference is the failure rate. The expats don’t necessarily do the fastest jobs, but you don’t have to go back and check on all the work and redo half of it.”
Nottingham says a.b.e. is till managing to keep up, thanks to some local sourcing and a nearby market in South Africa and the rest of the continent. “We have actually expanded our local production, but that did not yield extra jobs. It is all about automation, better processes; the focus is on reducing the head count.” Sales have also been good and the company is increasingly looking over the border in sub-Saharan Africa and beyond. “But our export volumes have grown quite significantly in recent years and there is vast potential in Africa, so I think our shareholders are quite happy with us on that score. In the next 5-10 years or so we could perhaps look at setting up elsewhere in the continent.”
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