Where Business Intelligence Falls Short

Transcription

1 WHITE PAPER May 20 Where Business Intelligence Falls Short The Hidden Value in Your Total Cost to Produce By David Gustovich and Michael Anthony IQity, LLC

2 Today s business environment offers unique challenges: - intense global competition - increasing costs - complex and disparate technology - deluge of data Page 2 More than ever, business leaders are looking for ways to operate more effectively to stay competitive. Whether the goal is price leadership, market share, increased capacity, higher profit margins, or all of the above, most companies recognize that the old methods aren t working as well anymore and that a new approach is needed. Business Intelligence is Important... But Limited Many forward-thinking leaders turn to Business Intelligence (BI) to help them make better decisions, looking to computer-driven analysis and reporting to reveal trends in revenues and costs. And while most BI solutions do offer relevant insights to historic performance, usually it is only at the Enterprise level using data from Finance, Marketing, Sales, Customer Service, and Information Technology (IT). What most business leaders don t realize is that proportion of expense at stake in these departments represents, on average, just 5% of a manufacturing company s total cost of doing business. The eye-popping reality is that most of a manufacturing company s total cost of doing business lies in the Cost to Produce: the cumulative costs associated with the production process. Cost to Produce: The Other 85% The eye-popping reality is that most of a manufacturing company s total cost of doing business lies in the Cost to Produce: the cumulative costs associated with the production process. These costs driven by manufacturing plants, equipment, raw material, and energy, plus people and allocated variable overhead make up 85% of the actual cost of doing business. Traditional Business Intelligence solutions have not had a way to capture data from the plant and people part of the equation. In other words, while BI can aggregate data from Enterprise level systems and allow drilldown on that data, it does not have the ability to communicate with the part of the business where the most expense and the most opportunity exists. 00% 80% 60% 40% 20% 0% 85% 5% Total Cost of Doing Business Plant, Equipment, People, Material Finance, Marketing, Sales, Customer Service, IT Figure : 85% of total cost of doing business is in the Cost-to-Produce expense category.

3 Page 3 If You re Not Looking, You Can t See It The current frames of reference in BI are insufficient for modern businesses. With so much invested in plant, equipment, materials, and people, manufacturers can no longer afford to turn a blind eye to the hidden business value represented by lack of efficiency and variation in their operations and production processes. Recent advances in technology and innovative applications of business expertise mean that manufacturers can gain deeper insights into their Cost to Produce and correlate it to overall business performance. Those who choose to embrace this new era of corporate analytics will secure more return from their investments in the production process. Volatility, or variation, can stem from any number of issues related to materials, machines, methodology, crewing or metrics. Volatility: Foe or Friend? The most significant factor affecting Cost to Produce is volatility in the production process. These operations are notoriously complex because they present multiple challenges to manage. Volatility, or variation, can stem from any number of issues related to materials, machines, methodology, crewing or metrics. And the result of that variation is wasted resources. Waste can manifest in the form of material loss, lost staff time, unused production capacity, or any number of undesirable outcomes, all of which eat away at profit margins Average Performance Planned Production Units per Hour (CPH) Time (Days) Actual Output (Chronological) Average Performance (Chronological) Planned Production (Chronological) Figure 2: Typical production volatility as charted chronologically, by output over time. Historically, manufacturers have not had the ability to see the full breadth and depth of variation in their enterprise. More importantly, they have not been able to identify the underlying process variables that correlate to the outcomes of interest (cost, quality, service). This has limited their ability to isolate and eliminate the root causes of variation. The result: Pervasive variation, unseen waste, and unrealized profit.

4 Page 4 Attacking Variation Creates Profit The secret to unlocking the hidden value embedded in the Cost to Produce lies in isolating and eliminating variation, thereby eliminating wasted resources. Doing so effectively reveals surprising and significant cost savings and profit opportunities millions of dollars for mid-size businesses. are now available that provide manufacturers with automatic and detailed, to-the-minute reports on the specific and correlated causes of those variations that have remained hidden for so long. The best of these solutions even provide calculations of the dollar value represented by the gap between current execution and what is possible. In other words, businesses now have a way to measure in dollars the difference between how they are doing, and how they could be doing. Businesses now have a way to measure in dollars the difference between how they are doing, and how they could be doing. With this approach, businesses are finally able to access the precise information that defines their potential for capturing the cost savings and profits long obscured by variation. Empowered to correlate plant performance to business performance in both operational and financial terms, company leaders can assess the entire breadth of their value stream. This type of Intelligence means freedom from having to choose between the limits of Enterprise data (too little detail and only historic data), or plant level data (only providing data on a single work center or asset). Now, visibility and correlation throughout the full dimension of the business is possible among different assets and from Enterprise level down to plant level. 700 Optimal 500 Units per Hour (CPH) Units per Hour (CPH) Average Performance Planned Production $325,000 $60, Time (Days) Actual Output (Chronological) Average Performance (Chronological) Planned Production (Chronological) Figure 3: Newly available technology allows businesses to quantify the opportunity inherent in this volatility, and to set new goals, tracking performance against different reference points, such as Optimal (indicated).

5 Page 5 Going Beyond Standards Once empowered with visibility into their operations, business leaders will see the shortcomings of traditional standard costing systems which assess progress against only one benchmark. With technology that offers the ability to monitor a wider array of performance models (e.g. stretch targets, best demonstrated, rolling average, optimum), they will quickly recognize the strategic advantage in comparing performance across multiple reference points. With this visibility, plant managers will be able to see what is impeding progress against each set of goals and react dynamically with the best decisions. The ability to do this quickly and accurately i.e. in real time and by product code and asset increases the accuracy and precision of problem-solving. That in turn empowers the ability to recover hidden value, even if the answer lies in the deepest details of the largest and most complex operations. Actionable insight results when businesses can quickly and easily identify where the most costly variations are occurring. Reacting to Underperformance Right Now Controlling variation may involve many different actions taken over time to fully address the underlying causes. So, once a business has the technology needed to identify the variation, how do its leaders know where to begin their attack? Actionable insight results when businesses can quickly and easily identify where the most costly variations are occurring. Many times, businesses discover that the right technology solution uncovers issues that were hidden by the squeaky wheels more obvious, but in reality less costly, problems in their operations. What is needed is a way to identify problems as they are happening, providing opportunities for people to make on-the-spot decisions while the process is running decisions that make the difference between profit and loss. Only then can manufacturers be empowered to make good decisions because they know in real-time how much their business is costing them in lost dollars and unrealized capacity. Unified View Needed Traditional Business Intelligence (BI) Focuses on ERP level and historic performance Is not real-time down to points of execution Limited data capture on Cost to Produce Can t communicate effectively with MI systems Traditional Manufacturing Intelligence (MI) Focuses on asset level Does not correlate to overall business performance Does not integrate effectively with BI systems Benefits limited to infrastructure in place Human intelligence missing Figure 4: Most BI-MI tools lack a unified view of the business.

6 To remain competitive, manufacturers need to manage their operations with dynamic decisionmaking that is informed by intelligence that correlates business performance to plant performance. Page 6 The Next Generation: Beyond BI Dissatisfaction with the shortfalls of existing technology has set the stage for innovations in on-demand technology and value-added services. The next generation of enterprise performance management solutions is coming to market now and provides the answer to that dissatisfaction. When looking for new solutions, manufacturers should seek out those that: Combine the best of technology and business expertise Quantify real-time performance variation at the points-of-execution Identify the root causes of variance and correlate them to financial value Provide previously unattainable levels of visibility into manufacturing processes Merge intelligence from all points of execution in real-time and discern relevant, actionable insights from the deluge of data Include powerful analytics that reveal, in financial terms, the opportunity that lies between a company s performance and their real potential Feature a configurable design that is adaptable to any environment Leverage the agility and economics of the Cloud to accommodate a diversity of businesses and budgets In this increasingly competitive global economy, companies can no longer afford to settle for traditional business intelligence solutions and limited frames of reference. To remain competitive, manufacturers need to manage their operations with dynamic decision-making that is informed by intelligence that correlates business performance to plant performance. This is where a company s true strategic advantage will emerge. About the Authors: David Gustovich and Michael Anthony are co-founders of IQity, LLC. IQity offers cloud-based technology for manufacturers that provides real-time visibility into the true costs of plant performance and quantifies hidden value equipping companies to better control variation, deepen cost reductions, and increase capacity and profits. For more information, contact IQity at (724) or visit Copyright IQity LLC 20 IQity 3000 Stonewood Drive, Suite 20 Wexford, PA Source: IQity Principals, project based outcomes, 7-figure returns based on % of $00 million revenue.