Four show the KPI way

Four Australian manufacturing and supply chain companies describe how business intelligence is helping them measure their activities, including the counting of higher profits. Simon Sharwood explains...

As the world careens towards the digitisation of everything, a whiteboard seems an unlikely tool to help a manufacturer set and track key performance indicators (KPIs). Yet a humble whiteboard, covered in hand-written data, is at the heart of a business intelligence system used by Wagga Wagga automotive parts manufacturer Precision Parts.

“All of our KPIs are on the main whiteboard in our factory,” says Daryl Day, the NSW company’s managing director.

“We update them weekly and our production meeting takes place in front of that whiteboard. Visibility of KPIs is very important and everyone in the company sees them change on Monday, all the way down to the cleaner.”

Precision Parts derives its KPIs from CorVu business intelligence software that the company has linked to its enterprise resource planning and materials requirements planning applications. The company adopted the software after realising that its cashflow could be severely impacted by uninformed decisions about raw materials purchases.

“We were buying raw materials from Australia and China, and then shipping product all the way to the USA,” Day says. “And we were doing it with $1million of stock a month. If you get that wrong, you can chew up $250,000 a month in cashflow easily.”

Business intelligence lets the company understand the many elements of its operations, so it can better predict its need for supplies – and customers’ demand for its finished products. The result, for Precision Parts, has been profound: “We have gone from being a business using $1.5 million of raw materials a month to using just $750,000,” Day says. At the same time, the company’s turnover has increased considerably, a testament to business intelligence applications’ power to improve business.

Gut instincts dangerous
Another organisation enjoying similar benefits is Woodland Home Products, whose chief executive officer Craig McKell rates BI as an essential tool. “You can rely on gut and intuition, but they are dangerous things to rely on,” says McKell. “They [gut instincts] are more often wrong than right,” he says. “And when you rely on your gut and you think it went right, it probably went wrong.”

McKell is, therefore, steering Woodland Home Products, manufacturer of Beefeater Barbecues and St George kitchen appliances, and operator of custom-metal fabrication business Interfab, towards a new regime. The aim is to tease apart the intricacies of its business, so as to make better-informed decisions both about how and where to steer it.

For McKell, business intelligence (BI) software is the key to understanding any business.

“I was a management consulting partner at E&Y before I came here and I am used to having information and data coming out of my ears, but when I came here there was very little data.”

“Even the most sophisticated and mature ERP packages produce an awful lot of data, but not a lot of insight. They tell you things that are important, but not the insights you need to make decisions.”

Much data, little access
Woodland Products isn’t the only organisation to find it has lots of data, but little ability to access it to inform managers about the state of business. Brett King, BI manager at Brightstar Logistics, has a similar tale to tell.

“Our company acts as a third-party warehouse and logistics provider in the mobile phone business,” King explains. “We also take care of the mobile phone supplychain and provide value added services.” The latter sees Brightstar track phones throughout their lives, in order to provide carriers with insight into how they are used.

“We combine our own shipping information with things like how phones are used, the kind of connections that consumers use them on, revenue types and usage patterns.”

Brightstar then collates this data into reports, to advise its carrier customers on which handsets are likely to generate the most revenue.

“It’s about making sure we deliver BI that supports their business vision, and helping our clients to make quicker decisions. We help them to understand which phones give the best return-on-investment,” King says. “Carriers have some information, but it is not their core business to analyse it. We can sell our clients intelligence based on their own data.”

Like Woodland, Brightstar had plenty of data, but little ability to present it in ways that made decision-making easier. “Before I came aboard this year, we had a lot of adhoc analysis tools,” King recalls. Deriving insights from these tools, he says, was “quite slow and costly”.

Brightstar did, however, have an important head start: the company knew what it wanted to measure, which made establishing key performance indicators (KPIs) easier.

“We work in a very fast-moving industry, with multiple products that have short life-cycles and many variants, like colour,” he says. “There is often high demand for a phone early on, then it tapers off, and then it can spike again if the phone is relaunched or re-promoted.”

To ensure that the company’s carrier clients understand these trends, King says the company aims to deliver “information in context. Our KPIs vary, but the ones we mainly look at are stock levels, weeks of cover, basic supply-chain, things like that.”

“If we do go to the nth degree, and look at all sorts of corporate metrics, what we’ve found is that we move away from what is core to us.” The company, therefore, now has about 15 core KPIs that it tracks, as it knows these make the most substantial impact on its business, and its clients’ operations and profitability.

This focus on a small set of KPIs means Brightstar, which uses IBM’s Cognos BI suite, has now been able to move on to making sure BI is as easy as possible for its endusers to consume.

“Lately, our key focus has been lay-out,” King says. “The software looks very good and is functional and usable, so users can get a quick snapshot of a product to see if it’s good, bad or indifferent, then drill down.”

The bespoke route
Naz Circosta, managing director of NESS, a manufacturer of security and home-automation products, also wants insights in a hurry.

“You always need more insight,” Circosta says. “Over time, you learn the benefits and efficiencies, and I am all about efficiency. Labour is the biggest cost in our business, other than rent. It’s a controllable expense, so everything in our factory is aimed at making things as efficient as possible.”

But, like his opposite numbers at Woodland and Brightstar, Circosta and NESS lacked a way to gather and present data to inform managers about the best course of action.

NESS has decided that the best way to do so is to develop its own BI applications, a decision taken after Circosta found it more cost-effective to develop custom Manufacturing Resource Planning software.

“When we first put in a decent MRP system it cost a lot, but we felt we had to do it. We were not all that happy with the products available in the marketplace. The cost/benefit analysis wasn’t there and goodness knows how much we were paying for support and maintenance.”

“I have a couple of little geniuses in the next office,” he says of the developers and analysts working on NESS’ bespoke BI suite, which, he says, has been built to take data from many sources around the business, including financials and MRP, to gather information that is relevant to many different stakeholders inside the organisation.

“We have done everything from bar-coding to point of sale to analysis and looking at our business in terms of sales, customers and products.”

The company’s BI system, therefore, presents in different ways to different people, combining elements of customer relationship management and other enterprise applications to deliver insight whenever it can be useful.

“I need to maintain a feel for what our customers are buying and using,” Circosta says. “That includes the typical system they will put together (security systems are usually made up of many different components, generally sold by different vendors); what parts they are using and what they are buying from us, because that tells us what they are buying from a competitor. It’s also absolutely critical for me to understand how the products are selling and the margins they offer.”

That information, he says, delivers important insights to workers throughout the company.

“It’s not just for me, it’s also for branch managers and goes down to individual sales people,” he says.

The results of these insights empower different people in different ways.

Sales people, he says, can better understand their pipeline and the status of their customers.

Managers get deeper insights.

“In the closed-circuit television industry, there are new products almost every day. As soon as a new one comes out, your sales people forget the old one and your customers only want the new one. We need to understand this or we end up with obsolete stock all over the place.”

Tracking does the trick
NESS has ensured it can access this kind of information by tracking the movement of stock through its operations.

“If someone is at our [point of sale] counter, the sales rep enters the sale into a screen, that information goes out to a scanner, it tells them all the bin locations, tells them where to go to pick the stock, locates and presents the part.” All parts are then weighed, as the company’s systems know the typical weight of all of the parts it uses in the manufacturing process, and of all the products it sells. Doing so ensures even greater accuracy, so the company can always access accurate inventory levels.

At present, Circosta says NESS staff encounter the resulting data only when using the home-made applications it has developed. This software offers BI functions on many of its screens, presenting relevant information whenever possible. But the company is now in the process of building formal key performance indicators (KPIs) into its systems, to take the items it knows make a difference to its business into dashboards, which alert managers when important thresholds are being achieved – or missed.

“We want to take our software to the next step, where things we want to control will be reported whenever our systems detect they reach a certain range. When things fall outside of the acceptable range you want alerts rather than to have to hunt for information.”

“So what we want to do is build a dashboard to allow management-by-exception. The next level is pop-ups that appear without us having to invoke them in software.”

At Precision Parts, Day says the company gets by with managers viewing KPIs regularly and its weekly whiteboard updates. “You need to set the right objectives, chase them, measure and make sure you are getting there,” he says.

To get this process working, Day advocates involving staff to develop KPIs.

“You cannot be a person at a desk who thinks they know it,” he says. “You have to know your business first.

What we tend to do is get groups of people and set up process improvement teams around the objectives we want to achieve. The process improvement team brings in a purchasing person or a managerial person, or a production person, and we bounce ideas around the team to set the direction.”

Precision Parts’ minutes runs these meetings formally, with minutes kept and action items formally assigned to ensure its KPIs are the result of input from everyone on the team.

“This makes people more honest,” Day says. “If you just sit down around a table, things drift,” and the resulting KPIs are less powerful.

Establish KPIs
Woodland’s Craig McKell is also in the process of establishing KPIs and says the company will initially be “concentrating on big ticket items.”

“My background is in marketing and sales, so I understand the value-drivers behind marketing and sales.” The company will, therefore, start by measuring sales and margin by product, drilling down into the margin each product achieves for individual retailers and salespeople.

The insights the company hopes to gain include a better understanding of where to direct its marketing dollars.

“We’ll learn where to place our price promotions, which retailers to kick up the bum, which to invest in. This will help us to invest our scarce sales and marketing dollars.

Woodland will also use BI to manage its manufacturing operations and the supply chain that feeds it.

“We have 18 active suppliers for core materials and we are starting to measure them in terms of product quality, delivery time and accuracy of picks. We have had partially picked or poor quality in the past, and now we can get a handle on it and understand causal links.”

The outcome from this intelligence, McKell says, will be happier downstream customers who will face fewer quality issues. An important consideration as Woodland outsources some manufacturing and ships direct from outsourced facilities to export customers in the 23 countries to which it exports. BI will help the company understand which suppliers make the best products, helping it choose the best suppliers for an ongoing export push.

BI is also helping the company to trim costs, by offering more accurate reports on how much stock the company has in its warehouses.

“Keeping a real-time track on the number of days’ product and materials inventory we have on-hand and how fast product turns through warehouses means we can learn how well we are meeting demand,” McKell says. “I want to know how close we’re getting on material forecasts, because there is so much inventory in motion.”

“When we nail this one, I will really have a drink, because when we can get demand forecasting and supply forecasting in sync I will be happy. Getting that material forecasting to a point where we can predict in 30 or 60 days where our closing stock figures will be on major lines will directly impact profitability.”

McKell says the company is developing useful KPIs quickly.

“We’ve done this in the last thirty days. It is an intangible, but you can still see it. It’s like a light being turned on when it comes to information around the business, and the management team can see what is going on.”

McKell believes the greatest impact is still to come.

“We hope BI will help us to put business cases up for changes or new products, based on real hardcore information about what is happening in the business.”

“We are already seeing improvements – and we’ve only just scratched the surface.”





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