While this just seems to be common sense, industry analysts are happy to put a name to the process. ARC Advisory Group calls it Real-time Performance Management (RPM); AMR Research calls it Enterprise Performance Management (EPM); and even Microsoft has jumped into the fray, with its Peak Performance Initiative.
Worthy efforts, all. But there’s one important piece of data that must be included in this process, or your decisions will not hold up over time—that is, the dollars. Operational data must be tied to financial metrics. If you don’t know the financial impact of an operational change, you have no way of knowing if the decision you make is a sound one.
Let’s say you’re responsible for several manufacturing operations, and are monitoring yield factors on each. Process A is operating at 90 percent yield, Process B at 92 percent yield. You have the opportunity to improve yield through better asset management. There are costs involved.
How do you know which operation to attack? Says Sudipta Bhattacharya, vice president of manufacturing for enterprise solutions provider, SAP, “You must provide a cost context to the difference between the theoretical yields and the actual yields to get a more accurate picture of plant business performance.”
Comparing actual data to master data and maximum possible yields, and attaching the financial metrics to the difference, will tell you whether it makes more sense to improve Process A by four percent or Process B by two percent. Without the financial information, you’re just making a gut decision.
This same reasoning holds for all operational decisions, including quality and productivity improvements, capital investments and inventory management. Adds Andy Dé, director of manufacturing applications solutions management, SAP, “Every dollar of inventory a company carries costs four dollars of fixed assets. The earlier the visibility into the process and (calculation of) dollar impact, the better off the company.”
Sometimes, you start solving one problem, and find out that as you get better at quantifying the benefits of the solution, you are able to solve other problems. Julie Fraser, analyst with Industry Directions,
studies the Manufacturing Execution System (MES) market. She believes that the quantifiable benefits from applying MES solutions, while difficult to benchmark, can have long-lasting paybacks.
Says Fraser, “It’s surprising the things companies have found” when they attack a problem, such as reducing the cost of quality, with an automated MES. “They get a payback in energy reduction by not wasting energy on manufacturing a product with an early quality problem. They get a reduction in the cost of compliance. And they improve productivity by taking out routine human-intervention tasks.”
Fraser notes that one of the goals of the Manufacturing Enterprise Solutions Association (MESA) is to develop a set of benchmarking metrics, which she hopes will become more specific by function and industry, over time.
Linking business financial metrics to operational data is not a trivial task—it requires technology for network and data integration, and significant changes to your business and operations work processes. But once finance is connected to operations, you are guaranteed smart decision-making with long-term paybacks.
So the next time you find yourself competing for project approval, remember to tie your data to dollars. And then, prove the financial value of that data every day on the plant floor.