Delivering KPIs to Manufacturing Companies
In the popular mind, manufacturing companies are old-school businesses, the polar opposites of high-tech software and services firms. In reality, manufacturing operations are among the most sophisticated users of advanced IT solutions. Factory floors are highly automated and precisely monitored, and they are fed by supply chains and inventories that must be coordinated and optimized. Once produced, manufactured goods must be shipped and tracked through often-complex distribution and retail networks, and a product’s quality must be measured and ensured from its creation on the factory floor to its performance at the end customer.
Given the breadth and diversity of their operations, manufacturers must be able to identify and measure key performance indicators (KPIs) for everything from their financial operations to their factory-floor and shipping efficiencies. By doing so, they have a baseline on which to improve and track their critical business processes and to achieve higher levels of business effectiveness and success.
Critical Manufacturing Metrics Extend Well Beyond the Factory Floor
The manufacturing category is among the most complex and challenging of all industry sectors given its blend of physical and IT assets, the scope of operations it encompasses, from supplier sourcing through product delivery, and the range of expertise manufacturing employees must possess. Among the operational challenges:
- Financial – Manufacturers must track standard financial metrics as well as everything from cost of materials to the value streams of individual production units.
- Reporting – Workers ranging from the finance team to factory-floor supervisors and workers need accurate and, often, real-time reports spanning the full range of relevant operations.
Supply Chain Challenges
- Sourcing – Manufacturers must track parts and materials availability, costs and quality from both primary and secondary suppliers.
- Factory – Manufacturers must measure equipment, as well as worker, productivity and efficiency, production bottlenecks, and many other variables.
- Inventory – Inventory levels must be managed and balanced based on orders and forecasts, a particularly difficult task for lean/just-in-time manufacturing operations.
- Orders and Shipping – Orders for goods must be closely managed and matched with inventories and production; goods must be efficiently packaged and shipped.
- Customers – Manufacturers must ensure their customers, be they distributors or end buyers, are satisfied with the finished products they receive.
KPIs That Matter
Like many of their peers in other industry sectors, manufacturing companies have been investing in cloud applications because of their low upfront costs and faster time to deployment, their highly efficient and flexible functionality and their low IT demands. Given the range and interdependencies of manufacturing operations, a multifaceted suite that integrates many functions on top of a shared-data foundation is especially valuable. That’s why many manufactures have been able to measure and improve their KPIs after adopting NetSuite’s cloud-based business solutions suite.
By interviewing and surveying representative NetSuite customers in the manufacturing sector, market research firm SL Associates identified which KPIs these companies track as well as the improvements they’ve realized by basing their core operations on NetSuite’s multifaceted business suite.
Deploying the common NetSuite platform as the foundation for their core business processes generated a range of impressive KPI improvements, as illustrated in Figure 1.
Source: SL Associate, 2014 – Cloud-Based Business Solutions Suite Delivers Key Performance Improvement to Manufacturing Companies, August.
The different types of KPIs shown in Figure 1 represent just some of the business processes and measurements that can help manufacturers determine how well they’re performing. Many of the improvements shown spring from the breadth and ease of use of the NetSuite business solutions suite, and its delivery as a cloud-based service.
Finding a business solution suite sold as a cloud-based service has become a highly desired, and increasingly required, purchasing consideration. After all, cloud vendors take responsibility for managing, updating and securing the solutions that run in the cloud.
NetSuite Customer Experiences
CMP Corp. is a leading HVAC and refrigeration parts manufacturing and distributor, supplying more than 3,000 customers in 95 countries. Based in Oklahoma City, OK, CMP used the Visual manufacturing ERP suite from Infor from 2001 through 2011, but switched to NetSuite’s cloud-based suite in 2012.
The Visual suite offered the ability to do deep dives into manufacturing data, but only a few CMP employees had the skills necessary to generate useful reports from that data, explains Adam Harper, CMP’s director of administration. “Even with extensive knowledge of SQL, there were so many tables of data that finding the right fields and data was very time consuming,” he says. “Our two owners spent 30-35 percent of their time pulling data out of the system for themselves and for others.”
By comparison, creating customized reports with NetSuite is much simpler, according to Harper.
Among the important KPIs for CMP are a variety of financial measures as well as ordering and shipment metrics. NetSuite has helped improve many of these KPIs, Harper says. The company’s monthly financial close, which formerly didn’t occur until about the 20th of each month, can now be done in as little as three to six working days. Likewise shipping efficiency has “drastically improved,” he says.
Some of CMP’s most critical KPI measurements, however, are tied to its factory-floor operations. “Our shop is broken into production cells,” Harper explains, “and we track the value-stream income for each cell.” That requires CMP to monitor everything from the “operational equivalency quotient” (how often a machine is actually doing work) to the cost of materials to labor, electricity and various non-operating expenses.
Because they can easily create and update their own reports, CMP’s production cell leaders can more quickly spot and correct potential manufacturing issues. “Before we deployed NetSuite, we weren’t doing a lot of the reports we can do today because it wasn’t practical,” Harper says. “It would have probably taken from a day to a full week to post the type of information an individual cell leader can now pull up in less than 10 minutes.”
Thanks in part to the ability to more tightly manage its production lines, CMP has realized a number of efficiency improvements. Among other benefits, the company’s peak-period backorders have dropped from an average of about $450,000 under a $100,000 average, Harper says.
CMP is still rolling out some of NetSuite’s functionality, and expects to use the suite to help improve both its supply-chain and inventory operations. Meanwhile, the fact that NetSuite is a cloud-based solution gives CMP confidence that its functionality will always be available. “In 2003, our facility was leveled by a tornado,” Harper says. “So the business continuity that a cloud solution provides is extremely important to us.”
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