Orchestrate performance
Manufacturers adopt aspects of performance management, but singular path to EPM remains elusive
By Malcolm Wheatley, contributing editor -- Manufacturing Business Technology, 1/1/2003 12:00:00 AM
The path to enterprise performance management, or EPM, is convoluted—and it doesn't always begin where you thought it would start. Just ask John Yahres, vice president of finance and information technology (IT) at paper manufacturer Southworth Co., Agawam, Mass. "Back in the mid-1990s, we put in a system that today would be called an ERP [enterprise resources planning] system," he recalls. "It did everything we wanted, but left something to be desired in the area of reporting—specifically, sales reporting."
As it happens, he continues, the ERP vendor in question had a partnership agreement with business intelligence supplier Silvon Software, Westmont, Ill., and put Yahres in touch with Silvon's Chief Executive, Michael Hennel. So began a relationship between Southworth and Silvon that continues to this day.
While the focus of EPM within Southworth still remains close to its sales reporting beginnings, it turns out that in the capital-intensive paper business, that's a focus that lies at the heart of the company's business model, addressing such questions as forecast effectiveness, customer profitability, and order management. "It's used throughout the company," says Yahres. "The salespeople might use it one way, the operations people another way, and finance people still another way. Within Southworth, we don't tend to use the term enterprise performance management—but that's what it is."
To Silvon's Hennel, this approach to EPM is familiar. "In 90 percent of our implementations, we see people start with the sales and marketing applications," he observes. "As the recent economic slowdown has highlighted, a lot of companies' demand planning and forecasting processes are very weak—and understanding how well your demand planning and forecasting processes are working is a key means of improving things on the shop floor."
Welcome to the world of EPM: a catch-all term for what Boston-based analyst firm AMR Research describes as "an emerging superset of applications and processes that cross traditional department boundaries to manage the full life cycle of business decision-making, combining strategic goal setting and alignment with planning, forecasting, and modeling capabilities." In other words, if it's telling you about performance, and it's focused at a slightly higher level than an individual machine or function, it's likely EPM.
Which, as definitions go, is broad enough to make even the most hard-boiled software executive salivate—especially given AMR's estimate that spending on the category is rising by a healthy compound 13 percent per year. Peer a little closer, though, and a few familiar friends emerge.
The EPM landscape
EPM hasn't burst onto the stage fully formed, but instead is an evolutionary step on a journey that began with the "green bar" reports printed off from mainframe computers in the 1960s and 1970s. These reports were notoriously bad at highlighting critical information, and because they often arrived on managers' desks a week after month-end, they were already far out of date. Driven by technological progress in the decades since, the quest has embraced everything from digital cockpits to portals, but has had a common destination: more timely information, filtered for importance and in a context that supports better decision-making.
According to John Hagerty, an AMR vice president, a bewildering variety of existing tools and techniques can lay claim to being part of the EPM trend—ranging from business intelligence tools and analytics to business process management applications and scorecard products. "To say it's a disparate collection of solutions is something of an understatement," he says.
What's more, he adds, IT is only part of the answer. EPM, Hagerty insists, "is equal parts philosophy and technology."
Trouble is, unlike evolution in real life, EPM is an evolutionary continuum along which companies must make due with varying degrees of sophistication. Yes, the digital cockpits and portals are there for some companies, but so too are the printed reports—albeit a little more timely.
Likewise, the vendor landscape is diverse. Scratch a vendor, and you'll likely find something touted as EPM. In fact, some vendors, such as Silvon, have aligned themselves with the concept. Additionally, there is the supply chain performance management (SCPM) software space, involving vendors such as Palo Alto, Calif.-based SeeCommerce. SCPM is closely related to EPM, but allows an inter-enterprise view of performance.
For users, this focus on performance management by an array of vendors generally is a good thing, in that there are many options to choose from. But sifting through all those choices also poses challenges, and, as Hagerty points out, IT isn't the sole answer to EPM in the first place. For small- to mid-market manufacturers that are more apt to rely on their ERP vendors for extended functionality, including business intelligence and portals, the route to EPM is more clear-cut: they likely will look to their core enterprise suite vendor for improved decision support.
Made2Manage Systems, an Indianapolis-based enterprise suite vendor, is one small- to mid-market solutions supplier that addresses aspects of EPM with its solution set. Two distinct strands within its product lineup represent EPM, says Chief Technology Officer Gary Rush.
First, says Rush, Microsoft's on-line analytical processing (OLAP) server has been harnessed to the task of generating a number of ready-made analysis OLAP cubes focused on the performance management needs of the typical mid-market enterprise. "It's a bit like using pivot tables in an Excel spreadsheet—except that we're allowing people to use drag-and-drop tools against the very rich set of data that the enterprise contains—it's not just a two-dimensional spreadsheet."
The second strand to Made2Manage's offering comprises what Rush describes as "an executive information system focused on helping people make better operational decisions." This offering includes a pre-written set of reports covering standard issues that concern most businesses. "It's things like jobs that are late on the shop floor, or sales orders that are overdue: essentially, those things you need to do this afternoon to have fewer upset customers," says Rush.
A top-level metric may be titled "inventory turns," but in reality, that metric is impacted by other factors and metrics. For example, for inventory turns to rise, jobs have to come off the shop floor on-time, and sales orders have to get shipped from the warehouse on-time. Yesteryear's paper reports arrived so late that all they did was tell you by how much you failed. Today's EPM tools give managers a chance to influence matters first.
A new wave of decision-support tools, adds Rush, will take that immediacy to new heights, adding that Made2Manage's new Mobile Manager is an example of such a tool. Its aim is twofold: first, to take advantage of the recent proliferation of small, low-cost computing devices that are becoming available; and second, to exploit the wireless technology that allows these devices to stay connected to the system.
Yet EPM has to be more than bringing data and user closer together. Yes, EPM is about information, but it's also about informing better decisions in the light of known strategic goals. According to Bob Reault of Made2Manage reseller TopShop Solutions, Madison, Conn., this is achieved by forcing users to think about what information they want.
"We urge them to pick the eight or 10 things that are most important to them: inventory turns, on-time delivery, revenue-per-employee," Reault says. "With these strategic goals in place, we extract the data from Made2Manage in a format that has meaning for each particular measure, and establish a baseline."
The method certainly seems to work. TopShop client Hindley Manufacturing Co., a 105-year-old wire-forming and fastener manufacturer based in Cumberland, R.I., has seen inventory turns improve by 40 percent, scrap and customer returns fall from 13.2 percent to 1.6 percent, and on-time delivery improve by 27 percent—all in a six-month period. Of course, this has come about not only from having improved business intelligence software within an enterprise suite, but also by using the enterprise suite to institute operational adjustments.
The right scorecard
"You get what you measure," has long been a byword among managers, so why all the fuss about EPM these days? The salient question is this: the flow of information is fast and furious—but is it the right information?
According to Jonathan Hornby, director of strategic management solutions at SAS Institute, a Cary, N.C.-based vendor of business intelligence and performance analytics software, a better approach lies in a management concept known as the Balanced Scorecard. Stemming from work undertaken by influential academics Robert Kaplan and David Norton, Balanced Scorecards seek to combine the right mix of financial and non-financial measures into a scorecard that enables accelerated corporate performance.
A boost to SAS's data acquisition and analytics capability has come from its recent acquisition of ABC Technologies, a vendor specializing—as its name implies—in Activity Based Costing (ABC), a methodology commonly linked to balanced scorecard approaches.
The logic, says Hornby, was obvious. A pure balanced scorecard approach, he notes, "makes correlation difficult, because of the scarcity of data points: metrics might be collected once a week, once a month, once a quarter, or even once a year. And within all those intervals, the economy is changing and the strategy is changing, so correlation is difficult. Activity Based Costing allows people to see the links between actions, and results."
By combining the two together in a single product offering, SAS clearly is hoping that its approach will persuade both new customers and existing users of its business intelligence and analytics software to take the plunge. Around 45 companies have made the jump so far since the product was launched in September 2000, with a further 85 prospects having it under active review, says Hornby. "It's not something that gets deployed very quickly, and it can get very political," he says.
But for those that have made the jump, the rewards seem worth it, or at least, that's the experience of Quaker Chemical Corp., Conshohocken, Pa., a manufacturer of custom-formulated specialty chemical products for the steel and automotive industries. "We're relatively new to the scorecard concept, and have been working at developing scorecard measures that are appropriate for our business," explains Tom Baker, manager of business intelligence development.
Initially seen as a way of better communicating the results of the company's strategies to its worldwide executives and workforce, the result has been a surprising reversal of roles. "The original intent was to use it to inform the communication strategy, but we're actually finding that we can monitor the business with it," says Baker.
One early surprise: at Quaker, EPM is leveraging other initiatives, such as knowledge management, by providing a clearer framework for measuring the resources put into a project, and the results returned. "We've been able to take products and launch them in different international geographies," says Baker. "The result? Better performance for the customer, and a higher margin for us."
It is, it seems, something of a quintessential EPM experience. The journey's not quite what you anticipated—but well worth it, all the same.
| Who's inside | ||
| Made2Manage Systems: www.made2manage.com | SAS Institute: www.sas.com | SeeCommerce: www.seecommerce.com |
| Silvon Software: www.silvon.com | ||
