Learning from the Past and Planning for Recovery

The signs are all around us. The economy is taking breaths again. In May, the Institute for Supply Management reported the 1 1/2 years of contraction in the manufacturing industry is slowing as manufacturers start production again. A good sign indeed, but how does a company know when to start ordering materials or hire additional workforce?

For many manufacturers, there is a gap in a company's ability to see the signs of demand coming and its capability to act. Traditionally, this is due to a lack of visibility into accurate and timely information that reaches all departments across the enterprise. For example, processes from sales, manufacturing operations and finance are not always linked together. From small- to mid-sized manufacturers to global enterprises, departments rely on disparate systems of information that must be manually consolidated. Reliance on Excel spreadsheets, static information that reflects only a moment in time, means that data must be recompiled by each department to suit their needs; a tedious process that is highly error prone.

Consider this scenario. As inventory levels bottom out, sales departments are starting to receive orders. However, with no early warning process in place, many sales departments are not in a position to fully capitalize on this demand, gaining first insight only when customers started placing orders. Now material planning and production are behind the eight ball and must wait for the requests to come through before customer orders can be filled. No foresight or planning was taken into account. It is now a matter of how quickly production can come up to speed. To further complicate matters, finance sees an increase in costs and has not been notified there is an increase in acquisition and production costs due to a rise in demand.

The above example takes time to play out, time that could delay your company's ability to get ahead of the game. Given this recession has caused many companies to trim much of available capacity, some may need 1, 2 or maybe 3 quarters to fully prepare material and labor requirements.

There are several areas of the manufacturing business where technology is helping ease the burden and better prepare companies for economic recovery, but also tools that help model slowdown situations.

Linkages

Disparate systems that rely on manual processes and static documentation can extend lead times and let your competition gain an advantage on you. Forecasts, budgets and plans need to be linked throughout the enterprise, across every department.

A 180 year old company in the Southeast U.S. relied heavily on manual processes to disseminate information, which meant changes in demand or inventory went unnoticed for a few weeks. Realizing this process was not beneficial, the company centralized its general ledger and sales information to provide managers immediate access to a common database and one set of numbers that linked detailed sales data with financial information. They moved from a problematic spreadsheet-based budgeting system to an integrated one and are now able to generate a sales budget, which flows into an inventory budget, and in turn is integrated into a warehouse or operations budget. They can now track from beginning to end what they will sell, how that impacts inventory, and how that affects the warehouses.

The centralizing of information means actual, budget, and forecast data can be integrated into one application, allowing for side-by-side comparisons of data. The impact of decisions, such as to ramp up production, increase deliveries, etc., can now be seen quickly and all departments have access to the same data.

Employee Retention

The recession has been extremely hard on employees. The manufacturing sector lost 149,000 jobs in April alone, the worst hit sector according to a report published by the Department of Labor. Those that remain are expected to do more with less, especially as production ramps up. Unfortunately, many of the established processes are over complicated and do not leave time for employees to engage in more strategic activities. For example, the finance department for a distributed manufacturer may have to take over the activities previously managed by the individual department. Due to downsizing, they must now gather, consolidate and make sense of all of the data from sales, operations, marketing, etc. This is time consuming and, in many cases, not what the leaders in the finance department want to be doing.

A CPG company recently turned to performance management to consolidate 37 disparate databases around the world into a single, secure database. This move drastically reduced the company's time to understand the financial implications of changes in demand, inventory levels and production. The company's key employees now spend time focused on strategic activities that relate directly back to corporate objectives, not on the administrative tasks that can reduce employee morale further. Additionally, this company was able to impart more responsibility on the finance department due to the automation achieved through performance management. Finance benefits through improved controls, data accuracy, and efficiencies gained by eliminating the tedious spreadsheet consolidation process. The user base also better understands the underlying numbers and can do simple analysis, leaving more time for the financial experts to focus on more complicated analytics.

Quality Information

The answer "close enough" has no set meaning. What is close enough? 97%, 90% or even 85%? You need to know where your top line and bottom line are and all the details behind each number. Forecasts, models, demand planning, sales planning, all of these rely on quality information.

A $13 billion global electronics manufacturer used to rely on individual spreadsheets from 50 locations for insight into forecasts and customer income statements. These were then manually consolidated into one Excel spreadsheet. Recognizing the errors this produced and the fact that the information was already inaccurate by the time it reached management since it had been pulled at some point prior , the company turned to performance management to migrate the forecasting, budgeting, ad hoc financial reporting, and customer income statement reporting processes from Excel spreadsheets into one web-based reporting system. Now with visibility into vital customer data, management has a useful, efficient tool for making operational decisions within the timeframes needed.

I have confidence it is not a matter of if but when the economy will turn around. The manufacturing sector must be ready to take advantage of the opportunity and not let it slip into competing wallets. We learned a lot from this recession; we must plan better, we must analyze and scrutinize the information we have, and we must prepare ourselves as best we can to make decisions before it is too late.

Christina McKeon is director of product marketing, Performance Management at Infor. Infor acquires and develops functionally rich software backed by thousands of domain experts and then makes it better through continuous innovation, faster implementations, global enablement, and flexible buying options. http://www.infor.