Many manufacturers today are suffering from a big disconnect between operations and finance. According to Andy Chatha, president of ARC Advisory Group, this disconnect is caused by using outdated tools to run the manufacturing business. “Traditional accounting systems are too slow to manage the business in real time and are at odds with operational excellence. The biggest problem with budgets is the lack of an immediate feedback mechanism.”
Chatha’s remarks opened a two-day forum, hosted by ARC in late June in Boston, to discuss Real-Time Performance Management (RPM). Over the course of the event, manufacturers, suppliers and analysts addressed business drivers for RPM, emerging RPM solutions, and RPM best practices in manufacturing and supply chain logistics.
High-tech companies aren’t the only ones who can innovate, says Nicole Parent, principal with Banc America Securities LLC, who follows manufacturing industry companies. Parent suggests that manufacturers should innovate because, “Investors prefer top-line growth.” While companies can’t save their way to prosperity, Parent says RPM can impact the bottom line in two areas: growth initiatives and cost savings initiatives.
Richard Lissa, director of procurement and logistics for OCI Chemical Corp., has good news for manufacturers strapped for capital. OCI structured a gain-sharing contract with automation supplier Invensys that turned a process improvement investment into a cash-flow model, rather than a capital asset investment. The company used Invensys’ Dynamic Performance Measurements Model to obtain process gains in its soda ash manufacturing operation. “By sharing our gains with Invensys, we improved yields and margins with no capital outlay,” says Lissa.
Peter Martin, vice president and general manager of GPI Performance Management at Invensys, says these types of arrangements typically pay dividends to both parties within one year. The key is setting very clear baselines and process improvement goals and having a good measurement and feedback system.
To stem the tide of plant closures and employee layoffs, aluminum extruder Indalex invested in a sophisticated software tool that integrated all of the company’s financial data from multiple legacy systems into one platform. The Profitability Dash, designed by pVelocity, provides users throughout the Indalex organization with an automated analysis of where (which plants), when (which shifts) and how (which tools) to produce product for highest profitability.
Cash Velocity
Making more money was the goal at U.S. Steel when it implemented a time-based manufacturing tool from Maxager Technology Inc. called Profit Velocity. Rather than the traditional approach of profit per unit produced, Profit Velocity measures profit per unit of time. U. S. Steel uses the tool to analyze which of its products has above average cash velocities, in other words, how much cash is generated per minute by product, customer and market. The initiative, says Vas Shapkaroff, U.S. Steel financial analysis director, aligns the sales and operations teams to maximize cash generation. Within the first quarter of its deployment, U.S. Steel made changes that saved the company millions of dollars.
Dealing with a multitude of legacy systems was the operational excellence challenge faced by Jim Shimp, senior director of Information Technology at Whirlpool Corp. Dozens of plants in 13 countries on four continents employed 127 legacy corporate systems and 420 legacy plant applications. To make matters worse, many of the outdated systems were built at the local sites, with engineering disconnected from the IT strategies.
Shimp, who in addition to his IT responsibilities has a background in plant automation and supply chain management from previous employment, chose the Lighthammer Collaborative Manufacturing Suite (CMS) to bridge shop-floor systems to the corporate financial systems. Data from automation components, such as programmable controllers, human-machine interfaces and statistical process control systems are linked through the CMS to the enterprise SAP systems for standard master databases, business applications and reporting and analysis tools. Web-based services allow the new systems to function on top of the old legacy platforms.
