As business professionals, no matter the industry, when we are looking for efficiency, additional sales opportunities and better ways to do business, we usually look to upgrade our system (e.g., implementation of ERP, CRM, etc.), or our processes (though process improvement), but very rarely do we ever look to upgrade our employees, through skills enhancements.
The process of upgrading our employees requires a two-pronged approach: Upgrading through skill set improvement, and the much less comfortable upgrading through replacement (which will not be covered here). Both upgrade paths can yield significant improvements in our company’s efficiencies, allowing for higher output and having a direct impact on profitability.
In the case of industrial distributors, for decades, they have been family owned and family run. While many of these companies still exist and are profitable, there are even more distributors that have grown, or have been acquired, and are part of a much larger global organization. But the type of employee and the skill level of these employees have yet to be looked at and improved. Let’s explore a real-world example of how a simple skill improvement can drastically improve efficiency.
Most distributors have large customers with special annual contract pricing. Each year, those prices need to be tweaked, usually as a result of the distributor’s suppliers raising their prices. Inside Sales or Customer Service is quite often tasked with the spreadsheet side of the project. This involves:
- A spreadsheet of the previous year’s sales
- A spreadsheet of all the supplier brands the customer buys from the distributor and the expected price increase (expressed as a percentage)
- Merging the two spreadsheets and formatting the result before sending it to the individual responsible for setting the new price (oftentimes the outside sales rep)
The average, less skilled employee will take up to two weeks to complete the project in their spare time, in between phone calls, quoting customers, processing orders and working with their backlog. TWO WEEKS! The process usually goes something like this:
- CRS goes line by line on the sales history report, sorts by part#, removes duplicates, adds the supplier name if it’s not already on the report.
- CRS goes back through each line, finds the supplier for each item and compares it to the other spreadsheet.
- CRS populates the sales history report with the percentage from the price increase spreadsheet.
- Repeat the process for the two hundred or so lines on the sales history report.
Now let’s take a similarly skilled employee performing the same job functions, but add one skill the other does not have, Microsoft® Excel. We can take what would otherwise be a two-week project and have it completed in less than two hours (giving us plenty of time to spend on cleaning up the formatting).
By investing in the right training and enhancing our employees’ skill sets, we will save in both man hours and payroll. Now imagine the savings that can be gained with a workforce that knows two, three, or 10 specialty tools.
How to Upgrade?
First, we create a profile of our ideal employee. What skills would this employee have? What core competencies would they possess? A good place to start would be to look at our best performers and add to the list from there.
A starter list of skills that will help our employees perform could include Excel, Word, Outlook (e-mail) and Internet Explorer. We’ll be covering these skill sets in more detail in future posts. Stay tuned on the many different ways you can improve your team.
Posted by Brad Vance, Epicor Senior Business Process Consultant
While Mom and apple pie is a sure-fire cure for homesickness, leveraging the power of MOM – that’s Manufacturing Operations Management – and next-generation technology capabilities can assist manufacturers in overcoming some of the greatest challenges they face today.
That’s the key take-away from industry analyst firm LNS Research, in its research on The Global State of Manufacturing Operations Management Software, which surveyed more than 250 manufacturers worldwide.
In the October 28 webcast, according to LNS Research, MOM can play an essential role in helping manufacturers keep pace with an explosion of data. Legacy and point solutions are becoming increasingly ineffective as manufacturers face increased global competition and market pressures. And as manufacturers embrace Big Data, Mobile and Internet of Things (IoT) technologies, new data and process integration capabilities must be added to organizations’ operations. Next-generation MOM software platforms and applications are key to rationalize multiple legacy applications as well as integrate new data sources debuting on the plant floor.
LNS says next-generation MOM features: configurable processes, a common manufacturing data model, built-in analytics, along with the ability to deploy in new hybrid cloud models that are capable of delivering universal information access and flexible options for deployment and pricing.
Addressing the Customer Experience Imperative
In addition to keeping on top of manufacturing data, MOM is being used by savvy manufacturers to address the growing customer experience imperative. LNS Research survey showed top strategic objectives for manufacturing industries all were focused on serving customers. First and foremost is ensuring consistency of quality for products produced at 61%, followed by timely order fulfillment at 55%, and then 52% focused on increasing production capacity and capabilities.
Breaking Down Barriers
Forty-eight percent of respondents said their top operational challenge is breaking down silos of organizations and departments and fostering greater collaboration. This includes more social collaboration with customers to understand their “likes” and “dislikes,” along with getting faster feedback from groups of customers on their requirements and reactions to new products and services. This also includes faster digital collaboration with suppliers to ensure rapid responses to materials, while ensuring quality and traceability requirements are being met. Communicating product and service information digitally across value chains, while openly sharing goals, objectives, and KPIs is a best practice LNS Research has identified to address these challenges.
New Emerging Opportunities for MOM
When looking at the application of MOM software today, researchers noted an “immaturity” of analytics, visibility, and collaboration – often a result of legacy systems which lack these more modern capabilities. Areas that hold great potential for the application of MOM include areas in the integration of design, optimization, data analytics, and collaboration across all roles and users of applications, says LNS.
In Search of ROI
ROI justification was cited as one of the top challenges for MOM implementations. Researchers say there are a number of reasons companies struggle with ROI, including a lack of metric visibility and a lack of understanding of how MOM software can drive value. The good news, says LNS, is that new ease and deployment options promise to help drive the time to value proposition and overall ROI of MOM investments.
As a sponsor of the research study, Epicor invites you to download a complimentary copy of The Global State of Manufacturing Operations Management Software eBook and Infographic.
Posted by Tom Muth, Senior Manager, Product Marketing, Epicor
For food manufacturers, food safety is among the most important issues they face; additionally, the demands for documentation relating to food sourcing, material flow, traceability, and regulatory compliance present an increasing and ongoing challenge to their operations. Particularly as retailers and regulatory agencies make greater demands on manufacturers for detailed documentation, it can represent a significant cost to manufacturers, one that directly impacts their bottom lines. Among the requirements food manufacturers face:
- Forward and backward traceability of processed goods, batches, and lots—requiring detailed tracking from the source to the shelf
- Strict ingredient and environmental control throughout the manufacturing process
- The need for fast response to recall events or customer questions—in minutes, not days or weeks
Enterprise Resource Planning (ERP) systems provide food manufacturers a means to meet these challenges while improving their internal business processes. Here’s what they do:
- Provide a framework to meet regulatory compliance demands, ensure product safety, and control costs.
- Automate traceability of ingredients from field to final customer.
- Speed and simplify the audit process.
- Enable a closed-loop approach to quality management by integrating quality workflows from an initial sales order all the way through shipment, which maintains quality specifications, sampling and testing procedures, and reporting of test results.
- Can dynamically link to material lot and product release controls to both support quality and ensure complete traceability.
An article in Food Manufacturing notes a number of key elements food manufacturers should keep in mind when considering implementation of ERP, including:
- Design fit for their unique business requirements and a history of success in the segment
- Process manufacturing functionality, including a built-in process model and recipe and materials management support to drive efficiencies and improve margins
- The ability to monitor and manage the variability of yields, product quality, and shelf life
- The ability to accurately forecast, to optimize schedules, and to manage all elements necessary to fulfill order to promise quickly
- Industry-specific functionality that minimizes the need for customization and supports date code management, rebates and commissions, consignment costing, day one for day one order and delivery, multiple product attributes and grades, and retailer-specific packaging
Posted By Stewart Baillie, Vice President, Products, Manufacturing
There are a number of ways to help ensure a timely, on-budget enterprise resource planning (ERP) system implementation. One key area revolves around properly planning and documenting business processes that will be used with the new solution.
Graphical modeling is often perceived as a narrowly focused tool for documenting the flow of isolated processes. However, by using a more flexible tool to expand that view to create a hierarchical, top-down map of the entire system, organizations get the full picture of how the processes can be made most effective.
Starting from the high-level perspective, it is necessary to drill down further to get to heart of detailing what really should occur for each business process. This “stage” level consists of the major steps taken to complete the process. This is also where responsibility should be assigned to particular roles within the organization that are affected by each particular stage.
The goal is to utilize these models throughout the implementation and beyond. The ERP implementation team can use the completed models to assist during the implementation with role-based activities and training, and to serve as a repository for important implementation documentation. After go-live, the models should be updated as the business grows and changes to help ensure the organization is getting the best return on its ERP investment.
To learn more about the benefits of conducting a process review, and the use of a graphical model as the repository of project documentation and “guiding light” of project continuity, download the white paper Effectively Documenting Business Processes for a Successful ERP Implementation here
Posted by Beth Karlin and John Steele, Senior/Principal Consultants, Epicor Professional Services
In this final post on the metrics report issued by the Manufacturing Enterprise Solutions Association (MESA International) and LNS Research, we look at the fourth and final question the report answers: “How can technology help support and impact metrics programs and performance?”
Some of the key relationships uncovered in the survey were correlations between average annual metric improvements and the use of software technologies to support them. Some interesting trends were revealed with respect to adoption rates when compared to the previous survey. Overall, the most deployed applications by all respondents were enterprise resource planning (ERP); Planning, Scheduling & Dispatching; Quality Management; Data Historians; Manufacturing Execution Systems (MES); and Asset Management. Specifically, there was marked adoption growth from the last survey in three areas:
- ERP: from 67 percent previously to 74 percent
- Data Historians: from 39 percent to 42 percent
- MES: from 35 percent to 40 percent
The study’s authors note that software, in and of itself, is not a panacea for achieving operational and financial improvements. Some 85 percent of survey respondents also had process improvement programs in place such as ISO 9000/9001, Lean, Six Sigma, etc.; however, manufacturers are supporting, accelerating, and sustaining process and metrics improvements through leveraging select software applications.
Consider the following improvements in total cost per unit:
- Overall average: 13.1 percent
- For those using Operations Intelligence/Enterprise Manufacturing Intelligence software: 24.1 percent
- For those using MES: 22.5 percent
And the following improvements in on-time completed shipments:
- Overall average: 12.5 percent
- For those using MES: 22 percent
- For those using quality management software: 20.4 percent
- For those using product lifecycle management software: 19.1 percent
Similar positive correlations were found between operational metrics and software relationships.
For more information, check out http://info.epicor.com/Manufacturing-Metrics/ and the infographic here.
Posted By Stewart Baillie, Vice President, Products, Manufacturing
In our initial post
on the metrics report issued by the Manufacturing Enterprise Solutions Association (MESA International
) and LNS Research
, we provided the study’s list of 28 metrics identified as most used by manufacturers to best understand manufacturing performance and opportunity areas for improvement. Today we look at the second and third questions the report answers: “How does my company’s performance improvement compare to industry?” “How do we connect operational metrics to financial metrics?”
All those surveyed were asked about specific levels of three critical metrics: on time completed shipments (OTCS), overall equipment effectiveness (OEE), and successful new product introductions (NPI). The other 25 metrics were surveyed to uncover average annual performance improvement percentages, which were combined into eight categories:
- Financial: 8.6 percent
- Inventory: 15.0 percent
- Innovation: 7.8 percent
- Responsiveness: 10.0 percent
- Efficiency: 17.0 percent
- Quality: 13.7 percent
- Maintenance: 14.9 percent
- Compliance: 18.5 percent
The consistent double-digit improvement indicates the strides the manufacturing sector is making.
Respondents were also asked about changes that occurred in their businesses since over the last year:
- Increased the number of products, SKUs or variants: 71 percent.
- Increased volatility of customer demands: 66 percent.
- Introduced more complex products: 64 percent.
- Customers demanded increased traceability documentation: 54 percent.
- Shortened the time of new product introduction: 45 percent.
In light of these challenges, the improvements listed above are even more impressive.
Relationships Between Financials and Operationals
Many positive correlations were found between average annual metric improvements and average annual financial metrics. (This has been true for every MESA Metrics Survey since 2006.)
- The average percent of successful NPIs was 72 percent, with the top 7 percent of performers achieving 90 percent or better.
- The average OEE was 71, with the top 11 percent of performers achieving 80 or better.
- The top performers in NPI had average annual financial improvements of 16 percent versus 8.6 percent for all others.
- Those with OEE of 80 or better had average annual financial improvements of 14 percent versus 8.6 percent for all others.
Respondents with NPIs of 90 percent or better reported average annual financial improvements of 16 percent. These respondents also had 32 percent annual improvements in customer fill-rate/on-time delivery/perfect order versus an average of 12.5 percent overall.
Those with OEE of 80 or better had average financial improvements of 14 percent. Specifically, 11 percent of respondents had 20 percent annual improvements in Revenue per Employee/Productivity versus an average of 8 percent overall.
Posted by Stewart Baillie, Vice President, Products, Manufacturing
The Manufacturing Enterprise Solutions Association (MESA International
) and LNS Research
released the annual “Manufacturing Metrics that Really Matter” report. The report merits reviewing, which we will do in a series of posts. This post recaps the first question the study answers: “Which metrics are being used to best understand manufacturing performance and opportunity areas for improvement?”
Twenty-eight manufacturing metrics were identified as being the most utilized by discrete, process, and hybrid/batch manufacturers. The study grouped each of these metrics with the associated top-level area of improvement/goal for each:
Improving Customer Experience and Responsiveness
- On-Time Delivery to Commit: The percentage of time that manufacturing delivers a completed product on the schedule that was committed to customers.
- Manufacturing Cycle Time: The speed or time it takes for manufacturing to produce a given product from the time the order is released to production, to finished goods.
- Time to Make Changeovers: The speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.
- Yield: A percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.
- Customer Rejects/Return Material Authorizations/Returns: How many times customers reject products or request returns of products based on receipt of a bad or out of specification product.
- Supplier’s Quality Incoming: The percentage of good quality materials coming into the manufacturing process from a given supplier.
- Throughput: How much product is being produced on a machine, line, unit, or plant over a specified period of time.
- Capacity Utilization: How much of the total manufacturing output capacity is being utilized at a given point in time.
- Overall Equipment Effectiveness (OEE): A multiplier of Availability x Performance x Quality that can be used to indicate the overall effectiveness of a piece of production equipment, or an entire production line.
- Schedule or Production Attainment: What percentage of time a target level of production is attained within a specified schedule of time.
- WIP Inventory/Turns: A commonly used ratio calculation to measure the efficient use of inventory materials. It is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.
- Reportable Health and Safety Incidents: The number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.
- Reportable Environmental Incidents: The number of health and safety incidents that were recorded as occurring over a period of time.
- Number of Non-Compliance Events/Year: The number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules during a one-year period. These non-compliances need to be fully documented as to the specific non-compliance time, reasons, and resolutions.
- Percentage Planned vs. Emergency Maintenance Work Orders: An indicator of how often scheduled maintenance takes place, versus more disruptive/unplanned maintenance.
- Downtime in Proportion to Operating Time: This ratio of downtime to operating time is a direct indicator of asset availability for production.
Increasing Flexibility and Innovation
- Rate of New Product Introduction: How rapidly new products can be introduced to the marketplace and typically includes a combination of design, development, and manufacturing ramp up times.
- Engineering Change Order Cycle Time: How rapidly design changes or modifications to existing products can be implemented all the way through documentation processes and volume production.
Reducing Costs and Increasing Profitability
- Total Manufacturing Cost per Unit Excluding Materials: All potentially controllable manufacturing costs that go into the production of a given manufactured unit, item, or volume.
- Manufacturing Cost as a Percentage of Revenue: A ratio of total manufacturing costs to the overall revenues produced by a manufacturing plant or business unit.
- Net Operating Profit: The financial profitability for all investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant or business unit.
- Productivity in Revenue per Employee: How much revenue is generated by a plant, business unit, or company, divided by the number of employees.
- Average Unit Contribution Margin: A ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.
- Return on Assets/Return on Net Assets: A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.
- Energy Cost per Unit: The cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production.
- Cash-to-Cash Cycle Time: The duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments/accounts receivable for the sale of products that utilize that inventory—typically measured in days.
- EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization is a calculation of a business unit or company's earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as top-level indicator of the current operational profitability of a business.
- Customer Fill Rate/On-Time delivery/Perfect Order Percentage: The percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.
How does list compare with the metrics you’re using? Are there any metrics you would add?
Posted by Stewart Baillie, Vice President, Products, Manufacturing
Generally, divisions or subsidiaries of multi-location organizations use Zero Balance Accounts (ZBA) to make the best use of cash and credit lines. ZBAs will automatically clear the balance to zero (or some nominal amount such as $5,000) by doing a daily transfer to/from the Corporate consolidating bank account (or Line of Credit). The following illustrates an effective methodology for recording the ZBA sweep transactions and reconciling the appropriate bank accounts.
- Two ZBAs are setup. One for Disbursements (A/P check clearing) and one for Deposits and other miscellaneous transactions including outbound wires and ACH/EFT. There are many other combinations of accounts, but the following concepts remain the same.
- The Division/Subsidiary utilizes online bank reporting to access daily/weekly/monthly transactions without waiting for bank statements.
- The bank reconciliation process is completed as part of the month end process, preferably on the first day of month end. Alternatively, it can be done weekly or daily.
- AR and AP Transactions:
Sweep clearing and Bank Reconciliation. This must be done every month, but can be done daily or weekly if desired.
- All deposits (not just customer payments) must be entered into Epicor ERP so they can be cleared in Bank Reconciliation. These can be done in AR/Cash Receipts Entry, using “New Misc Payment.”
- All disbursements (not just AP checks) must be entered into Epicor ERP so they can be cleared in Bank Reconciliation. These can be done in AP/Payment Processing.
- Run the report from the bank to determine the total net value of checks that cleared during the month/day/week, and do a Bank Transfer from the appropriate Intercompany Bank Account (or Line of Credit) to the Disbursements account.
- Alternatively, you can do a “Bank Adjustment” if you just want it to go to a GL Account for Intercompany.
- Run the report from the bank for the Deposits Account to determine the total net value of “sweeps” during the month, and do a Bank Transfer from the Deposits account to the appropriate Intercompany Bank Account (or Line of Credit).
- The alternative “Bank Adjustment” option can also apply here.
- Clear these Bank Transfers (or bank fees) and all other transactions that cleared the bank, using Bank Reconciliation.
- Don’t forget to reconcile your bank statement so your GL account balances.
Posted by Paul Jackson, Senior Consultant, Epicor
In the previous blog post, we went over types of part numbering and general recommendations from Epicor. In this post, we will be giving a summary of part numbering options.
Standards for your Customers, Suppliers, and Manufacturers
This section refers to the base part numbering. It may not be within your control to change the part numbering methodologies of your suppliers, manufacturers or customers. It is, however, possible to have your own part numbers for all of the above.
Why Have Your Own Numbering System?
Why not use your supplier or customer part numbers for numbering your own parts? There are a few reasons:
- Consistency: Just as you have multiple customers, your customers will have multiple part numbering standards.
- Elimination of Duplicates: What if two of your suppliers, or two of your customers, happen to both use the same part number to call out two different items? Now you have to come up with some method for eliminating these accidental collisions of data.
Summary of Options
There are several numbering options outlined below. Epicor recommends the third, “semi-meaningful” numbering system for most companies.
Meaningful Part Numbering
This is where the digits of the part number each have a specific meaning, resulting in the ability for a knowledgeable user to know what a part number translates into. However, having a completely meaningful system makes for a very complicated structure, and necessitates a strong engineering organization to control the part number assignment. Some companies choose to only use a fully meaningful part numbering system on their finished goods.
Non-Meaningful Part Numbering
In this case, the part number itself does not mean anything significant. This could be a sequentially assigned number, or can appear to be random. Also, sorting by part number is totally meaningless. When searching by part number, you must know what you want.
Semi-Meaningful Part Numbering (Recommended)
This is a system where there is some meaning in the part number—defining the type of part, but not down to every final detail. Not all attributes of the part are defined. At some point, there becomes too many attributes to track in the part, so a sequential number is assigned to differentiate from other similar parts. The actual description and differences are stored in the part description, as well as the part’s drawing.
To learn more about part numbering rules, best practices and recommended formatting, download the white paper ERP Part Numbering Standards for Manufacturing here.
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
There are many opinions on the subject of “proper” part numbering systems within the manufacturing world. Many companies will fall into what can be called an “accidental” part numbering scheme, and still others end up over-thinking their designs. This blog series will present you with guidelines for developing and using good part numbering techniques within a manufacturing company.
The first thing to note is that a part number is generally not a description of the part; there are separate fields for holding the actual description, as well as part class and product group. Having part numbers defined by whether a part is purchased or manufactured is not recommended, as this can change over time. Anything that can change should not be embedded into the part number.
Every part has a “Part Number,” which is also the primary index for the part table; this may also be called an “Item Number” or a “Stock Keeping Unit” (SKU). There should be only one part number set up for each item that is kept in stock. We assume that each part number represents a specific item, and there are no duplicate items.
Here are 4 different types of part numbers you should be aware of:
- Manufacturer Part Number: Since you may have multiple manufacturers for any one part number, it is possible to have multiple manufacturers and multiple manufacturer part numbers assigned to any one of your part numbers. An enterprise resource planning (ERP) system is able to store cross-references to multiple manufacturers’ part numbers.
- Supplier Part Number: A supplier part number is the number that your supplier/vendor labels your part. Your supplier may be a manufacturer, or they may be a distributor for another manufacturer. Since they may reference their part number differently than the manufacturer, you can create a three-way tie between your part, the manufacturer part, and the supplier part.
- Customer Part Number: The ERP system can also have a customer part number cross-reference. Since multiple customers can purchase the same part, there can be multiple customer part numbers that reference your part. Customer part numbers also have their own descriptions.
- Internal Part Cross-reference: This final part number option is to create an internal, secondary method of calling out a part number. The internal number can be used as a shortcut to a longer part number, or it can modify any serial numbering methodologies for the base part. It is also possible to have multiple internal cross-references.
In the next post of the Part Numbering Standards for Manufacturing blog series, we will be giving a summary of part numbering options. For more information on Epicor consulting services on this and other aspects of ERP, visit here
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services