Description
Where Business Intelligence Falls Short The Hidden Value in Your Total Cost to Produce
Where Business Intelligence Falls Short
The Hidden Value in Your Total Cost to Produce
By
David Gustovich and Michael Anthony
IQity Solutions, LLC
Today’s business environment offers unique challenges:
- intense global competition
- increasing costs
- complex and disparate technology
- deluge of data
More than ever, business leaders are looking for ways to operate more effectively to stay competitive.
Whether the goal is price leadership, market share, increased capacity, higher profit margins, or all of the
above, most companies recognize that the old methods aren’t working as well anymore and that a new
approach is needed.
Business Intelligence is Important . . . But Limited
Many forward-thinking leaders turn to Business Intelligence (BI) to help them make better decisions, looking to
computer-driven analysis and reporting to reveal trends in revenues and costs. And while most BI solutions do
offer relevant insights to historic performance, usually it is only at the
Enterprise level using data from Finance, Marketing, Sales, Customer
Service, and Information Technology (IT).
1
What most business leaders
don’t realize is that proportion of expense at stake in these departments
represents, on average, just 15% of a manufacturing company’s total
cost of doing business.
2
Cost to Produce: The Other 85%
The eye-popping reality is that most of a manufacturing company’s total cost
of doing business lies in the Cost to Produce: the cumulative costs
associated with the production process.
These costs – driven by manufacturing plants, equipment, raw material, and energy, plus people and allocated
variable overhead -- make up 85% of the actual cost of doing business.
Traditional Business Intelligence solutions have ignored these cost categories because they have not had a
way to capture data from the “plant and people” part of the equation. In other words, while BI can aggregate
data from Enterprise level systems and allow drilldown on that data, it simply does not have the ability to
communicate with the part of the business where the most expense—and the most opportunity—exists.
The eye-popping reality
is that most of a
manufacturing
company’s total cost of
doing business lies in
the Cost to Produce:
the cumulative costs
associated with the
production process
Figure 1: 85% of total cost of doing business is in the Cost-to-Produce expense category.
If You’re Not Looking, You Can’t See It
The current frames of reference in BI simply are insufficient for modern businesses. With so much invested in
plant, equipment, materials, and people, manufacturers can no longer afford to turn a blind eye to the hidden
business value represented by lack of efficiency and variation in their operations and production processes.
Recent advances in technology and innovative applications of business expertise mean that manufacturers
can gain deeper insights into their Cost to Produce and correlate it to overall business performance. Those
who choose to embrace this new era of corporate analytics will secure more return from their investments in
the production process.
Volatility: Foe or Friend?
The most significant factor affecting Cost to Produce is volatility in the production process. These operations
are notoriously complex because they present multiple challenges to manage. Volatility, or variation, can stem
from any number of issues related to materials, machines, methodology, crewing or metrics. And the result of
that variation is wasted resources. Waste can manifest in the form of material loss, lost staff time, unused
production capacity, or any number of undesirable outcomes, all of which eat away at profit margins.
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Volatility, or variation, can stem
from any number of issues
related to materials, machines,
methodology, crewing or
metrics
Figure 2: Typical production volatility as charted chronologically, by output over time.
Historically, manufacturers have not had the ability to see the full breadth and depth of variation in their
enterprise. More importantly, they have not been able to identify the underlying process variables that
correlate to the outcomes of interest (cost, quality, service). This has limited their ability to isolate and
eliminate the root causes of variation. The result: Pervasive variation, unseen waste, and unrealized profit.
Attacking Variation Creates Profit
The secret to unlocking the hidden value embedded in the Cost to Produce lies in isolating and eliminating
variation, thereby eliminating wasted resources. Doing so effectively reveals surprising and significant cost
savings and profit opportunities---up to 6- and 7-figure returns for small and
mid-size businesses.
3
Solutions are now available that provide manufacturers with automatic and
detailed, to-the-minute reports on the specific and correlated causes of those
variations that have remained hidden for so long. The best of these solutions
even provide calculations of the dollar value represented by the gap between
current execution and what is possible. In other words, businesses now have
a way to measure in dollars the difference between how they are doing, and
how they could be doing.
With this approach, businesses are finally able to access the precise information that defines their potential for
capturing the cost savings and profits long obscured by variation. Empowered to correlate plant performance to
business performance in both operational and financial terms, company leaders can assess the entire breadth
of their value stream. This type of Intelligence means freedom from having to choose between the limits of
Enterprise data (too little detail and only historic data), or plant level data (only providing data on a single work
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Where Business Intelligence Falls Short The Hidden Value in Your Total Cost to Produce
Where Business Intelligence Falls Short
The Hidden Value in Your Total Cost to Produce
By
David Gustovich and Michael Anthony
IQity Solutions, LLC
Today’s business environment offers unique challenges:
- intense global competition
- increasing costs
- complex and disparate technology
- deluge of data
More than ever, business leaders are looking for ways to operate more effectively to stay competitive.
Whether the goal is price leadership, market share, increased capacity, higher profit margins, or all of the
above, most companies recognize that the old methods aren’t working as well anymore and that a new
approach is needed.
Business Intelligence is Important . . . But Limited
Many forward-thinking leaders turn to Business Intelligence (BI) to help them make better decisions, looking to
computer-driven analysis and reporting to reveal trends in revenues and costs. And while most BI solutions do
offer relevant insights to historic performance, usually it is only at the
Enterprise level using data from Finance, Marketing, Sales, Customer
Service, and Information Technology (IT).
1
What most business leaders
don’t realize is that proportion of expense at stake in these departments
represents, on average, just 15% of a manufacturing company’s total
cost of doing business.
2
Cost to Produce: The Other 85%
The eye-popping reality is that most of a manufacturing company’s total cost
of doing business lies in the Cost to Produce: the cumulative costs
associated with the production process.
These costs – driven by manufacturing plants, equipment, raw material, and energy, plus people and allocated
variable overhead -- make up 85% of the actual cost of doing business.
Traditional Business Intelligence solutions have ignored these cost categories because they have not had a
way to capture data from the “plant and people” part of the equation. In other words, while BI can aggregate
data from Enterprise level systems and allow drilldown on that data, it simply does not have the ability to
communicate with the part of the business where the most expense—and the most opportunity—exists.
The eye-popping reality
is that most of a
manufacturing
company’s total cost of
doing business lies in
the Cost to Produce:
the cumulative costs
associated with the
production process
Figure 1: 85% of total cost of doing business is in the Cost-to-Produce expense category.
If You’re Not Looking, You Can’t See It
The current frames of reference in BI simply are insufficient for modern businesses. With so much invested in
plant, equipment, materials, and people, manufacturers can no longer afford to turn a blind eye to the hidden
business value represented by lack of efficiency and variation in their operations and production processes.
Recent advances in technology and innovative applications of business expertise mean that manufacturers
can gain deeper insights into their Cost to Produce and correlate it to overall business performance. Those
who choose to embrace this new era of corporate analytics will secure more return from their investments in
the production process.
Volatility: Foe or Friend?
The most significant factor affecting Cost to Produce is volatility in the production process. These operations
are notoriously complex because they present multiple challenges to manage. Volatility, or variation, can stem
from any number of issues related to materials, machines, methodology, crewing or metrics. And the result of
that variation is wasted resources. Waste can manifest in the form of material loss, lost staff time, unused
production capacity, or any number of undesirable outcomes, all of which eat away at profit margins.
!"#
%"#
&#
'&#
(&#
)&#
%&#
!&&#
*+,-. /+0, +1 2+345 67034800
9.-4,: ;84,:
98+=.8: ?-,8@3-.
A34-4B8: ?-@C8D45:
E-.80: /70,+>8@
E8@F3B8: G*
Volatility, or variation, can stem
from any number of issues
related to materials, machines,
methodology, crewing or
metrics
Figure 2: Typical production volatility as charted chronologically, by output over time.
Historically, manufacturers have not had the ability to see the full breadth and depth of variation in their
enterprise. More importantly, they have not been able to identify the underlying process variables that
correlate to the outcomes of interest (cost, quality, service). This has limited their ability to isolate and
eliminate the root causes of variation. The result: Pervasive variation, unseen waste, and unrealized profit.
Attacking Variation Creates Profit
The secret to unlocking the hidden value embedded in the Cost to Produce lies in isolating and eliminating
variation, thereby eliminating wasted resources. Doing so effectively reveals surprising and significant cost
savings and profit opportunities---up to 6- and 7-figure returns for small and
mid-size businesses.
3
Solutions are now available that provide manufacturers with automatic and
detailed, to-the-minute reports on the specific and correlated causes of those
variations that have remained hidden for so long. The best of these solutions
even provide calculations of the dollar value represented by the gap between
current execution and what is possible. In other words, businesses now have
a way to measure in dollars the difference between how they are doing, and
how they could be doing.
With this approach, businesses are finally able to access the precise information that defines their potential for
capturing the cost savings and profits long obscured by variation. Empowered to correlate plant performance to
business performance in both operational and financial terms, company leaders can assess the entire breadth
of their value stream. This type of Intelligence means freedom from having to choose between the limits of
Enterprise data (too little detail and only historic data), or plant level data (only providing data on a single work
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