Implementing enterprise performance management practices for manufacturing
INSIGHT ARTICLE |
What is enterprise performance management (EPM)? It is not a new method, but an integration of techniques that may be familiar to many manufacturers. EPM is all about improvement—helping manufacturers respond quickly and effectively to change. Results can mean improved performance on the shop floor, more informed decision-making and enhanced margin management.
EPM is not just performance measurement and should not be confused with business process management tools that automate the workflow processes. It is a broad, end-to-end union of integrated methodologies and solutions with four major elements:
1. Collecting data
2. Transforming the data into information
3. Analyzing the information
4. Reporting to users and decision-makers
Taken together, these elements give an organization the capability to quickly anticipate, react and respond to business challenges, based on timely, accurate data.
Components of EPM
Here are the main areas that EPM can address:
Strategic planning and execution: A strategy map and its associated balanced scorecard can translate the executive team’s strategy into navigation aids necessary for the organization to fulfill its vision and mission. Key performance indicators help align actions and processes with the strategy.
Cost visibility and driver behavior: Activity-based costing methodologies examine cause-and-effect relationships, rather than broadly averaged cost factors. They identify the specific cost drivers for products, services, channels and customers and help management understand the factors that consume resources.
Customer performance management: Marketing and sales techniques are applied to retain, grow and acquire profitable customers. Analytical tools can leverage customer relationship management data to identify actions that will create more profit lift from customers.
Forecasting, planning and predictive analytics: Data mining typically examines historical data; but forecasts for the future volume and quantities of customer purchases can be calculated, and, therefore, process-related costs—including workforce headcount and spending levels—can be calculated and managed.
Process improvement: Lean management initiatives remove waste and streamline processes to accelerate and reduce cycle times through productivity and efficiency improvements.
The overall benefits of EMP
Taken together, EMP components provide a number of benefits:
- Accountability: EPM integrates key performance indicators from a strategy map-derived scorecard, with employee compensation reward and motivation systems.
- Analysis: EPM provides analytical tools—including regression and correlation analysis—for insights ranging from marginal cost analysis to what-if scenario simulations.
- Allocation: EPM embraces techniques like activity-based costing to increase cost accuracy and identify the drivers of indirect and shared expenses.
- Client value: EPM provides management with a better understanding of channel and customer behavior and costs-to-serve.
- Supply chain management: EPM can address upstream and downstream concerns and provide financial transparency across the value chain.
Companies cannot achieve long-term prosperity through cost reductions and process improvements alone. Researching how the variety of EMP components can help manufactuers prosper would be an investment worth making.
This article is based on articles and presentations by Gary Cokins of Analytics-Based Performance Management LLP.