By David Caruso, Principal, David Caruso & Associates, Inc.
Most manufacturers consider their employees the secret of their success. In today's cost-competitive world, companies have shifted their emphasis from just adding headcount to get things done to improving employee productivity. Empowering employees by giving them timely information boosts productivity, and this is exactly what an integrated information system—an enterprise resource planning (ERP) system—does.
Objective managers recognize wasted labor in their operations—people scrambling to compile information for meetings, time spent sorting out which numbers are the right ones to use, manual processes that slow down production. Ultimately, these can impair customer satisfaction.
Implementing smart business practices, such as delegating decision-making down the ranks of front line employees, can help control wasted labor. But these practices work only when managers provide their people with the right information at the right time so they can manage their responsibilities. This is especially true for employees in customer-facing roles.
Many opportunities for employee productivity increases can be found in areas that aren't part of direct manufacturing or production costs. That may seem counter-intuitive since the justification for many ERP implementations is reducing inventory and headcount. For example, if a company has been running lean anyway—let's say it has an efficient production workforce and carries minimal raw materials and work-in-process inventories—a manager may feel the opportunity for improvement outside those areas is limited. But the truth is that using a state-of-the-art ERP system, such as Microsoft Dynamics, can help create an environment that boosts indirect labor productivity.
Employee productivity in manufacturing operations
Until recently, a manufacturer could deliver products made entirely within its own walls. Global manufacturing has restructured the industry, taking advantage of low cost labor rates available in emerging countries and specialist firms. Shrinking opportunity windows and aggressive new competitors have forced manufacturers to use design, manufacturing, channel, and distribution partners, creating more complex, networked supply chains that employees must manage expertly. Tightly integrated ERP systems help successfully address these new management challenges.
Manage formulas better
New product development and launch. New products are introduced faster and more effectively when employees have good information and collaboration tools. Your company must quickly assess if it's working on the right projects and coordinate projects and engineers. In today's environment, the organization must also manage intellectual property and collaboration, integrating marketing, sales, and all supply chain activity, both internally and externally. The integrated nature of an ERP system makes the sharing and timely delivery of information easier.
Building the right product at the right time. Inventory, by its very nature, is wasted investment. It consumes employee time, production capacity, and ties up valuable working capital. ERP tools for demand management, inventory visibility, and integrated scheduling are just some of the ways ERP can help you minimize inventory build-up and ensure more productive manufacturing operations.
Making it right the first time. The analytics ERP systems contain can provide good visibility into manufacturing performance and quality, enabling production to stay on track and maintain the highest quality output. Identifying issues early helps ensure efficient use of your production and employee assets.
Efficient supplier interactions. Supply chain visibility shrinks the time people spend on busywork and the cost of expediting materials. Electronic kanbans automate communication and eliminate much of the overhead of paperwork and messages. With access to key demand and schedule data, partners can often answer questions themselves, freeing your employees for other tasks.
In addition to helping improve productivity in production operations, ERP systems can help most well-run manufacturing companies realize more of their business potential by equipping them to manage overhead and support operations.
SG&A costs: Labor productivity beyond manufacturing operations
A typical manufacturing company has sales, general, and administrative (SG&A) costs of 13 to 14 percent. Because this overhead cost is a pure expense, any amount that can be eliminated flows directly to the bottom line. For example, a $20 million company with 5 percent EBITDA (earnings before interest, taxes, depreciation, and amortization) profits that reduces its SG&A cost by just one percentage point through improved productivity will show an impressive 20 percent increase in EBITDA.
Here are some likely targets for cutting SG&A costs:
Responsive customer service. With information from an ERP system, service representatives can solve customer problems quickly, often on the first call. A collaborative work environment can open up parts of your systems for customers to use directly. Customer self service can yield a huge productivity increase, not only for your employees, but for your customers too.
Efficient financial reporting and management. Even something as simple as closing the books faster at the end of the month or quarter can have a profound impact. Integrated information sharing and standardized reporting and analysis can eliminate sneaker nets, which means your people spend less time figuring which set of numbers to use and more time on analysis, decision-making, and planning.
IT department productivity. Last but not least, productivity in the information technology (IT) department will likely soar once the maintenance of aging systems is eliminated. Spending less time repairing and integrating older, incomplete systems frees up time for IT staff to concentrate on extending user adoption, utilization, and improving overall benefit from the ERP system.
Customer satisfaction: The goal of increased productivity
Managers in today's manufacturing companies receive tons of data—about equipment, products, orders, deliveries, conditions, quality, and customers. Understanding how managing all that information contributes to increased customer satisfaction and ultimately better top- and bottom-line financial performance is the key to success. That's why so many companies are moving to platforms and systems that help integrate isolated silos of information, provide powerful analytics, and bring the power of the desktop to every management task.
Those companies know that building a fact–based, decision-making organization means putting the insight of your enterprise data into the hands of your staff. Equipped with the data available in ERP systems, and supported by powerful desktop tools, employees throughout the organization can achieve higher productivity and give customers faster, higher quality service.
David Caruso is the founder and Principal of David Caruso & Associates, Inc, a consulting firm specializing in manufacturing, supply chain, and technology strategy. Before starting his own firm, David was senior vice president and director of research at AMR Research, and he has held several senior management positions in the ERP and supply chain software community. David has more than 30 years of industry experience, and he focuses his current research on analyzing the business value of IT and the effective use of technology to support the profitable growth of his clients.