Deep in the recession of the early 2000s, HallStar Co., a $125 million specialty chemical manufacturer, was doing what most mid-size manufacturers were doing: pursuing every avenue to cut costs and making do with systems already in place. Then, in 2003, after the market had eased up a bit, HallStar brought in Cognos Inc. business intelligence (BI) tools to try to leverage the information in its new Lawson enterprise resource planning system to make better business decisions.
The first initiative was to reduce inventory, which, at the time, was on the high side at 18% of revenue. After knocking that figure back to 7.5% of sales while increasing its on-time delivery rate in a short year and a half, HallStar plunged deeper into BI. It began to leverage Cognos not just for rear-view mirror insights into its quarterly performance, but also to garner real-time information about how the company was doing in all aspects of its business. Salespeople used the tool to evaluate how well they were meeting sales goals in new markets, such as Asia. The director of marketing orchestrated a BI initiative to pinpoint problems with margin erosion, allowing HallStar to fine-tune its prices to regain margin points.
Today, 75 of HallStar's 120 employees use Cognos 8.0 on a regular basis to monitor all aspects of the company's performance, and HallStar CEO John Paro issues a monthly voice message that serves as a corporate scorecard, highlighting key Cognos metrics. In the past year, the company grew its gross profit by three percentage points, and earnings before interest and tax (EBIT), its key metric, rose 55% from April 2006 levels.
While the BI efforts aren't the only driving force behind the company's notable performance improvement, the tools do serve as a focal point, says Chuck Redpath, HallStar's director of IT. "Once you rally people around specific performance measurements that you can track through a business intelligence tool like Cognos, people understand how they can impact the bottom line," he says. "You see lightbulbs going off over their heads and everyone is rowing in the same direction."
As BI tools become more accessible, a greater number of manufacturers are rowing in the same direction as HallStar, giving operational managers in sales or production, for example, the information they need to manage the business in real time. With a view into how the business is performing at any given time, managers are empowered to take corrective actions that can reduce costs and bolster efficiencies, as well as create revenue opportunities and drive growth.
Real-Time Orientation
"We've gone from backward-looking, historical reporting to looking at what's happening right now or what may happen in the future based on inputs and trends," says John Hagerty, vice president and research fellow at AMR Research Inc. "Before [with BI], by the time you got information, you couldn't do anything about it. Now that you can get information in a more rapid flow, businesses can take action based on what they're seeing."
Much of what's driving the connection between BI and growth is that operational folks gain access to the data they need to take action. Scorecards and dashboard capabilities are big areas of growth in the BI category because they let companies publish to the masses information that was previously locked up in tools used only by a handful of people, Hagerty says. While BI investments, on the whole, will rise only 3.6% to $23.8 billion in 2007, dashboards and scorecards continue to grow at a faster rate — about 4.5%, according to AMR.
"The users for BI are changing. Instead of having a smart Ph.D. in the back office slicing and dicing data looking for trends, now there are many different types of people looking at the data," says Michael Corcoran, chief strategy officer at Information Builders Inc., which markets BI software. "These are people in the call centers on the phone with customers, employees managing the supply chain, salespeople, or people driving trucks. These people don't care about quarterly trends. They want to know what process is required for this day or this hour, and they're forcing the business to become more real-time-oriented."
Armed with a real-time view of the enterprise, manufacturers are slowly orienting their organizations to a performance management culture, using dashboards, scorecards, and other reporting tools to garner a cross-functional view of their performance and to gain visibility into their supply chain. With this insight, a manufacturer can gauge whether it is meeting its intended business targets — for example, sales goals, cycle time reductions, or customer satisfaction metrics — and respond accordingly, by exception and with agility.
For instance, a company could analyze and optimize its inventory levels, making adjustments to ensure that it has the right parts at the right time, which, in turn, will lead to increased sales and improved customer service. Collecting and analyzing data in real time about warranty claims can uncover quality issues that, when addressed, impact profits and sales. And leveraging BI to evaluate and perform predictive analysis on production trends can help manufacturers make better planning decisions about where and at what capacity to schedule specific production cycles.
"Forget about the rear-view mirror stuff. What companies really need is a windshield, where they can look out, see the best way to get there, and explore alternative routes," says Mike Newkirk, manufacturing industry strategist for SAS Institute Inc., another provider of BI tools. "For that, they need heavy-duty predictive analysis, and that's the power of a true BI platform."
As manufacturers ease up slightly on cost cutting in a somewhat healthier economy and turn their attention to growth initiatives, BI tools are helping them to make the most of their existing investments and maintain more predictable operations. "People are focusing on how to be the most effective with the machinery, labor, and resources they have now and get as much growth out of their existing investment without investing in new," says Paul Hoy, manufacturing industry director at Cognos. "The only way to meet that growth is to be more effective with the resources they already have, and business intelligence is the eyes and ears into how those resources are performing."
At specialty chemical giant Chemtura Corp., SAS BI tools helped the consumer products division pick apart its pricing strategies to correlate any effect on shrinking profit margins. The $4 billion manufacturer's profit margins, traditionally in the 15% to 20% range, had shrunk to single digits in the 2004 and 2005 time frame. Instead of rampantly cutting costs, management decided to invest in BI tools to understand the costs before instituting any reductions, says Stephen Venzon, operations finance director for the Chemtura division.
Using SAS's Activity Based Management software, Chemtura determined that it was over-costing some of its high-volume products and under-costing certain low-volume specialty items. This was causing the company to lose customers in some cases, and recoup insufficient profit on certain items. Based on the intelligence, Chemtura reworked its pricing strategies for 2008 and is now pushing forward with an SKU-optimization effort to drive growth in the right products.
The company is also leveraging SAS BI tools for key account management tactics, examining the cost and effort that go into serving individual customers so that it can price accordingly and keep margins flush.
"This gives the sales and marketing side information they've never been armed with before," Venzon says. "It comes back to having data at your fingertips that you can leverage to drive results of the bottom line."
Stop the Bleeding
The Hillman Group, a $395 million manufacturer of fasteners and nuts and bolts sold at big-box stores such as Home Depot, as well as key cutting machines, also has had initial success leveraging BI to analyze its margin erosion.
"Basic commodities pricing in the world market increased the cost of our product and we were slow to pass that on to customers," says Jim Honerkamp, who was hired as CIO a couple of years ago to lead Hillman in new technology initiatives. "With the margin reporting, we were quickly able to identify items where margin erosions exceeded certain thresholds. We then went in and adjusted pricing to stop the bleeding." Honerkamp now is looking to augment this BI initiative with reporting on leading indicators, such as raw materials indices, to be more proactive in adjusting prices.
Hillman is also pushing the envelope to refine its sales efforts by leveraging geographic information systems (GIS) technology with its WebFOCUS BI tools from Information Builders. The combination lets Hillman map all major bodies of water in the United States and layer customer locations within a certain distance of those shorelines to target sales of stainless steel fasteners, for example. Then Hillman can optimize its logistics routes and shipping zones for more efficient distribution, Honerkamp says.
On every front, BI tools are giving Hillman a clearer picture of its performance so that it can make necessary adjustments. "Business intelligence allows us to take the time between the identification of a business issue and the opportunity to make a decision from days, to weeks, to minutes or hours. That gives us the ability to adapt and react much more quickly than we could have in the past," Honerkamp says.