Whether you call it enterprise performance management (EPM), business performance management (BPM), business intelligence (BI), corporate performance management (CPM), or just plain performance management, the concept is the same: gathering data from all aspects of enterprise operations (including financials, shop floor, customer service, sales/marketing) and analyzing how these results stack up to business objectives (e.g., sales increases, cycle-time reductions, customer retention improvements, to name some basics).
Businesses of every size and type do this sort of analysis instinctively -- at the most basic level, seeing that the day's numbers are off spurs the conclusion that the sales department (or someone in sales) is underperforming. EPM broadens that view, analyzing every aspect of a business's operations in concert, according to John Hagerty, vice president of performance management for AMR Research Inc. (Boston). "Our clients have an interest in getting a tight look at how each part of the business is doing and how it affects the other areas," Hagerty says. EPM, he says, combines strategic goal-setting and alignment with planning, forecasting, and modeling capabilities.
In this arena, small and mid-size (SMB) manufacturers can have challenges that their large counterparts do not, Hagerty adds. "[SMBs] tend not to have the technical infrastructure in place to support EPM -- things like data warehouses, data marts, analytical tools for planning and budgeting." Often, smaller manufacturers try to use a performance management tool that operates within the original source of transactional data (such as ERP or CRM applications). This option promises quick results but can end up affecting the performance of the application due to resource contention, something SMBs should watch out for.
"If the transactional system cannot be maintained in integrity," Hagerty says, the SMB "will have to look at other ways of doing EPM," such as a top-down approach via a business intelligence (BI) platform.
And if SMBs don't step back and look at big-picture data trends, they risk optimizing one area at a cost to the whole organization. The big picture is difficult for many SMBs to see because they tend to isolate operations by line of business, with different plants running different systems.
"You have to look at [EPM] as a way to manage the whole business, not just finance," Hagerty points out. On the other hand, attempting too much at once is a sure route to failure. The key is to pick off individual areas that are problematic, such as supply chain execution, and use performance management software to improve results there. Then, with a well-thought-out EPM architecture, the SMB can expand its use of an EPM tool to include additional functions. (See sidebar.)
Many manufacturers have found that EPM, or some variant thereof, can be a secret weapon in the hand-to-hand combat that is daily business. Read on for the distinctly different approaches taken by two mid-size manufacturers.
Hillman's Growing Focus
Two years ago, the Hillman Group Inc. (Cincinnati) was experiencing the classic growing pains of a mid-size company that was about to break into the next size category. The distributor and maker of fasteners and other products was pushing the limits of its hodgepodge IT infrastructure. Having grown via acquisition as well as organically, Hillman was running four separate legacy ERP platforms: a homegrown system, JD Edwards, Macola, and Oracle.
James Honerkamp was hired in 2004 as CIO and vice president of IT and charged with implementing Oracle EnterpriseOne (the renamed JD Edwards system) as well as Web technology that would allow the road-warrior sales and field service personnel (roughly one-third of the company's employees) to access their data remotely.
A few months into the job, with the new IT infrastructure planned but far from implemented, Honerkamp realized visibility was a big problem. "We had four different legacy business systems that were not integrated, so they could not get an integrated view of the business at any time," he says. "We could not get consolidated reporting from those applications. None of them agreed on things like the definition of 'revenue.'"
Honerkamp quickly added "BI tool" to the top of his shopping list. His team rapidly settled on WebFocus from Information Builders, Inc. (New York, NY), in part because it works well with EnterpriseOne, on which Hillman is now almost fully standardized. Defining "revenue" was the first order of business in the WebFocus implementation, since that was naturally of paramount concern to the senior managers.
Now, executives can access the latest revenue numbers, which are updated nightly, by product line, individual product, segment, or region. WebFocus sits on top of multiple transactional systems and sifts specified data points from each using a rule-based algorithm. WebFocus then spits out analytical reports in real time. "That replaced the reams and reams of hard copy, green-bar reports that were being generated by the legacy systems," he says.
With a revenue description out of the way, Honerkamp moved on to more exciting fare, including reporting for open order, fill order, and freight analysis. The last is a big deal for Hillman. "We ship steel. Our freight costs are skyrocketing because of the cost of oil," he says. In addition to consolidated freight cost reporting, Honerkamp's team has integrated a geographic information system from ESRI Inc. (Redlands, CA) that immediately maps out the most cost-effective routes. "This is sexy stuff," he says.
With approximately 1,800 employees, Hillman will reach about $440 million in revenue this year. With growth comes a greater need to stay on top of the business. "Hillman grew so fast. In many ways it still does operate with a small-company mindset, but we are of a size where we can no longer afford to do that," Honerkamp notes. "We needed tools to empower the end user."
A Matter of TEAMwork
Mark Olson isn't a curmudgeon, exactly. Let's just say he has a healthy skepticism for the current craze for all things EPM. Olson, the senior business analyst at powertrain manufacturer TEAM Industries (Bagley, MN), began tackling performance management way back in the mid-1990s when the business saw its margins erode precipitously. Not surprisingly, the company's senior management wanted to know what was going on.
Since TEAM had just implemented an ERP application from Epicor, Olson wrote reports in Progress first to get a handle on daily profit and loss. "My biggest claim to fame when I came here 12 years ago was to write a report for the daily P&L, which had always been based on yesterday's data," Olson recalls. "Two different clerks would have to run eight different reports which they then compiled into a spreadsheet. I combined all the reports into one using Progress. It took one person five minutes to run it."
Managers at the mid-size business (current employee count runs around 1,500) were inclined to think Olson was a wizard for being able to show a machine's efficiency based on its burdened dollars. The goal was to keep the most expensive and potentially profit-generating machines busy close to 100% of the time (as long as customer demand warranted it). "We wanted to make sure our most expensive machines are the most efficient," Olson explains.
Users at each site run their own reports, including executives who use printouts rather than dashboards to view performance metrics, Olson says. "We have the data we need," he concludes. No fancy EPM tool needed.