Many manufacturers, especially those looking to become more competitive in today's global environment, are adopting performance alignment technologies to help them link corporate strategy to operational processes and activities.
A recent survey, by Ventana Research, found that scorecards, dashboards and performance alerts are effective tools in helping companies align operational performance to corporate goals and strategies. According to the survey responses, prior to using these tools, about half of the companies believed they were effective in achieving performance alignment, but after adopting them, more than three-fourths said they were effective.
Scorecards, Dashboards and Performance Alerts
But how are scorecards, dashboards and performance alerts used in the manufacturing environment, and what advantages do they offer for manufacturers?
Scorecards are software applications that show progress towards strategies, goals and objectives by using key performance indicators (KPIs). According to Colin Snow, vice-president and research director, Operational & Supply Chain Performance Management at Ventana Research, "Scorecards should be used in a manufacturing environment to manage the key process and outcomes of the overall manufacturing processes, but should be tied to the top level business scorecard. Manufacturing scorecards should operate with a standard performance measurement reference model like Supply-Chain Council's SCOR model."
The scorecard is a simple tool that helps to guide change and continuous improvement within an enterprise. Reference models integrate the concepts of business process management and process measurement into cross-functional categories.
A dashboard is a reporting tool that consolidates, aggregates and arranges measurements, metrics and sometimes, scorecards on a single screen, allowing information to be monitored at-a-glance. In the manufacturing environment, dashboards can be used to monitor key segments of the manufacturing process.
"Many companies use manufacturing dashboards to monitor machine and production line rates," said Snow. "Dashboards improve decision-making by providing access to KPIs such as asset utilization, production efficiencies and yields, inventory levels, order status, and quality and traceability data."
Performance alerts are notifications via e-mail, portal or a wireless device, about a key trend or business event that is associated with a goal. They can be used to alert manufacturing managers and operators about both a manufacturing process deviation (such as over/under plan) and anticipated demand/supply deviation (orders or supply over/under forecast).
"An alert can greatly reduce the time it takes to identify a problem, notify the appropriate resource and take action," Snow explained. "Alerts should be able to monitor conditions from any data source, test them against user-configured business rule and notify all necessary personnel via email, pager, Palm/PDA, or phone." Performance alerts can also be created for manufacturing maintenance, scheduling, inventory and internal supply chains.
Use and Optimization
The problem, though, is that scorecards, dashboards and alerts are being deployed with narrow focuses (finance, sales, marketing, IT functions) rather than to measure and monitor performance in operational areas such as the supply chain or customer operations. This could be because performance alignment systems are usually developed by IT departments and, therefore, the focus is not on the manufacturing process.
Ventana's research report showed that it can take nearly two years to optimize the content and context in scorecards, dashboards and performance alerts. But, according to Snow, it shouldn't take two years. He attributes this lengthy time frame to the fact that most scorecards and dashboards are internally built.
"IT struggles with complex data integration and users are stuck with inflexible solutions," said Snow. He suggests vendor-provided solutions as an answer. "Many vendor solutions can be prototyped in weeks, not months," Snow said, "and users can 'test-drive' during implementation to make adjustments to their final application."
Organizational Changes
There can be obstacles that a company must overcome if they want to effectively use performance alignment tactics. Once the technology is implemented, to use it effectively requires individual and cultural change within the organization.
Most companies operate their businesses in functional silos, such as Sales, Manufacturing, Distribution, Support, etc. Because each function starts with a different set of assumptions and offers a different perspective, it can sometimes be difficult to bring these departments together and get them to agree on how to measure and monitor the business, while trying to achieve a common goal.
"What’s even more interesting," said Snow, "is the fact that a lot of businesses do not understand the connectivity of their business processes and plans. While most functions are visible and it’s easy to find a person in charge, it’s rare to find a company that has a process owner for "product availability" or "product delivery." This connectivity makes integrated performance even more imperative if the stated corporate goal is to improve customer service.
Therefore, it is important, for the success of performance alignment, to make these business processes visible and to make them part of the management structure.
The "Gaming" Game
While many executives believe they can rely on the metrics and measures delivered by scorecards and dashboards, others feel that these tools can be subject to "gaming." The survey showed that companies who put a formal process in place to evaluate their metrics regularly reduced the rate of gaming by nearly 40%.
Gaming describes the practice of manipulating statistics until they show the needed results. But gaming ultimately hurts the performance alignment process because it manipulates the way progress toward attainment is measured. "It can look like you are achieving goals when in reality you are not," said Snow.
Snow uses the "order-in-time deliver" metric as an example of gaming. Most businesses measure this metric as the difference between the "customer promise date" and the "order ship date."
"In many ERP systems it's easy for me to change the “customer promise date” to any date I want to – that is, I can change to a date when I know I will be able to ship the order," said Snow. "I have then gamed the system. You can bet companies would get quite a different measure of “order-on-time deliver” if they based this on the difference between the true “customer request date” and the “order arrival date.”
Manufacturing Benefits
Simply stated, performance alignment is the process of linking strategy with corporate goals and objectives in a way that makes best use of a company’s resources by coordinating the efforts of every member of the organization.
The benefits to manufacturers come in improvements to operational effectiveness and business process management. Scorecards, dashboards and alerts can help improve operational effectiveness by helping users respond to changes more quickly and to take advantages of trends. They help gain visibility into demand, inventory and production and can identify production problems and poor performance sooner, while at the same time increasing quality and production efficiency.
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