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Basic Core Values And Performance Indicators Can Boost Industry Productivity

Andy Makeham, CEO of ERP software supplier K3 Business Technology,argues that by concentrating on the 'boring bits' of ERP, and getting the basics of planning and control right, firms can achieve their productivity potential

A recent survey of 1,400 companies in seven countries by Proudfoot Consulting concludes that UK workers are employed for an average of 225 days a year, of which 110, or nearly half, are wasted, significantly higher than America and competitor countries in Europe. The wastage is estimated to cost £111 billion a year. The main reasons firms fail to achieve their productivity potential is insufficient planning & control, which accounts for 37%, followed by inadequate management at 25 %.

Major factors identified in the insufficient planning and control category included non-existent, poor or inappropriate measurement procedures; objectives set too low or high; problems ignored or not anticipated; inadequate reporting; key performance indicators (KPIs) not set or performance inadequately measured; and acceptance of a degree of failure as routine and therefore built into future plans.

With over 1650 current UK customers of our various Supply Chain and Enterprise Resource Management (ERP) software, K3 Business Technology's experience of implementing these systems leads us to fully concur with the survey's important findings. There is a huge potential to increase productivity. Given that planning & control and ERP systems go hand-in-hand, we need first to forget the more glamorous IT topics like CRM and Integration and concentrate on the 'boring' bits of ERP. Get the basics of planning & control right by, for example, measuring & monitoring three key KPIs - Bill of Material (BOM) Accuracy, Inventory Accuracy and Routing Accuracy.

Why are these KPIs so important? More time and effort is wasted in these areas by having to chase and find lost parts and assemblies than any others. In many companies, inventory record accuracy, for example, can sometimes be as low as 50%. This actually means that every ten times people look for parts they only find them five times, so someone physically has to chase them to fulfil an order. Just one missing nut and bolt can delay an order, subsequent payment and impact customer service.

Efficient and highly productive companies usually have KPI accuracies approaching 95%-100%. Then the benefits escalate. Not only do they have high inventory accuracy with the resulting stock savings (30% is a reasonable figure to expect) but they also save dramatically on the disruption and costs of 'firefighters' - those people running around the factory between shortage meetings chasing parts and trying to resolve countless day-to-day problems. Other savings include the costs of rectification, including motor cycle couriers and other premium transport costs.

Manufacturers today are under constant pressure to shorten lead times and get new products to market more quickly while facing downward pressures on pricing. A tough job even if you have got the fundamentals right; but so many firms really haven't got the basic demand planning, BOM, routing and inventory accuracy processes in place to answer such basic, key questions like what are we going to make, what does it take to make it and what do we already have in stock?

Like Lean Manufacturing techniques, the solution is about pursuing simplification in all aspects of the business. First you need to identify and simplify all the correct business processes and put them in place. Then measure the key KPIs and focus on driving their accuracy as close to 100% as possible. Data and information accuracy is of paramount importance. Remember that old computer slogan GIGO (garbage in, garbage out)? It's as true today as it ever was. Imposing disciplines in the planning techniques introduces a great source of stability, responsiveness, quality and productivity .

K3 has vigorously advocated the use of Lean thinking and the philosophy of basic core values during the many thousands of ERP implementations it has been involved with. And it is a philosophy that has paid dividends for our customers. For example, Primary Designs, a key supplier of Formula 1 exhaust systems, has reduced stocks of high value raw materials by 30% and boosted production efficiency using basic core values and our JobBOSS computerised production control system. The Thame-based company has a turnover of £1 million but, despite its size, is passionate about being World-Class through customer service and technical excellence.

Managing Director Pat Barrett says: "Our previous planning and control system was basically manual, relying heavily on paper systems, spreadsheets and our knowledge of the jobs going through the factory. With regards to stock control we were small enough to know what we had in stock and what was needed - or so we thought. Our biggest nightmare was in planning the work because lead times were very short and the only thing predictable about our customers was that they were unpredictable!

"We invested in JobBOSS because it is a Windows-based, user friendly system designed for small firms like us and has been tried and tested in a job-shop environment. I am a great believer in shared information and JobBOSS helps achieve this because we only need to enter data once and it is shared with the entire system. We can also easily export information to familiar Microsoft packages like Word and Excel.

"Our main objective has been to improve our workshop utilisation through better scheduling. Job costing is also very important because much of our Formula 1 work is repeat business so it is easy to check back via labour reporting. Most of the core modules of JobBOSS have been fully implemented since July, 2002, and the system has greatly improved our productivity and helped us identify areas for improvement. It meets all of our specified requirements and some bonuses that we didn't expect," says Barrett.

"For example, JobBOSS identified a potentially disastrous situation with a particular component that was overstocked because a customer changed the specification. Our tube bending department made too many parts, which could have been disastrous with a resultant cost of £25,000 - which is a lot for a small company. Fortunately, we realised this in time and were able to use this stock. If we had the system earlier it wouldn?t have happened. Computerised stock control has been the really big eye-opener to us. All the way through from order processing to purchasing we know exactly what materials are in stock and can get on with the jobs without hold-ups. Overall, we have reduced stocks of raw materials - the majority of which are high value Inconel tube - by 30%.

"Formula 1 teams are looking for cost cuts more aggressively. With good cost control we can see accurately where we can lower prices and still make a profit. Additionally, with more accurate planning and scheduling and 'what if' capabilities we can make more informed judgements about the consequences of taking on 'rush jobs'."

Lighting specialist Jerrard Bros. plc. also made stock savings in excess of 30% which have more than paid for a new K3 ERP system. The company has a turnover of £4.7 million and employs 60 people. With space at a premium at its central Croydon factory, efficient warehousing and stockholdings are extremely important and stock levels have reduced from £900,000 to £600,000. Since installing the system three years ago the company's product lines have expanded but stock levels have remained constant. Without the extra products, stocks would have dropped even further to £500,000. Stock obsolescence and stockouts have also dramatically reduced.

Managing Director Gerard Oates comments. "K3 prepared a detailed implementation plan and supported us with training and consultancy. The software handles our manufacturing requirements for both make-to-stock and make-to-order." The company runs the repetitive manufacturing module for part of its business and has eliminated a lot of paperwork. Instead of raising works order documentation and issuing to the shop floor, a Kanban docket system is now used which gives full control of stock and supports a highly efficient operation with extremely short lead times - typically three days from design to despatch.