Explore 2012 Driving to the Effective Enterprise With KPI's Michael Hennessey Director, Solution Consulting, QAD Driving to the Effective Enterprise with KPI's Safe Harbor Statement The following is intended to outline QAD’s general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, functional capabilities, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functional capabilities described for QAD’s products remains at the sole discretion of QAD. 2 Driving to the Effective Enterprise with KPI's Overview • Session overview - Learn how QAD's KPI's, Metrics, best practices and analytical tools can help monitor and drive to the effective enterprise. • Speaker - Michael Hennessey • Focus - Concept and details around QAD’s KPI framework • Objectives - Alignment of customer business objectives with Key Performance Indicators - Provides KPI framework for identifying best practices - Establishes a closed-loop monitoring on performance improvement with a dashboard and metrics 3 Driving to the Effective Enterprise with KPI's The Effective Enterprise Where every business process is working at peak efficiency and perfectly aligned to the company’s strategic goals. 4 Driving to the Effective Enterprise with KPI's The First Questions: ‘Five essential questions’ to ask about an organization: • What is our mission? • Who is our customer? • What does the customer value? • What are our results? • What is our plan? Peter Drucker 5 Driving to the Effective Enterprise with KPI's What is Our Mission? Examples • Our mission is to "Be the best in the eyes of our customers, employees and shareholders.“ American Standard • Undisputed Marketplace Leadership. Hershey • We will be the easiest pharmacy retailer for customers to use. CVS • Workforce diversity gives us access to a world of different ideas and perspectives. XXX XXX is committed to maintaining a corporate culture where men and women of all ages, races, physical abilities, preferences and backgrounds are treated with dignity and respect. At XXX XXX we recognize that when diversity is valued and respected the results are improved service, customer satisfaction and a positive community image. We believe our employees make a world of difference and work to maintain an environment where diversity and inclusion is a critical component of our success. Our Diversity Vision To build a high performing environment where individual differences and contributions of employees, customers and business partners are respected and valued, the result of which is a business organization where fairness, trust and integrity govern relationships and the way we do business. 6 Driving to the Effective Enterprise with KPI's Delivering the Effective Enterprise The Deming Model Plan Do Design Operational Model Implement Operational Model Check Measure Results, Monitor Performance Act Refine & Strive for Improvement “Certainly we want good results, but management by results is not the way to get good results…work on the causes of results” 7 Driving to the Effective Enterprise with KPI's Why KPI’s? • KPI’s monitor the effectiveness of end-toend business processes • Business processes can involve many departments and business units in an organization. • They help focus Business Operations to achieve the overall strategic goals of a company or corporation. • Complacency can be prevented and value optimized for the end customer 8 Driving to the Effective Enterprise with KPI's Align Metrics to the Value Chain • Measures like service levels, inventory, utilization and cash-flow averaged across the business, don’t give a clear indication as to where the problems lie and what drives Value. • Applying a ‘cookie-cutter’ model to different processes results in averaging • The good processes compensate for the bad, and the bad bring down the good. 9 Driving to the Effective Enterprise with KPI's Align KPI’s • Align KPIs with deliberately chosen performance results. • Spend time working out the performance results to align KPIs with, before you worry about what the KPIs themselves will be. • Establish KPIs that monitor: - The most important outputs that the organization exists to produce - The greatest influences in support of the results the organization exists to achieve. - The results of critically important steps in the business process, the in-process drivers of its outputs. 10 Driving to the Effective Enterprise with KPI's QAD KPI’s & Business Performance Net Income COGS Costs R&D SG&A Return on Net Assets Growth & Profitability Revenue Distribution Working Capital Receivables Cash Net Assets Fixed Assets Capital Utilization Inventory 11 Driving to the Effective Enterprise with KPI's QAD Key Performance Indicators (KPI’s) Growth & Profitability Capital Utilization Driving to the Effective Enterprise with KPI's Inventory Effectiveness - KPI Description: Inventory Effectiveness measures the process of having the right part at the right place at the right time, with minimal investment to ensure that deliveries meet the customer requirements. 13 Driving to the Effective Enterprise with KPI's Sub-Metrics: Inventory Effectiveness Certainly we want good results, but management by results is not the way to get good results…work on the causes of results Obsolete Inventory Excess Safety Stock Schedule Achievement Unplanned Downtime Production Plan Accuracy Supplier Delivery Performance Requirements Plan Accuracy Inventory Accuracy Forecast Accuracy 14 Driving to the Effective Enterprise with KPI's Business Strategies to Improve Metrics Leverage Sophisticated Forecasting Systems Forecast Accuracy Forecast Accuracy Inventory Turns Inventory Turns Solicit Varied Input Deploy Forecast Review Process Inventory Accuracy Safety Stock Level Production Plan Accuracy Utilize Industry Forecast Data Requirements Plan Safety Stock Accuracy Production Plan Requirements Plan Accuracy Accuracy Deploy S&OP Feedback Loop Unplanned Maintenance Obsolete Inventory Ratio Historical Data 15 Driving to the Effective Enterprise with KPI's Strategy Enablers Within QAD Applications QAD Forecasting Application Leverage Sophisticated Forecasting Systems QAD Demand Management QAD Customer Relationship Management QAD Quote Management QAD BI, Browse, Reports 16 Driving to the Effective Enterprise with KPI's QAD Tools - Analytics • Operational metrics and browses - at the operational level • Alerts and reports - at a tactical level • Business intelligence dashboards etc. - in aggregate • And good consulting services to help customers ensure alignment... 17 Driving to the Effective Enterprise with KPI's Op Metrics – Inventory Metrics 18 Driving to the Effective Enterprise with KPI's Alerts & Reports – (Condition Out of Tolerance) 19 Driving to the Effective Enterprise with KPI's QAD BI 3.x – Dashboard Example 20 Driving to the Effective Enterprise with KPI's QAD BI 3.x - Inventory Dashboard Example 21 Driving to the Effective Enterprise with KPI's QAD BI Roadmap BI 3.5 exists BI 3.6 March BI 3.7 Sept Future – 2013+ to be determined 22 Driving to the Effective Enterprise with KPI's Customer Example • Customer Strategy: - Develop and maintain a competitive edge through constant technical product innovation – 30% + of revenue should be derived from ‘new’ products incorporating new technologies. • KPI: “Technology Vitality Index” • Measures the revenue generated from new product sales (‘new product = introduced in last 4 years • How measured: Using QAD BI 3 23 Driving to the Effective Enterprise with KPI's Summary • The value of performance measurement is evident in how it has transformed performance • Choose a goal • Make your goal measurable by teasing out the performance result(s) it implies • Name and describe your selected measure • Define exactly how to calculate your measure’s values • Interpret what your measure is saying, and understand why it’s saying that 24 Driving to the Effective Enterprise with KPI's Make a Start • Many people are on a quest to find the perfect performance measures or KPIs. • Buy-in matters more than the perfect KPI • Collaborate to choose a few reasonably good KPIs that they feel confident in • Start with QAD standard offerings & use the tools available to refine existing or create new • Engage QAD Services to help “It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth” W. Edwards Deming 25 Driving to the Effective Enterprise with KPI's Questions & Answers Michael A. Hennessey Director, Solution Consulting, QAD mfh@qad.com 26 www.qad.com © QAD Inc 2012 27