• July 24, 2006
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Customer Demand Demands Performance Measurement

The past 20 years of progress in the manufacturing industry have greatly improved cycle times, materials efficiency, and quality of output, yet customers continue to demand price reduction and shorter lead time, according to a study by Aberdeen Group. "The Manufacturing Performance Management Benchmark Report" indicates that despite this pressure, a whopping 84 percent of manufacturing companies aren't taking advantage of established, winning software technology, relying instead on spreadsheets and ad hoc performance monitoring. Changes are occurring in the manufacturing industry, says Cindy Jutras, vice president and service director of Aberdeen's manufacturing practice. "The study revealed a subtle shift in pressures. Customers continue to demand lower prices; however customers' demand for shorter lead times has now become the number one driver in manufacturing performance management strategies," Jutras writes. "We found far too few commercial IT solutions being utilized, although best in class companies are out in front and getting better while poorer performers make little progress, so the performance gap is widening." Aberdeen's report, though damning, shows what the top performers have in common and what the rest of the industry could emulate. "Best in class companies emphasize interoperability along with price, quality, and delivery," Jutras writes. While they still pay close attention to cost containment, leading manufacturers also have begun an outward renovation of such factors as customer satisfaction and supplier collaboration. According to the report, these companies continue to lead through more accurate performance metrics and improved flexibility in responding to demand. Accurate metrics are enhanced with frequent use. "Better performance also correlates directly with frequency of measurement," she writes. "[Leading manufacturers] utilize lean manufacturing to eliminate waste, accelerate real time data collection, and leverage workflow technologies and alerts," Jutras writes. Schedule and order compliance are extremely important to the best manufacturers, but many still maintain high inventory levels to ensure customers won't ever be left short. Jutras and Aberdeen recommend that all companies consider the four elements of performance: planning, execution, control, and analysis. "With very few exceptions, real-time integration across these four elements has been either non-existent or a custom effort, loosely coupled at best," Jutras writes. "All companies would benefit from a more focused effort on closing the loop between the first three of these critical elements, developing a philosophy of continuous improvement and promoting a culture where change is welcomed and embraced." Related articles: SAP Offers Customers Benchmarking Aids
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