Speaking Out: Leverage your data to find ways to save
By Ritu Jain -- Purchasing, 3/12/2009 2:00:00 AM
Globally extended supply chains. Shrinking product lifecycles. Ever-changing customer demands. And, to top it off, a global recession and associated credit crunch. Those are the ingredients of a perfect storm. So what can manufacturers do to survive the turbulence?
Cost cutting is only effective to a point. Experienced executives know that in the long run, any drastic reductions in cost, especially taken by measures such as lay offs and plant closures, often backfire.
Even companies that have taken a holistic approach to managing corporate performance struggle to align day-to-day decision making with overall corporate objectives. The reasons for this disconnection are two fold. First, today's supply chains are complex, multi-tiered, and globe-spanning, making it extremely difficult for organizations to consolidate all the relevant data required for decision-making. Second, traditional tools and technologies often are limited in their capabilities.
So what is the answer? What will be the key differentiator between winning companies that survive and thrive in today's difficult economy and also-ran companies that will buckle under the pressure?
According to Babson College business professor Tom Davenport, a business strategist, the winners will be companies that compete on analytics. They drive business based on their ability to leverage data to gain every last bit of value from operations.
Other industry research validates Davenport's view. For example, a recent McKinsey study calls science-based management an emerging trend. In a recent survey, The Aberdeen Group found that best-in-class companies are much more likely to use analytics to assess their supply chain performance and manage their operations.
A $4 million savings
One large manufacturer of wireless consumer products was able to save $4 million by using advanced analytics to detect product quality issues early. The company, set to ship 2.5 million units of wireless devices in a phased distribution, detected an issue with the product six weeks earlier than the shipment date. With timely delivery of this information to their engineers and call center staff, the company was able to limit exposure to only 70,000 units and about 25,000 customers, thus keeping repair costs under $1 million. Had the company not detected the issue in time, more than 600,000 units would have had to be serviced, at a cost of more than $5 million in repairs. The company saved $4 million in repair costs and millions in brand equity.
Companies have tremendous amounts of data in their transactional and operational systems, but they need to take better advantage of it. While analytics can help decision makers identify opportunities and pre-empt risk, the key is to have the right analytics in place from the start.
There is a tremendous difference between the type of analytics that provides querying and reporting and the predictive analytics that helps companies answer critical questions like "Why is this happening?" "What will happen next if these trends continue?" and "What is the best that can happen?"
Companies that can answer questions like that can gain a competitive edge in the marketplace.
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