When Cincom introduced the latest upgrade of Control last summer, we emphasized something quite new to the world of ERP; predictive measurement and management based on predictive metrics. I’m sure there are many people who read about this aspect of the product, shrugged and figured that this was just another buzz word to clutter up the vocabulary of business.
In reality, while Predictive Management is new to the world of ERP it is neither new or just a buzzword to other areas within the world of business.
It’s an easy concept in insurance. Two twins walk into an agency wanting to buy life insurance. They obviously share the same age and genetic tendencies so they must be about equal in terms of risk for early death. Right?
Wrong. One twin smokes three packs of cigarettes per day, always stays late at happy hour following work each day and loves to eat fast food. The other guy runs three miles day, lives on vegetables and grains and has yet to smoke his first cigarette.
This information delivers to the insurance agent all that is needed to “predict” how long each of these guys will remain vertical and sucking air. That information tells them how much they have to charge each twin for life insurance to mitigate the risk associated with covering their deaths.
There are plenty of other examples. Credit scoring is another one most of us are familiar with. Specific data such as outstanding balances, debt-to-income ratio, and payment history all go into a credit score which in turn drives the acceptance or rejection decision or interest rate charged for money you borrow.
How ERP Works
Consider the world of ERP. For many years reports would be generated at the conclusion of a month or quarter. Forecast sales, closed sales, inventory levels, costs of supplies and outstanding orders would be reviewed and, based on that data, someone would push a bunch of numbers around on a spreadsheet and set quotas for the coming quarter. Supplies would be ordered to fill any gaps in inventory needed to support the business plan.
The problem with this model is that the world does not always run according to your plan. You buy all the supplies; you assemble the product and maintain the “feet on the street” based on your sales forecast.
For some reason your sales come in at 20 percent of quota. It’s a disaster. You’ve staffed up and spent money based on selling 1,000 widgets and you’ve only sold 200. Ouch!
A little investigation into the market shows you that there are new federal regulations related to the use of your widgets by a large group of your customers. The regulations have to do with compounds in the paint you use for your widgets.
Your ERP system has no way of telling you that your widget paint is out of compliance. It’s not until the quarter or month is over with and the opportunity to correct is lost. Sure, you call down your year, you trim your future orders for supplies, you may even dump some sales folks, but, that lost money is lost forever.
Predictive Comes to ERP
Imagine if your operations and product personnel had a window on their system homepage that notified them of new federal regulations affecting your product. Rather than seeing an entire month or quarter of production wasted, your real-time notice of regulatory changes would give you ample opportunity to modify your product into compliance before the regulation went into effect.
This kind of predictability is particularly critical to project-based manufacturers who must quote product costs before the first unit rolls off the line. Major projects like aircraft carriers or heavy air transports require incredibly complex estimation capability. The smallest miscalculation could easily bankrupt a contractor.
Control comes with Business Activity Monitor. This delivers customized, variable KPI to the user in real time. This kind of information availability goes way beyond data mining, BI or warehousing. This is increasing the circumference of your “awareness range,” thus allowing you to react before the change occurs.
This delivers the same type of predictive capability that insurance underwriters enjoy to project and program managers. They can now confidently predict margins, estimate costs and identify threats to projects well in advance.
Once in place, their project can be managed with the same critical data flowing into the correct hands to facilitate outcome changing decision making.
More accurate forecasting and the ability to adapt quickly means less business risk to you. And isn’t less risk what we all want?