As in other industries, industrial companies are facing a number of trends that were created or accelerated by the pandemic. Increased volatility and disruptions have led to more frequent, larger, and less predictable shocks, as well as cost pressures, hyper-digitization in operations, and globally dispersed workforces. Industrial companies that have grown through M&A have accumulated disparate enterprise-resource-planning (ERP) systems and processes, giving them a newfound recognition of the need to streamline end-to-end processes and eliminate waste.
Fixed and support costs typically range from 5 to 15 percent of operating costs but can top 20 percent for organizations with excessive overhead—expenditures that are hard to overlook in the context of these trends. How can executives improve performance while trimming costs?
Optimizing front- and back-office services by simplifying end-to-end processes can reduce fixed costs by 20 to 30 percent, accelerate delivery to promise by 20 percent, increase customer satisfaction by 5 to 10 percent, and generate an additional 3 to 5 percent in revenues.
Planned ERP transformations are one of many opportunities for industrial companies to streamline their end-to-end processes. To be clear, ERP transformation is not a prerequisite for end-to-end simplification; existing software-as-a-service (SaaS) solutions can sit on top of existing ERP systems to boost productivity. The key is to adopt a value assurance mindset—that is, to approach transformation in a way that unlocks some of the benefits outlined above.
Unlocking sources of value
Executives should first embark on a comprehensive discovery of opportunities to set priorities. Only then should they look to implement the appropriate solutions.
Discovery: Identifying and setting priorities
Organizations can undertake an initial diagnostic phase in which they examine their current key processes to sequence and prioritize initiatives.
An industrial company mined millions of transactions within weeks, listening to customer conversations with inside sales reps (with consent) and algorithmically creating groups of anonymized individual contributor–level interactions with processes. This exercise revealed that fixing the quote-to-cash process could unlock significant value. The root cause of the issue was that inside sellers were devoting a large chunk of their time to administrative tasks: less than 20 percent of their work followed standard paths, and they spent time and energy on tasks that could be automated or pushed to self-service.
Another company realized its highly manual procurement processes were a root cause of its inability to gain detailed visibility into overall spending data, which prevented its category teams from having adequate capacity to strategically manage their spending. They implemented category-specific buying channels across the spending base as part of their efforts to streamline the source-to-pay process. As such, the company was able to improve category spending data and visibility while also introducing elements of self-service and automation, improving first-time invoice and order accuracy by 15 percent and cycle times by 20 percent. The company estimates that its strategic sourcing resources will have four times more capacity for value-generating activities such as competitive bidding and supplier negotiations.
Solutions: Moving to implementation and execution
Once organizations have a clear understanding of the potential value at stake, they can determine the appropriate digital- and analytics-enabled solutions for each process. Although some of the following use cases could benefit from the Internet of Things and Industry 4.0 solutions, this article focuses on digital and analytics.
In this phase, solutions can take various forms—from simplifying processes to deploying point solutions and designing a minimum viable product (MVP) to guide user acceptance, testing, and feedback. The MVP will fail fast, get refined through the next cycle, or be translated into a solution and scaled across the enterprise. Through the feedback process, the workforce gains a sense of ownership, which aids in adoption.
Solutions can take various forms—from simplifying processes to deploying point solutions and designing a minimum viable product to guide user acceptance, testing, and feedback.
For example, one company aimed to create a new executive dashboard on the outcomes from a monthlong process to report on revenue recognition. The first version of the dashboard had many of the planned features and functionality but was missing cash flow forecasting and an integrated master schedule of key milestones. During a review, management highlighted those refinements, which were included in the next MVP and then scaled across all aspects of the business.
In the quote-to-cash example above, the solution included planning for several components. The biggest pillar focused on technology-based enablement, including developing an omnichannel vision and road map of opportunities to improve digital touchpoints across the customer journey (including e-commerce and digital self-serve). The organization sought to establish a robust, modern telephony system that enables KPI-based performance management. It then planned to implement intelligent document processing and automate receivables using readily available SaaS offerings.
The organization also explored how to boost performance in its inside sales and customer service functions. The first step involved building a data lake and aggregating data on orders (Exhibit 1). Analysis found that 50 percent of its orders required updates, and more than 35 percent had credit holds applied. As a result, inside sales reps were spending 2.5 hours per order on rework, which was crowding out their ability to focus on selling. If they could spend more time selling, they would make more in commissions and the company would generate higher revenue—a win–win.
The organization went through each process stream and identified solutions to address specific issues—for example, it implemented a point solution to automate accounts receivable. In tandem, function leaders realigned roles and process flows so sellers could sell more, customer service reps could focus on the most pressing customer demands, and technology could take care of the rest.
In an install-to-support example, a leading global manufacturer was facing gross margin erosion on installation services. It developed a predictive analytics algorithm to identify project types that are prone to the risk of margin erosion, supplemented with process interventions, newly instituted KPIs, and a large-scale capability-building program. These measures helped the manufacturer improve gross margins by 1 percent and capture savings of more than $50 million.
Similarly, on tech-enabled procure to pay, advanced industrial companies can avoid leakages from the inconsistent use of preferred suppliers, overpayment, late payment, and lack of visibility into spending (Exhibit 2). The enterprise-wide adoption of ERP-agnostic cloud-based solutions with correct and complete master data catalogs can support real-time spending analytics and category insights. This backbone can enable a touchless procurement process across the organization specific to buying channels.
In today’s world of cost pressure and talent shortage, advanced industrial companies have a golden opportunity to boost revenues, capture efficiencies, and improve customer and employee experiences. The pathway involves incorporating data and analytics and digital tools to support their front- and back-office services. Successful organizations will not only achieve impressive performance gains but also lay the foundation to support continued improvements.