The Power of Enterprise Intelligence - sasCommunity Data into Information ... (FMS & ABB/P)-Human...

Copyright © 2002, SAS Institute Inc. All rights reserved.

The Power of Enterprise Intelligence


Chris M. PieperEVP, SAS Performance Management

FormerChairman, CEO & Founder


Enterprise Intelligence for the ‘C’ Level

Individual

Functional Manager

Senior Executive

‘C’ Level Executive‘C’ Level Executives are interested in Identifying

Business Problems and Sizing Opportunities

LaVon KoernerChief Revenue Officer


HarvardBusiness Review

Yesterday’s accountingundermines pr


One Cost StructureIsn’t Enough

Identifying and Sizing Business Problems and

Opportunities


Measure Costs Right:Make the Right Decisions

Financial Accounting:• Does not report true costs

• Is the language of accounting – not

business

• Spreads cost like peanut butter

• Reported product/customer

profitability is wrong


The Traditional Costing Model

Plastic Coated$50,000

Standard Metal$950,000

Volume-based Driver

Overhead$1,000,000

95% 5%

Overhead is aggregated and then allocated based

on volume


Message! Specialty clips generate 5X profit of standard clips

The “Accounting” AnalysisPlastic Coated

Burdened Labor Units ProducedUnit Cost

Retail ListProfit Margin

$950,00010,000,000

9.5 cents

10.0 cents.5 cents

$50,000500,000

10.0 cents

12.5 cents2.5 cents

Standard Metal

Action Plans! De-emphasize standard metal clips! Refocus production toward hot pink plastic clips


Plastic Coated$150,000

Standard Metal$850,000

The ABC/M Costing Model

Stage 1: Resources are allocated based on

management judgmentReasonable estimates

Overhead$1,000,000

Rework Plastic Coating$100,000

Special Handling

Stage 2: Activity Costs are allocated based on demand


The ABC/M (real world) AnalysisPlastic Coated

Burdened Labor Units ProducedUnit Cost

Retail ListProfit Margin

$850,00010,000,000

8.5 cents

10.0 cents1.5 cents

$150,000500,000

30.0 cents

12.5 cents<17.5> cents

Standard Metal

“We realized that we could be more profitable if we stopped production and simply mailed the

customers a check.”



Opportunities

Grossly under-costed

Over-costed

Highest volumeLow complexitySimple / Problem free

1,000%

0% 0%

20%Low volume

Diverse and ComplexSpecialty /Niche

Over 50% of Reported Product Costs are Wrong !


Net profit accumulated across multiple products70% of the products generate 400% of the profit30% of the products destroy 300% of the profit

CumulativeProfit

(millions)

Number of Products

$8

$6

$4

$2

$0200 400 600 800


Opportunities


Management myths to be challenged

! Accountants: Wrong, but accurately wrong

! Marketing: Product proliferation is free

! Product Design: Component proliferation is free

! Sales: Bigger customers are more profitable

! Management: Overhead cannot be traced


Language: Accounting vs BusinessTraditional AccountingTraditional Accounting

SALARIES $371,917

FRINGES $118,069

SUPPLIES $76,745

FIXED COSTS $23,614

TOTAL $590,345TOTAL $590,345

Process sales order $144,846Source parts $136,320Expedite supplier orders $72,143Expedite internal process $49,945Resolve supplier quality $47,599Reissue purchase orders $45,235Expedite customer orders $27,747Schedule intra-company sales $17,768Request engineering change $16,704Resolve problems $16,648Schedule parts $15,390

TOTAL $590,345TOTAL $590,345

ABC/MABC/M

Source: Fortune Magazine“How the Dana Corporation discovers what it’s true costs are”.


Language: Accounting vs OperationsTraditional AccountingTraditional Accounting

SALARIES $371,917

FRINGES $118,069

SUPPLIES $76,745

FIXED COSTS $23,614

TOTAL $590,345TOTAL $590,345

Process sales order $144,846Source parts $136,320Expedite supplier orders $72,143Expedite internal process $49,945Resolve supplier quality $47,599Reissue purchase orders $45,235Expedite customer orders $27,747Schedule intra-company sales $17,768Request engineering change $16,704Resolve problems $16,648Schedule parts $15,390

TOTAL $590,345TOTAL $590,345

ABC/MABC/M

“Value Added” Contribution less than 25%

Short term improvement opportunities


Pitfalls of poor Financial Intelligence

! Sends incorrect signals to management

! Hinders cost reduction/BPR initiatives

! Direct labor is the route to cost reduction

! Specialty/niche products generate big profits

! Positive net income is a measure of health


Enterprise Intelligence

“Does it hinder our ability to compete? Probably not, because we’re no dumber

than our competition.”

James LewisContinental CanSource: Fortune Magazine, October 1987

When asked to evaluate the effects of bad cost information:


SAS Performance Management


By integrating the ABC team into SAS, we will become bigger and

better.

SAS Acquires ABC Technologies …

Dr. Jim GoodnightPresident & CEO

SAS Institute

March 5th,2002


SAS Performance Management

To empower our customers to discover enterprise intelligence which they currently do not possess.

and then …

To provide them the resources to convert intelligence into actions and actions into results.


Intelligence, Knowledge and Process

Enterprise Intelligence (EI)

“that which our customers desire. the knowledgeto unlocking measurable increases in value”

Active Performance Management (APM)

“the ongoing process by which customers can achieve a desired increase in performance. APM is the means to achieve Enterprise Intelligence and the solutions to turn opportunity into Value”


Active Performance Management (APM)

The Management Process of:

Converting Data into Information

Converting Information into Intelligence

Converting Intelligence into Actions

Converting Actions into Results

Without Actions there can be no Increases in Value !


Active Performance Management (APM)Goal: To unlock the Intelligence that Results in Value Creation / ROI

How: 1) By increasing profits

2) Reducing operating expense to fit budget constraints

Note: Value Creation is all about Financial Intelligence ($$$)

Fact: Financial Accounting impedes Profit Optimization

Pain: 75% of products/customers generate 400% of the net profit

Restated: 25% destroy 300% of the Earned Profits


Performance Management! Supplier Intelligence

- Strategic Sourcing (SRM)- Value Chain Analysis (VCA)

! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions

! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM

! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning


Performance Management! Supplier Intelligence

- Strategic Sourcing- Value Chain Analysis (VCA)

! Organization Intelligence- Financial Management (FMS & ABB/P)- Human Capital Management (HCM)- IT Management (ITMS)- Risk Dimensions

! Customer Intelligence- Marketing Automation (MA)- Customer, Channel and Product Profitability- Analytical CRM

! Enterprise Intelligence- SPM Balanced Scorecard, KPIs, Benchmark- Activity Based Costing, Management, and Planning


Supplier Intelligence

! Generate for value chain intelligence for benchmarking and strategic sourcing

! Analyze supplier performance ranking(s) to reveal optimization opportunities

! Identify supplier demand/cost impact for resource planning of procurement activities

! Generate portfolio cost and spend analysis

! Identifies supplier impact on profitability


Organization Intelligence

! Generate financial intelligence for profit optimization and cost reduction

! Provide analysis for process costing, outsourcing and chargeback

! Enable predictive planning of resource requirements given capacity constraints

! Reveal costs to hire, train and reward

! Identify process, activity and balance sheet impact (EVA) on profitability


Customer Intelligence

! Generate customer and prospect profiles

! Optimise cost and effectiveness of multi-channel marketing campaigns

! Analyze customer performance ranking(s) to reveal optimizationopportunities

! Utilize financial intelligence for campaign planning, execution, and segmentation

! Identify product, customer and channel impact on profitability


Enterprise Intelligence

! Communicate strategic goals (BSC) and Key Performance Indicators (KPI’s)

! Align resources, processes and operational activities toward strategic goals

! Measure, manage and scoreorganizational effectiveness against set objectives

! Analyse multi-dimensional cost and profit analysis of products, services, processes, activities and resources


Transactions

SCM IT GL HRCRM

Data(good, bad & undefined)

ResultsROI

Actions

ROI from SAS Solutions and APM

Information

Focus & Domain Focus & Domain KnowledgeKnowledge

IntelligenceSAS

Management Solutions

Executive Visibility


“Our combined solution will provide ourcustomers with a breadth of applications that

other vendors in the space simply can’t match ”

Final Note from our CEO

Dr. Jim GoodnightPresident & CEOSAS


Enterprise Intelligence for Management

Individual

Functional Manager

Senior Executive

‘C’ Level ExecutiveSenior executives/managers are tasked to identify new

strategies that advance the corporate agenda

LaVon KoernerChief Revenue Officer

The Power of Enterprise Intelligence - sasCommunity Data into Information ... (FMS & ABB/P)-Human...

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