After the last two punishing years in the electrical industry, the experts say the economy is on the mend and the worst is over. We look around to see who is still standing and recognize a new breed of competitors executing better business practices. Operational excellence is the achieved by vigilant oversight of the business. While some companies have implemented well-known certifications, others have quality-focused strategic objectives and take advantage of tools like the NAED Supply Chain Scorecard with trending or their ERP software's operations reporting. Operational tools come in many forms providing a window of the current, the past and enough facts to create a better future.
The nationwide push for improved product and service quality in the 1980s was the tipping point for new and old quality methodologies to emerge and be embraced by U.S. businesses. Some of the more prominent methodologies included ISO 9000 certifications, Total Quality Management (TQM), Six Sigma, Performance Management, Balanced Scorecard and Lean. They share common elements including continuous improvement, documentation of processes and accountability.
TQM and ISO had the greater impact in the supply chain in the 1990s and 2000s. Total Quality Management provided an organizational strategy involving all functional units to ensure great customer service and integrate the “quality” culture. ISO 9000 is a standardized quality management system requiring businesses to document all procedures for key processes in the business, monitor these for accountability, check for defects (errors) and document their cause and solution. Both of these methodologies required error prevention and discovery of root cause because this is the only way to provide top-notch customer service.
Standard Electric Supply Co., Milwaukee, Wis., serves industrial, commercial and residential customers, and received its ISO certification in 1997. According to Cassie Petty, vice president of quality assurance, “The advantage of the ISO methodology for our company is that it was just a framework which we were able to customize and expand on. What has really paid off over the years is that with the ongoing associate participation in our quality processes, it became our own program for continued process improvements.” The company nurtures this culture by offering monetary rewards to their associates for suggestions on improving processes and customer service or reducing operating expenses.
Standard Electric has been doing supplier scorecards and trending with their largest suppliers for many years. “Our supplier evaluation process has provided a new way to communicate and helped us improve the relationship between our company and our suppliers,” Petty says. Operational reports generated by their Eclipse ERP system show the on-time delivery percentage for each customer and allow comparisons to previous historical performance as well. Other monthly reports analyze the number of credits issued to customers, including defective and damaged goods. All inventories are bar-coded and the use of radio frequency (RF) hand-held devices automates warehouse processes. Daily cycle counts provide real-time reporting. Mistakes between the computer database and the actual physical counts are infrequent, if not rare. Standard Electric continues to find value in keeping their certification up to date.
During this poor economy, while it's a good time to remove the out-dated inventory, it's also a good time to have a competitive edge by stocking the material the customer wants. When manufacturers do not provide lead times the distributors' ERP system calculates these for better inventory management, particularly for maintenance of safety stock levels.
Good Friend Electric Supply, Toms River, N.J., a 73-year-old electrical distributor serving residential, commercial and industrial customers with five locations, purchased the Prelude ERP software system in 2006. Companies changing their ERP software face the challenge and opportunities of reviewing all their business processes to determine what provides value and ensures high-quality customer care. According to David Rosen, president, their software change gave them the opportunity to take a fresh look at how they approached overall operations and which processes could be streamlined. They examined sales order entry and EDI transmittals to find greater efficiencies and looked at new technologies to employ RF warehousing and advanced forecasting.
The key advantage is their real-time visibility reporting of exceptional events, Rosen says. When exceptions occur, the system allows the buyer to quickly track down and respond before the delivery is made, preventing a compound error or unhappy customer. Other real-time information provides alerts on safety stock levels, and extended lead times for manufacturer backorders.
“Virtually every area of our company has been transformed with the implementation of our new system — we have dramatically improved our accuracy, quality, productivity and efficiencies through the use of RF sales order entry, receiving, picking and warehousing. In these times, running lean and effective is critical; our new system has been key to operating in this economic environment,” Rosen says.
Do independent distributors have greater vigilance of their operational reports than the larger franchise firms? Probably not. But errors in the form of refused shipments delivered by the company truck, or material returns may have a greater impact on profitability and there is always the risk a misstep will lose that customer to a competitor.
Crum Electric Supply Co., based in Casper, Wyo., uses operational reports to keep an eye on profitability and service levels at its 10 locations, with breakouts by branch and by customer projecting up-to-date information about all parts of the business. Departmental and employee objectives are created based upon the company's strategic goals and the processes they've set in place to achieve these goals. Crum's IT department uses its SX Enterprise ERP system and other IT database tools to create current and historical monthly operational data reports — most of them visible in real-time — targeting gross profit dollars and margins, oldest open purchase and sales orders, pricing, freight and inventory reports. Jim Roden, vice president of operations reports that “this year, Crum Electric realized a 60 percent reduction in freight costs, a direct benefit of watching and reacting to the numbers. When a number slips, you follow-up and find out what happened. It always comes back to the accuracy of the data we're using when we begin to measure our operations,” Roden says.
Counts in the warehouse won't match those in the ERP system if there is duplication or if the warehouse case counts are different than what appears in the manufacturers' electronic data. “Data synchronization is really the key to ensuring this accuracy and consistency without the need for manual checking so we can depend on our operational reporting,” he adds.
Businesses also need the ability to benchmark key performance indicators (KPIs) against industry standard KPIs for the supply chain on a daily or weekly basis. Some businesses prefer to use their own tolerance ranges so they are benchmarking on their own historical information. Others want to compare their performance to other electrical wholesalers and find NAED's PAR reports to be a good resource.
Bill Dawson, division operations manager/Eclipse implementation, for Rexel USA's North Atlantic Division, joined the company in 2007. Coming from a naval logistics background where they rely heavily on the numbers to tell the story, Dawson saw a few operational areas that did not appear on daily or shift-activity reports. As Dawson notes, “You can't manage what you can't measure.” By beefing up the benchmark metrics to include these areas, it proved a high-quality reporting tool for productivity and inefficiencies on picking and putting away stock, avoiding damage or injury and a host of other concerns.
Comparison between current and past performance provides part of the picture you need to assess your operations and having that information at a minimum is very important, Dawson says. “We won't know if we're in great shape or not until we see the benchmarking reports,” he adds.
Establishing acceptable tolerances so the department managers can monitor their performance results compared to KPI tolerance ranges is the next step. Results outside of those ranges would indicate an improvement or a drop in performance. Department managers are held accountable for matching performance objectives with KPIs under their control.
Lean Thinking came from Lean Production methods popularized by Toyota in its ground-breaking work on improving productivity and quality with reduced cost. The Lean methodology appears popular today, with its focus on continuous improvement, efficient work flows and value added.
Horizon Solutions Inc., Rochester, N.Y., a distributor with eight branches located in the Northeast, was originally ISO certified because this quality methodology at that time suited their needs and complemented their industrial supplier relationships. However, they found over time that the ISO methodology was not the right fit for them because Horizon's company culture is about challenging themselves to discover the best way to achieve projects or meet customer requirements. They started off looking at several well-known methodologies including Deming (Total Quality Management), Lean, ISO and others but, according to Don Harrington, senior vice president of information systems and inventory management, and Karen Baker, senior vice president of operations and industrial sales, the best solution was their own solution. “We cherry-picked the best of each of those to create our company quality methodology, ‘Continuous Improvement with Customer First Focus,’” they said.
Horizon is using the SX Enterprise ERP system which plays an important role in providing daily reporting and alerts when changes reach a warning level. Branch managers receive daily reports on inventory, on-time deliveries, pricing margins, and freight. Another way Horizon ensures continuous improvement is by empowering all employees to drive those improvements and making it easy for them to contribute. Employees are encouraged to use the company portal to submit improvement ideas or identify problems. These ideas are researched and final solutions are developed by Horizon's “Process Improvement Team” — a quality team made up of a few managers and non-management staff from the key functional groups in the company. “Everything we do is about providing improved services and value to our customers,” Baker says.
ERP Software Designed for Operation Quality
Several ERP software providers with the assistance of their user groups are developing industry standards for KPIs to be embedded in their software. Once the ERP system contains the distributors' key performance tolerance ranges compared to industry standard KPI ranges plus the addition of their own ERP event-driven time-stamped data, then electronic benchmark score-carding and trending are fully automated for corporate governance of quality processes.
Distributors are enjoying the benefits of their ERP systems' real-time operational tools, which improve transactional process quality by preventing errors, improving services and engaging employees in the company-wide mission to provide high-quality customer service. But there is still more that can be gained by deeper analysis of data to include cross-functional reporting. Technology continues to deliver, but no matter how experienced or how efficient your team may be, more improvements are always possible. That's what continuous improvement is all about.
Beth Badrakhan is a data consultant with 35 years of experience in the electrical industry. She has worked with U.S. and Canadian manufacturers, distributors and contractors on data content, quality, life-cycle, integration and standards. She was formerly employed by IDEA as IDW Data Manager for nine years. She also has worked for two electrical distributors and the service provider Trade Service Corp. for seventeen years in data operations and administration. She can be reached at [email protected].