Private Investment Criteria For Manufacturing Businesses

INTRODUCTION
Most manufacturing businesses tend to operate with the aim to achieve one or more strategic objectives.  These are the targets that the business will set itself to achieve within a specified time.  For example to increase sales by 50% over the next 3 years.  Whilst many businesses will be looking to sustain or grow their business, other businesses will plan for an exit strategy to sell the business.

Business investors will start by looking at the financials of the business such as balance sheets and EBITDA (finance metric used to indicate profitability of a business).  Beyond this however, there are a range of investment criteria that a potential investor will want to understand in order to ascertain the current position of the business and future business potential.

CASH IN BUSINESS
Cash is the lifeblood of a business.  A lack of cash within a manufacturing business will cause severe operational problems for the business.  A company with a high stock value may experience a shortage of cash due to the time it takes to convert the stock back into cash.  A symptom lack of cash may mean that the business is not be able to pay its bills from suppliers, staff wages, VAT and so the list goes on.  The knock on effect of a lack of cash will start to impact the business through delays from suppliers, production delays and ultimately delays to customer delivery which in turn will have a negative effect on future sales due to unhappy customers.      

SALES & PROFIT
An investor will want to look at current sales performance of the business and compare this with previous years to see whether or not business turnover has grown, stayed the same or reduced.  More important than sales is the level of profit achieved on sales.  Profit can be compared with cash flow to indicate how well a business is turning its revenue into profit. For example a business may have good sales revenue figures but the time taken to convert this sales revenue into profit due to long delays to customers means a delay in cash coming back into the business.

COMPANY ASSETS
Manufacturing businesses often tend to have large asset values due to the large capital value of property and equipment that the business uses to produce its goods.  Investors will be keen to learn what assets a business has, the condition and value of these assets and how the business uses these assets to meet its customers requirements.  For example a business may be struggling for cash yet have asset value tied up in machinery which is under used or not used at all which could be generating additional production income or simply be sold to provide a vital business cash injection.

BUSINESS GROWTH
Businesses and the market places that they operate in are continuously in  a state of flux due to a range of factors beyond their control such as direct competition, foreign exchange rates, new technology, global supply and demand, economic upturns and downturns, commodity prices to name just a few.  A business investor will want to understand current performance, previous performance and potential for future performance.  Manufacturing has been hit particularly hard since the global economic crash in 2008 with some businesses going out of business.  Those businesses which have survived have started to see an upturn as the economy improves.  More recently in 2015 the rapid decline of the oil price has meant huge layoffs and big economic woes for many businesses.  An investor will look at all these factors to understand their investment risk exposure.

BUSINESS TEAM
Businesses work with many different people starting with the team of employees who keep the business moving.  They will also work with a portfolio of customers who order goods and services from the business.  Finally there will also be external suppliers and stakeholders to the business.   Ensuring the right team of people are involved, engaged and aligned with the business vision, mission and values is critical to the future success of the business.

SUMMARY
Whilst there are many performance metrics and KPIs which are used for measuring individual areas of manufacturing performance, a potential business investor will be able to make an informed judgement call on a business and its corresponding valuation based on the above 5 performance factors.

An ideal business investment opportunity will be able to demonstrate a healthy cash flow and sustainable sales growth with a sufficient level of profit backed up by an experienced workforce who can drive the business forward.

A poor investment opportunity will likely have poor cash flow due to a combination of business debts and poor sales performance.  Other off putting factors may include a requirement for significant capital investment in infrastructure and new assets to support the business into the future.  Also the team may be unfit for purpose requiring a restructure, additional training and investment.

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What are KPIs and why are they so important to facilitate effective business decision making ?

Sales Performance KPIs

Sales Performance KPIs

Key Performance Indicators or KPIs as they are commonly referred to, are measurements of individual business performance metrics.  For example all businesses will want to have an up to date view of the level of sales intake and overall sales order book value.

KPIs can be generated for any performance metric that you can think of.  For example suppose a business has a sales team of 10 sales execs.  As part of the sales strategy to grow the business, you ask the sales team to undertake regular sales prospecting (10 new prospects each per week).  You could then create a KPI to measure how many prospects have actually been contacted versus the target.

Using a combination of KPIs will also allow businesses great insight into business performance issues which may exist.  For example you may see that the sales order intake KPI is below target for yet when you check the prospecting KPI you see that only half of the sales team are actually carrying out the prospecting resulting in a short fall of new business.  The point is that if you don’t capture the information in the first instance then you cannot take corrective action.

So What KPIs Should Your Business Capture?

The answer to this really depends on your business and what you provide.  For example if you are a hotel then you would want to closely monitor the room occupancy levels.  A restaurant would want to keep close tabs on the number of covers and the sales of each dish.   A car dealership will likely want to now how many cars they have sold.  In addition they may have a target for the sale of extended warranties for example.

We have worked in a range of different manufacturing businesses giving us strong commercial awareness.  Here is a list of common KPIs for different functions within a manufacturing business:

Sales

  • Opportunity Pipeline Summary
  • Quote conversion ratio
  • Sales order intake (current month) & (year to date) vs Sales Budget + variation
  • Order book value
  • Order arrears
  • Sales by product group
  • Sales by customer
  • Sales by country
  • Profit margin analysis

Purchasing

  • PO Value Raised (current month) & (year to date)
  • Purchase order book value
  • Purchase order book arrears value
  • Purchase order book goods received not invoiced value
  • Summary of purchase values by product group
  • Summary of purchase values by supplier

Production

  • Work in Progress (WIP) Value
  • Completed Stock Value
  • Number of Pending Work Orders
  • Qty of Work Orders in Arrears
  • Value of stock added to WIP
  • Value of labour cost added to WIP
  • Value of Subcontract cost added to WIP
  • Summary of Time Bookings by job
  • Summary of Time Bookings by employee
  • Summary of non charge time bookings
  • Costs of completed work orders vs Sales Price (actual vs planned)
  • Number of accidents (current month) & (year to date)
  • Employee Absence Ratio

Stock Control

  • Overall Stock value
  • Value of Goods Received into Stock
  • Value of Goods Shipped to customers
  • Value of stock written off
  • Stock value by product group
  • Stock value by location
  • Stock value by supplier
  • Allocated stock value

Quality Control

  • Customer delivery performance (ontime vs late % ratio)
  • Customer rejects qty and value
  • Supplier delivery performance (ontime vs late % ratio)
  • Supplier rejects qty and value
  • Internal quality – scrap qty / cost
  • Internal quality – rework qty / cost
  • Internal quality – delivery performance (ontime vs late % ratio)

Finance

  • Invoiced value (current month) & (year to date)
  • Credit notes qty and value (current month) & (year to date)
  • Sales budget vs forecast analysis
  • Order intake vs value shipped ratio
  • Allocated stock value

How Do I Capture These KPIs Automatically?

Business Intelligence Reports can provide automated business reporting that will generate KPIs either individually or within a custom dashboard which contains multiple related KPIs.  For example a sales dashboard, production dashboard or quality dashboard.  Providing the underlying information is available within the database then we can help.

So What Are The Benefits of KPI Business Intelligence Insight ?

Commercial Benefits of Business Intelligence Solutions

Commercial Benefits of Business Intelligence Solutions

Hopefully this post clears up some of the ambiguity around what KPIs are and how they are used.  For more information around KPI reporting and BI dashboard development please call 0800 8044 310.  Alternatively request a FREE BI consultation for your business.

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MRP Software vs ERP Software – What is the Difference?

MRP Software vs ERP Software

MRP Software vs ERP Software

Often when we speak to businesses who are considering upgrading their computer systems, they are looking at a combination of different computer software systems including MRP software and ERP software systems.  From these conversations over a period of time we have come to realise that many businesses still do not fully understand what the differences are between these different business software products.

What is Material Requirements Planning (MRP) Software?

Material Requirements Planning or MRP as it is often referred to, is a manufacturing production planning, production scheduling and stock control system used to manage manufacturing business processes.  For any MRP software there are three main objectives which need to be met:

  1. To make sure sufficient stock and materials are available for manufacturing of products and products are available for delivery to customers.
  2. Maintain optimal stock levels so that cash is kept in the business rather than being tide up in slow moving stock located on the shelf.
  3. Planning tool for manufacturing activities, customer delivery schedules and supplier purchasing activity.
Business Intelligence Services by BI Reports Lancashire

Business Intelligence Services by BI Reports Lancashire

What Functionality Does MRP Cover?

MRP usually covers the end to end process of a manufacturing business and all of the various functions which exist including:

  • Prospects / Customers
  • Estimating / Quoting
  • Customer Sales
  • Supplier Purchasing
  • Stock Control
  • Manufacturing Production
  • Quality Management
  • Customer Delivery
  • Finance (Invoices)
  • After Sales

One of big selling points for MRP is in the ability to automate key business functions around purchasing and production.  MRP is a demand driven software system.  By raising sales orders, work orders and purchase orders, the MRP system will be able to make suggestions as to shortfalls in stock levels required to support planned levels of manufacturing and customer sales.

For MRP to function correctly it is critical that the integrity of key system data is maintained.  Here are some of the key data which drives an MRP system:

  • Stock levels
  • Bills of material
  • Manufacturing routes
  • Purchase orders
  • Sales orders

For example if stock levels are not correct we may be ordering stock from suppliers we don’t need resulting in overstocking and cash flow issues in extreme circumstances.

Business Intelligence Reports BI Report Development Services

Who Uses MRP Software?

Generally speaking MRP software is used by small to medium sized manufacturing businesses.  MRP software systems tend to be limited to managing the business activities of a single business.  They are normally sold on a per user basis.  For example £1,000 per user * 16 users = £16,000.  Often the  software will be modular with different modules included as standard whereas others will be an additional cost.

In addition to the software costs, there will normally be additional costs incurred for any required hardware such as servers, database software, backup solutions, shop floor data capture etc.  Also there will normally be a cost associated with the implementation of the software managed by a project manager who will assist with training of staff and system acceptance.

What is Enterprise Resource Planning (ERP) Software?

Enterprise Resource Planning or ERP as it is often referred to, has many similarities of MRP software in that it is used for managing end to end business process of a manufacturing business although this functionality tends to be much more fully featured and customisable.  Historically ERP was only used in large sized manufacturing businnesses with multi million pound turnovers although more recently smaller manufacturers are starting to move over to ERP software.  ERP tends to be a progressive upgrade solution where a company has outgrown the capabilities of its existing MRP system due to business growth and complexity.

Manufacturing Software for Manufacturing Businesses including MRP Software and ERP Software

Manufacturing Software for Manufacturing Businesses including MRP Software and ERP Software

What is the Main Difference Between MRP and ERP Software?

One of the key differences between MRP and ERP is that MRP can normally only manage one single business whereas ERP can handle multiple companies within a large corporate group to give group wide visibility of company performance.

The benefits of ERP tend to be that the functionality which is available is much more comprehensive and fully featured.  Often a key requirement for many businesses upgrading to ERP is EDI or electronic data interchange.  EDI is a set of communication protocols that allows separate computer systems to exchange data.  For example if you were a supplier to Rolls Royce then you would normally download the Rolls Royce schedule weekly report via the Exostar EDI software interface.

Due to the associated complexities with ERP software together with the advanced functionality which is available within the software, ERP software costs do tend to be higher than those associated with MRP software.

Business Reporting Capabilities by Business Intelligence Reports

Business Reporting Capabilities by Business Intelligence Reports

MRP Software Limitations

At Business Intelligence Reports one of the main MRP software solutions we have worked with previously is FactoryMaster MRP Software.  Whilst the core functionality available within the software was adequate, the main limitations we found with the software over time was in the lack of ability to customise the software and more importantly the business reporting that the software generates.

We have undertaken a significant period of business report development to develop a bespoke suite of business reporting solutions to extend the reporting capabilities of the FactoryMaster MRP software.

Business Software Consultancy Services by Business Intelligence Reports

Business Software Consultancy Services by Business Intelligence Reports

ERP Software Consultancy

Business Intelligence Reports can provide a business software consultancy service for manufacturing businesses who are considering upgrading their existing software systems. To request your business software consultation please call 0800 8044 310.  Alternatively you can  request a business software consultation through our website.

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Lancashire Business Expo 2015

Lancashire Business Expo 2015

Lancashire Business Expo 2015

Business Intelligence Reports are registered to attend the Lancashire Business Expo 2015.

The biggest business exhibition to be held in Lancashire is to be hosted at Preston Guild Hall on Friday 17th April 2015.

Lancashire has a thriving business community offering an extremely diverse range of products and services. The Lancashire Business Expo aims to create a unique platform for hundreds of local business owners and decision makers to come together to network, build relationships, do business together and raise their profile within the region.

There will be a dynamic mix of organisations exhibiting, from blue chip companies to educational establishments and other public sector organisations, professional service providers and a whole range of SMEs from a variety of industry sectors.

Visitors to the Expo will have the opportunity to meet exhibitors, attend workshops and network with other attendees. The business focused workshop sessions will take place throughout the day and be led by inspiring Lancashire organisations, with themes based around business support, funding for business, key developments in the region and how these may impact on your business and much, much more.

Don’t miss your chance to attend what promises to be a tremendously successful business event for a flourishing region.

For more information on this event please visit the official website: http://www.lbe2015.co.uk

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Let Business Intelligence Reports Help You to Bridge The Gaps In Your Business Reporting

Bridge the Business Reporting Gap with Business Intelligence Reports

Bridge the Business Reporting Gap with Business Intelligence Reports

All businesses regardless of industry face the same day to day challenges required to monitor business performance and make correct business decisions.  To quote Benjamin Franklin, “If you fail to plan, you are planning to fail!”.  In order to make these decisions managers and directors of businesses often rely on the data provided from the various reporting tools in use by various departments within the business.  Ensuring that this data is produced in a timely manner and that the data is accurate is often a challenge for a lot of companies due to the knife and fork manipulation of data that often takes place in Excel.

Whilst operating in this way by manually manipulating data in Excel this is far from ideal, sometimes it is the only available option so businesses are forced into inefficient ways of working due to the limitations of the computer systems they are using and the reporting that is available.  This is fine when the data is actually available in some form or another.

However what do you do when you have business questions that you want to answer but have no data available to answer them?  Here are some typical questions that we often pose to managers and directors of businesses to understand what the current reporting challenges are that exist within the business:

Q: Are you happy with the information provided in your existing business reports?
Q: Are you frustrated with the lack of easy access to critical business information?
Q: Do you have business questions that you want to ask but cannot get the answers?

These questions often provoke a lot of discussion around problems which exist within the business with regard to the reporting that is currently available.  Often businesses are aware of this, the problem they have is that they do not have the resource capability or availability to manage this.

Business Intelligence Reports BI Report Development Services

Business Intelligence Reports BI Report Development Services

This is where Business Intelligence Reports can help.  Our business intelligence consultants have considerable experience of working within the I.T. and manufacturing sectors.  We have extensive knowledge of I.T. business hardware and business software.  In addition we have strong commercial awareness of the end to end business processes required to identify the reporting gaps that exist.

Our BI development team work closely with our clients to develop business reporting solutions which bridge the reporting gaps that exist.  By bridging the reporting gaps that exist businesses can ensure that they have the information they need when they need it to facilitate sound business decision making.

Here are a selection of commercial benefits which can be achieved through the implementation of business intelligence reporting solutions.

Commercial Benefits of Business Intelligence Solutions

Commercial Benefits of Business Intelligence Solutions

You can  also download a selection of business intelligence case studies which detail real life business intelligence solutions we have provided to businesses to bridge the reporting gap and the benefits these BI solutions have brought to their businesses.
If you would like Business Intelligence Reports to work with your business to help develop your business reporting capabilities to improve your Productivity, Efficiency and Profitability, please call 0800 8044 310.

Alternatively you can request a business consultation via our website:

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