By Ron Ketterling
Have you ever wished that your computer system could just tell you what you need to know, when you need to know it? This issue has been on my mind frequently for the last couple of years.
Computers promise us all the data we need to make decisions on a timely basis. Do you believe that to be true? If you are like me, you don’t. We all have more data than we know what to do with. Too many times reports just flood us with unnecessary information that obscures what we really need to see.
So why the disconnect? There are many reasons. We won’t go into all of them, but consider these. Programmers, who have only a vague idea of what you need to see, write most computer software. For example, do you really want to see 150 pages of an accounts receivable report? You probably want to see one of two things:
1) Are my customers paying on a timely basis?
2) Who owes me money and is late on paying?
Alternatively, let’s consider an inventory report. You probably want to see the total value of your inventory. You could print the whole inventory valuation report – or you could have a dashboard that shows the total dollars, but also ages the value so that you see the value of inventory that is new, aged a little and ancient – a better tool to evaluate your inventory position. On the other hand, perhaps you want to see the split between raw materials, components and finished goods. A simple dashboard gives you this at a glance.
Computers are good at spitting out data based reports. They have not been as good at distilling data into actionable information that alerts you to up-coming problems. As a result, there has been a great deal of industry talk and development around Dashboards and Business Intelligence of late. These products are the software industry’s attempts to respond to the dearth of actionable information.
How does this affect you? Well, that’s why I am writing this article. Think about driving your car for a moment. Do you need to know how many ounces of gasoline are in your tank? You probably don’t care. You have a gas gauge that tells you the general status of your gas supply. In addition, you probably have a light that comes on when you are down to the last two gallons. If that’s not enough, an electronic sound chimes at the same time. Why the light and a sound? You have a gas gauge. Shouldn’t that be enough? You know the answer. We get busy. We are thinking about something else. (Oh, we are focused on driving, aren’t we?) We need a reminder so we don’t get stranded. Software Dashboards fill a similar need.
Consider our Accounts Receivable illustration. You have an Aged AR report – sort of like knowing how many ounces of gas are in your tank. In addition, you probably have an overdue report – similar to your gas gauge. However, hundreds or thousands of individual invoices make up your receivables total; and, each one is approaching an early pay discount date or a due date (or more frustrating, long past a due date). That is the first sign that you may have a problem. Perhaps the customer’s average days to pay is 10, to take advantage of your early pay discount. What would the impact be if your business system notified your collections or sales staff when an invoice went past the customer’s average days to pay threshold? This might be a 20-day jump on a potential problem. Perhaps there is a problem with that invoice. Do you want someone to act to determine if there is an issue? Probably not, if it is a small invoice, but you may want someone to take action if it is a larger invoice. Consider this as an example of a production type alert or dashboard.
Taking that a step further, how about an AR Management Dashboard? You know what numbers the bank or your CEO wants for total dollars and aged AR. If your accounting manager, controller or CFO has a dashboard that displays just those numbers, he or she will quickly spot positive or negative trends without running and analyzing several reports. Generally, what happens is that you need more information and by the time you know it, the baseline has changed and you have to rerun all the reports so they have the same starting point. With a Dashboard, all it takes is a quick glance – or an email when something exceeds a threshold – and action can start.
Okay, what about top management? Here is where we need the flashing light. These AR numbers probably should not be on the CEO’s dashboard (there are too many other areas of concern). However, if a problem starts appearing, it might be appropriate to have an advance warning before a small grass fire turns into a raging forest fire.
So, why a Dashboard? Because, it is the one place to get an instant view of your business health, just as your car’s dashboard provides you an up-to-date view of your car’s status. It isn’t the only source of information, but it provides you status updates on the critical components your ERP or CRM system can measure. Can it tell you if your engineering department is having a problem with a new product design? Theoretically, yes. Practically, probably not. Will it tell you the maintenance status of the forklift in your warehouse? It could, but first, let’s focus on the things that are immediately measurable within your ERP or CRM system.
Short List – I don’t know what is important to you, but here are a few things that others have told me are important to them.
- Age – what products am I holding that are getting old; close to expiry dates?
- Too much – what products am I holding that I have more than ** weeks (you supply the number based on the product, lead-time, minimum order, etc.) supply when comparing on-hand to regular sales?
- Too little – what products am I holding that I have less than ** weeks (you supply the number based on the product, lead time, minimum order, etc.) supply when comparing on-hand to regular sales; or I promised a customer X quantity on hand at all times?
- Total valuation – too high or low
- Category valuation – too high or low
- Margin – too low (or high – yes, margin can be too high – you might be losing sales)?
- On-time shipments – shipping too soon (delayed cash flow), shipping too late (customer dissatisfaction)?
- What’s selling – what categories or products are headed up in dollars, units or both?
- What’s not selling – what categories or products are decreasing in dollars, units or both
- Who is buying – whose sales are headed up; which categories are headed up (down)?
- Who is not buying – whose sales are headed down; what categories are headed down (or up)?
- Cost changes – too high or low (too low – is quality deteriorating, buying aged product, buying something else that will sit on the shelf)?
- On-time shipments – shipping too soon (impaired cash flow), shipping too late (customer dissatisfaction)?
- Order size – too big or too small?
- Vendor purchase changes – category, items or total – what is the impact on vendor contracts or relationships? Is there a problem with a buyer, a salesperson, a customer or the vendor?
- Whose inventory matches targets –training for purchasing, more visibility of “right level” of inventory, too many products or relationships to manage well?
- What do I need to buy?
Sales & Marketing staff
- Activity level by salesperson – too little, not properly balanced.
- Pipeline – too small, too big (not properly qualified or big surge in business coming), too far out?
- Prospects – not enough, not balanced, too many (can’t follow up on all of them)?
- Lead analysis – status of leads?
Generic Dashboards can give you a general idea of what someone else considers important – but this is all about you. What is important to you? Lean experts stress having a one “page” Dashboard. Too many “gauges” and you lose focus. Too few and you do not get a good handle on your business. Moreover, you probably have realized by now that each person or department in your company may need a different dashboard. A Dashboard must be specific to the person’s task. The Dashboard should tell its user what is the most critical or important task that may otherwise be overlooked.
The Real Kicker is that all of this information may be available in your current system. You just have to run a dozen reports, retype it into Excel, develop your pivot tables and graphs and analyze the data. Oh, and then redo it every day. Not fun, not quick, not practical.
However, that points out what is necessary. You and your management team know what is important for your business. (You can recognize it by your CFO saying, “I can get that put together, I’ll have it for you next week.) Spend the time to categorize, distill, discard. Then, keep what’s left and use that as your starting point. Many times, you will find that what you thought was the source of the problem really is not. Finding the source(s) of the problem is critical if you want to solve the problem.
There is an old saying that, as I translate it, says, “The urgent will always make itself known, the important lies quietly waiting to be done until it either is no longer important or it becomes urgent. The wise man or woman deals with the important before it becomes urgent.” Ask yourself, “If the building were on fire (and I didn’t have an offsite backup) and I could grab only one report, which would I grab, Accounts Payable, Accounts Receivable or the Inventory Valuation Report?” Not a good choice – but we all make similar choices every day. Payables clamor for attention, Receivables lie quietly waiting for you to follow up.
Free Analysis – Dashboards bring the important into view so that you can deal with it on a timely basis. If you would like to have a conversation regarding your own Dashboard, we have a free analysis we can provide you, so give us a call at 877-571-8580 or 763-571-8580, send us a message or click here to register for a free consultation. We look forward to talking to you soon.