Numbers matter in manufacturing. They determine your costs and your revenue. They are the foundation of algorithms that move your machines and measure your products to the most precise degree. The data at the heart of manufacturing can determine just how far forward the innovations of the industry can stretch.
But, what do you do with it? What can it help you accomplish? Why incorporate data analytics into your day-to-day operations and your overall growth strategy?
Many of our manufacturing clients are looking to this emerging technology as an essential part of everything that will drive their business in the next decade. We connected with two data analytics experts to understand the value proposition for companies of all sizes and scope.
- Ben Smith is a senior manager of consulting with Clayton & McKervey. Most knowledgeable about the financial side of business management, Smith views analytics as one of the best ways to analyze and anticipate future needs — joining intuition with reasoned data.
- George Singos is the Industry 4.0 Business Leader Advisor for the Michigan Manufacturing Technology Center (MMTC). With more than 30 years of manufacturing experience across various capacities, Singos sees manufacturing data as the story behind a company’s success.
Data Analytics — Does it Even Matter?
Clayton & McKervey: Let’s start with the big question first. Why should data analytics even matter to manufacturers?
Ben Smith: Well, I’ll start with the disclaimer that most of our clients are in the middle to lower middle market, so the conversations I’ve had generally come from that space within the industry. Unfortunately, many business owners don’t always see the value of data analytics at first, and that tends to be the first problem.
George Singos: I see the same thing in many of my early conversations.
Smith: Yeah, a lot of executives aren’t employing a very rigorous data analytics program and that matters for a lot of reasons.
Singos: Intuition and decision making.
Smith: Exactly, George. Small business owners make a lot of their decisions based on intuition and their “gut instinct” and while that definitely is an important trait of entrepreneurs, it can lead to very costly decisions if those instincts are based on bad assumptions. Data isn’t necessarily there to make a decision, but when you use it as a foundation to inform your decision-making, data can help you make better decisions. It also helps against the common mistake that you can make a future decision based on past experiences.
C&M: How so?
Smith: The world is changing faster and faster. While past experience is an incredible guide, what worked for a business in 1950, 1980, 2010, or even 2019 may not work in 2021 and, if it does, it may no longer be the best business strategy. Data analytics can look at new trends and the underlying meaning behind them. You combine that knowledge with the experience and gut instinct of an effective leader and that creates…I don’t know what the best term is…
Singos: An opportunity to reach your full potential?
Smith: Exactly. Data can turn a bad decision into a good decision and a good decision into a moment you can look back at and point to as a game-changing moment for your business.
C&M: George, in your own conversations with clients at The Center, do you underscore the importance of data for manufacturing?
Singos: Absolutely. Usually those conversations pretty quickly highlight a common flaw in manufacturers’ use of data.
C&M: Which is?
Singos: They don’t know what they have when it comes to data. Ben was 100% right about how data can push you to your best possible decision-making, but you also have to use your data to its fullest potential.
C&M: How so?
Singos: Most clients of The Center have around 50-250 employees, which means they are doing what they can with data but they may lack the staff or time resources to get the most out of it. Many times, I’ll see clients that don’t use their ERP system (Enterprise Resource Management) properly. They’ll use it for accounting and purchasing, but there are huge gaps.
Smith: How do you get them to use it more effectively? We see the same problem with some of our first-time clients.
Singos: The way we approach it is to say “okay, how do we get exposure transparency to where you can see that you aren’t using data properly?” We set up data analytics that will help them improve their processes and understand what their capacity truly is. It’s all about putting them on a structured path, using tools they already have to their fullest potential or providing them access to new tools, where they can get where they want to go faster and more effectively.
Taking the First Step (and Why You Should)
C&M: What does Day 1 with The Center look like? How do those first conversations with a client happen?
Singos: Typically, we start with an on-location assessment. This can usually last a few hours depending on the size and scope of the company. The assessment has qualitative and quantitative components. We’ll tour the facility and sit down with the leadership and their managers to get a sense of what they need. We look at their systems and we try and separate the voice of business from the systems and technology. If, in the voice of your business, it’s determined you should go down a path but your systems are broken, all the technology in the world may not help you get there. If you have a direction, a voice of business, and your systems are good, it’s easier for us to recommend specific areas along the path where you can implement something and achieve greater efficiency.
Smith: So even if they are using 1940s systems, the fact they have good systems in place is a step in the right direction.
Singos: Exactly — it’s a small step, sometimes a very small step, but progress is still progress. It really is first about understanding what is already there. Does a client have good systems, outdated systems, poor systems, no systems? That’s what we want to know. You see it too often where a client wants to do X, Y, or Z and you have to hold up your hands and say “okay, good, good, but you barely have a foundation in place, let’s work on crawling and walking before you run.”
Smith: Every business owner has moments where they think they can go farther than they can. It’s about setting them up for success. Give them the processes and the knowledge — the data — first and then they are more likely to achieve the success they want.
C&M: Ben, are you seeing manufacturers open to what data and analytics can offer their business? Is data analytics changing manufacturing in 2021?
Smith: Yeah, I see manufacturers make inventory buys and things like that based on looking at the past year or two and then they’ll make a gut instinct decision for the next year’s needs. Data gives business owners more information at their fingertips, which drives decision-making a little less on the intuition side and more from a reasoned review of what’s currently happening in their business.
Singos: You really do want to get your clients to have that “aha!” moment when it comes to data. The realization of what they could get out of data that was previously just sitting in a spreadsheet or program somewhere — again, when they see the potential for it, that’s what wakes them up to start really using analytics.
Looking to the Future and Advice for the Data Analytics Novice
C&M: George, do you have any predictions for what data analytics can do for manufacturing over the next decade?
Singos: Here’s my prediction. Those that adopt data and information will consume those that don’t.
Smith: I love that.
Singos: Well, you know it’s true. I’m sure you’ve seen it plenty with clients at Clayton & McKervey. The more data you have access to throughout the decision-making process, the more educated those decisions become. It’s the combination between good data and a natural gut instinct that separates being among a pack and leading the pack. If you’re a manufacturer in 2021, the last thing you want is to be fighting over leftovers.
C&M: Leftovers?
Singos: The last few clients. The last business into a market. The last to adopt a new technology. The last to implement a process. The difference between being #1 and being #2 can be one big decision or a dozen small, seemingly insignificant decisions. Good data and smart decision-making allow you to be the first to react to new trends or overcome an obstacle.
C&M: Ben, your thoughts?
Smith: I certainly agree with what George said. I think in the future there are going to be people who use data and those who don’t. And I think we’ll see a lot of that within manufacturing’s middle market. The typical data analytics progression starts with middle market business leaders dipping their toes in the water, getting their hands around descriptive analytics, surrounding themselves with people that understand it who can help paint a picture for them about what this data means. Once you start making predictions based on the data, saying “you know, we should really be doing X or Y” and having sound reasoning to back up your natural instincts, you are on the right track.
Singos: Not just to make good decisions, but also to read where your business shouldn’t go.
Smith: Right. Data analytics can just as much pull you back from making poor decisions or making those decisions that may look smart in the short-term but pose long-term problems.
C&M: Are your clients “aha!” moments always obvious and memorable?
Smith: No, a lot of times these moments are much more subtle. They happen over time, maybe a lot of conversations, just kind of carving away any biases or negative assumptions about “data” and realizing the benefits it can bring.
Singos: You have to show them what’s possible. Every entrepreneur is willing to try something if he or she can see the benefit behind it. Business owners are natural risktakers.
Smith: Absolutely. I’ve had plenty of moments where we just help a client to see it. We put it in their hands.
C&M: How so?
Smith: I mean that literally, like we get it so they can access basic financial details and KPIs on a mobile device. When they can pull up data while making breakfast or heading to the car at the end of the day, the data becomes more accessible and they are more inclined to glance at it before finalizing a big decision. It just starts to become part of the process for them. Once they start using that information to make decisions, that’s when the “aha!” moments happen — the light goes off and they say “oh, I get it now.”
Singos: As the financial guy, do you have any ratios you recommend small companies use to help give them an indication that they are on the right path?
Smith: It depends on the industry, but I think the key ones to watch are current ratio, your debt to equity, and some measure of profitability. That at least gives you some indication or compartmentalized look at the big financial components. That can help with understanding cash flow and other aspects of the business.
Potential Missteps in Data Strategy
C&M: What about the opposite side? Can a business be too dependent on data and kind of go too far to that side?
Smith: I don’t know that I’ve seen that yet. I say yet, because who knows what’s down the road, but I think we’re still in a place largely where the problem for data is a lack of awareness, not an over usage. I think where things can go wrong is when people have that tendency to start running calculations and tracking KPIs without having clear data definitions. Numbers can say a lot and the same numbers can say different things, so you can have instances where an accounting team is defining some piece of data in very different terms than what the owner might think of it as. Making sure those things are aligned from top to bottom in an organization is important. Misunderstandings can cause things to go off the rails quickly.
Singos: I like what you touched on there about numbers saying different things. That may be where the negatives can come in. We have plenty of clients that have boatloads of data and don’t know what it means or have two different departments looking at it two different ways. It’s like the stock market. You can have a stock go up a half percent every day for 30 days and fall 30% on Day 31. Good side, the stock increased 30 out of 31 days. Bad side, the stock fell 15% in a month. You need to have both the ability to accumulate data and the ability to analyze it and understand the story its telling.
C&M: How important is having regular internal conversations about data to that? To avoiding misunderstandings around data.
Singos: It’s critical. What we usually do is develop a deployment process with the management team. There are specific metrics being looked at and a big part of the implementation process is having conversations with mid-level staff and making sure they know what their contributions are to the overall goals of the organization. What does Bob or Sally’s day-to-day work, positive or negative, lead to in the overall scope of what Company ABC is doing? Linking individual and department goals to overall business objectives is huge for keeping everything moving in one direction. And the more you can have metrics and data analysis in place, the quicker you can react to any obstacles that arise.
Smith: Your team doesn’t have to spend extra time trying to figure out how a problem happened or how to locate it — if you are using data correctly, there are already measurables in place. You just have to pull the data and you can get right into problem solving. George used the stock market metaphor so I’m going to use a metaphor now too. It’s like being a ship at sea. You’ve set your direction, identified your goals, and know your destination. Data can help with the little corrections that keep you on course. It can act as your North Star in a lot of ways. It can’t do everything for you, but if you set yourself up with the right team and have the right products or services in place, data can help you reach your goals faster.
Final Advice (and where you go from here)
C&M: Let’s end this conversation with some advice from the experts. What advice would you give to a small manufacturer trying, maybe for the first time, to incorporate data analytics into their business? Ben?
Smith: I think it’s a combination of things. Especially on the financial end, the ERP side of things, there’s a lot of structured data that you have at your fingertips and I think just understanding that is important. You already have information available to help do business better; it’s just a matter of locating it, accessing it, and interpreting it. Look to widen the options for using data that is already available to you. You don’t have to necessarily reinvent the wheel or start from scratch — maybe you just need help finding it. That’s a less costly jumping off point.
C&M: George?
Singos: Let’s separate information technology from operation technology. OT is a lot more manufacturing, censoring, connectivity. Figure out who will lead the charge. Is it the IT person, the CFO, someone else? Visualize who will do what and then develop a plan, but take it in small steps. Don’t view data as a be-all, end-all strategy that will solve all your problems on Day 1. It’s like anything else you do in manufacturing; it doesn’t happen all at once. You have to work at it, you have to make it work for you, and you have to get your whole team on board. That can take time. And for succession planning purposes, if you can avoid having all the knowledge on data analytics live with one person, avoid it. You don’t want to put all the time and energy into developing a winning data analytics strategy only to lose it all if one person suddenly leaves the team.
C&M: George, Ben, thank you both for taking the time to sit down and discuss data analytics with our readers. We’ll include more details on both The Center and Clayton & McKervey’s efforts as well as links to related articles and content.
Clayton & McKervey
We’re a full-service public accounting firm specializing in tax, assurance, accounting and consulting services for growth-driven businesses like you. If you’re a middle-market company competing in the global marketplace, we should talk. Our clients are entrepreneurs headquartered here in the U.S. and abroad. While we’re located in Michigan, we proudly work with owners from all corners of the world.
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Michigan Manufacturing Technology Center (The Center)
The Center offers personalized consulting services that enable Michigan manufacturers to operate smarter, compete and prosper. They develop more effective business leaders, drive product and process innovation, assist with navigating through governmental and industry regulations, promote company-wide operational excellence and foster creative strategies for business growth and greater profitability. The Center works tirelessly on behalf of Michigan manufacturers, finding the right solutions for every situation, every time.
