The Bizson Concept Text

THE BIZSON
CONCEPT

“Modelling Control”
Putting Management back in the driver seat

The Bizson Concept :
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SIMRES – BUDRES - PERRES

Introduction:

We, at Bizson, practice since some years what we call “Modelling Control”
whereby we go beyond the concept of time-driven ABC, beyond the classical
“Control”, Management is sitting in the drivers seat.

We even present nowadays the results according to IFRS/IAS valuation and allow
input into “balanced scorecards” as we cover the whole of the company’s
business process.

“The Bizson concept” captures the ongoing experience generating the trends for
the future, taken into account the implemented business strategy.

The model is built “bottom-up” and its algorithms are tested on its accuracy by
using the volume/price data out of a certain period in the past with the effective
accounting results.

It shows the interaction/interconnectivity of the whole business process,
considering impacts out of the decisions installed through the strategy vision.

Global result, customer/product result at EVA level, all based on time-driven ABC,
plant utilisation; cost of quality, head-count/payroll … you name it.

As the model is based on a pyramidal bottom-up approach, from the floor to the
board, fed by all levels, its outcome communicated to all levels, it continuously
updates itself to the utmost of accurateness. The model motivates the
organisation as they feel part of it. They continuously challenge their own input
and performance.

We implement always 3 versions:
- SIMRES: the basic tool, allowing “What If” constructions or proposals
- BUDRES: the budget version used for Budget and Forecast exercises.
- PERRES: the actual and/or the future compared to the Budget/Forecast –
establishing a result close to the accounting result, but far more detailed,
determining all the variances.

Business Solutions Network sa – Rue de Tournai 361 – B7973 Stambruges
BE 0458.767.141 (RPM Tournai)
Tel: +32475/716084 – Fax: +3265/783102 - E-mail: dirk.mostien@bizson.eu

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We deal with the model results trough “management by exception”, when we
analyze the variances, drilling down to the deviations (positive and/or negative).

The model allows:
- quick response / overview (as soon as the month is closed volume wise-
the same or next day) through result generation in extreme detail
- motivation by detailed information throughout the organisation based on
their data about their department or area of responsibility, compared with
their performance
- a tool for management to make quick / calculated / documented
decisions in a various range of issues, threats or opportunities


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SIMRES

Phase 1: Parameterization of the company, of the Business Process.

The pyramidal bottom-up approach catches the knowledge of each responsible
key player in a set of parameters, which we translate afterwards in algorithms
which will calculate the process within his department.

Each department, industrial, logistic, support, sales … describes its part into the
process, whereby distinction clearly is made between processes creating “added
value” and supporting processes, generating “costs”.

The model works within a “time driven ABC” approach on utilisation of time, raw
materials, consumables, energy, headcount…

It indicates the policy on wages, premiums, holidays, absenteeism, shifts,
bonuses, headcount required by machine/process…

In fact, BOW and BOM are captured for product groups/individual products or
services, depending on size and range.

We want to reflect actual behaviour of the business process as it is performed in
an on going way, indicating the space for optimisation.

Seasonality, inventory levels, customer/supplier conditions, credit lines, interest
patterns, efficiencies, downtimes, preventive maintenance schedules, breakdown
statistics, B-grade and waste generation / handling, quality levels … or other
specifics are analyzed and considered.


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Market influences, demand curves, pricings, exchange rate behaviour, customer
credit lines …
The outside factors influencing the companies’ performance are also managed:
Market growth, cost and inflation behaviour, future expansion plans or
divestment issues.

The whole spectre of influencing parameters is gathered, evaluated, discussed in
the climb from floor to board. This approach allows Bizson at the same time to
understand the business, the business process and the market in which it acts.

This effort makes it also easier for the model conception.

The model is made from scratch, based on the company’s specifics but according
a standard methodology, allowing quick progress.


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SIMRES

Phase2: Building the algorithms

The whole process from order over production into inventory, delivery, invoicing
is now described by department in specific algorithms, making the right
equations, considering the transitions from one parameter into another (ex.
Energy consumption based on water heating – from centigrade over joule in Euro
per KG).

Efficiencies, performances, scrap and waste generations, downtimes,
breakdowns, machine occupancy, availability, consumption, mixes, prices and
cost factors … all are taken into account.

The BOW/BOM is respected throughout the process of modelling. Effects of tests,
sampling, and trials are integrated, estimated, individualised.

All algorithms are linked from raw material to product sold, from order to
delivered service, resulting in a P&L statement, Balance sheet and cash flow
(cash generated) review by period.

Special attention towards “interaction / interconnectivity” is given in order to
reflect afterwards the impact of certain decisions on the whole of the process /
business and not only on the considered part. (Ex. A product with negative
contribution is taken out, but it affects throughout the plant since it takes 25 %
of a machines output – you can imagine it is worthwhile considering the global
impact)


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SIMRES

Phase 3: The outcome from the algorithms

The algorithms calculate a multitude of various results / outcome / ratios:
- The contribution, net profit, at EVA level by customer and/or product
- The profitability of each department / production process
- Standard cost generation per product / product family
- Machine occupancy – plant / machine load - feasibility
- Headcount required
- Inventory levels – purchases to commit
- Credit line usage – open debtors – usage of working capital
- Capex effectiveness – effective IRR
- Cost of quality
- Opportunity costs – under utilisation costs
- On time issues – lead time calculations
- Plant mix – plant balance
- Cost of tests, sampling, trials
- P&L statement (departmental / company)
- Balance sheet – Cash generated
- All according to IFRS requirements (latest development)
- Balance scorecards numbers generation
- A variety of ratios on demand
-…

The models allow input and constant adaption of the parameters whereby it
immediately changes each result / ratio.
The model can consider one period or a set of periods (4 trimesters – 2
semesters – 12 months – 5 years).

“What if” is the ultimate tool utilisation!


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SIMRES

Phase 4: Testing the accuracy

The model at first stage is built based on the information given by each
responsible in the pyramidal bottom-up exercise.

Now, we will take an accounting period and build the volume / price / cost units
of that period in the model.
The end result (departmental/company) should be approximate, if this is not the
case than the individual department variance will be analyzed and discussed with
the individuals, whereby the parameters will be adjusted to their fairness and
retested.

We claim that the outcome of the model will only vary by maximum 0.5% on the
company’s bottom line, percentage based on turnover when the accuracy testing
is finalized. (2 to 3 different periods will be analyzed this way in order to have
maximum probability of effectiveness).

THE MODEL IS READY FOR ANY “WHAT IF”.
THE MODEL IS READY TO TEST THE BUDGET STRATEGY.


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BUDRES

Phase 5: Generating the calculated outcome of the Budget Strategy

The model expects the main drivers and targets out of the Budget Strategy to be
build in:
- Product lines – Customers – Market growth – inflation factors
- Pricing strategy – volume forecasts
- New capex – Bank facilities – interest rates / exchange rates behaviour
forecast
- Headcount / payroll / wage agreements / holiday spread / sickness rates
- Efficiency and performance targets by department / machine / product
line
- Throughput – scrap and 2nd grade targets and issues
- Quality and complaints issues
- Preventive maintenance scheduling / impact
- Cost reduction programs
-…

In a going concern situation whereby the “prediction model” is already in place
for a certain period of time, the various parameters get constant updated (see
PERRES), this facilitates and quickens the process of calculation

When the translated Budget parameters are put in place – the model gives
immediately the outcome and the result – the impact on all algorithms as
described in Phase 3 – including the variance against the actual performance.

It is fairly easy now to adjust and fine tune the strategy or review it completely
based on the calculated outcome.

As soon as the budget is finalized, the BUDRES remains unchanged for the rest of
the fiscal, generating also the standards for the transfer between production and
sales, generating the WIP and finished product valuation for inventory purposes.


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PERRES

Phase 6: Generating Management Information at Closing Date

In this phase, we have determined how to get the data (raw data) for the
considered period in a practical way linked to the model.

This retrieved data consists out of volumes and values:
- raw material, additives, consumables consumption in units at an average
cost per unit
- machine hours – man hours
- output of product and stage of completion
- sales volumes by product / customer and the respective unit sales price
- scrap and 2nd grade generation
- returns
- complaints
-…

We have linked from many systems (ERP and other data files) into an Access
database where we make / reduce / group the data, convenient to bring them
into the model.

When the Query feeds the data, the whole Model is immediately calculated,
resulting in the necessary Management Information.

At the same time, besides the result as described in phase 3, a variance
explanation is prepared, evaluating efficiencies, performances, mix impacts, price
impacts …

Afterwards, this information is brought down top to bottom, through the
pyramidal build up, allowing everyone to judge their own performance against
their targets and parameters.
This is the motivating part as everyone feels contributing to a whole seeing his
impact (positive and negative).


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PERRES

Phase 6: Going beyond

Calculating next months result:

In environments where lead times / order books cover 3 to 4 weeks, we even
calculate, predict the outcome of next months result, allowing to make corrective
actions or generating impulses to optimise.

Afterwards, we will measure prediction against actual and see the impact on
looking forward instead of learning from the past.

Data collection is done in this case out of order books, planning tools, planned
deliveries …

WE LEARN FROM TOMORROW – ALLOWING TO ADAPT THE FUTURE

Instant Management Tool:

In some industries the cost of under utilisation is sometimes dramatic, generating
an avalange effect.
We use the tool to see the influences on offering a “one shot deal” to a main
customer whereby the overall effect is calculated on the whole.

We determine impacts on shift reduction/abundance or increase / installation –
occupancy, volumes, lead-times, efficiencies, performances, result …

CONTROLL THE FUTURE BEHAVIOUR / DECISION MAKING

Generating accounting entries:

When the system has proven its consistent accurateness some companies let the
model generate some accounting entries at standard.


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SIMRES – BUDRES – PERRES

Time Frame to create – test – install

All is determined by the scale of the business, the business processes, the
number of products, the customer base, BOM and their specific ingredient mixes,
how detailed the customer decides to go.

We have learned out of past experience that on average, after a 2 day quick scan
of the organisation a time frame can be determined.
Ex. An organisation with revenues of 25 Mio Euro, 4 different production
processes, a wide range of product families, has had the SIMRES / BUDRES
installed in 20 working days.

The PERRES installation depends on the availability of RAW DATA in a regular
database (although we have good relationships with 3rd parties who can read
whatever). Timing is mostly driven by consistency and accurateness of the data.
Installing PERRES can be done in 5 to 10 working days; the accuracy takes
mostly a learning curve in the organisation.


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Industries – Services where we implemented the MODEL:

Rolling of aluminium
-
Extrusion of aluminium
-
Carpet Weaving
-
Injection Moulding
-
Thermoforming – classic and rotary (plastics)
-
Tufting
-
Yarn Extrusion
-
Master Batch production
-
Wool fabrics
-
Upholstery
-
Needle punch
-
Foil extrusion
-
Yarn spinning – wool - manmade
-
Wool dyeing
-
Cushion Vinyl
-
Production of ham
-
Printing (Rotogravure – Offset – wet glue – PSL)
-
Chemical process – Autoclave
-
Gensets production
-

Transports
-
Warehousing – logistics – 2/3/4 PL
-
Distribution – fresh products
-
Retail – supermarkets
-
Software analysis – programming
-
Reverse Logistics
-

...
-


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Conclusion:

Past experience proofs that the model changes the behaviour of the
-
company, management is back in the driver seat, staff is top down
motivated as they participate into the process.

Results are known with fair accurateness on the next business day, action
-
can be taken immediately on tomorrow

The impact of the “What if” avoids “back of the envelope” assumptions
-

Budget preparation / evaluation gives more insight in the overall effects,
-
allowing preventive insight / correction instead of curing disaster

FLY WITH THE EAGLES – BREED YOUR FUTURE


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