The first session of the Sunrise Sip Club, sponsored by Expandable Software and Mirador Software Group, convened on May 16, 2024 with Mr. Rick Koski, Vice President of Enterprise Solutions at BACS Consulting Group, as the featured speaker on The Three A’s of Manufacturing.
What Are the 3 A’s?
The Three A’s of Manufacturing are Automation, Analytics and Artificial Intelligence (AI). The good news is we have all three at our disposal; in fact, we have had Automation and Analytics for a long time. What is changing rapidly is how they are being used, especially when combined with AI.
- Automation continues to advance across industries, and not just in manufacturing environments. Current paths to automation are in business processes such as Accounts Receivable and Payroll.
- Analytic tools are also evolving. Data mining and data extraction has grown to the point where even Excel has these capabilities – and they are expanding daily. Our businesses already have data people Financial Planning and Analysis (FP&A) and Sales and Marketing (CRM). We already have data in our existing systems, both public and private – but can we access it efficiently?
- Artificial Intelligence is new to the conversation, and we are receiving hot new tools daily, but this is not a new capability. Microsoft 365 users have Power Automate and Power BI, Excel has data analytics and automation capabilities, and many AI applications have free versions, including ChatGPT, Copilot and Bard.
US Manufacturing is Returning
The timing to develop, enhance and utilize these tools is perfect. Global manufacturing has been a theme for 40 years, and there are very few products fully manufactured within US borders. But the United States wants key industries to return – and is willing to fund it. Prime examples include the CHIPS and Science Act, providing $13.7 Billion to lower manufacturing costs, create jobs and strengthen supply chains to counter Chinese manufacturing, and the Build Submarines Initiative – $3.9 Billion in funding for FY 2025 in addition to the $10.3 Billion already allocated.
Challenges
The challenges to resurrecting manufacturing in the US are significant. US Industry needs to rebuild competitive manufacturing on shore, and Defense related materials are a priority.
There is a particular concern about China as the world’s manufacturing powerhouse; the US relationship with China is tenuous at best and under constant pressure from political rhetoric.
The need for manufacturing expertise is acute and the strategy for addressing this is unclear; the US is dependent on foreign supply chains which can be unreliable, and there is still an underlying concern that we don’t know what we don’t know. Our confidence in our manufacturing prowess from the 40’s and 50’s has been undermined by offshore manufacturing strategies focused on cost reduction.
The 3 A’s Give Us an Advantage
The Three A’s can be integrated into all aspects of the enterprise. This includes labor allocation, supply chain management, product and job costing and labor and tax management.
The Three A’s enable real-time performance reporting and a shift away from history-focused Key Performance Indicators (KPI’s) to future-predicting Key Performance Drivers (KPD’s) – the driver being the thing that makes the indicator move positively or negatively, just as the gas pedal and brake impact the speedometer in a vehicle. This enables a company to drive performance as opposed to watching it or reporting on it after the fact.
The Impact of AI
How does AI play into all this? The impact of AI can be significant but must be closely and tightly managed.
- AI is great at answering questions, but you have to know how to ask the question correctly. Improperly posed questions can generate inaccurate answers. The question you ask may not yield the answer you are looking for.
- Data Integrity is essential: You need to manage and control how AI is seeking and retrieving data. Without proper monitoring and set up, AI has been known to generate incorrect data and even create references for sources and materials that do not exist. This is the evolution from “Fake News” to “Fake Data.”
- CFO Concerns: While AI can be a great assistance in the Finance world combined with Analytics, CFO’s will have ongoing concerns about the auditability of AI generated data.
AI Early Adopters
Who are and will continue to be the early adopters of AI technology? There are several leaders in the arena.
- US Government, particularly the military industrial complex. The US Government is a common funder and developer of new technologies in all industries. It is also slow to adopt advanced technologies. This dichotomy provides businesses with a rare opportunity. Given their own needs, we expect them to be at the forefront of AI development in conjunction with tech leaders.
- Social Media Platforms: They have access to a massive data set and cash to invest in the technology. They are already at the leading edge of this technology; based on your behavior patterns, they can already direct you to activities and data you regularly frequent.
- Large Scale Consulting Entities: Large consulting firms have both the resources and the data sets to make AI investments generate a significant Return on Investment. This includes public accounting firms as well.
What should we be doing?
What should smaller companies with limited resources be doing with respect to the AI explosion? The ostrich approach is not viable as the status quo changes daily.
- Develop a data strategy: At a minimum consider the following: What data do I have / what do I need / what should I delete? What problem will more data solve? Where will bad data lead me? How do I validate data?
- Develop a Technology Roadmap looking out 3 to 5 years
- It must be a plan that supports the business strategy – AND NOT – a purchasing plan.
- It must be a living document, not static, with enough granularity to be useful but not so voluminous that it is inflexible and difficult to update. A simple white paper can be sufficient to capture ideas and stimulate critical thinking.
- It must align with the business and data strategy: The reality may be that AI is not a significant impact for a small business.
- IT support should be outcome oriented (not necessarily focused on infrastructure). It’s not about the tools, it’s about what the tools can generate that promote a benefit to the business.
- The Roadmap is a guide not a guarantee. Just as a budget is not a license to spend, a Roadmap is a guide not a commitment. The endpoint may change as conditions change. You have to be flexible.
Jeff Osorio is a Consulting CFO with over 30 years of experience in operationally oriented companies ranging from pre-Revenue to $4B with 40 ERP implementations in his portfolio.
Rick Koski is Vice President of Enterprise Solutions at BACS Consulting Group (htttps://www.bacscg.com). Rick brings the disciplines of Finance, Operations, and Technology together to produce meaningful value for his Customers.