August 28, 2013, 8:52 AM — CIO.com's Martha Heller talks to Carlos Cardoso, CEO of Kennametal, about how data on customers' manufacturing plants allows his company to identify ways to boost efficiency.
How are you using customer data for business benefit at Kennametal?
We have 80,000 active customers in 60 different countries, and we serve nearly 5,000 customers a day. Our access to customer data gives us insight into how efficiently our customers are running their manufacturing plants. We can see which of their locations are the most productive and which are not.
Many large manufacturers don't know how much they spend on tooling in their plants, let alone if they are running optimally. If we can show them that one location is 20 percent more efficient than another, we can also show them how applying the same best practices at all locations saves them money, effectively increasing capacity and production within the same footprint. Imagine the power of that conversation.
You have credited a successful ERP implementation for your ability to leverage data as a competitive advantage. Do you have any advice for other CEOs?
First, I encourage CEOs to have their CIOs report directly to them. That sends a message that IT is a mission-critical part of the strategy.
Second, I advise CEOs to fix their processes before implementing an ERP system. Before we started our ERP implementation, I didn't even want to talk about IT--I wanted to understand and define our company's critical processes. We found that we had over 6,000 processes. Then we asked: How many processes should we have? The answer was 600.
Using Lean and Six Sigma tools, we streamlined our processes against the standard SAP package. My philosophy is that more than 100,000 companies use SAP; our processes should not be so unique that we can't make standard SAP work. Our goal was to standardize 90 percent of our processes, and we came in at 92 percent.
Start with asking how you deliver value to your customer and work backwards to connect the right processes in the right sequence across the supply chain. Only after that should you think about how best to automate. The IT solution comes last.
One of your goals is to realize 40 percent of annual sales from new products. How do you sustain that kind of innovation?
Number one for a CEO is to make clear that innovation is a critical competitive process. Commercial success starts with an acute focus on the customer. We offer people financial incentives for achieving 40 percent of annual sales from new products. In fact, we've achieved that goal for the last decade, except for one year during the recession, when we reached 39 percent. Part of being innovative is keeping the focus on new products, even in a downturn.