It is no secret that the crisis caused by COVID-19 has significant financial repercussions for companies and represents a real headache for managers.

Use Industry 4.0 technology to boost operational and financial data cross-referencing to determine production costs more quickly and be more competitive.

Production cost and measuring processes

Production costing could be described as cross-referencing operational and financial information that are often in separate systems together into a common structure.

The purpose of operational data is to measure a business’s various processes (speed, quality, satisfaction, etc.) while financial data indicate the cost of resources needed to operate these processes. The two data help determine the cost of the manufacturing process, distribution, sales, client experience, etc.

Individually, operating and financial data do not provide the same informational value or foster quick and efficient decision-making.

The operational data challenge for production costs

The level of corporate informational maturity varies greatly, and data collection methods range from notes on paper to integrated management systems (ERP), and the ubiquitous Excel spreadsheet. Until recently, we were rarely able to access structured, quality data. Instead, data compilation, validation and transformation exercises were required to obtain accurate data that could be used in costing. Today, organizations are facing two major revolutions:

1. Easy access to digitization
   There has been an abundant supply of products and services in this field in Quebec for several years now, making it possible to quickly obtain accurate, structured operational data;
2. The enhancement of existing data
   Many companies have an unsuspected information asset in their hands. They accumulate data in ERPs, machine tools or other systems without exploiting them.

With artificial intelligence et advanced analytical techniques, it is now possible to enhance these data and gain an important competitive advantage.

With the data acquired by digitizing processes or using existing data, the company can determine the production cost more quickly and often more accurately. It is also possible to exploit the benefits of costing and to analyse profitability by product, customer, order, etc., based on available information and the company’s objectives.

A practical example

A summary analysis provided the following information: 47% of the costs incurred are operating costs, 53% are selling and administrative costs. An analysis of the 53% production costs revealed that they consist of the following services:

Findings:
To support its distributors, for several years the company has been hiring more resources to prepare bids and technical drawings with no corresponding rise in sales.

Exploiting data to understanding how costs behave

By analysing six variables over time and adding qualitative data, it was possible to define measurements that characterized each of the distributors:

• Measurement 1: Success rate (sales $/bid $);
• Measurement 2: Bid cost per distributor;
• Measurement 3: Technical drawing cost per distributor;
• Measurement 4: Sales per distributor.

The above graph indicates that distributors 1 and 2 account for less than 10% of the bids and technical drawing departments’ efforts and 50% of sales. On the other hand, distributor 6 accounts for 50% of the bid department’s efforts and 25% of the technical drawings department’s effort.

Return on investment

On the basis of this analysis, the company drew up a clear portrait of each distributor’s contribution. Using this information and an analysis of the six underlying variables, the company:

• Discussed potential improvements with distributors;
• Targeted training efforts;
• Identified the efficient distributors’ good practices and passed them on to the others;
• Introduced fees for certain services;
• Eventually, dropped the distributors that did not show any improvements, despite the measures taken.

Whether data come from an ERP, artificial intelligence or elsewhere, if they are not used, there is no return on investment.

Our consultants are available to help you initiate or continue your 4.0 transformation and support your projects, from the smallest to the most ambitious. Go for it!

Updated on December 6, 2022

Digital technologies such as artificial intelligence can help boost your business’s productivity. Find out why and what financial assistance is available.

A few years ago, the digital transformation known as 4.0 mainly promised productivity gains for organizations that embarked on such projects.

Since then, the ecosystem comprising technology solution providers and entities that embrace the concept has matured and there is no doubt that the last few years have shaken up many predictions and results.

Real-life cases all around

At this point, it’s almost certain that you know of an organization that has already taken the first step in a digital and technological transformation. Many organizations from multiple industries have begun their shift by advancing their existing technological infrastructures.

To accomplish this, they have undertaken projects supported by enterprise resource planning, production management software, and automation service provider software suites as the initial source of information. This information has been leveraged by coupling existing systems with technologies such as computer vision, advanced robotics and decision support or preventive maintenance systems powered by artificial intelligence.

When evaluating these projects, the first question is “Can we afford it?” In 2022, the answer should be “Can we afford not to?”

Productivity remains an important goal, but the growing workforce issues are becoming a consideration that may sway your decision. Are there solutions that can fill the staffing gap or make your company technologically attractive to the candidates you are looking for?

SR&ED tax incentives to take you farther

The other issue that companies need to consider before moving forward with their digital transformation is how to tie in the new solutions with their existing systems.

Some innovative or larger-scale projects may come up against difficulties, such as having to deal with technologies that are not at the same level of maturity, maintaining legacy systems or integrating components into the environment that were intended for a completely different field.

This can lead to technological challenges. However, it is precisely because of such situations that there are programs designed to share the financial risks and help you overcome these obstacles, such as the SR&ED tax credit program.

Maximizing financial support and strategically planning each step in order to achieve your strategic, financial, operational and human objectives therefore becomes a necessity.

Did you know?

Various measures have been put in place to help you go digital, but the scientific research and experimental development investment tax credits that are available are still the most generous financial assistance in the country. In some cases, the combination of credits (Canada and Québec) can total nearly 70% of the expenses.

Don’t hesitate to call on our team specializing in SR&ED and technology innovation tax incentives for support in your digital and technology transformation initiatives.

With the digital shift, now more than ever, clients are in the driver’s seat. In order to evolve with their needs, a business must be able to innovate.

Clients can access an almost limitless product and service offering, with fierce competition leading to lower prices. The ever-changing business landscape and innumerable uncertainties underscore the need for businesses of all sizes to position themselves to ensure their longevity and development.

• Do you find that your value proposal isn’t sufficiently distinctive for you to stand out from the competition?
• Do you feel that your customers’ expectations have changed in recent years and they want to do business differently?
• Does your business no longer bring in enough income to meet your growth needs?
• Is technology transforming how your industry does things?

If the answer to any of these questions is “yes”, it’s time for your business to take a close look at its business model to stay competitive.

Adapt or die: How your business model can impact your growth

The fast pace of technological innovations forces businesses to position themselves to deal with the changes, which may have significant short- or medium-term impacts on their industry. It’s clear that the key to success today is no longer a guarantee of success tomorrow. Businesses increasingly need to question their business model.

An Economist Intelligence Unit (EIU) study indicates that 54% of entrepreneurs consider innovation through new business models rather than new products or services as the way to gain a competitive advantage in the future. Why? Because it’s more difficult for competitors to imitate an entire innovation system than just a product or process.

It’s obvious that business sectors are transforming their business models. Examples abound:

• Airbnb in the hotel industry;
• Spotify in the music industry;
• Alibaba in distribution;
• PayPal with financial transactions, etc.

Even more traditional industries, such as professional services, must review their business models, as we have seen with Raymond Chabot Grant Thornton. The firm recently deployed its e-accounting platform Operiō to meet the needs of its new-generation clientele.

Competition may not necessarily be found where it was expected in the past. The intermediaries have changed, bringing new opportunities to reach customers. You have to ask yourself: how can your business model help you maintain or even find new sources of income in a constantly changing marketplace?

Changing your business model

Let’s start by defining a business model. There are various definitions, but most agree that it describes how a business will create, deliver and capture added value for its customer base and generate income.

The first question to ask is how you can create value for your customers and then, how you can organize your business to deliver that value, whether it’s through your business processes, resources, value chain, business partners, etc. There are multiple possibilities for business model innovation: expanding your service offering with new upstream or downstream activities, adding a complementary product to your offering, creating value to ensure loyalty, etc.

A number of factors must be considered for a successful, innovative transformation of your business model.

Know your customer
Business model innovation is based, first and foremost, on your knowledge of your customers, their needs, their expectations and, especially, the value they are looking for in a product or service like yours.

Your model should not be based on what you think. You may have a biased view because of your industry perceptions or history. Take the time to consult your customers to get an accurate and up-to-date picture. Plan and conduct customer surveys or hold discussion groups.

Ensure strategic monitoring
New ideas are not the only source for new business models, you can often draw inspiration from models in other industries that could be applied to yours.

Take the time to analyze similar sectors to understand business model best practices and validate their relevance for your business. Consider benchmarking your market to identify the most appropriate business models for your business, or analyze your competition to evaluate positioning opportunities or business models that could set you apart.

Work in synergy
A new business model has repercussions throughout your business’s ecosystem. All functions (human resources, operations, marketing, finance, etc.) will be called upon and will have to evolve at various levels to ensure the new model’s value creation.

Business model innovation requires working with multidisciplinary teams, representing all of the business’s stakeholders. Consider organizing brainstorming workshops led by experts to build consensus. This will foster a common vision of the project and define individual roles in the initiative.

Manage change appropriately
As mentioned, implementing a new business model can lead to extensive changes due to the numerous operational projects to be implemented (IT, artificial intelligence, process optimization, etc.). It’s important to be committed and to manage the change to ensure employee, customer and business partner buy-in. The operational projects must be properly structured in order to implement them efficiently.

Are You Ready to Innovate? Our Experts Can Help!

A business model innovation initiative must be supported by knowledgeable, experienced experts who can help you undertake a strategic reflection of your business’s fundamental makeup to offer a distinctive value proposal that provides a unique and durable competitive edge … until the next transformation!

Our business strategy and organizational performance teams can help you structure your transformation project and provide support to properly manage the change underlying the new business model.

Contact us!

Did you know?

There are scientific research and experimental development investment tax credits available. The scope of these programs may have been curtailed in recent budgets, but they are still one of the most generous sources of financial assistance in the country. In some cases, combined Canada/Quebec credits can be as much as 70% of expenses.