MESA Reviews New Research Revealing Manufacturers Using Predictive and Holistic Plant Operations to Make Financial Improvements, RSTechED 2012 Session MI16

Crafting a Metrics Program for Maximum Impact Julie Fraser Independent Advisor & Research Leader Cambashi-MESA Metrics Researchwww.mesa.org

Introductions• My background – why am I here? – 25 years manufacturing tech industry watcher – Research leader for study – Former MESA Metrics WG Chairperson – Passion for manufacturing & improvement• Your background – Why are you here? Copyright 2012, MESA International

Topics• Introduction – people, topics, MESA• What works for improvement• Designing a metrics program• IT and automation role in metrics• Exercise to focus• Key take-aways• Whatever you want to discuss! Copyright 2012, MESA International

Two Main Data Sources #1MESA Metrics Guidebook MESA Metrics Guidebook and Framework • Guidelines to drive operational excellence • Design of metrics program • Linking and aligning metrics for business success • Get a diverse team to a common understanding • Justifying improvement projects • 60-page guidebook plus resources and a glossary Copyright 2012, MESA International

#2 New Study: Pursuit of Performance ExcellenceMESA Metrics Research• Primary research on how manufacturers measure & improve performance – On-line survey New in this report: – Telephone interviews • Depth & detail into – Team for analysis & advice Best Practice Processes• Series started in 2006: Metrics • Views into why speed is a that Matter, Metrics for Major challenge Initiatives, etc. • Analysis of widely used metrics• Pursuit of Performance Excellence • Correlation between improved – Summary Report plant & financial metrics – Comprehensive Report • Key take-aways summary

Metrics maturitySource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International • Where are you on the metrics maturity journey? • Is maturity different for culture, process, automation, IT? Copyright 2012, MESA International

Who is MESA International? MESA is… a not-for-profit industry associationa global community of like-minded companies and professionals working to make Operations more reliable, capable and profitable the knowledge broker for the MES/MOM* domain globally shaping important discussions impacting the enterprise solutions of tomorrow *MES/MOM = Manufacturing Execution Systems/Manufacturing Operations Management Copyright 2012, MESA International

Who is MESA International? Inside MESA for YOU is… Resource Library: Whitepapers, Guidebooks, Research, etc. Committees & Working Groups attacking the most pressing and demanding challenges manufacturers and producers face Member companies and individuals in 89 countriesIndustrys only independent, professional GlobalEducation Program A seat at the table to shape solutions to drive Operations Excellence for the next 20 years! Visit: www.mesa.org Copyright 2012, MESA International

MESA Metrics Working Group Harnessing the Members Members ROI Guidebook; Power of Metrics want to form WGs IndustryWeek, to Diagnose & Solve know Metrics Reference Model, Metrics that WP#35 Holistic Metrics: Framework Your topics Matter: Metrics, Supply chain and Guidebook: quality matter 2nd Edition MESA Metrics Research Timeline2004 2005 2006 2007 2008 2009 2010 2011 2012 Metrics for Liaison to Major Initiatives: Pursuit of Need data ISO #22400 Lean, RTE, Quality Plant KPI Performance Metrics Framework Correlating Standards Metrics Excellence and Guidebook: Plant to Business begins Makeover Core practices Performance Contest

Pursuit of Performance Excellence• Research team: – Cambashi analysts – Sponsors – Industry Council – MESA Volunteers• On-line survey• Telephone interviews• Written reports – Summary – Comprehensive• Webcast Copyright 2012, MESA International

2011-2012 Study Sponsors PREMIUM SPONSORSSUPPORTING SEMICONDUCTOR / SPONSOR MEDICAL DEVICE PREMIUM SPONSOR

Industry Council Industries RepresentedMembers • Alcoholic beverages• Manufacturer/producers only (13 active) • Construction materials• Wide range of disciplines, • Electronics titles, responsibility, scope • Engineered industrial catalytic convertersExperienced and • Foodpassionate about • Home & garden consumer durablesmetrics • Power generation• Hot button issues shape • Resins & advanced plastics survey • Semiconductors

Response Demographics Scope of ResponsibilitySenior executive / C- or 300+ Responses VP-level executive Companies Director / Manager of managers / Head of  All sizes, 40% under $100M department Manager / Project  24+ industries manager  Every production mode: discrete, Supervisor/ Team packaged goods, other mixed, leader batch, continuous Staff / Employee Individuals 0% 10% 20% 30% 40%  All regions Source: Pursuit of Performance Excellence:  Variety of titles & domains Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Current Situation Concern about Operator Skills:Majority of respondents: Change Over Past Three Years Less• Growing revenues and 11% production volumes• More products, SKUs, variants• Increasing automation Same More 34% 55%• Concerned about staff skills Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Who are Leading Performers? Business Movers Defined• Improved EBITDA 10% Portion of Response Qualified as or more Business Movers by Financial Improvement• Improved Net Operating Business Profit 10% or More Movers• Improved by 1% or 25% more on over half of the Business Metrics in the study Others 75%Improvements are average per Source: Pursuit of Performance Excellence:year over past three years Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Business Movers PracticesSpeed Fully automated data collection for two major groups of operational metrics• Data collection• Analysis• Display & Use Efficiency metrics Business Movers Others Quality metrics 0% 10% 20% 30% 40% Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Line-level metrics best practices Portion of respondents that ALWAYS provide line-level metrics to operators and technicians Business Movers Others 0% 10% 20% 30%Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International More likely to use other best practices that enable action

Types of Metrics More Business Movers Improve Dramatically Portion of respondents who improved by 10% or more on • Predictive/preventive key operational metrics25% • Translate operational20% results into financial15% terms10%5% • Include suppliers &0% partners Suppliers Overall equipment manufacturing yield effectiveness (OEE) • Holistic/multi-faceted or test results • Non-value added time Business Movers Others Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

People Want Speedier Metrics Satisfaction with Staff Speed to See Metrics by Timing of Availability Real-time (minutes or less) Within a shift End of shift Daily Weekly Monthly or less Rarely/ never 0% 20% 40% 60% 80% 100% Yes: typically fast enough: satisfactory No: typically not fast enough: unsatisfactorySource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International Metrics drive behavior, actions & outcomes so FASTER = BETTER

Challenges in timeliness How necessary is it to have an analyst involved to cleanse the data prior to analysis and display? 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Extremely Reasonably Not very Not at allSource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Differences of opinion about issues What is the Major Problem Causing Slower or Less than Ideal Frequency of Metrics Display of Results? 70% Lack of 60% management commitment 50% 40% Lack of will to 30% change 20% 10% IT challenges 0% Senior executive / C- or VP- Staff / Employee level executiveSource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

MESA Metrics Guidebook Second Edition 2011• Guidebook: – Why metrics matter – Explanations by role• Framework – Overview – Alignment – Manufacturing to business linkage• Reference – Metrics – Justifying systems – Resources – Glossary

Conceptual framework Profitability Audience: CFO, CEO Increasing ability to take actionIncreasing aggregation Corporate Financials Plant Accounting, External Internal Finance Investors Strategic & Creditors Business Planning Aggregated Financial Plant Management, & Operations Metrics Operations Management Operators, Supervisors, Operations-level KPIs & Quality, Engineers, Dynamic Performance Metrics Technicians Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Key to Success: Linking Plant and Business Metrics How well linked are the operational metrics to your financial and business metrics? Extremely Business Movers Reasonably Not very Others Not at all 0% 10% 20% 30% 40% 50% 60%Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Useful construct for metricsframework: Vollmann triangle Strategy Action Measure Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Linking corporate objectives to metrics at each level Corporate Strategy: Increase Brand Margin & Value Improvements in Revenue (Sales & Marketing) Strategy Financial Metrics Net margin per product line or brand Action MeasureOperationalMetrics # of ProfitableStrategy Reduce Strategy Lower Strategy models/ brand Cycle time or Production extensions Stock-outs CostsPlant Action Measure Action Measure Action MeasureMetrics Strategy Strategy Strategy Strategy Strategy Strategy StrategyAction Measure Action Measure Action MeasureAction Measure Action Measure Action Measure Action MeasureChangeover NPI Upside Planned vs. First OEE EnergySpeed Ramp-up Production Emergency Pass Consumption Time Flexibility Maintenance Yield Per Unit Ratio Changes in Production Resources = Changes in Cost (Operations) Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Example metrics that correlate Business Metric Operational Metrics Main factors: • Batch/lot/unit right first time • Throughput Manufacturing Secondary factors: Cost % Revenue • Manufacturing cycle time • Time to make changeovers • Scrap • Capacity utilization • On-time delivery to commitSource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International Copyright 2012, MESA International

Example of Conflicting AnswersHow many cases can we ship out tonight?• Production line supervisor reports line counter’s total number.• Warehouse manager reports a smaller number.Why?• Some pallets were shrink-wrapped incorrectly, so they were set aside to be wrapped again later.• Other cases failed quality tests, so these products had to be either reworked or scrapped.• Others may have been put aside for further quality tests. Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Example of Tradeoffs to achieve a metricSchedule attainment• Resource utilization• Changeover times• Inventory levels• Planned maintenance• Customer order prioritiesWhat happens when:• Machine breaks• Key skilled employee(s) out sick• Materials don’t meet spec• Rush order comes in for important customer Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Why a Framework?“The structure of data is only as good as your modelsupports. A metrics program must take intoconsideration a holistic model to link the data (metrics)from a machine or work cell to and through the ERP,the financial and scheduling of your discrete or processmanufacturing.” Tony Jenovino, Campbells Soup Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

Resource Consumption Accounting for realistic decisions Add 4,000 1,000 Units with OTSelling Price $ 120 $ 120Material $ 25 $ 25 Raw or Purchased material Full Labor Cost of Work Team andDirect Labor $ 30 $ 45 with 150% OT Premium Work unit operating costs - ProtectiveOther Direct Costs $ 5 $ 5 Clothing, hand tools, etc. Plant wide allocation of Utilities, Machinery Depreciation,Overhead Allocation $ 40 $ 40 Maintenance, Administration The sum of material, Direct labor,Expenses $ 100 $ 115 Other Direct costs and OverheadGross Margin $ 20 $ 5 Source: MESA Metrics Guidebook and Framework, Second Edition © 2011 MESA International Copyright 2012, MESA International

IT Support Use of Selected Information Technologies 100% 90% 80% Planning to buy in next 1-2 70% years 60% 50% Some use or pilot 40% 30% 20% Widely in use 10% 0% ERP MES / MOM OI/ EMI/ Ops DashboardSource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

MES/MOM Use Correlates to Success Higher portion of MES Users achieved at least 10% improvement on key financial metrics EBITDA MES/MOM Users Others Manufacturing cost as % of revenue 0% 5% 10% 15% 20%Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

How did that happen? Operational improvementsSource: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International Copyright 2012, MESA International

Operational dashboard users line level metrics practices When do operators, line workers, supervisors, and those managing the operations see the metrics for their scope of control? Less Frequent OI / EMI Users Daily Others Within/end of shift Real-time (minutes or less) 0% 10% 20% 30% 40% 50%Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Metrics Maturity Model Phase Baseline / Visibility / Reliable Avert & Foresee & Understand React Response Improve optimizeAspect Enterprise EcosystemCultureProcessAutomationIT Copyright 2012, MESA International

Exercise• Find one block in the metrics maturity model where you lag• Develop a description of the key gap• Develop a business case for improving it• Identify key stakeholders• Set up a meeting when you return Copyright 2012, MESA International

Two of Top Six Take-Aways • Align metrics from business to plant to line and through the supply base – Train and communicate in all levels critical to business success. – Use metrics consistently as part of the company culture. – Employ sound practices in performance measurement.Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Two of Top Six Take-Aways • Engage, educate, and empower employees – Understand metrics to enhance skills. – Provide line-level metrics during the shift.Source: Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © 2012 Cambashi Inc. and MESA International

Go out and improve • Develop metrics to align efforts, learn and improve • Gain speed: it matters to employees and results • Move toward metrics that tell the entire story • Use applications to support speed and improvement • Be confident IT has a payback • Metrics maturity is a never- ending journey: keep at it!

Learn more with us…• Report as a thank-you for attending today• Participate in MESA – Metrics Working Groups – ROI Working Group – Food Safety SIG – Continuous Process SIG – Technical Committee• MESA Unconference session here at RSTechEd Tuesday 4-5pm, Wednesday 11-noon

MESA Reviews New Research Revealing Manufacturers Using Predictive and Holistic Plant Operations to Make Financial Improvements, RSTechED 2012 Session MI16

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MESA Reviews New Research Revealing Manufacturers Using Predictive and Holistic Plant Operations to Make Financial Improvements, RSTechED 2012 Session MI16 Presentation Transcript