The Manufacturing Performance Management Benchmark Report
34 Pages
English
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The Manufacturing Performance Management Benchmark Report

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34 Pages
English

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The Manufacturing Performance Management Benchmark Report June 2006 \ The Manufactiuring Performance Management Benchmark Report Executive Summary espite indications of a reviving economy and 2 decades of improvement in manufacturing productivity, continued global competition and increasing de-D mands from customers, shareholders, and regulatory agencies are forcing manu-facturers to continue to seek ways to improve manufacturing performance. Manufacturing performance management strategies have reduced inventory and manu-facturing cycle times, and more complete and on-time shipments of better quality prod-ucts. Yet there seems to be no relief in sight from the constant pressure of mandated cost reductions and higher expectations of customer service. Today we see a subtle shift in pressures. Customers continue to demand lower prices; however customers’ demand for shorter lead times has now become the number one driver in manufacturing performance management strategies. Cost reductions remain the focus of all enterprises and many still struggle with data collection and cultural issues. The Manufacturing Performance Management Benchmark finds far too few commercial IT solutions being utilized, although Best in Class companies are significantly ahead in terms of deployment as compared with their average and laggard competitors. Better per-formers are getting better while poorer performing companies ...

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 The Manufacturing Performance Management Benchmark Report           June 2006   
 
The Manufactiuring Performance Management Benchmark Report
Executive Summary
De spite indications of a reviving economy and 2 decades of improvement in manufacturing productivity, continued global competition and increasing de-mands from customers, shareholders, and regulatory agencies are forcing manu-facturers to continue to seek ways to improve manufacturing performance. Manufacturing performance management strategies have reduced inventory and manu-facturing cycle times, and more complete and on-time shipments of better quality prod-ucts. Yet there seems to be no relief in sight from the constant pressure of mandated cost reductions and higher expectations of customer service. Today we see a subtle shift in pressures. Customers continue to demand lower prices; however customers demand for shorter lead times has now become the number one driver in manufacturing performance management strategies. Cost reductions remain the focus of all enterprises and many still struggle with data collection and cultural issues. TheManufacturing Performance Management Benchmarkfinds far too few commercial IT solutions being utilized, although Best in Class companies are significantly ahead in terms of deployment as compared with their average and laggard competitors. Better per-formers are getting better while poorer performing companies make little progress, so the performance gap is widening. Key Business Value Findings Best in Class companies, while still paying close attention to cost containment, have be-gun to turn their attention to outward facing improvements, including customer satisfac-tion and supplier collaboration. These companies maintain and increase their market leadership position through sustained vigilance, more accurate performance metrics, and improved flexibility in responding to demand. Better performance also correlates directly with frequency of measurement. Schedule compliance and complete and on-time ship-ments are very much the focus of attention, but even better performing companies still pay the price with high levels of inventory to ensure customer satisfaction. Implications & Analysis Lean manufacturing techniques are embraced by over three quarters of all companies in pursuit of manufacturing performance improvements. The pull strategies associated with Lean philosophies was evident in the majority of participating companies, a significant difference from Aberdeens study eighteen months ago. There is a significant difference in the business capabilities sought by Best in Class enterprises versus industry average and laggards. While poorer performers are seeking to identify and eliminate bottleneck and streamline operations, Best in Class have moved beyond these efforts to place more emphasis on collaboration with customers and suppliers. These Best in Class companies are more than twice as likely to deploy IT solutions, particularly for planning, execution and control. Even top performers still fall short of expectations in terms of analytical so-lutions: On-Line Analytical Processing (OLAP) has not made its way out of the financial and marketing departments. 
 
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The Manufacturing Performance Management Benchmark Report
Recommendations for Action The following specific actions are recommended for companies looking to improve per-formance management:  Indicators (KPIs) more frequently  quality devia-Measure Key Performance tions should be monitored and measured in real time; operational metrics such as shipment performance and schedule compliance should be measured daily; met-rics that measure assets such as inventory should be measured weekly.  Balance cost reduction efforts against customer satisfaction  as acceptable cus-tomer service levels are achieved, work specifically to reduce inventory levels.  Use available technology for data collection, operational efficiency and visibility integrated manufacturing and operations intelligence platforms, as well as ana-lytics and other business intelligence tools All companies must consider the four elements of performance:  Planning: scheduling, sequencing or load leveling production  Execution: instruction, inspection or status  Control: plan vs. actual status, alerting, re-planning or corrective action  Analysis: effectiveness or improvement opportunity identification With very few exceptions, real-time integration across these 4 elements has been either non-existent or a custom effort, loosely coupled at best. All companies would benefit from a more focused effort on closing the loop between the first three of these critical elements, developing a philosophy of continuous improvement and promoting a culture where change is welcomed and embraced.   
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The Manufacturing Performance Management Benchmark Report
Table of Contents Executive Summary .............................................................................................. i Key Business Value Findings.......................................................................... i Implications & Analysis ................................................................................... i Recommendations for Action..........................................................................ii Chapter One:Issue at Hand................................................................................. 1 Chapter Two: ......................................................... 4Key Business Value Findings Challenges and Responses ........................................................................... 6 No Silver Bullets ............................................................................................ 7 Chapter Three: Implications & Analysis............................................................. 10 Process and Organization ........................................................................... 11 Key Capabilities ........................................................................................... 12 Key Performance Indicators ........................................................................ 13 Technology Usage ....................................................................................... 15 Pressures, Actions, Capabilities, Enablers (PACE)...................................... 18 Chapter Four 20Recommendations for Action ....................................................... Laggard Steps to Success........................................................................... 21 Industry Norm Steps to Success ................................................................. 21 Best in Class Next Steps ............................................................................. 22 Featured Sponsors...............................................Error! Bookmark not defined. Sponsor Directory ................................................Error! Bookmark not defined. Author Profile ..................................................................................................... 23 Appendix A:Research Methodology .................................................................. 24 Appendix B:Aberdeen Research & Tools ............................................. 27Related  About AberdeenGroup...................................................................................... 28 
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The Manufacturing Performance Management Benchmark Report
 
Figures Figure 1: Subtle Shift in Pressures ...................................................................................................... 2 Figure 2: Better than Industry Average Performance Attainment ...................................................... 3 Figure 3: Strategic Actions................................................................................................................... 5 Figure 4: Frequency of Operational Measurement .............................................................................. 8 Figure 5: Frequency of Asset-Oriented Performance Measurement ................................................... 9 Figure 6: Capabilities......................................................................................................................... 13 Figure 7: Respondents Self-Assessment of Complete and On-Time Shipments .............................. 14 Figure 8: Technology Adoption .......................................................................................................... 15 Figure 9: Technologies Most Important to Performance Management ............................................. 16 Figure 10: Tools Currently used to Monitor KPIs ............................................................................... 18  
Tables Table 1: Performance Improvements....................................................................................... 5 Table 2: Chevron Texacos El Segundo Refinery Business Improvement................................ 6 Table 3: Manufacturing Performance Management Challenges and Responses............................................................................... 7 Table 4: Manufacturing Performance Management Competitive Framework .........................11 Table 5: PACE Competitive Framework................................................................................. 19 Table 6: PACE Framework .................................................................................................... 25 Table 7: Manufacturing Performance Management Competitive Framework ........................ 26  
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The Manufacturing Performance Management Benchmark Report
Chapter One: Issue at Hand
 No relief from pressure to drive prices and costs down  Demand for increased speed and agility escalates  Significant improvement in manufacturing performance takes time and effort  Dmme unam-c laepmo deubolgco, innttiuctyvi-nasdf sani gednd incretition a dna sredloherah ss,eromstcum roni gofcrra eei sgencry alatoregui tna norpmemevg inodprfanuurctnomo ynavini gcedes of id 2 decaidni etipsev r aofs ontica facturers to continue to seek ways to improve manufacturing performance. Manufacturing performance management strategies have produced reductions in inven-tory and manufacturing cycle times, and more complete and on-time shipments of better quality products. Yet there seems to be no relief in sight from the constant pressures of tmoamnedr asteerdv iccoest reductions and higher expectations of cus-Competitive Framework .Key AmbeenrtdeSetnrast epgrieevsi ouBse anucnMhmafrakc tusrtiundgy ,Pecrfoonrdmucatnecde  eMianhtaegeen- The Aberdeen Competitive gFramework defines enter-months ago, found leading manufacturers looked to theserises as fallin into one of strategies and supporting IT solutions in order to maximizethe three following levels of current operations and foster continuous improvement. Inpractices and performance: December 2004, Aberdeen reported the number one pressure customers for loLa ards 30% ractices (f6ac9e%d) , wfoalsl otwhee d dbey mtahne dn eferod mto  meet increased dewmear ndp riwcieths   nificantlthat are si behind the same level of resources (58%). Other factors were thethe average of the industry drive to improve return-on-investment (ROI) (51%) and theIndu r demand for shorter lead times (50%).ractsitceysntohramt r(e50re%s)ent the  Today we see a subtle shift in pressures. Customers continueaverage or norm to demand lower prices, with 64% of respondents selecting 20%Best in class  this as a top influential factor in driving manufacturing per-practices that are the best formance efforts, remarkably similar to results in late 2004.currentl bein em lo ed However, customers demanding shorter lead times has now su erior toand si nificantl become the number one pressure faced by manufacturers the industry norm (67%) (See Figure 1). Pressure to improve ROI has eased slightly, but over half of our participants indicated they were pressed to meet increasing demand with the same resources, an indication that the requirement to do more with less is alive and well in spite of signs of a recovering economy. This phenomenon is much more prevalent in companies who do not perform as well (82%). This comes as no sur-prise since success fuels growth.
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The Manufacturing Performance Management Benchmark Report
Figure 1: Subtle Shift in Pressures
 
 Customers demanding shorter order lead times 50% 67%  Customers demanding lower prices64%69%  58% Required to meet increased demand with same assets and people 55%  51% Improve return-on-invested-capital/assets 43% 37% Customers demanding more complete and on-time shipments 39% High demand volatility/market is cyclical 232%6% 0% 10% 20% 30% 40% 50% 60% 70% 80%  2006 2004 Source:AberdeenGroup, June 2006 Companies in the United States and Canada in particular feel the manufacturing economy is still under fire from several directions. North American companies have been chal-lenged by the introduction of lower priced products coming into their markets from coun-tries with inexpensive labor, causing the trend in recent years toward low cost country sourcing (LCCS), in turn, introducing a higher level of complexity into the supply chain. In the meantime some of these offshore companies, having grasped a foothold in US market share, have moved more operations to the United States, yet are still managing to keep costs and prices low. Toyota is a prime example. After establishing its market lead-ership position, it has continued to move operations closer to its US consumers. Today 85% of Toyota parts are manufactured in the United States, which subsequently reduces supply chain complexity, shortens lead times, and sets the bar higher for its competitors. In order to remain competitive, manufacturers need to differentiate by developing flexi-bility to respond to customers who have become more demanding in what they want and when they want it. In the consumer market, additional pricing pressure is felt from the introduction of con-troversial knock-off products. The quality of these imitations of well-known and pre-mium-priced brands has improved to the extent that all but the least cost-sensitive con-sumers consider them in their comparison shopping, thereby squeezing margins and mak-ing pricing pressure a constant.
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The Manufacturing Performance Management Benchmark Report
PACE Ke  For more detailed descri -Enterprises that have mastered what Aber-tion see Appendix A deen describes in the manufacturing perform-ance management competitive framework as Aberdeen a lies a methodolo to benchmarkBest in Class practices have made significant research that evaluates the business ressures, actions, ca abilities, and enablers PACE thatprogress in: ipnrdoicceastes ecs.o rTphoerastee t ebremhsa vairoer  dine fisnpeedc iafisc  foblulosiwnse: ss  Reducing manufacturing cost Pressures  external forces that im act an Shrinking manufacturing cycle times or anizations market osition, com etitive- Improving schedule compliance ness, or business operations  Satisfying demand for more complete Acotiroannsi za araohcareti can es that thste  surtni sekat noitnd itoe nsoes rand on-time shipments pressuresAberdeens December 2004 study observed a Ca abilities  the business rocessdisproportional number of manufacturing com etencies re uired to executeperformance improvement initiatives had corporate strategy produced little or no results and suggested Enablers  functionalit the keenterprises plan for a long term commitment of technolo solutions re-to programs. Methodologies and technologies uired to su ort the or aniza-are not enough to guarantee success. As out-tions enablin business rac-lined in Aberdeens PACE methodology, tices there needs to be a clear linkage between the business pressures, strategic actions and re-quired capabilities, as well as technology enablers. Figure 2 clearly demonstrates some improvements take longer to attain. While significant improvements in throughput and complete and on-time shipments can be achieved in 1-2 years, improvements in product quality take longer, but there is value gained from continued improvement efforts. Find-ings also imply that early gains are not necessarily sustained. Figure 2: Better than Industry Average Performance Attainment 3405%%36%35%36% 3205%%30%28%25%%26% 23 20% 18% 15% 10% 5% 0% ProductCompleteeManu-ThroughputfMaactnuur-ingcSocmhepldiualneceReturn onITnuvrennst:oryInventory Qualityasnhidp omnelinntfcaycctluer itnimgeCostAssetsF/GTRu/rMn s&  WIP More than 2-5 1-2 Less than 5 years Years Years 1 year  Source:AberdeenGroup, June 2006
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 suea mceanrmfoerni llaf stn-er allallyirtuy. Vgnp utirfucam naan macufma, ngkif ehsucoirutt gnf these to one oetogirsehter each srerutdart evallnaioitsecufoy facecna :tilp ,ycerind ael deriv dnot rheed minesions of perform
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The Manufacturing Performance Management Benchmark Report
 
 Best in Class seek market differentiation while others strive to compete  Data collection and culture issues present challenges  Customer satisfaction comes with a price  Best in Class monitor key performance metrics more frequently  anu Mq ua me of performance improvement. Aberdeens research findings show that enterprises with Best in Class operations and performance improvement practices were significantly more likely to outperform their competitors in complete and on-time shipments and schedule compliance. However, even in Best in Class companies this achievement was often at the expense of increased inventory levels. This explains why almost a third of Best in Class companies still view reduction in finished goods inventory as a top choice for strategic action. There are some notable differences in the strategic actions of Best in Class companies versus the combination of industry average and laggards (Figure 3). While better per-formers remain focused on reducing costs, they also pay much more attention to building agility and flexibility into their manufacturing processes, seeking better market differen-tiation. Enterprises that have not achieved this level of performance spread their attention more evenly across the more traditional activities in order to achieve market acceptance, which is a lower standard than market superiority. Although absolutes are difficult to compare across industries and even from one company to another, Best in Class companies have reduced manufacturing costs 13% on average, as compared to a disappointing 4% for all other respondents (see Table 1.) Measurement of manufacturing cycle times presents the same challenge. However, better performers were able to reduce cycle time by 16% and average lead times were significantly shorter. Schedule compliance and complete and on-time shipments are much easier to benchmark across companies and industries. Aberdeen found that while Best in Class companies achieved a slightly smaller percentage increase, these better performers were either ap-proaching or had already reached a plateau where smaller increments signal significant improvement.  
Chapter Two: Key Business Value Findings
 
The Manufacturing Performance Management Benchmark Report
Figure 3: Strategic Actions Reduce manufacturing costs62%79% Improve manufacturing flexibility/agility31%64% Improve quality28%36% Reduce manufacturing lead time 36% 48% Reduce finished goods inventory18%  29% 28% Improve schedule compliance 21% 28% Improve throughput 21% Reduce raw material inventory 14% 34% Reduce WIP inventory 0 28% 0 10% 20% 30% 40% 50% 60% 70% 80% 90%
Best inClass All Others  Source:AberdeenGroup, June 2006
Table 1: Performance Improvements KPI Best in Class All Other Respondents  Before After % Im rove- Be- After % Improvement ment fore Manufacturing Costs146% 40%13%55% 53%4% Complete and on-time shipments 87% 97%11%73% 82%12% 81% 94%16 Schedule compliance%66% 77%17% Manufacturing cycle time (days) 25 2116%30 2613% Source:AberdeenGroup, June 2006
                                                 1 Measured as a percent of total revenue. 
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The Manufacturing Performance Management Benchmark Report  Challenges and Responses Data collection and culture issues present the greatest challenge to companies seeking to make significant strides in managing manufacturing performance. In general our research found the priority of responses to these challenges appropriate. Data collection is still done manually in the vast majority of companies, including over half of those in our Best in Class category. Yet an equal number of respondents indicated plans for simple and automated data collection, although even better performers sometimes struggle to cost justify automated solutions on the factory or shop floor. However, better performers have done a much better job of creating methodologies to define value and prove the real im-pact on business. Without timely collection of data, performance deviations surface much too slowly to allow for immediate corrective action and effective communication. And without adequate data, it is hard to justify continued support and further investment. A real-time operations intelligence solution had dramatically contributed to the bottom line at Chevron Texacos El Segundo Refinery. A refinery competes on a worldwide ba-sis using commodity raw materials, making productivity levels critical to competitiveness and profitability. Chevron Texacos approach was to implement an integrated operations intelligence platform, XHQ (from IndX Software, a Siemens Company) in order to ag-gregate, relate and present operations data drawn from a variety of sources across the en-terprise. A subsequent business value assessment found that the implementation of this solution, combined with a newly empowered workforce, contributed dramatically to the results shown in Table 2. Table 2: Chevron Texacos El Segundo Refinery Business Improvement Business Improvement Category Multi-Year Average Reduced Operating Expenses 8% Increased Facility Utilization 8.5% Increased Operational Availability 2.5% Increased High Value Product Production 10.5% Reduced Environmental Incidents 18% Reduced OSHA Recordable Injury Rate 39%  Cultural change can be critical to manufacturing performance success. Without a per-formance driven culture with a philosophy of continuous improvement, manufacturers will continue to struggle and performance improvement initiatives will falter and fail. In most instances cultural issues trickle down from the top, making top management com-mitment equally important as a critical success factor. One in three respondents indicated that IT solutions did not meet the necessary require-ments to support manufacturing performance improvements. While almost half of Best in Class intend to deploy these solutions, only 15% of average performers and laggards in-dicated plans to do so.  All print and electronic rights are the property ofAberdeenGroup© 2006. 6 AberdeenGroup