Machines Italia: Trends in Manufacturing Best Practices

Trends in

Manufacturing

from the Italian Trade Commissioner

Guiding Manufacturing Improvements,Forging Successful Partnerships

N

orth American manufacturers have

mance from your employees, equipment, and

faced many challenges over the past

facilities. It’s likely, too, that your path to a more

decade. During that time, the Italian

profitable future will require investments in equip-

Trade Commission in Chicago and the

ment and technology to remain competitive in an

Machines Italia project have worked to help you im-

increasingly global economy. It’s our hope that as

prove and leverage your industrial capabilities amid

you move forward, you’ll consider how Italian

these changing—and often trying—conditions. As

equipment and machinery manufacturers—and the

part of that effort, we have offered a series of reports

innovations and industrial expertise they offer—can

on manufacturing best practices and trends affecting

accelerate your success.

your business.

Italian equipment and machine partners have

In this guide, Trends in Manufacturing, we

already helped thousands of manufacturers like you

have collected and updated all these reports into

survive and thrive over the past decade. We look

a guide that shows how any manufacturing firm

forward to continuing our support of North Ameri-

can navigate a path to a more productive and prof-

can manufacturers as they improve performance,

itable future. In addition, a new report—“Flexible

enter new markets, and delight customers over the

Manufacturing”—explores how changing markets

next decade—and beyond.

and demanding customers are driving the need for flexible equipment and production systems.

Sincerely,

This guide will help you identify how to im-

2

Spring 2011

prove operations, enhance relationships with cus-

Pasquale Bova

tomers and suppliers, and achieve optimal perfor-

Trade Commissioner - Chicago

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www.machinesitalia.org

Table of Contents

Table of Contents 3

Expecting More Value from Industrial Equipment Manufacturers

15

Strategic Asset Management — Lower Risk, Reduce Costs, Improve Performance

23

Capacity Optimization — Getting the Most from Operations

33

Flexible Manufacturing — Reconfiguring Operations for Competitive Advantage

41

Customer Line Integration — New Profit Opportunities

49

Powerful Performance Measures That Drive Improvement

57

Benchmarking — Locating and Leveraging Best Practices

65

Smart Capital — Savvy Manufacturer’s Guide To Equipment Purchases

72

Machinery Manufacturer Performance Benchmarks

88

Resources for Achieving World-Class Operations (Italian Machinery Manufacturers Associations)

Throughout Trends in Manufacturing, data tables and charts may not always sum to 100%: some tables and charts refer to questions for which respondents could select more than one answer; rounding of statistics may also affect the sum of tables and charts.

Italian Trade Commission - Chicago Address: 401 N. Michigan Avenue, Suite 3030 Chicago, Illinois 60611 Toll-Free: 1-888.ITALTRADE / 482.5872 (U.S. and Canadian Callers) Telephone: 312.670.4360 (outside the U.S. and Canada) Fax: 312.264.6209 E-mail: info@italtradeusa.com Web Site: www.machinesitalia.org The Italian Trade Commission’s Machines Italia project is operated through its North American offices in Chicago, Atlanta, Los Angeles, Toronto and Mexico City. Its headquarters are located in Rome, Italy.

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Who We Are

Machines Italia Who We Are

M

achines Italia is a project by the

Participating industry machinery manufacturing

Italian Trade Commission (ITC) to

sectors include companies involved in the produc-

promote

machinery

tion of equipment for agricultural/farm machinery;

and technology to manufacturers

Italian-made

ceramics; earthmoving machinery; food processing;

in North America. The Italian Trade Commission is

glass; foundry and metallurgical; footwear, leather-

the Italian government agency entrusted with the

goods, and tannery; marble and stone; metalwork-

promotion of trade, business development and

ing; packaging; plastics and rubber; printing, graphic

industrial cooperation between Italian and foreign

and converting; textiles; and wood.

companies. It supports the internationalization of Italian firms and their consolidation in foreign markets.

Spring 2011

nies and consumers annually here in North Ameri-

Learning about Italy’s market and industries is

ca is industrial machinery. The same numbers also

the first step to identifying business opportunities

reflect industrial machinery’s percentage of all

for local companies. The Italian Trade Commis-

Italian exports worldwide.

sion, with its network of 117 offices in 87 countries

As part of a re-industrialization of local markets,

around the world, and here in North America via

Italian solution providers are helping North Amer-

its offices in Chicago, Atlanta, Los Angeles, Toron-

ican manufacturers turn out viable products every

to and Mexico City, provides information and as-

day, in many cases more efficiently and competi-

sistance to companies such as yours interested in

tively. This, in turn, provides economic growth and

establishing relationships with Italian companies.

development within local economies.

In partnership with 14 leading Italian machin-

Machines Italia’s efforts to showcase the inven-

ery manufacturers’ associations and, in particular,

tiveness and flexibility of Italy’s industrial sectors

FEDERMACCHINE (Italy’s National Federation of

are helping North American manufacturers recog-

Associations of Manufacturers of Capital Goods

nize the advantages of partnership with Italian solu-

Intended for Industrial and Handicrafts Manufac-

tion providers.

turing Processes), Machines Italia supports numer-

In fact, many Fortune 100 companies, ranging

ous activities in North America overseen by the

from agricultural to aeronautics companies, use

ITC's Chicago office, ranging from programs with

Italian machinery and technology. North America’s

academic institutions to business development

best-known manufacturing giants have discovered

for multiple machinery sectors. Machines Italia’s

the benefits of integrating Italian equipment into

14 member associations represent more than

their production lines and processes.

10,000 companies.

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A fifth or 20% of Italy’s exports to local compa-

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Value-Add

Expecting More Value from Industrial Equipment Manufacturers

C

ustomers now want more from industrial

Industrial equipment buyers now consider quality

equipment manufacturers in the way of prod-

and performance just the ante to get into the game. What

uct enhancements and services. But how can

they’re also looking for are value-added features (in both

industrial equipment manufacturers provide

goods and services), and they’re willing to pay for them.

more in these tough economic times and still sustain

Scott Buechel, executive vice president of Buechel Stone

profitability?

Corp. in Fond du Lac, Wis., says that while he’s always

The answers can be found in data compiled by the

looking for better pricing, he also understands that value-

Next Generation Manufacturing (NGM) Study, a research

added goods and services come at a cost. “Sometimes

initiative that assessed how manufacturers (including

we’re willing to pay for something a little bit more if

410 industrial equipment manufacturers) are progress-

we know there’s a value-add[ed feature] throughout the

ing with key corporate strategies to succeed into the next

term of the product.” At Buechel Stone, the value-added

generation.1 Four strategies in particular—customer-fo-

service he’s looking for is responsiveness: “When equip-

cused innovation, human-capital management, superior

ment goes down, how do they service it during that time?

processes/process improvements, and supply-chain man-

How quickly do they respond? Do they work with you to

agement and collaboration—help industrial equipment

get the problem resolved? Do they give you answers? Do

manufacturers succeed today and tomorrow in satisfying

they come out and look at it?”

customer demands for more value at lower costs. In ad-

Brad Burnett, general manager of manufacturing

dition, the NGM Study data capture the voices of those

at Inman Mills Ramey Complex in Enoree, S.C., says,

customers, identifying what equipment buyers consider

“I’m looking for the expertise to understand the equip-

most valuable—and what they think of the ability of their

ment from not only the supply side, but also the ser-

equipment providers to succeed at key strategies.

vice side, the technical and electronic specification

Industrial equipment manufacturers face an expanding list of customer demands for value, forcing

side, and they need to have people within the United States that are accessible.”

them to innovate—in both products and services—to

At Donsco Inc., value-added service is about mainte-

meet these needs. Industrial equipment providers, in

nance: “The big thing we’re looking at right now when

addition to being adept machine designers and build-

we’re evaluating equipment is the focus on the main-

ers, now must be line integrators and asset-management

tenance of the equipment. Everything from quality of

specialists as well, offering customer services ranging

the blueprints and the manuals that are provided with

from training to leasing. And, of course, all this oc-

it,” says Chris Buck, plant manager for Donsco Inc. in

curs while the traditional pressures of doing business

Wrightsville, Pa. “Have they gone as far as defining pre-

are intensified amid a recovering global economy and

ventive-maintenance tasks, spare parts, recommended

increased regulations.

spare parts?”

1 Next Generation Manufacturing Study, The MPI Group, 2009.

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Value-Add

The types of value-added goods and services are as

And Donsco’s Buck says customization is one of his

varied and complex as the industrial equipment market

top machine priorities. For example, Donsco wants con-

itself, but success for any individual equipment provider

trollers in equipment to be what the company is used to

is as simple as focusing the entire organization on what

working with, to minimize the number of software ap-

its customers want—and providing it as quickly and cost-

plications his staff must troubleshoot. “Those are some

effectively as possible by improving internal operations

of the things we’ll recommend up front,” he says. “It’s

and the supply chain. Yet corporate strategies to achieve

about 50-50, the people who will work with you and the

these goals—customer-focused innovation, human-cap-

people who just won’t.”

ital management, process improvements, and supply-

It’s not surprising that some equipment makers won’t

chain management and collaboration—haven’t yet been

listen to Buck’s (or others’) requests and work with them.

adopted by many industrial equipment providers.

Relatively few industrial equipment manufacturers have achieved world-class customer-focused innovation: Only

Customer-Focused Innovation

11% of industrial equipment manufacturers report themselves to be at a world-class level for customer-focused

Customer-focused innovation—the ability to “develop,

innovation (ranked 5 on a 1-5 scale), and another 30%

make, and market new products and services that meet customers’ needs at a pace faster than the competition,”

believe themselves to be near world-class status for this particular strategy (ranked 4 on a 1-5 scale) (Figure 1).2

according to the NGM Study—requires listening to the

Yet customer-focused innovation is important among

voice of customers. And those voices vary: Herb Ben-

industrial equipment manufacturers, as 60% of indus-

zel, mill foreman at Kountry Kraft Kitchens in Newm-

trial equipment manufacturers rate customer-focused

anstown, Pa., looks for machinery that he can modify

innovation as “highly important” to their organizations’

for alternate uses, and doesn’t have much use for single-

success over the next five years (Figure 2). The gap be-

function tools. “[A piece of equipment] might not be

tween industrial equipment manufacturers who believe

for that plan now, but later down the road we’ll use it

customer-focused innovation is highly important and

for that.” So he’s buying versatility and the ability for

those achieving actual world-class performance means

equipment to complete various tasks.

that many firms are striving for improved performance

Richard Hansen, production manager at Skyline Manufactured Homes in San Jacinto, Calif., says, “In

but remain unaware of best practices, unable to execute them, or unwilling to try.

house, we are always looking at ergonomics and safety, not necessarily in that order… Methods to make them perform ergonomically would always be appreciated from a vendor.”

2 All research and strategy definitions in this chapter, unless otherwise noted, are based on data from the Next Generation Manufacturing

(NGM) Study, which was coordinated by the American Small Manufacturers Coalition, conducted by the Manufacturing Performance Institute (MPI), and supported by Manufacturing Extension Partnership centers and partnering organizations. A total of 2,529 manufacturers participated; for this report, 410 “industrial equipment manufacturers” were identified using the three-digit NAICS codes 333 for machinery manufacturers. For more information, go to www.mpi-group.net.

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Figure 1. Rate your organization’s progress toward world-class customer-focused innovation:

Figure 2. Rate the importance of customer-focused innovation to your organization’s success over the next five years:

(Industrial equipment manufacturers)

(Industrial equipment manufacturers)

0.5% 4.7%

3.9% 11.0%

11.3%

16.9%

30.1%

59.6%

24.0%

38.1%

1=No progress 2 3 4 5=World class

1=Not important 2 3 4 5=Highly important

Source: Next Generation Manufacturing Study

What is abundantly clear from the NGM Study data,

dedicated to new product development/R&D vs. 37%

though, is that the first step in successfully innovating to

of industrial equipment manufacturers furthest from

meet customer needs is recognizing the importance of a

world-class.

customer-focused strategy: Among industrial equipment

t *OWFTUNFOUT 39% of industrial equipment manu-

manufacturers at or near world-class customer-focused

facturers at or near world-class customer-focused inno-

innovation, 75% rate the strategy as “highly important,�

vation have more than 5% of sales invested in new prod-

compared to only 49% of industrial equipment manu-

uct development/R&D vs. 22% of industrial equipment

facturers furthest from world-class status.

manufacturers furthest from world-class.

The industrial equipment manufacturers at or near

t .FBTVSFNFOU TZTUFNT 47% of industrial equip-

world-class customer-focused innovation also are more

ment manufacturers at or near world-class customer-fo-

likely to execute best practices necessary to get them to

cused innovation have advanced measurement systems

world-class (Figure 3):

for assessing return from customer-focused innovation

t 8PSLGPSDF JOWPMWFNFOU 48% of industrial equipment manufacturers at or near world-class customer-fo-

vs. 17% of industrial equipment manufacturers furthest from world-class.

cused innovation have more than 5% of their workforce Industrial equipment manufacturers furthest from world-class customerfocused innovation

Industrial equipment manufacturers at or near world-class customerfocused innovation

More than 5% of the workforce dedicated to new product development/R&D

36.7%

47.6%

More than 5% of sales invested in new product development/R&D

21.6%

39.2%

Measurement systems or reviews for monitoring return: “Regular monitoring and review of company-specific metrics

by CEO and senior staff� or “Regular monitoring and review of company-specific metrics by CEO and senior staff and transparency and clarity throughout the organization�

17.3%

46.8%

Best practices

Figure 3.

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Value-Add

And, importantly, industrial equipment manufactur-

difficult as many equipment makers have kept hiring to

ers at or near world-class customer-focused innovation

a minimum, and in the process inadvertently removed

are more likely to achieve business results indicative of

the human touch. For example, Benzel of Kountry Kraft

world-class customer-focused innovation (Figure 4).

Kitchens wants his equipment providers to offer speed-

t .PSF OFX 4,6T 23% of industrial equipment

ier service—because overly automated phone systems

manufacturers at or near world-class customer-focused

and days-long waits for service create frustration and

innovation have more than 10% of their annual SKUs ac-

slow production. “I know there’s a lot of machinery out

counted for by new products vs. 8% of industrial equip-

there, but sometimes I think it could be just, ‘Hey, pick

ment manufacturers furthest from world-class.

the phone up quick.’�

t .PSF OFX QSPEVDU TBMFT 32% of industrial equip-

Buechel of Buechel Stone would like to see provid-

ment manufacturers at or near world-class customer-

ers offer more training, such as instruction on new ma-

focused innovation derive more than 25% of sales from

chinery and annual refresher courses on old equipment.

products introduced in the past three years vs. 18%

“Just a short, hour training class: Here’s key critical

of industrial equipment manufacturers furthest from

parts. Here are the main things that need to be greased.

world-class.

These need to be maintained. Here’s why.�

Industrial equipment manufacturers furthest from world-class customerfocused innovation

Industrial equipment manufacturers at or near world-class customerfocused innovation

More than 10% of total SKUs are annually new products

7.6%

22.9%

More than 25% of sales derived from product introduced in past three years

17.6%

32.1%

Performances

Figure 4. “We’ve run into occasions where there’s been com-

Human-Capital Management

Donsco’s Buck. “You’ll have a mechanical guy in here,

It’s easy to forget that value-added features can be the

and he needed to talk to an engineer to find out about the

direct result of interacting with a single person: an in-

PLC program. He hasn’t been able to get hold of the guy

sightful salesperson who recognizes an equipment need

because they weren’t in the office or were tied up with

before the customer does, a helpful support agent who

another project. So I would say that would be an area for

pinpoints the right manual, or an empowered line work-

improvement: When an equipment manufacturer sends

er who spots a machine defect and knows how to correct

techs out to sites, make sure there’s full technical sup-

it before the problem occurs. All these actions, though,

port back at the home base.�

require a workforce that has been meticulously hired, developed, and rewarded.

A world-class workforce is directly linked to the capability to offer value-added features because talented employees can often delight customers—without having to even develop or sell a product. That ability can be a bonus in today’s economic recovery, but it’s also more

6

munication problems back to their headquarters,� says

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Value-Add

None of these customer requests are extraordinary,

Industrial equipment manufacturers at or near world-

but they do demand skilled employees and well-man-

class human-capital management also are more likely to

aged workforces. But despite human capital being at the

implement workforce best practices, allowing employees

center of value-added features a manufacturer can offer,

to take ownership of their functions, giving them resourc-

just 5% of industrial equipment manufacturers report

es to identify and solve problems that can directly affect

themselves to be at world-class status for human-capital

customers, and having management systems in place to

management—organizations that “secure a competitive

see if these efforts are working (Figure 7).

performance advantage by having superior systems in

t &NQPXFSFE FNQMPZFFT 51% of industrial equip-

place to recruit, hire, develop, and retain talent�—and

ment manufacturers at or near world-class human-cap-

only 23% are near world-class status (Figure 5).

ital management have a majority of employees empow-

Surprisingly, not even half (45%) of industrial equipment manufacturers believe that human-capital

ered vs. 20% of industrial equipment manufacturers furthest from world-class.

management is “highly important� to their organiza-

t 5SBJOJOH 36% of industrial equipment manufac-

tions’ success over the next five years (Figure 6). Here,

turers at or near world-class human-capital manage-

too, industrial equipment manufacturers attentive to

ment train each employee annually more than 20 hours

human-capital management are more likely to be at or

vs. 21% of industrial equipment manufacturers furthest

near world-class with this strategy: 66% rate the strat-

from world-class.

egy as highly important, compared to only 36% of in-

t .FBTVSFNFOU TZTUFNT 43% of industrial equipment

dustrial equipment manufacturers furthest from world-

manufacturers at or near world-class human-capital man-

class human-capital management.

agement have advanced measurement systems for assessing return from human-capital management vs. 15% of industrial equipment manufacturers furthest from world-class.

Figure 5. Rate your organization’s progress toward world-class human-capital management:

Figure 6. Rate the importance of human-capital management to your organization’s success over the next five years:

(Industrial equipment manufacturers)

(Industrial equipment manufacturers)

5.2%

2.5% 5.1%

8.8%

16.8%

23.3% 44.9%

33.6%

30.7%

29.1%

1=No progress 2 3 4 5=World class

1=Not important 2 3 4 5=Highly important

Source: Next Generation Manufacturing Study

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Value-Add

Industrial equipment manufacturers furthest from world-class humancapital management

Industrial equipment manufacturers at or near world-class human-capital management

Majority of employees participate in empowered work teams

20.3%

50.8%

More than 20 hours of training annually per employee

20.6%

36.2%

Measurement systems or reviews for monitoring return: “Regular monitoring and review of company-specific metrics by CEO and senior staff� or “Regular monitoring and review of company-specific metrics by CEO and senior staff and transparency and clarity throughout the organization�

15.1%

43.3%

Best practices

Figure 7.

And, importantly, industrial equipment manufacturers at or near world-class human-capital management

manufacturers to repeatedly improve processes in order to offer best pricing and return a profit.

are more likely to achieve business results that reflect

Burnett of Inman Mills Ramey Complex believes

a stable and growing workforce, one able to add value

many of his equipment suppliers are using lean man-

and improve customer satisfaction as well as operational

ufacturing principles to improve. He says industrial

productivity.

equipment providers have to keep getting better because

t 7BMVF BEE QFS FNQMPZFF 43% of industrial equip-

many criteria for what they provide, such as high quali-

ment manufacturers at or near world-class human-capital

ty, are now a given. “You expect quality to be engineered

management report value-add per employee (measured

into the process, into the services. If it is not there, you

as sales minus cost of materials divided by number of

expect that supplier to have the liability to back up and

employees) vs. 31% of industrial equipment manufac-

replace that equipment as well as replace whatever your

turers furthest from world-class.

downtime is. It’s an expectation. That’s not an add-on.

t -BCPS UVSOPWFS 76% of industrial equipment man-

It’s an expectation.�

ufacturers at or near world-class human-capital man-

Seeing improvements from his equipment sup-

agement report labor turnover of 5% or lower vs. 65%

pliers is critical because the issue is “can we make

of industrial equipment manufacturers furthest from

a better product at less expensive cost because we’re

world-class.

competing with the rest of the world,� adds Burnett. “We know we’ve got a higher labor rate to start with;

Superior Processes/ Process Improvement

and utilize new equipment faster and less expensively to offset those other things. We have higher labor rates

Value-added features are, indeed, a bonus to customers,

because we’re in the United States. We expect equip-

but only if the core competency of the industrial equip-

ment providers to help offset that through their tech-

ment manufacturer—the ability to design, make, and de-

nology improvements.�

liver product in a timely manner—is solid and continuously improving. Very few customers will be delighted by receiving custom features or services associated with a piece of faulty machinery that arrives late and causes a line to shut down.

To be profitable and provide value-added features requires ongoing improvement of an organization. The days of passing costs to customers are long gone, as is the notion that machine-maker profit is built into the price (price = costs + profit). The equation has switched (profit = price – costs), forcing industrial equipment

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we’ve got to figure out how to utilize our ingenuity

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Hansen of Skyline Manufactured Homes says that

ing with some of the equipment companies, and we’ve

while his company is making the transition to lean

offered suggestions that they should start using lean not

manufacturing, he doesn’t know if his equipment pro-

only in their manufacturing process but in their design

viders are. “If they have, they should be telling us that‌

process,� says Buck. That includes applying visual or-

It would be important for them to tell us.� (See -FBO

ganization concepts of lean to their products. “So that

&RVJQNFOU .BLFST )

when a piece of equipment comes into our plant, it’s

Others have prodded their suppliers to get on board with process improvements. “We’ve actually been work-

very visual. All the controls are labeled, operating ranges on gauges are marked in red, yellow, and green.�

Approximately 7% of industrial equipment manufacturers report themselves to be at a world-class level

Lean Equipment Makers

for process improvement—organizations that “record

Most machinery manufacturers report that they are attempting to be lean: 73% of machinery manufacturing plants follow lean manufacturing methods.

Other improvement methods followed include six sigma (33% of machinery manufacturers), total quality management (29%), theory of constraints (22%), and the Toyota Production System, from which lean evolved (21%). Surprisingly, 11% of machinery manufacturers follow no improvement methodology.3

annual productivity and quality gains that exceed the competition through a companywide commitment to continuous improvement�—and 34% are near worldclass status (Figure 8). More than half of industrial equipment manufacturers (58%) believe that process improvement is “highly important� to their organizations’ success over the next five years (Figure 9). Industrial equipment manufacturers focused on process improvement are more likely to be at or near world-class with this strategy: 71% rate the strategy as highly important, compared to just 49% of industrial equipment manufacturers furthest from world-class processes and process improvement.

Figure 8. Rate your organization’s progress toward world-class processes and process improvement:

Figure 9. Rate the importance of process improvement to your organization’s success over the next five years:

(Industrial equipment manufacturers)

(Industrial equipment manufacturers)

3.4% 16.8%

3.4%

7.1%

16.8% 57.9%

33.9%

38.8%

38.8% 25.9%

1=No progress 2 3 4 5=World class

1=Not important 2 3 4 5=Highly important

Source: Next Generation Manufacturing Study

3 MPI Manufacturing Study, combined U.S. data from 2006-2010 studies, The MPI Group, 2011.

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Value-Add

Industrial equipment manufacturers at or near

And, not surprisingly, industrial equipment manu-

world-class processes and process improvement are

facturers at or near world-class status are more likely to

more likely to implement best practices that enable em-

achieve business results that indicate ongoing internal

ployees to drive improvements, to give them tools and

improvements and superior performance to customers

equipment to support their problem-solving ideas, and

are occurring:

to have management systems and reviews in place to see

t 1FSGFDU EFMJWFSJFT 51% of industrial equipment

if these efforts are really improving the company and

manufacturers at or near world-class processes and pro-

helping to satisfy customers (Figure 10).

cess improvement report that 96% or more of their de-

t &NQMPZFFT JOWPMWFE XJUI JNQSPWFNFOUT 68% of in-

liveries are perfect (on time, high quality, to all customer

dustrial equipment manufacturers at or near world-class

specifications) vs. 44% of industrial equipment manu-

processes and process improvement have a majority of

facturers furthest from world-class.

their workforces engaged in their organization’s specific

t 1SPEVDUJWJUZ JNQSPWFNFOUT 28% of industrial

improvement method vs. 28% of industrial equipment

equipment manufacturers at or near world-class pro-

manufacturers furthest from world-class.

cesses and process improvement report three-year pro-

t *OWFTUNFOU 43% of industrial equipment manu-

ductivity improvements of more than 50% vs. 14%

facturers at or near world-class processes and process

of industrial equipment manufacturers furthest from

improvement invest more than 5% of sales in capital

world-class.

equipment vs. 37% of industrial equipment manufacturers furthest from world-class. t .FBTVSFNFOU TZTUFNT 43% of industrial equipment manufacturers at or near world-class processes and process improvement have advanced measurement systems for assessing return from process improvements vs. 21% of industrial equipment manufacturers furthest from world-class.

Industrial equipment manufacturers furthest from world-class process improvement

Industrial equipment manufacturers at or near world-class process improvement

Majority of workforce fully engaged in organization’s specific improvement method/approach

28.3%

68.0%

More than 5% investment in capital equipment as a percentage of sales

36.5%

43.3%

Measurement systems or reviews for monitoring return: “Regular monitoring and review of company-specific metrics by CEO and senior staff� or “Regular monitoring and review of company-specific metrics by CEO and senior staff and transparency and clarity throughout the organization�

20.9%

43.1%

Best practices

Figure 10.

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Supply-Chain Management and Collaboration

provided a cross-reference and just went ahead and put in the new part.” always

Possibly because of the volume of suppliers and the

relied upon the performance of their supply chains.

complexity of implementing a supply-chain strategy,

With hundreds or thousands of sourced components,

few industrial equipment manufacturers (3%) report

requirements for quality, timeliness, and engineering

themselves to be at world-class supply-chain management

detail from suppliers are mandatory. Today equipment

and collaboration—organizations that “develop and

makers increasingly must work with their suppliers

manage supply chains and partnerships that provide

and other manufacturers in developing and installing

flexibility, response time, and delivery performance that

complete lines, even taking on the role of line integrator.

exceeds the competition”—and only 22% are near world-

Supply-chain collaboration and management have never

class status (Figure 11). But part of the issue is that not

been more important.

enough industrial equipment manufacturers are attentive

Industrial

equipment

manufacturers

have

One seemingly simple but often overlooked example

to the strategy: only 34% believe that supply-chain

of supplier collaboration is ensuring that all equipment

management and collaboration is “highly important” to

components will be viable for years to come. Donsco’s

their organizations’ success over the next five years (Figure

Buck wants equipment providers to be in regular

12). That’s a key to supply-chain improvement, as 52%

communication with their subcomponent suppliers to

of industrial equipment manufacturers at or near world-

guarantee that every part of a machine is up-to-date. “We

class status rate the strategy as highly important (another

have some brand-new pieces of equipment that have some

43% rate it near to highly important), compared to only

obsolescence issues with some of the subcomponents…

27% of industrial equipment manufacturers furthest

Somewhere along the way two people should have been

from world-class status that rate it highly important (and

talking so the equipment manufacturer could have either

only 30% that rate it near to highly important).

Figure 11. Rate your organization’s progress toward world-class supply-chain management and collaboration:

Figure 12. Rate the importance of supply-chain management and collaboration to your organization’s success over the next five years:

(Industrial equipment manufacturers)

(Industrial equipment manufacturers)

2.5%

4.6% 10.4%

8.8%

21.5%

33.5%

25.9% 39.8%

20.3% 32.8%

1=No progress 2 3 4 5=World class

1=Not important 2 3 4 5=Highly important

Source: Next Generation Manufacturing Study

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11

Value-Add

Industrial equipment manufacturers at or near world-

equipment manufacturers furthest from world-class.

class supply-chain management and collaboration also

(See 8PSME $MBTT *OWFTUNFOUT for more analysis of

are more likely to implement supply-chain best practices,

equipment and IT spending among the best machinery

dedicating staff to growing customer and supplier “part-

manufacturers.)

nerships,� investing in information technology tools

t .FBTVSFNFOU TZTUFNT 33% of industrial equip-

that enable supply-chain partners to better communicate

ment manufacturers at or near world-class supply-chain

and gain visibility into product and business plans and

management and collaboration have advanced measure-

schedules, and having management systems in place to

ment systems for assessing return from supply-chain

see if these efforts are working (Figure 13).

management vs. 14% of industrial equipment manufac-

t 8PSLGPSDF JOWPMWFNFOU 46% of industrial equip-

turers furthest from world-class.

ment manufacturers at or near world-class supply-chain

Industrial equipment manufacturers at or near world-

management and collaboration have more than 5% of

class supply-chain management and collaboration are

their workforces dedicated to supply-chain and partner

more likely to achieve business results that show im-

development, management, and collaboration vs. 17%

provements affecting the entire supply chain and turning

of industrial equipment manufacturers furthest from

them into competitive advantages (Figure 14).

world-class. t *OWFTUNFOU 33% of industrial equipment manufacturers at or near world-class supply-chain management and collaboration invest more than 5% of sales in information technologies (IT) vs. 12% of industrial Industrial equipment manufacturers furthest from world-class supply-chain management and collaboration

Industrial equipment manufacturers at or near world-class supply-chain management and collaboration

More than 5% of the workforce dedicated to supply-chain and partner development, management, and collaboration

16.6%

45.8%

More than 5% investment in information technologies as a percentage of sales

11.8%

33.0%

Measurement systems or reviews for monitoring return: “Regular monitoring and review of company-specific metrics

by CEO and senior staff� or “Regular monitoring and review of company-specific metrics by CEO and senior staff and transparency and clarity throughout the organization�

14.0%

33.0%

Best practices

Figure 13.

12

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I

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Value-Add

Industrial equipment manufacturers furthest from world-class supply-chain management and collaboration

Industrial equipment manufacturers at or near world-class supply-chain management and collaboration

Reduction of inventory throughout the supply chain by more than 25% over last three years

8.0%

15.1%

Strategic suppliers and customers are active participants in operations

13.8%

27.2%

Performances

Figure 14. t 4VQQMZ DIBJO JOWFOUPSJFT 15% of industrial equip-

t 4USBUFHJD QBSUOFST 27% of industrial equipment

ment manufacturers at or near world-class supply-chain

manufacturers at or near world-class supply-chain

management and collaboration have reduced supply-

management and collaboration describe their suppli-

chain inventories over the past three years by more than

ers and customers as “strategic participants� vs. 14%

25% vs. 8% of industrial equipment manufacturers fur-

of industrial equipment manufacturers furthest from

thest from world-class.

world-class.

World-Class Investments Machinery manufacturers that report their firms to be at or near world-class in four or more of the six NGM Strategies (only 16% of machinery manufacturers) are much more likely to invest in capital equipment and information technology than those firms that are at or near world-class status in three or fewer of the strategies:

Industrial equipment manufacturers at or near world-class status in 0–3 NGM strategies

Industrial equipment manufacturers at or near world-class status in 4–6 NGM strategies

3.2% 8.7% 11.7%

Capital Equipment

17.7%

27.3%

40.3% 52.3%

38.7%

Investment as % of sales <1%

2.7%

<1â&#x20AC;&#x201C;5% <6â&#x20AC;&#x201C;10% >10%

9.7% 11.3%

10.8% 33.8% Information Technologies

22.6%

52.7%

56.5%

Source: Next Generation Manufacturing Study

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Value-Add

Conclusion

14

t 4VQQMZ DIBJO NBOBHFNFOU BOE DPMMBCPSBUJPO

The message is clear: Industrial equipment providers

Improving supply-chain processes and relationships so

have significant room not only for improvement, but in

that customers achieve competitive advantage in servicing

recognizing what to improve in the first place. The NGM

UIFJS customers.

Study data show this is especially true of four key strategies

The first step in implementing these strategies and

necessary for success into the next generationâ&#x20AC;&#x201D;strategies

providing value-added features to customers is listening to

that are at the heart of value-added goods and services:

customers and transmitting their needs and requirements

t $VTUPNFS GPDVTFE JOOPWBUJPO Designing products

back to the organization, on to employees, and out into the

in the way their customers tell them that they want them

supply chain. Buechel of Buechel Stone says the equipment

designed.

providers who listen to his feedback get an edge on com-

t )VNBO DBQJUBM NBOBHFNFOU Developing their

petitors, but he also wants honest evaluations of his ideas.

workforces to solve customer problems and provide

â&#x20AC;&#x153;Let me put it this way,â&#x20AC;? advises Donscoâ&#x20AC;&#x2122;s Buck. â&#x20AC;&#x153;If thereâ&#x20AC;&#x2122;s

value-added services.

an option, [not collaborating with us] can be a deal breaker.

t 4VQFSJPS QSPDFTTFT QSPDFTT JNQSPWFNFOU Constantly

Unfortunately, often there are no other alternatives . . .

improving internal operations so that adding value does

But everything being equal and there are other alter-

not add to the customer price.

natives, it would be a deal breaker.â&#x20AC;?

Trends in Manufacturing

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Strategic Asset Management

Strategic Asset Management — Lower Risk, Reduce Costs, Improve Performance

R

in today’s global economy, two factors under-

What Is Strategic Asset Management?

lie its strategy: a relentless push to reduce

Strategic asset management seeks advantage from a firm’s

costs and an equally relentless focus on

hard assets—transforming them from mere production

customers’ current and future needs. Savvy manufac-

equipment into competitive weapons. A manufacturer’s

turing leaders are optimizing machine performance

strategic assets can include information technology (IT)

to manage both pressures—and to boost profits.

systems, transportation fleets, energy-producing equip-

The bottom line? Effective use of machinery assets—

ment, and other capital investments. Strategic asset

strategic asset management—is now a must for man-

management encompasses activities that touch them

ufacturers in a highly competitive, unpredictable

all, ranging from business-intelligence data gathering to

global economy.

MRO (maintenance, repair, and operations) efforts, and

egardless of where a manufacturer competes

Leading manufacturers have always focused on

from continuous-improvement goals to IT solutions.

optimizing machine performance. For example, U.S.

Strategic asset management also often involves out-

manufacturers closest to world-class manufacturing

sourcing some or all maintenance or management activi-

status have exhibited better equipment performance, as

ties to equipment or IT systems providers. Many of these

well as greater equipment-performance improvement,

vendors have recognized the need for their customers

over the past three years (Figure 1 on next page).1

to focus on core competencies while getting more value from their equipment; these vendors are creating new service divisions and programs to support plant equipment from installation to decommission.

1 MPI Manufacturing Study, combined U.S. data from 2006-2010 studies, The MPI Group, 2011.

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Strategic Asset Management

World-Class Equipment Performance

Overall equipment effectiveness (OEE) Return on invested capital

No progress

Some progress

Significant progress/ fully achieved

80.0%

78.8%

83.0%

12.3%

15.0%

18.0%

OEE three-year improvement

0.0 % points

3.0 % points

5.0 % points

Return on invested capital three-year improvement

0.0 % points

0.0 % points

0.5 % points

Source: MPI Manufacturing Study, 2006-2010.

Figure 1.

Itâ&#x20AC;&#x2122;s important to note that any (or all) goals associ-

performance measurements, energy consumption, safe-

ated with production equipment fall under strategic as-

ty, monitoring, continuous improvement, and flexibil-

set management: purchasing (both individual machines

ity (i.e., changeovers, availability, customization). (See

as well as parts), maintenance and parts management,

Strategic Asset Management.)

Strategic Asset Management Goals

Benefits

Drivers

Lower capital investment

Reduced costs; increased profitability

Longer machine and parts life; more informed purchasing decisions; better utilization of warranties

Improve uptime

Higher throughput; safer environment; protection of profit margins

Preventive maintenance; less reactive â&#x20AC;&#x153;firefightingâ&#x20AC;? maintenance

Enhance customer experiences

Speed and flexibility; sales and profitability

More reliable machine performance; easier customization of equipment and production scheduling; better quality and on-time delivery rates

Lower operating costs

Reductions in staff, training costs, machine breakdowns, scrap, and inventory

More predictable labor planning or outsourcing of machine maintenance; better accounting of parts; outsourced inventory of parts; better process control

More level production and easier root-cause analysis

Standard processes, level material flow; a wealth of data to review root cause of failures

Support continuous improvement

16

Trends in Manufacturing

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Strategic Asset Management

Key Performance Indicators for Strategic Asset Management

when customers need new and different products and

Equipment and machinery represent significant invest-

ery resources means faster, more confident responses to

ments at every manufacturing company, and as the econ-

customersâ&#x20AC;&#x2122; changing needs. Strategic asset management

omy strengthens, automation initiatives are likely to ap-

also allows for easier customization of equipment to

proach prerecession highs. For example, from 2009 to

meet customersâ&#x20AC;&#x2122; needs.

NBOVGBDUVSJOH UFDIOPMPHZ DPOTVNQUJPO KVNQFE 85%, according to data from the Association for Manufacturing Technology (AMT) and the American Machine Tool Distributorsâ&#x20AC;&#x2122; Association

(AMTDA).2

Given that level of investment, itâ&#x20AC;&#x2122;s little wonder that

services. Having adequate information about machin-

Typical customer service KPIs affected by strategic asset management include: t $VTUPNFS SFUFOUJPO SBUF t 0O UJNF EFMJWFSZ t 0SEFS UP EFMJWFSZ UJNFT

manufacturing leaders are using strategic asset manage-

t $VTUPNFS SFKFDUT BOE

ment to align key performance indicators (KPIs) to criti-

t 8BSSBOUZ DPTU SBUJPT Employee safety: Having a dedicated focus on stra-

DBM PCKFDUJWFT JODMVEJOH Customer service: $PSF UP BOZ TUSBUFHJD BTTFU NBO-

tegic asset managementâ&#x20AC;&#x201D;whether through full-time

agement program is the ability to gather and analyze

staff or outsourcingâ&#x20AC;&#x201D;demonstrates a commitment to

in-depth data about capabilities, costs, and capacityâ&#x20AC;&#x201D;

safety. Strategic asset management providers help to as-

knowledge that makes a company a better supplier

sess both equipment safety and adherence to EHS (environmental, health, and safety) regulations. Theyâ&#x20AC;&#x2122;re

U.S. Manufacturing Technology Consumption ($ billions)

also critical in ensuring safe upkeep of equipment; one of the goals of strategic asset management is improved

2000

$4.04

machine uptime as maintenance and repairs occur

2001

$2.70

before parts and machines failâ&#x20AC;&#x201D;which translates into a

2002

$2.16

safer and more productive plant. Additionally, should

2003

$1.98

2004

$2.84

2005

$3.07

2006

$3.94

2007

$4.51

2008

$4.47

2009

$1.77

t 04)" DPNQMJBODF OPODPNQMJBODF

2010

$3.27

t -PTU UJNF BDDJEFOUT BOE

Source: Association for Manufacturing Technology (AMT) and the American Machine Tool Distributorsâ&#x20AC;&#x2122; Association (AMTDA).

an accident occur, the wealth of data that strategic asset management supplies can help to pinpoint causes, document what happened, and suggest solutions.

Typical employee safety KPIs affected by strategic asset management include: t 8BSSBOUZ DPTU SBUJPT t *OKVSZ SBUFT

t /FBS NJTT JODJEFOUT

Figure 2.

2 Association for Manufacturing Technology (AMT) and the American Machine Tool Distributorsâ&#x20AC;&#x2122; Association (AMTDA).

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17

Strategic Asset Management

Profitability: Strategic asset management protects

volume contracts, a streamlined purchasing process,

profit margins by delivering consistent and predictable

and predetermined pricing. For example, with one step

machine performance. Plant managers can take a pro-

a maintenance technician can request a replacement

active approach to budgeting equipment replacements

part, check available inventory, and order the part (if

because they have better lifecycle data; they also can

itâ&#x20AC;&#x2122;s not in stock) at a prenegotiated price via a computer-

deliver more profitable performances by avoiding ma-

ized MRO system linked to the equipment vendor.

chine-failure costs or excess scrap.

Typical profitability KPIs affected by strategic asset management include:

Manufacturers that choose an all-encompassing outsourced solution also can save on replacement parts and FRVJQNFOU 'PS JOTUBODF B $POUJOFOUBM 5JSF QMBOU JO

t $PTUT QFS VOJU

/FX :PSL SFEVDFE FMFDUSPOJD SFQBJS DPTUT PO JUT NBDIJO-

t 30"

ery by 30% and increased use of warranties on parts to

t 2VBMJUZ NFBTVSFT

100% of available coverage after it partnered with equip-

t 1SPKFDUFE WT BDUVBM DPTU SBUJPT BOE

ment supplier Rockwell Automation to provide strategic

t .BDIJOF VQUJNF BT B QFSDFOUBHF PG TDIFEVMFE

asset management. Rockwell developed a new inventory-

uptime).

tracking and warranty-tracking system for parts that

Growth: As manufacturers grow, they consume idle

helped stop escalating costs:

capacity, get more from current capacity, or invest in

t 4UPSFSPPN NBOBHFST TUBSUFE VTJOH MBCFM UBHT BOE

OFX DBQBDJUZ 5IJT SBJTFT RVFTUJPOT $BO PVS QMBOUT UBLF

bar codes to track parts and equipment.

PO UIJT OFX XPSL SJHIU OPX 8IFSF TIPVME XF JOWFTU

t 8IFO NBJOUFOBODF QFSTPOOFM SFRVFTU B QBSU

JO OFX DBQBDJUZ BOE NBDIJOFSZ 8IJDI JOEVTUSJBM NB-

they complete a tag that specifies the use of the

chinery supplier serves our needs best? Should we out-

part, where it should go, and the identity of the

source? A strategic asset management program offers

individual who checked it out.

data to answer these questions with authority, enabling

t #BS DPEFT USBDL SFQBJS SBUFT BOE WFOEPS XBSSBO-

informed decisions about facility and equipment life-

ties, and indicate if the storeroom needs to order

cycle management as leaders optimize their portfolios

replacement parts.3

of plants, machinery, and capital investments. In ad-

Utilize preventive maintenance, and progress to-

dition, strategic asset management partners often help

ward predictive maintenance: At many plants, the first

with custom lease and ownership packages.

benefit strategic asset management provides is a reduc-

Typical growth KPIs affected by strategic asset

tion in reactive (unplanned) maintenance and an in-

management include:

crease in preventive (planned) maintenance. Ultimately,

t .BSLFU TIBSF

data gathered during preventive maintenance should

t 1SPEVDU EFWFMPQNFOU DZDMF UJNF BOE

allow for predictive maintenance, allowing managers to

t 5JNF UP NBSLFU GPS OFX QSPEVDUT

pinpoint when a machine will become obsolete by evaluating total cost of operation vs. the cost of replace-

Best Practices for Strategic Asset Management

ment or upgrade.

Strategic asset management varies based on industry, company size, capital investment, corporate goals, etc., but typical best practices include: Leverage purchasing power: A strategic asset management solution with one supplier or with a few suppliers offers opportunities for total-cost savings via

3 i$POUJOFOUBM 5JSF 3FEVDFT 3FQBJS $PTUT 1FSDFOU *ODSFBTFT 8BSSBOUZ 6UJMJ[BUJPO 3BUFT 1FSDFOU w 3PDLXFMM "VUPNBUJPO (www.rockwellautomation.com), 2003.

18

Trends in Manufacturing

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www.machinesitalia.org

Strategic Asset Management

R. Keith Mobley, principal consultant with Life

maintenance scheduling. For instance, a pharmaceuti-

$ZDMF &OHJOFFSJOH $IBSMFTUPO 4 $ BOE SFOPXOFE BV-

cal manufacturer will have different data-gathering and

thor, consultant, and expert in the fields of plant opti-

NBJOUFOBODF OFFET UIBO B NBLFS PG JOKFDUJPO NPMEFE

mization, reliability engineering, and predictive mainte-

parts or an oil refinery. Some of the data collected may

nance, argues that predictive maintenance is more than

be the same, but not all of the data. Another example is

a maintenance tool or a breakdown-prevention tool: 30

monitoring: it makes more sense for a utility plant with

years of maintenance studies show that the causes of

equipment running 24 hours a day to invest in remote

83% of equipment breakdowns are outside the respon-

NPOJUPSJOH UIBO BO BVUP QBSUT QMBOU UIBU SVOT KVTU UXP

sibility of the traditional maintenance function, includ-

shifts five days a week.

ing such reasons as inappropriate operating procedures,

In planning preventive maintenance schedules, Kraft

nonspecification parts, and poor design. â&#x20AC;&#x153;Predictive

Foods Inc. determined that sanitation of the equipment

technologies should be used as a plant or process opti-

didnâ&#x20AC;&#x2122;t need to take place dailyâ&#x20AC;&#x201D;because regulations fo-

NJ[BUJPO UPPM w4

cus on containment thresholds, not daily practices. In

Use strategic asset management to make smart

contrast, Kraft constantly monitors its packaging ma-

growth decisions: Strategic asset management data helps

chinery for optimization because packaging is crucial

to make decisions that foster growth. A manufacturer

in adding value to its products, which need to arrive in

with a sophisticated asset-management strategy can use

customersâ&#x20AC;&#x2122; hands looking attractive and intact.6

it to simultaneously grow and contain costs by maximiz-

Determine comfort levels in sharing information

ing assets and capacity. â&#x20AC;&#x153;Typical results of an effective

and relinquishing control: Manufacturers usually engage

strategic plan for asset management include a 20% to

some level of outside support in strategic asset manage-

50% reduction in maintenance cost accompanied by a

ment. This ranges from purchasing a software solution

5% to 10% increase in real production capacity, with

with limited consultation to completely outsourcing

OP DBQJUBM JOWFTUNFOU JO QSPEVDUJPO FRVJQNFOU w XSJUFT

all asset-management activities. Savvy executives have

James Davis, VP and regional manager for Strategic Asset

a solid understanding of internal capabilities and risk

Management International. â&#x20AC;&#x153;The tangible results include

tolerances before determining which route to choose.

a significant increase in profitability accompanied by a

For example, a plant with standard equipment might

ESBNBUJD SFEVDUJPO JO VOJU DPTU w5

be more willing to outsource control of that equipment

Align strategic asset management metrics and

than a plant with heavily customized equipment.

practices to sector and/or regulatory needs: This prevents wasteful overuse of strategic asset management, such as excessive data collection or too-frequent

4 R. Keith Mobley, An Introduction to Predictive Maintenance, Second Edition #VUUFSXPSUI )FJOFNBOO 8PCVSO .BTT 5 i"O 0WFSWJFX PG B 4USBUFHJD *OJUJBUJWF GPS "TTFU .BOBHFNFOU w +BNFT 8 %BWJT 1& 4USBUFHJD "TTFU .BOBHFNFOU *OUFSOBUJPOBM --$

www.sami.com, 2008.

6 i3PDLXFMM "VUPNBUJPO T 1BSUOFSTIJQ XJUI ,SBGU 1SPmUBCJMJUZ XJUI 0&& w "3$ "EWJTPSZ (SPVQ +BOVBSZ

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Strategic Asset Management

Moving Forward with Strategic Asset Management

Progress toward strategic objectives

4. Long-term problem prevention 3. Fix the problem 2. Identify the gap 1. Understand the situation

Duration / Time

Strategic Asset Management: Where to Start?

20

1. Understanding the situation: The first step toward

Strategic asset management brings significant benefit

building a strategic asset management program is assess-

to overall operations (see Big Picture) and, ultimately,

ing problem issues associated with equipment; be sure,

to a company as location improvements roll up, but

too, that metrics are in place to fully understand the

application of strategic asset management requires sig-

operation (KPIs) as well as specific equipment perfor-

nificant planning. In assembly or kitting-centric opera-

mance and maintenance tracking measures (or put these

tions, where machinery such as conveyers are easily

metrics in place if they donâ&#x20AC;&#x2122;t exist).

maintained and replaced, sophisticated strategic asset

2. Identifying performance gaps: Few if any opera-

management doesnâ&#x20AC;&#x2122;t make sense. Similarly, manufactur-

tions run like clockwork, but you should know just how

ers that derive most of their competitive advantage from

far you are from achieving your goals as an organization

proprietary processes and processing equipment, such

and the role that equipment plays in meeting or missing

as medical biotech manufacturers, should be particu-

those goals (e.g., growth, profitability).

larly careful in determining how much they outsource

3. Fixing problems: Using a rigorous, scientific

while maintaining equipment engineering and mainte-

method of problem solving, such as PDCA (plan-do-

nance bench strength.

check-act), focus on closing a gap, often through the

Strategic asset management makes the biggest differ-

elimination of waste in order to reduce costs associ-

ence in traditional industries dependent on expensive

ated with maintenance, parts inventory, and labor. But

and complex equipment. Its emphasis on cost cutting

problem solving also can address equipment-related

and customer service make it essential for competitive

safety issues. The challenge here is having an organiza-

advantage. In these operations, strategic asset manage-

tion culture focused on root-cause problem solving, not

ment is assessed and implemented by:

temporary fixes.

Trends in Manufacturing

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Strategic Asset Management

4. Planning for prevention: In this phase, begin

Strategic asset management wonâ&#x20AC;&#x2122;t solve problems

preventive maintenance and establish procedures for

PWFSOJHIU :FU XJUI DPOTJTUFOU FGGPSU FWFOUVBMMZ B mSN

parts inventory management and scheduled mainte-

will reach a stage in which long-term problem preven-

nance work. This should gradually improve material

tion takes precedence over firefighting and problem

flow, overall stability, and quality. Also focus on link-

resolution, often with dramatic bottom-line results.

ing machinery performance to corporate goals; manufacturers using strategic asset management eventually build a cache of knowledge about machine performance that helps to determine how to use that equipment for competitive advantage.

Big Picture The goals and targets of strategic asset managementâ&#x20AC;&#x201D;lower capital investment (higher return from existing investments), improved uptime (machine availability), enhanced customer value (retention rates), lower operating costs (reduced manufacturing costs), and support for continuous improvement (improvement methodology in place)â&#x20AC;&#x201D;collectively drive operations excellence.

The MPI Group aggregated plants from MPI Manufacturing Studies that exhibit above-normal performance for each goal (below): t -PXFS DBQJUBM JOWFTUNFOU 30*$ PS IJHIFS t *NQSPWFE VQUJNF .BDIJOF BWBJMBCJMJUZ PG PS IJHIFS t &OIBODFE DVTUPNFS FYQFSJFODFT $VTUPNFS SFUFOUJPO SBUF PG PS IJHIFS t -PXFS PQFSBUJOH DPTUT 5ISFF ZFBS NBOVGBDUVSJOH DPTU SFEVDUJPOT t 4VQQPSU DPOUJOVPVT JNQSPWFNFOU *NQSPWFNFOU NFUIPEPMPHZ JFT JO QMBDF This group enjoys significantly better productivity and profitability than other plants: productivity TBMFT QFS FNQMPZFF PG NFEJBO BOE HSPTT QSPmU PG WT QSPEVDUJWJUZ PG NFEJBO BOE HSPTT QSPmU PG BU UIF PUIFS QMBOUT 7

7 MPI Manufacturing Study, combined U.S. data from 2006-2010 studies, The MPI Group, 2011.

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Notes

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22

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Capacity Optimization

Capacity Optimization — Getting the Most from Operations

T

he ability to squeeze every ounce of pro-

this process and establish safe levels of inventories, ex-

ductivity from existing operations can mean

ecutives often rely on complex formulas and information

thousands of dollars in savings. Executives

technologies; yet the metrics underlying this process are

have increasingly come to understand that

often disarmingly simple. Identifying and understanding

maximum output does not equate to profitable produc-

these common building blocks of success are a critical

tivity, and are instead seeking to boost margins while at

step in optimizing capacity and profitability.

the same time preventing overproduction and bloated inventories. Indeed, the savviest manufacturers now focus on capacity optimization—the ability to efficiently

Production Capability

produce exactly what’s needed, when it’s needed, with

Production volume as a percentage of designed plant

the minimum inventory that ensures customer demands

capacity is a measure that helps to indicate when a

can be satisfied.

plant is outgrowing its facility and when new capacity (i.e., new plants or expansions) may be required for

Output vs. Optimization

volume increases. If, for example, a plant designed to produce 10,000 units per year has reached its limit,

Widespread adoption of manufacturing strategies that

more capacity can come from this location only through

link production to customer demand—such as lean

process improvements, expansion, or additional labor.

manufacturing, the Toyota Production System, and ag-

This metric also helps COOs to evaluate the relative

ile manufacturing—has created a managerial revolution.

productivity and health of an entire portfolio of plants:

Manufacturing executives understand that producing

i.e., if production volume as a percentage of designed

more items faster isn’t necessarily better. Old-fashioned

capacity is consistently low and/or falling, that’s a pretty

“equipment utilization,” in which plants would run

good indication that tough decisions loom (e.g., plant

product simply to keep equipment active—without con-

closures or consolidations).

cern for customer demand—has been discredited as a

Production volume as a percentage of designed

flawed strategy that generates excess inventory and crip-

capacity also is useful at the plant level in determining

ples profitability.

whether a facility is poorly managed or scheduled. For

Manufacturing leaders now emphasize achieving

example, if significant amounts of capacity go unused

greater value from material (i.e., raw materials, work-in-

for long periods, yet the plant requires consistent use of

process, and finished-goods inventories), labor forces,

overtime and expediting, this points to ongoing produc-

and plant equipment and capacity, trying to synchronize

tion and/or equipment availability problems, or perhaps

these inputs with actual customer orders. This is easier

issues with how work is scheduled and sequenced.

said than done; unanticipated spikes in demand and supply-chain interruptions can cause missed deliveries and damaged customer relationships. To help manage

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Capacity Optimization

Capacity usage also is a

manufacturing

Production volume as a percent of designed capacity also is useful at the plant level in determining whether a facility is poorly managed or scheduled. For example, if significant amounts of capacity go unused for long periods, yet the plant requires consistent use of overtime and expediting, this points to ongoing production and/or equipment availability problems, or perhaps issues with how work is scheduled and sequenced.

barom-

eter that shows the broad health

of

an

industry;

many executives consider the

“healthy”

threshold

to be around 80%. That’s not been the case recently, as the 2010 MPI Manufacturing

Study

showed

production-unit volume as a percentage of designed plant capacity at 64% (me-

72% (median).2 Individual manufacturers should assess how capacity utilization stacks up against other plants in a given region and within a specific industry (Figure 1). If capacity usage is low compared to industry data, why? If it’s high compared to regional data and demand is expected to continue, what are the best options for handling that

dian), down from 70% (median) in

2008/09.1

For plants

demand (e.g., expand, lease capacity, outsource)?

surveyed by MPI for 2006-2010, capacity usage was Production volume (as % of designed plant capacity) All Manufacturing

Mean

Median

69.6%

72.0%

Food Manufacturing

73.4%

80.0%

Beverage and Tobacco Product Manufacturing

87.5%

87.5%

Textile Mills

71.9%

75.0%

Textile Product Mills

80.8%

80.0%

Apparel Manufacturing

53.5%

60.0%

Leather and Allied Product Manufacturing

71.7%

80.0%

Wood Product Manufacturing

70.7%

75.0%

Paper Manufacturing

74.1%

80.0%

Printing and Related Support Activities

62.2%

69.0%

Petroleum and Coal Products Manufacturing

64.8%

60.0%

Chemical Manufacturing

64.3%

69.0%

Plastics and Rubber Products Manufacturing

71.6%

72.0%

Nonmetallic Mineral Product Manufacturing

70.8%

75.0%

Primary Metal Manufacturing

70.4%

70.5%

Fabricated Metal Product Manufacturing

69.0%

70.0%

Machinery Manufacturing

70.9%

75.0%

Computer and Electronic Product Manufacturing

68.0%

75.0%

Electrical Equipment, Appliance, and Component Manufacturing

70.1%

70.0%

Transportation Equipment Manufacturing

72.0%

75.0%

Furniture and Related Product Manufacturing

68.8%

70.0%

Miscellaneous Manufacturing

66.8%

70.0%

Source: MPI Manufacturing Study, 2006-2010.

Figure 1.

1 MPI Manufacturing Study, U.S. data, 2010 and 2008/09.

2 MPI Manufacturing Study, combined U.S. data from 2006 – 2010 studies, The MPI Group, 2011.

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Trends in Manufacturing

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Capacity Optimization

Availability and Reliability

ten (typically as a percentage of scheduled uptime) is

Even when the capacity in a plant has reached its lim-

it available? And while 100% machine availability is

it, the ability to efficiently produce the right amount of

ideal, itâ&#x20AC;&#x2122;s not realistic. Equipment breaks down, and

product as needed can be severely undermined by any

some industries and manufacturing environments are

number of human and machine factors.

exceptionally hard on equipment. Machine availability

Many measures help manufacturers assess equip-

is 90% (median), according to the MPI Manufacturing

ment reliability; one of the most common is machine

Study, but each organization should compare itself to

availabilityâ&#x20AC;&#x201D;when the plant needs a piece of equip-

plants in similar industries (Figure 2).

ment to operate and help produce product, how ofMachine availability (as % of scheduled uptime) Mean

Median

All Manufacturing

80.0%

90.0%

Food Manufacturing

73.0%

83.0%

Beverage and Tobacco Product Manufacturing

92.5%

92.5%

Textile Mills

83.2%

90.0%

Textile Product Mills

80.8%

92.0%

Apparel Manufacturing

84.4%

94.0%

Leather and Allied Product Manufacturing

71.7%

80.0%

Wood Product Manufacturing

81.5%

90.0%

Paper Manufacturing

76.8%

86.0%

Printing and Related Support Activities

76.4%

90.0%

Petroleum and Coal Products Manufacturing

86.4%

90.0%

Chemical Manufacturing

81.4%

90.0%

Plastics and Rubber Products Manufacturing

81.5%

90.0%

Nonmetallic Mineral Product Manufacturing

75.9%

88.0%

Primary Metal Manufacturing

83.4%

90.0%

Fabricated Metal Product Manufacturing

79.4%

85.0%

Machinery Manufacturing

80.8%

90.0%

Computer and Electronic Product Manufacturing

81.0%

90.0%

Electrical Equipment, Appliance, and Component Manufacturing

75.6%

85.0%

Transportation Equipment Manufacturing

72.0%

75.0%

Furniture and Related Product Manufacturing

78.7%

85.0%

Miscellaneous Manufacturing

79.9%

90.0%

Source: MPI Manufacturing Study, 2006-2010.

Figure 2.

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25

Capacity Optimization

To understand plant-wide machine availability, the

Just as important as equipment reliability is the

measure must be tracked by individual machine; a line

reliability of personnel, processes, and machines to

dependent upon 10 machines needs only one break-

manufacture quality product. Every product that is

down to stop production. Machine availability also can

reworked, scrapped, or returned by the customer is a

be tracked to deduct for setup times and changeovers,

productâ&#x20AC;&#x2122;s worth of output gone to waste. Thereâ&#x20AC;&#x2122;s no

potential indicators that capacity is being hamstrung

limit to the quality measures available to assess the

by excessive setup and changeover times (i.e., sched-

performance of a plant, line, cell, or product family:

uling improvements are needed) or inferior equipment

t 4DSBQ BOE SFXPSL SBUFT or ratios, either as percent-

changeovers. Remember, too, that improving machine

ages of hours worked, units produced, sales vol-

availability by reducing the number of changeovers

umes, or some other measure of total production;

wonâ&#x20AC;&#x2122;t solve the changeover problem. Why? Because

t 'JOJTIFE QSPEVDU ZJFMET (percentage of products at

effort is better spent on increasing changeover speed,

the completion of production that pass inspection);

which then allows a plant to conduct more change-

t *O QSPDFTT ZJFMET particularly at critical process points

overs, permitting greater mix of product to move

upon which overall product quality may hinge;

through the factory more efficiently. This added flex-

t 8BSSBOUZ DPTUT as raw figures or ratios; and

ibility will minimize the inventory required to satisfy

t $VTUPNFS SFKFDU SBUFT

customer demand.

Customer rejects are clear indications of cus-

Other measures that illuminate machine availabil-

tomersâ&#x20AC;&#x2122; perceptions of value. For example, one auto

ity are figures such as BWFSBHF UJNF CFUXFFO FRVJQNFOU

supplier had difficulties with a high rework rate for

failures (indicating that machines with more frequent

products coming out of a chrome paint process. After

breakdowns should be priorities for maintenance staff)

months of lost productivity as numerous parts were

and SFBDUJWF NBJOUFOBODF tracked by hours or as a

repainted, the plant staff realized that the majority of

percentage of all maintenance work (indicating a need

rejects were flawed only on the B side of the product;

for more preventive or predictive maintenance prac-

side A was nearly always perfect. Analysis of the prob-

tices to stop unexpected equipment failures). Reactive

lem revealed that side B was difficult to paint because

work usually involves a production stoppageâ&#x20AC;&#x201D;needed

design engineers never intended it to be paintedâ&#x20AC;&#x201D;it

capacity going unusedâ&#x20AC;&#x201D;and may occur when replace-

would eventually be attached directly to the auto body

ment parts or maintenance personnel are not available

at the OEM and never seen again. Moreover, the cus-

to resolve the breakdown.

tomer didnâ&#x20AC;&#x2122;t care how side B was painted and would

Superb equipment performance means little with-

not have rejected the parts the supplier was scrapping.

out superb people to operate it. Availability also reflects

So while itâ&#x20AC;&#x2122;s critical to prevent poor quality from ever

measures within the labor force, such as absenteeism

reaching your customer, itâ&#x20AC;&#x2122;s also necessary to clearly

rates (missing workers can severely affect a cellâ&#x20AC;&#x2122;s or

understand what the customer expects.

lineâ&#x20AC;&#x2122;s productivity), labor turnover rates (new employees will take longer to get up to speed than plant-floor veterans), and JOKVSZ BOE JMMOFTT SBUFT (high rates often coincide with high absenteeism and turnover rates, indicating dangerous working conditions and poorly functioning equipment). Root causes of low measures often point to a dissatisfied workforce, unsafe working conditions, noncompetitive wages, or lack of empowerment or potential for employee involvementâ&#x20AC;&#x201D;all factors that eat at productivity.

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Capacity Optimization

Quality measures such as JO QSPDFTT ZJFME SBUFT

An inability to produce up to takt time means that

should be tracked as near to real-time as possible;

customer demand cannot be directly satisfied (i.e., not

this allows plants to stop production when the mea-

enough product coming off the line); root causes could

sures indicate that quality processes are out of con-

be equipment and processes unable to operate at the re-

trol. Savvy manufacturers understand that itâ&#x20AC;&#x2122;s better to

quired speeds when needed (e.g., an ailing machine or

have a line or cell down for 10 minutes, conduct quick

an understaffed work cell). Conversely, exceeding takt

problem-solving, and get to a root cause and a sound

time means that the plant is producing more product

solution rather than to track quality only at the end of

than customers demand, which could turn into excess

the lineâ&#x20AC;&#x201D;after producing an hourâ&#x20AC;&#x2122;s (or dayâ&#x20AC;&#x2122;s) worth of

inventory or wasted output.

bad product.

Most organizations also track the time that it takes to produce goods, either from start to finish (referred to as

Speed and Efficiency

manufacturing cycle by some and manufacturing lead time by others) or from the time an order is received

Speed, too, is important in helping to optimize capac-

until it is shipped (PSEFS UP TIJQ MFBE UJNF). The efficiency

ity, but only in the sense that speed is aligned with the

of these production times also can be tracked based on

pace of demand. Lean manufacturers establish produc-

the percentage of time that operators or equipment are

tion speed by calculating UBLU UJNF which is the time

actually adding value to a given product rather than

available to manufacture product divided by customer

merely moving it along or having product sit in storage

demand for the product.3 For example, in a continuous-

(WBMVF BEE UJNF as a percentage of the total time). Value-

flow operation, if takt is one minute, then a product is

add time is an excellent internal benchmark to gauge

moving off final assembly every minute, a product exits

production efficiency, but the ratio is accurately tracked

a process step every minute, and an operator completes

by only a handful of organizations, mostly those dedi-

his work on a product every minute. While understand

cated to lean manufacturing. Cycle time and lead times

ing takt time is necessary to schedule a plant, the abil-

are generally available, but industry-specific (Figure 3

ity to produce accurately to takt time indicates efficient

on next page).

alignment with customer demand. For example, three work tasks in a cell that require less than a minute each are combined for a single operator to achieve a desired one-minute takt.

3 -FBO -FYJDPO Lean Enterprise Institute, 2003.

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Capacity Optimization

Manufacturing cycle time (start of plant production to completion of primary product); hours All Manufacturing

Mean

Median

150.0

18.0

Food Manufacturing

53.9

4.5

Beverage and Tobacco Product Manufacturing

55.0

55.0

Textile Mills

36.2

16.5

Textile Product Mills

88.7

120.0

Apparel Manufacturing

15.3

2.3

301.3

160.0

Wood Product Manufacturing

52.0

12.0

Paper Manufacturing

37.3

11.5

Printing and Related Support Activities

41.1

10.0

Petroleum and Coal Products Manufacturing

24.0

24.0

Chemical Manufacturing

175.6

14.0

Plastics and Rubber Products Manufacturing

632.1

19.5

Nonmetallic Mineral Product Manufacturing

161.0

38.0

59.8

24.0

Fabricated Metal Product Manufacturing

134.3

20.0

Machinery Manufacturing

246.1

24.0

Computer and Electronic Product Manufacturing

72.9

17.5

Electrical Equipment, Appliance, and Component Manufacturing

70.2

10.0

137.2

24.0

Furniture and Related Product Manufacturing

56.2

23.0

Miscellaneous Manufacturing

59.6

12.0

Leather and Allied Product Manufacturing

Primary Metal Manufacturing

Transportation Equipment Manufacturing

Source: MPI Manufacturing Study, 2006-2010.

Figure 3.

Collective Measures â&#x20AC;&#x201D; OEE, LOE, and OPE

around a piece of equipment, it can be rolled up to measure the performance of a line or work cell, or broadly applied to a full plant (Figure 4). OEE can quickly give

The internal plant characteristics of availability, reli-

a glimpse of a number of problems in the plantâ&#x20AC;&#x201D;from

ability, and speed come together to provide an image

equipment breakdowns to sloppy quality practices.

of the plantâ&#x20AC;&#x2122;s overall capacity optimization. One traditional measure that pulls together the physical aspects of a facilityâ&#x20AC;&#x2122;s performance is PWFSBMM FRVJQNFOU FGGFD tiveness (OEE, also referred to as PQFSBUJOH FRVJQNFOU efficiency). OEE is based on a formula that multiplies the quality rate of the equipment (yield percentage) by the availability of the equipment when needed (machine availability) by the equipmentâ&#x20AC;&#x2122;s run rate as a percentage of designed rate. While OEE is commonly captured

28

Trends in Manufacturing

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Capacity Optimization

Overall equipment effectiveness (% machine availability X % quality yield X % of optimal rate that equipment operates) Mean

Median

All Manufacturing

75.7%

80.0%

Food Manufacturing

71.8%

80.0%

Beverage and Tobacco Product Manufacturing

85.0%

85.0%

Textile Mills

79.3%

85.0%

Textile Product Mills

78.8%

85.0%

Apparel Manufacturing

81.6%

82.5%

Leather and Allied Product Manufacturing

75.3%

75.0%

Wood Product Manufacturing

74.5%

80.0%

Paper Manufacturing

72.0%

74.5%

Printing and Related Support Activities

74.9%

80.0%

Petroleum and Coal Products Manufacturing

80.7%

84.5%

Chemical Manufacturing

73.3%

76.0%

Plastics and Rubber Products Manufacturing

79.8%

81.0%

Nonmetallic Mineral Product Manufacturing

73.3%

82.0%

Primary Metal Manufacturing

72.5%

75.0%

Fabricated Metal Product Manufacturing

76.6%

80.0%

Machinery Manufacturing

77.4%

80.0%

Computer and Electronic Product Manufacturing

74.1%

79.5%

Electrical Equipment, Appliance, and Component Manufacturing

73.7%

80.0%

Transportation Equipment Manufacturing

78.4%

80.0%

Furniture and Related Product Manufacturing

74.5%

80.0%

Miscellaneous Manufacturing

76.8%

80.0%

Source: MPI Manufacturing Study, 2006-2010.

Figure 4.

On the workforce side of the plant, The MPI Group

force to supervise itself and autonomously improve pro-

advocates a measure called labor operating efficiency

duction (this measure can be expressed either as a per-

(LOE), which pulls together the availability of workforce

centage of workforce in empowered teams or a general

(nonabsenteeism rate), the accumulated knowledge-

level of empowerment within the facility). The multiple

depth of the workforce (annual labor retention rate,

of these factors leads to LOE. OEE, LOE, and capacity

which is the percentage still in place after voluntary and

usage can be multiplied into a measure of overall plant

involuntary exits), and the quality of the workforce as

efficiency (OPE) (see $BMDVMBUF 01&).

defined by managementâ&#x20AC;&#x2122;s ability to empower the work-

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Capacity Optimization

Calculate OPE The following example takes data for U.S. manufacturers—MPI Manufacturing Study 2006-2010 metrics and U.S. labor data—and calculates an overall plant efficiency (OPE). Individual plants or companies can run the same calculations to determine their OPE: 1. Compute OEE by multiplying machine availability times quality yield rate times run rate.

2. Compute LOE by multiplying the percentage of the workforce that is empowered times labor retention rate times nonabsenteeism rate.

3. Compute OPE by multiplying the plant’s capacity usage times OEE times LOE. OPE for U.S. manufacturers is approximately 17%.

1

2

Machine availability %

90.0%

Quality yield %

97.0%

Run rate %

91.6%*

Empowerment %

32.8%**

Annual labor retention %

93.0%

Nonabsenteeism %

97.3%

Machine availability X Quality yield X Run rate = 80.0% OEE

Empowerment X Labor retention X Nonabsenteeism =

29.7% LOE 72.0%

Capacity usage % 3

OEE X LOE X Capacity usage =

17.1% OPE

* Run rate based on reported OEE divided by machine availability and quality yield. ** Empowered percentage computed from weighted averages for category responses.

Source: MPI Manufacturing Study, 2006-2010; U.S. Bureau of Labor Statistics (nonabsenteeism rate)

Based on these three components of efficiency—

based on 8% labor turnover, 10% absenteeism, and 33%

equipment, people, and space—executives can assess

empowerment)—would find that this facility has a poor

the overall efficiency of a plant network as well as in-

OPE of approximately 11%. Meanwhile, Plant B—with

dividual sites; decisions can then be made on how to

a solid OEE of 85% and a satisfied and involved work-

allocate production, to improve a facility, or to augment

force (LOE of 85% based on 90% empowerment, 5% la-

a network of facilities. OPE helps to identify and evalu-

bor turnover, and 1% absenteeism)—maintains an OPE

ate where “real” capacity might exist in a corporate net-

of approximately 51%. Clearly, Plant B has been doing a

work of plants and which facilities are making the most

far better job of optimizing the equipment and people it

of their resources. For example, a COO is trying to place

has, and though it doesn’t have as much unused space as

a new product and is evaluating two plants. Plant A

Plant A, it should be rewarded the new production. Sim-

has 40% available production capacity and Plant B has

ilarly, the OPE analysis indicates that there is far more

just 30% available capacity. The quick decision might

than just 40% capacity available at Plant A, provided

be to move production into Plant A. But an OPE review

improvements are made to solve the problems that led

of Plant A—which takes into account a shaky OEE of

to its poor OEE and disgruntled workforce.

70%, and a troublesome labor environment (LOE of 27%

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Trends in Manufacturing

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Capacity Optimization

In a time when many manufacturers chase low-

that address customer order changes by volume and/or

cost manufacturing options overseas, it’s worth analyz-

NJY as well as other nonproduction factors that directly

ing how efficient and low-cost manufacturing could be

influence customer demand and production’s ability to

right at home, whether that’s in North America, Europe

meet demand. For example, corporate marketing or pro-

or elsewhere. OPE is a useful new way to assess those

motional campaigns that create a surge in demand with-

possibilities, especially when measured alongside labor

out alerting manufacturing executives are sure to wreak

rates, to get a true measure of cost.

havoc with the best-laid plans to optimize capacity.

There are dozens more measures available to manu-

Measure and Manage

facturers and many resources to find metrics specific to any type of operations environment. Savvy manufac-

Not all the problems that can throttle efforts to optimize

turers will invest the time and effort to adopt the right

capacity occur within a plant’s four walls; manufactur-

measures for their firms—those that help them to solve

ers also need to consider activities both upstream and

production problems, optimize capacity, boost margins,

downstream of the plant. Upstream issues that can be

and increase profitability. Smart manufacturers measure

measured include TVQQMJFS EFMJWFSZ SFMJBCJMJUZ and

it, improve it—and then measure it again.

RVBMJUZ; downstream issues can be monitored by metrics

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Notes

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32

Trends in Manufacturing

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Flexible Manufacturing

Flexible Manufacturing â&#x20AC;&#x201D; Reconfiguring Operations for Competitive Advantage

M

anufacturers are moving toward a new

ideas move seamlessly and swiftly from design into pro-

era in productionâ&#x20AC;&#x201D;a time in which

EVDUJPO +VTU BT JNQPSUBOUMZ FRVJQNFOU NVTU CF nFYJCMF

they can dynamically reconfigure their

enough to adapt to new designs, as new machinery canâ&#x20AC;&#x2122;t

operations to make products for tomor-

be installed for every new SKU.

row that differ dramatically from what they make today.

And make no mistake about it, SKUs are proliferat-

Manufacturers will eventually be limited only by their

ing. Some 42% of manufacturers annually launch 5% or

ability to translate the voice of the customer into rapid,

more of their total SKU lineup, and 6% of manufactur-

efficient product designs.

ers introduce one-fifth or more of their SKUs annually.

This new production concept is known as flexible

Companies with advanced innovation practices are even

manufacturing and is the result of the convergence of

more likely to renew their SKU lineups: 54% of manu-

five related trends:

facturers at or near world-class customer-focused innova-

t 3BQJEMZ DIBOHJOH DVTUPNFS EFNBOET

tion launch 5% or more of SKUs annually, with 22% of

t +VTU JO UJNF JOWFOUPSZ QSBDUJDFT

this group launching one-fifth or more of SKUs annually

t .VMUJTLJMMFE XPSLGPSDFT DBQBCMF PG NBOBHJOH

(Figure 1 PO OFYU QBHF 1

varied tasks,

Similarly, 70% of all manufacturers derive 5% or

t 3JHJE HMPCBM TVQQMZ DIBJOT JO OFFE PG BHJMJUZ BOE

more of their annual sales from products introduced in

t /FXMZ BWBJMBCMF nFYJCMF FRVJQNFOU UFDIOPMPHJFT

UIF QBTU UISFF ZFBST POF RVBSUFS PG NBOVGBDUVSFST SFQPSU that more than 25% of sales are from products introduced

Rapidly Changing Customer Demands Customer buying patterns change more rapidly than

JO UIF QBTU UISFF ZFBST "QQSPYJNBUFMZ PG NBOVGBDturers at or near world-class status derive more than 25% of sales from products introduced in the past three years (Figure 2 PO OFYU QBHF 2

ever, significantly shortening product lifecyclesâ&#x20AC;&#x201D;and making the penalty for missing a product launch window even more damaging. Itâ&#x20AC;&#x2122;s crucial that new-product

1 /FYU (FOFSBUJPO .BOVGBDUVSJOH /(.

4UVEZ .BOVGBDUVSJOH 1FSGPSNBODF *OTUJUVUF 2 .BOVGBDUVSFST XFSF BTLFE JO UIF /(. 4UVEZ UP BTTFTT UIFJS QSPHSFTT UPXBSE XPSME DMBTT DVTUPNFS GPDVTFE JOOPWBUJPO

identified as an ability to â&#x20AC;&#x153;develop, make, and market new products and services that meet customersâ&#x20AC;&#x2122; needs at a pace faster than the competitionâ&#x20AC;?; 46% of companies were at or near world-class innovation.

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33

Flexible Manufacturing

All companies

Furthest from world-class customer-focused innovation

At or near world-class customer-focused innovation

<5%

57.7%

67.6%

46.0%

5 â&#x20AC;&#x201C; 10%

26.5%

21.9%

32.1%

11 â&#x20AC;&#x201C; 20%

9.6%

6.5%

13.4%

>20%

6.1%

4.0%

8.5%

All companies

Furthest from world-class customer-focused innovation

At or near world-class customer-focused innovation

<5%

30.4%

38.4%

20.8%

5 â&#x20AC;&#x201C; 25%

45.0%

43.4%

47.0%

26 â&#x20AC;&#x201C; 50%

16.0%

12.0%

20.8%

>50%

8.6%

6.3%

11.4%

How many new products as a percentage of total SKUs are launched annually (count only new SKUs, not a product iteration or line extension)?

Source: Next Generation Manufacturing Study, 2009.

Figure 1.

Approximately what percentage of annual sales are derived from products introduced in the past three years?

Source: Next Generation Manufacturing Study, 2009.

Figure 2.

The propensity to develop new products is even

tion problems, consumes space and resources to manage

more pronounced in consumer products industries. For

JU BOE DBO RVJDLMZ CFDPNF PCTPMFUF CBTFE PO DVTUPNFS

FYBNQMF PG DPNQVUFS BOE FMFDUSPOJDT NBOVGBDUVS-

EFNBOE USFOET "OE DBTI nPX JT RVJDLMZ DPOTVNFE CZ

ers annually launch 5% or more of their total SKU line-

piles of inventory lying idle in warehouses, on shipping

up, and 10% of computer and electronics manufactur-

docks, or in transport.

ers introduce one-fifth or more of their SKUs annually. .PSF UIBO UISFF RVBSUFST PG DPNQVUFS BOE FMFDUSPOJDT NBOVGBDUVSFST EFSJWF PS NPSF PG UIFJS BOOVBM sales from products introduced in the past three years; PG DPNQVUFS BOE FMFDUSPOJDT NBOVGBDUVSFST SFQPSU that more than 25% of sales come from products introduced in the past three years.

Just-in-Time (JIT) Operations .BOVGBDUVSFST UPEBZ QMBDF FYUSBPSEJOBSZ FNQIBTJT PO maintaining the minimum inventory necessary to ensure timely customer deliveries, including buffer inventory to manage spikes in customer demand and safety/emergency stock to cover known variations in production or supplier capabilities. Why? Largely because lean manuGBDUVSJOH BEWPDBUFT IBWF UBVHIU FYFDVUJWFT UIBU FYDFTT inventoryâ&#x20AC;&#x201D;whether finished-goods, work-in-progress, or supplier components and materialâ&#x20AC;&#x201D;obscures produc /FYU (FOFSBUJPO .BOVGBDUVSJOH 4UVEZ .BOVGBDUVSJOH 1FSGPSNBODF *OTUJUVUF

34

Trends in Manufacturing

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Flexible Manufacturing

Which of the following practices are used to manage inventory?

All plants

Furthest from world-class

At or near world-class

Just-in-time supplier deliveries

45.4%

41.3%

55.5%

Pull systems with kanban signals

43.9%

38.5%

57.3%

Vendor-managed or -owned inventories

37.9%

34.5%

46.8%

Quick equipment changeovers

30.9%

25.1%

44.9%

One-piece flow techniques

28.7%

23.7%

43.8%

Parts/goods supermarkets

20.5%

16.6%

29.4%

Production leveling/heijunka

19.3%

14.7%

30.6%

RFID and computerized inventory tracking

11.8%

9.4%

17.2%

None of these

16.3%

20.0%

7.0%

Source: MPI Manufacturing Study, 2006-2010.

Figure 3. /FBSMZ IBMG PG 6 4 NBOVGBDUVSJOH QMBOUT IBWF

UP DIBOHF PWFS B QJFDF PG FRVJQNFOU UP BDDPNNPEBUF

BEPQUFE +*5 TVQQMJFS EFMJWFSJFT PGUFO USJHHFS-

a different SKU, operators will be reluctant to conduct

ing their production schedules using pull systems

changeovers, and will likely produce more of the SKU

with kanban signals4 Figure 3 5 Manufactur-

during each production run. This results in high inven-

ing plants that are at or near world-class manufactur-

tories of materials waiting to be turned into the SKU, as

ing status6 (have made â&#x20AC;&#x153;significant progressâ&#x20AC;? or â&#x20AC;&#x153;fully

well as high inventory of the finished-good SKU.

BDIJFWFEw BSF OFBSMZ UXJDF BT MJLFMZ UP VTF B WBSJFUZ PG MFBO JOWFOUPSZ NBOBHFNFOU UPPMT 'PS FYBNQMF PG NBOVGBDUVSFST BU PS OFBS XPSME DMBTT TUBUVT VTF RVJDL FRVJQNFOU DIBOHFPWFST WT PG NBOVGBDUVSFST GVSthest from world-class status (made â&#x20AC;&#x153;no progressâ&#x20AC;? or POMZ iTPNF QSPHSFTTw

2VJDL FRVJQNFOU DIBOHFPWFST BSF DSJUJDBM JO UIF BEPQUJPO PG nFYJCMF NBOVGBDUVSJOH 2VJDL DIBOHFPWFST allow firms to rapidly shift production to accommodate changing customer demands, to efficiently level production schedules despite inconsistent short-term customer-demand patterns, and to maintain a tighter control of

JIT Improvements Harley-Davidson has used lean JIT practices internally and with suppliers to reshape its operations, enabling it to meet its demand windows with 75% less inventory. In removing inventory, HarleyDavidson was able to surface and solve problems hidden by high levels of inventory, improve productivity by 50%, and decrease scrap and rework by 68%.7

PWFSBMM JOWFOUPSZ 'PS FYBNQMF JG JU UBLFT TFWFSBM IPVST

4 &YUFSOBM DVTUPNFST PS EPXOTUSFBN JOUFSOBM DVTUPNFST TJHOBM B OFFE GPS QSPEVDU PS NBUFSJBMT SFTQFDUJWFMZ POMZ XIFO QSPEVDU PS NBUFSJBM IBT

been consumed.

5 .1* .BOVGBDUVSJOH 4UVEZ DPNCJOFE 6 4 EBUB GSPN TUVEJFT 5IF .1* (SPVQ OJFT XFSF BU PS OFBS XPSME DMBTT JOOPWBUJPO 6 1MBOU FYFDVUJWFT XFSF BTLFE UP BTTFTT UIF QMBOU T QSPHSFTT UPXBSE iXPSME DMBTT NBOVGBDUVSJOH TUBUVTw XFSF BU PS OFBS XPSME DMBTT TUBUVT 7 3FHJOBME #SVDF i" $BTF 4UVEZ PG )BSMFZ %BWJETPO T #VTJOFTT 1SBDUJDFT w $PMMFHF PG #VTJOFTT BOE 1VCMJD "ENJOJTUSBUJPO 6OJWFSTJUZ PG

Louisville, 2001.

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35

Flexible Manufacturing

Multiskilled Workers with Multifunctional Equipment

UIPSJUZ UP VTF UIFJS OFX TLJMMT "QQSPYJNBUFMZ PG

Workers must be as versatile as the machines they op-

IPVST BOOVBMMZ BU UIF FYUSFNF USBJO FBDI FN-

erate. The days of single-minded employees performing

ployee more than 40 hours annually. More than half of

the same task repeatedly have disappeared; production

manufacturing plants at or near world-class status train

iBTTPDJBUFTw OPX QFSGPSN NVMUJQMF KPC BTTJHONFOUT PO

employees more than 20 hours annually (Figure 4

manufacturing plants train each employee more than

B MJOF PS JO B XPSL DFMM GSFRVFOUMZ TXBQQJOH SPMFT XJUI

.PSF UIBO POF RVBSUFS PG NBOVGBDUVSJOH QMBOUT

DPMMFBHVFT 4JNJMBSMZ BO BTTPDJBUF JO BO FRVJQNFOU JO-

IBWF B NBKPSJUZ PG UIFJS XPSLGPSDFT QBSUJDJQBU-

tensive operation today may perform machine startup

ing in self-directed work teams; 46% of plants at or

activities; handle loading and unloading of multiple ma-

OFBS XPSME DMBTT NBOVGBDUVSJOH TUBUVT IBWF B NBKPSJUZ

chines; perform minor maintenance activities; and man-

of their workforces participating in self-directed work

BHF FRVJQNFOU DIBOHFPWFST PGUFO XJUIPVU NBJOUFOBODF

teams (Figure 5 8

staff participation.

Yet few employees walk into a manufacturing facilJUZ XJUI UIF TLJMMT OFDFTTBSZ UP XPSL JO B nFYJCMF NBOVfacturing environment. Savvy manufacturers know that they must train employees and then give them the au-

What are the average annual hours of formal training received by each plant employee?

All plants

Furthest from world-class

At or near world-class

Less than 8 hours

23.5%

29.3%

9.4%

8 â&#x20AC;&#x201C; 20 hours

39.6%

41.3%

36.0%

21 â&#x20AC;&#x201C; 40 hours

24.2%

20.3%

34.1%

More than 40 hours

12.6%

9.2%

20.6%

All plants

Furthest from world-class

At or near world-class

0%

24.9%

29.0%

15.5%

1 â&#x20AC;&#x201C; 25%

33.1%

37.8%

21.9%

26 â&#x20AC;&#x201C; 50%

13.7%

12.2%

16.6%

51 â&#x20AC;&#x201C; 75%

10.2%

8.6%

14.0%

76 â&#x20AC;&#x201C; 99%

8.0%

5.3%

14.5%

100%

10.2%

7.1%

17.5%

Source: MPI Manufacturing Study, 2006-2010.

Figure 4.

What percentage of production employees participate in empowered or self-directed work teams?

Source: MPI Manufacturing Study, 2006-2010.

Figure 5.

8 .1* .BOVGBDUVSJOH 4UVEZ DPNCJOFE 6 4 EBUB GSPN TUVEJFT 5IF .1* (SPVQ

36

Trends in Manufacturing

I

www.machinesitalia.org

Flexible Manufacturing

Rigid Global Supply Chains

TVQQMJFST XPVME SFDPOmHVSF QSPEVDUJPO FRVJQNFOU UP

/BUVSBM EJTBTUFST GSFRVFOUMZ TUJS DSJUJDJTN PG +*5 NBOV-

address shortages occurring elsewhere in the network.

facturing strategies when global supply chains are dis-

The problem of global supply-chain disruption isnâ&#x20AC;&#x2122;t

SVQUFE 5IF SFDFOU FBSUIRVBLF BOE UTVOBNJ UIBU EFW-

DBVTFE CZ +*5 CVU CZ SJHJE JOnFYJCMF TVQQMZ DIBJOT BOE

BTUBUFE OPSUIFSO +BQBO GPS FYBNQMF OPU POMZ DSFBUFE

poor supply-chain management. Manufacturers donâ&#x20AC;&#x2122;t

almost unimaginable human suffering, but also gener-

OFFE MFTT +*5 UIFZ OFFE NPSF nFYJCJMJUZ

BUFE FDPOPNJD XPFT GPS mSNT EPJOH CVTJOFTT JO +BQBO

Even under normal conditions, manufacturersâ&#x20AC;&#x2122; sup-

PS XJUI +BQBOFTF mSNT "VUPNPUJWF QMBOUT BSPVOE UIF

QMZ DIBJOT BSFO U UZQJDBMMZ nFYJCMF BOE BSF VOQSFQBSFE

XPSME GPS FYBNQMF IBMUFE QSPEVDUJPO BT UIFZ XBJUFE

UP NFFU VOFYQFDUFE DVTUPNFS EFNBOET FWFO GPS FYJTUJOH

GPS DSJUJDBM QBSUT GSPN +BQBO The Wall Street Journal re-

QSPEVDUT "QQSPYJNBUFMZ PG NBOVGBDUVSFST SFQPSU

QPSUFE UIBU i(. IBT CFFO VOBCMF UP TJ[F VQ UIF TDPQF

UIBU VOFYQFDUFE EFNBOET DBVTF FJUIFS NBKPS PS NJOPS

of the problem in large part because it will mostly be

delays in communicating demand signals throughout

GFMU UISPVHI TIPSUBHFT UIBU BGGFDU B DPNQMFY OFUXPSL PG

their supply chains, with standard delivery times like-

hundreds of smaller parts suppliers, a person familiar

MZ UP CF FYDFFEFE BOE PS FYDFTT JOWFOUPSZ SFRVJSFE UP

with the situation said.â&#x20AC;? More than a month after the

NFFU EFNBOE 0OMZ PG NBOVGBDUVSFST TBZ UIFZ DBO

disasters, shortages remained.

SFTQPOE UP VOFYQFDUFE DVTUPNFS EFNBOE XJUI iSFBM

(. BOE TJNJMBSMZ BGGFDUFE NBOVGBDUVSFST XJUI TVQ-

time communication of demand signal and entire sup-

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QMZ DIBJO nFYJCMF UP EFNBOE TQJLFTÂ&#x2030;TUBOEBSE EFMJWFSZ

suppliers elsewhere in the world making thousands

UJNFT DPOTJTUFOUMZ NFU BOE KVTU JO UJNF JOWFOUPSJFTw

of parts and components. Yet while the other suppli-

(Figure 6 PO OFYU QBHF 10

FST NJHIU IBWF TJNJMBS FRVJQNFOU BOE UIF LOPX IPX UP NBLF XIBU (. BOE PUIFST OFFE UIFZ EPO U IBWF UIF QSFDJTF FRVJQNFOU BOE UPPMJOH SFRVJSFE UP DPNQFOTBUF for those shortages. #VU JNBHJOF JG BVUPNBLFST BOE PUIFS NBOVGBDUVSFST BGGFDUFE CZ UIF EJTSVQUJPO IBE CFFO NPSF nFYJCMF in their development of supplier networks: identifying QSJNBSZ BOE CBDLVQ TVQQMJFST BOE SFRVJSJOH BEPQUJPO PG nFYJCMF NBOVGBDUVSJOH TZTUFNT UISPVHIPVU UIFJS TVQQMZ DIBJOT " CSPBEFS CBTF PG WFOEPST XJUI BDDFTT UP nFYJCMF NBDIJOFSZ DPVME RVJDLMZ SFBDU UP B EJTSVQUJPO #BDLVQ

4IBSPO 5FSMFQ BOE .JLF 3BNTFZ i4VQQMZ 4IPSUBHFT 4UBMM "VUPNBLFST w The Wall Street Journal .BSDI 10 /FYU (FOFSBUJPO .BOVGBDUVSJOH /(.

4UVEZ .BOVGBDUVSJOH 1FSGPSNBODF *OTUJUVUF

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37

Flexible Manufacturing

Figure 6. What best describes your end-to-end supply chain's ability to respond to unexpected customer demand for existing products?

(All companies)

4.4% 12.6% 33.0%

Major delays communicating demand signal throughout chain and most suppliers struggle to efficiently meet demandâ&#x20AC;&#x201D;standard delivery times dramatically exceeded and/or excessive inventory Minor delays in communicating demand signal throughout chain and some suppliers struggle to efficiently meet demandâ&#x20AC;&#x201D;standard delivery time exceeded and/or too much inventory Efficient communication of demand signal throughout chain with most suppliers efficiently satisfying demandâ&#x20AC;&#x201D;standard delivery times nearly met and right-sized inventories

50.1%

Real-time communication of demand signal and entire supply chain flexible to demand spikesâ&#x20AC;&#x201D;standard delivery times consistently met and just-in-time inventories Source: Next Generation Manufacturing Study, 2009.

"OE UIFSF T FWFO NPSF PQQPSUVOJUZ GPS nFYJCMF TZT-

Flexible Manufacturing Technologies

UFNT UP SFWPMVUJPOJ[F JOEVTUSZ "MUIPVHI EFTJHO TZTUFNT

.BOVGBDUVSFST BSF SFBEZ UP JOWFTU JO nFYJCJMJUZ BOE

of production systems to accommodate new designs

changeover capabilities: 88% of Food Manufacturing

has lagged, in part due to a lack of open standards for

NBHB[JOF SFBEFST GPPE NBOVGBDUVSJOH QMBOUT SFQPSU

FRVJQNFOU &OHJOFFST GSPN UIF 6OJWFSTJUZ PG ,FOUVDLZ

UIBU DIBOHFPWFST BOE QVSDIBTJOH FRVJQNFOU XJUI CFU-

0QFO %FTJHO 'PVOEBUJPO *OD BOE .BTTBDIVTFUUT *OTUJ-

ter changeover options is a concern in their plants; 41%

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DJUF UIJT BT B iNBKPSw DPODFSO &JHIUZ POF QFSDFOU PG UIF

BHJMF QSPEVDUJPO TZTUFNT SFRVJSFT B OFX TUZMF PG NBOV-

plants report that they run more than one product per

GBDUVSJOH FRVJQNFOU BOE QSPDFTTFT &RVJQNFOU NVTU CF

line per day.11

modular, easily reconfigured, and computer controlled

IBWF FOKPZFE SBQJE UFDIOPMPHJDBM BEWBODFT UIF BCJMJUZ

-FBEJOH FRVJQNFOU NBOVGBDUVSFST IBWF UBLFO OPUF

UISPVHI TUBOEBSE JOUFSGBDFT %FTJHOJOH DIBSBDUFSJ[JOH

BOE BSF MPPLJOH UP BEWBODF QSPEVDUJPO nFYJCJMJUZ CF-

BOE VTJOH B OFX HFOFSBUJPO PG NBOVGBDUVSJOH FRVJQ-

ZPOE DIBOHFPWFS DBQBCJMJUJFT 4PNF FRVJQNFOU NBLFST

ment remains a formidable challenge to implementing

are redefining what production means in the industries

agile systems in industry.â&#x20AC;?

UIFZ TFSWF 'PS FYBNQMF HBSNFOU QSPEVDUJPO USBEJUJPOally started with a fabric, which was dyed, cut, sewn, BOE mOBMMZ QSJOUFE BOE PS FNCSPJEFSFE #VU JO QBSUOFSship with Italian machinery manufacturer Santoni, Israel-based Tefron Ltd. introduced the concept of seamless technology for clothing manufacturing. With seamless production there is no fabric, as the manufacturer instead starts with yarn; a single Santoni machine weaves an entire garment in a few minutes, knitting in features such as hems and waistbands.12

11 i'PPE .BOVGBDUVSJOHhT .BSLFU 6QEBUF GPS "VHVTUÂ&#x2030;&RVJQNFOU $IBOHFPWFS w Food Manufacturing "VHVTU 12 â&#x20AC;&#x153;Santoni/Tefron Case Study,â&#x20AC;? Italian Trade Commissionâ&#x20AC;&#x201D;Chicago Office.

3 7BMBODF 4 ,JBOJ BOE 4 /BZGFI i0QFO %FTJHO PG .BOVGBDUVSJOH &RVJQNFOU w Mechanical Engineering, 2001.

38

Trends in Manufacturing

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Flexible Manufacturing

Automated Panel Bending Enhances Changeover Capabilities and Flexibility Many manufacturers produce multiple parts that are kitted into complete assemblies for customers. Technologies such as laser cutting have helped kitting operations remain flexibleâ&#x20AC;&#x201D;yet kitting presents challenges for bending operations and press brakes, which require a variety of punches and dies for bend geometries and material thicknesses. Salvagnini America introduced panel bender technology that enables a manufacturer to rapidly change between panels of significant differences (5 inches by 10 inches to 5 feet by 10 feet). â&#x20AC;&#x153;You have zero [manual] setup, because the tools position themselves to allow for clearances of long and short flanges,â&#x20AC;? says Bill Bossard, president of Salvagnini America. This means that changeovers between parts occur within six to eight seconds, a new program is launched, reference blocks and devices are positioned, hold-down tooling rearranges itself, and the machine is ready for operation. "This kind of equipment is ideal for getting closer to a lean, single-piece part flow," Bossard adds. "You might need to make thousands of products a year, and each assembly might have 50 parts. There's no reason why you couldn't run part No. 1 through 50, then repeat."14

5SVMZ nFYJCMF FRVJQNFOU DPVME SFWPMVUJPOJ[F UIF

distributed and cheaper, then their [availability] for

FRVJQNFOU JOEVTUSZ QPUFOUJBMMZ SFEVDJOH UIF BNPVOU

more local production will increase dramatically.â&#x20AC;? As

PG OFX FRVJQNFOU TPME BT NBOVGBDUVSFST SFQFBUFEMZ SF-

FYBNQMFT PG UIF QPTTJCJMJUJFT IF QPJOUT UP 3FQ3BQ BO

DPOmHVSF FYJTUJOH FRVJQNFOU UP BDDPNNPEBUF OFX EF-

PQFO TPVSDF EFTLUPQ % QSJOUFS UIBU DBO QSJOU QMBTUJD

signs and products (though this would likely increase

PCKFDUTÂ&#x2030;personal fabrication 15 and Fablabs (small-

FRVJQNFOU NBLFS SFWFOVFT GPS TFSWJDF NBJOUFOBODF

scale operations with computer-controlled tools and

QBSUT FUD "OE PQFO TUBOEBSET NJHIU NFBO TIBSJOHÂ&#x2030;PS

FRVJQNFOU TVDI BT MBTFS DVUUFST BOE $/$ NBDIJOFT UIBU

giving awayâ&#x20AC;&#x201D;intellectual capital, but it also could open

can be configured to, theoretically, make anything

VQ NBSLFU PQQPSUVOJUJFT GPS FRVJQNFOU NBOVGBDUVSFST

)PX nFYJCMF JT ZPVS NBOVGBDUVSJOH .PSF JNQPS-

i*OEVTUSZ JUTFMG JT JODSFBTJOHMZ VTJOH SBQJE BOE nFY-

UBOUMZ IPX NVDI NPSF nFYJCMF XJMM JU IBWF UP CF GPS ZPV

JCMF NBOVGBDUVSJOH UFDIOJRVFT XIJDI SFRVJSF B GVOEB-

to compete tomorrow?

mentally new philosophy concerning machines: not so NVDI IZQFS TQFDJBMJ[FE IZQFS FYQFOTJWF BOE OFFEJOH DFOUSBMJ[BUJPO CVU SBUIFS DPODFJWJOH BT QSPEVDUJPO UISPVHI B VOJWFSTBM NBDIJOF UIBU DBO CF BEBQUFE RVJDLMZ BOE JOFYQFOTJWFMZ UP OFX OFFET BOE QSPDFTTFT w XSJUFT .JDIFM #BVXFOT QFFS UP QFFS UIFPSJTU XSJUFS SFTFBSDIer, and speaker about technology, culture, and business innovation. â&#x20AC;&#x153;As such machines become smaller, more

14 5JN )FTUPO i5IJOLJOH 0VUTJEF UIF 1SFTT #SBLF w TheFabricator.com 0DU 15 .JDIFM #BVXFOT i5IF &NFSHFODF PG 0QFO %FTJHO BOE 0QFO .BOVGBDUVSJOH w we_magazine.

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Notes

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40

Trends in Manufacturing

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Line Integration

Customer Line Integration — New Profit Opportunities

I

changing demands of customers in the past quarter

From Mass Production to On-Demand Satisfaction

century, manufacturers have reconfigured nearly

Once upon a time, two imperatives drove manufactur-

every aspect of their businesses. After repeatedly

ers: Create production lines that churn out products as

asking themselves a difficult question—“How much val-

quickly as possible and run every machine at full capac-

ue does production expertise contribute to margins and

ity. Manufacturers sought to maximize output, thereby

profitability?”—many had to face a stark reality: Produc-

justifying (absorbing) the cost of equipment and labor. A

tion represents an ever-diminishing share.

good manufacturing facility was one that ran long, effi-

n their efforts to meet the rapid and continuously

Skill on the plant floor isn’t enough to succeed anymore. Instead, leading organizations now work

cient production runs—without much focus on customization or demand variation.

with a team of partner and supplier companies, each

Today that world seems as ancient as the industrial

of which brings its own expertise to meet the needs of

dinosaurs that once stood astride it. A combination of

a particular customer group. As manufacturers adapt

heightened global competition, shortened product-de-

to this new reality, they optimize their business strat-

velopment cycle times, and increased demand for cus-

egies and processes to create greater value for their

tomized products means that manufacturing executives

customers—who promptly ask for more!

now face a far more complex supply-chain and produc-

This new paradigm extends to manufacturers’ shop

tion environment. Managers must now optimize their

floors as savvy executives realize that their own sup-

production, assembly, test, and packaging lines to co-

pliers—manufacturers of high-tech production equip-

ordinate precisely with fluctuating customer demand.

ment and third-party line integrators—are often better

This requires that each machine or process within a

at planning, designing, and installing new production

production line be tuned to deliver a component to

lines and upgrades than they are (see Win-Win Collab-

the next stage when—and only when—it is needed:

oration on next page).

the right product at the right time in the right quantity.

Why do manufacturers now seek outside expertise to

Why? Because in today’s lean environment, the end of

execute a process so fundamental to their business suc-

the line must deliver only what has been ordered—no

cesses or failures? A quick review of structural changes

more and no less. Managing an on-demand production

in manufacturing offers insights in this growing trend—

line requires new skills, leaving manufacturers with a

and practical advice on how to profit from it.

key question: Where will it be most effective to procure that expertise?

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Line Integration

Win-Win Collaboration Machine equipment vendors are finding opportunities to grow their businesses by addressing customer demands for line integration and upgrade services, increasing both margins and customer retention rates. The worldwide market for supplier-provided automation services was projected to grow by approximately 7% compounded annual growth rate, 2009-2013, according to the Supplier Provided Automation Services Worldwide Outlook from ARC Advisory Group.1 As manufacturers outsource elements of line design and implementation of upgrades, they do so at different levels, creating opportunities for machine equipment makers of all sizes. Not all vendors will have the capacity to deliver complete solutions, and not all customers will be able to invest in turnkey integration services: t -BSHFS FRVJQNFOU NBOVGBDUVSFST XJMM DBQUVSF PQQPSUVOJUJFT UP QSPWJEF GVMM MJOF JOUFHSBUJPO and contract partnerships offering continuous-line integration and upgrade services. t 4NBMMFS FRVJQNFOU WFOEPST XJMM DSFBUF BMMJBODFT UIBU PGGFS FYUFOTJWF JOUFHSBUJPO TFSWJDFT either with larger, full-service integrators, or with a group of small manufacturers that, together, combine specialized expertise.

In addition, there are significant opportunities at each step of the integration or upgrade process, from consulting and engineering and design through to spare-parts management and replacement, including installation and training, system and device maintenance, and performance management.

From Vertical Integration to Supply-Chain Management

ent choice. For those who believe that making a product creates a competitive advantage, hiring manufacturing

Manufacturers once assumed that they must master

specialists to improve the effectiveness of the produc-

and control each part of the production process; now

tion process became a path toward increased profitabil-

they focus solely on what they do bestâ&#x20AC;&#x201D;no more and no

ity. These organizations sought to deploy improvement

less. Savvy execs realize that mastering each part of pro-

principles, such as lean manufacturing or six sigma,

duction is rarely possible, and often limits productivity

optimizing the links between processes and production

and profits. And while outsourcing may have started with

equipment. Is it any surprise that manufacturers see the

noncore activities such as human resources, accounting,

next step in production process improvement as focus-

and information technology, leaders are increasingly

ing on how their production equipment and cells/lines

comfortable outsourcing functions traditionally associ-

are designed, configured, and integrated?

ated with manufacturing excellence, including product design, engineering, logistics, and delivery. For some, the decision to outsource the entire production process gave rise to new businessesâ&#x20AC;&#x201D;contract manufacturing and contract designâ&#x20AC;&#x201D;and suggested that manufacturers no longer needed to own or run an assembly line, or to design the products that run on them.

Many other manufacturers, however, made a differ-

1 â&#x20AC;&#x153;Supplier Provided Automation Services Worldwide Outlook,â&#x20AC;? ARC Advisory Group, May 31, 2009.

42

Trends in Manufacturing

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Line Integration

From Products to Solutions

Manufacturers Are Suppliers and Customers

Another trend driving line integration is the realization by manufacturers that customer value no longer

Customers at every tier of the supply chain now

resides primarily in the product itself, but in many

demand total solutions from their manufacturers. This

other nonproduct factors, including:

means that leading manufacturers must work hard at

t 2VBMJUZ SFMJBCJMJUZ UJNFMJOFTT PG EFMJWFSZ

integrating their operations closely with those of suppli-

and services;

ers and customers. For example, 24% of manufacturers

t 5PUBM DPTU PG PXOFSTIJQ QSPDVSFNFOU CVTJOFTT

who report that they’re at or near world-class manufac-

relationship;

turing status (“made significant progress toward or fully

t 1SPWJTJPO PG TPMVUJPO CVOEMFT PG XIJDI UIF DPSF product or service may be a small part;

achieved”) describe their relationship with suppliers as partnerships, and 23% of those plants describe their

t 5SBOTQBSFOU BDDFTT UP JOGPSNBUJPO UIBU TFSWFT

relationship with customers as partnerships, according

the end-customer and supports the product or

to the MPI Manufacturing Study (Figure 1).2 Approxi-

service; and

mately 13% and 18% of plants furthest from world-class

t 1SPWJTJPO PG WBMVBCMF CVTJOFTT FYQFSUJTF FWFO if unrelated to the core product or service.

status (“no progress” or “some progress”) describe their relationships with suppliers and customers, respective-

Yet as manufacturers have turned their attention to

ly, as partnerships. With the success that world-class

providing these nonproduct attributes, they still must

manufacturers have experienced by partnering with

work at optimizing product production, either on their

suppliers, is it any wonder that manufacturers now seek

own or in concert with partners.

similar success in line integration by partnering with the vendors who provide their production equipment?

Relationship with Suppliers and Customers U.S. plants

Plants furthest from world-class status

Plants at or near world-class status

Buy and sell (e.g., cost and quality focus)

48.3%

51.0%

44.2%

Certification (e.g., broad qualifications established)

15.9%

15.9%

15.9%

Cooperation (e.g., sharing product ideas, best practices)

18.9%

20.7%

15.9%

Partnership (e.g., sharing resources, intellectual property)

16.9%

12.5%

24.0%

Buy and sell (e.g., cost and quality focus)

38.1%

42.0%

31.2%

Certification (e.g., broad qualifications established)

16.9%

14.9%

20.3%

Cooperation (e.g., sharing product ideas, best practices)

25.0%

25.4%

25.2%

Partnership (e.g., sharing resources, intellectual property)

20.0%

17.8%

23.3%

With Suppliers

With Customers

Source: MPI Manufacturing Study, 2006-2010.

Figure 1.

2 MPI Manufacturing Study, combined U.S. data from 2006-2010 studies, The MPI Group, 2011.

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43

Line Integration

Together, these structural changes, accelerated by

plier Provided Automation Services Worldwide Out-

new technology and globalization, have forced manu-

look, says: “Tight operating environments and reduced

facturers to reinvent their production processes (see

demand are forcing companies to cut costs wherever

Food Manufacturing Line Integration Solution), often

possible… The result is that users rely on suppliers

implementing complex technologies that require inte-

to provide them with a continuously expanding scope

gration among a vast array of mechanical, electrical, and

and depth of automation-related services.” The study

electronic components. And they’ve succeeded in pro-

reports that due to downsizing in the 1980s and 1990s,

ducing more goods than ever, while delivering them at

many end-users in process industries either eliminated

lower prices within ever-tighter time frames.

or reduced the sizes of their internal automation and

Yet these gains have required them to increasingly

control engineering departments—many by 50 percent

look to their equipment providers as productivity-im-

or more. In addition, automation suppliers have steadily

provement allies. Larry O'Brien, ARC Advisory Group

increased their knowledge bases of the automation and

research director and principal author of the study Sup-

controls marketplace.3

Food Manufacturing Line Integration Solution4 A trend toward more natural foods and heightened food safety has increased the importance of highpressure treatment for foods. With high-pressure treatment, packaged food is subjected to a high pressure in an autoclave (lockable and gas-tight pressure container), and the process kills microorganisms such as listeria and salmonella. Even heat-sensitive food products can be treated this way because the process occurs under ambient temperatures, and the nutritional value and taste are nearly unimpaired by highpressure treatment.

High-pressure treatment was traditionally carried out in a separate manufacturing stage that required manual loading. Multivac developed a solution for the line integration of high-pressure equipment for the treatment of packaged foods, which also offers high-pressure compatible packaging. With the integration solution, finished food packs are automatically loaded into the transport containers; high-pressure treated in an autoclave; unloaded, dried, and printed or labeled, if required; and packed into cartons. "In this way, it is for the first time that we can process large, industrial-scale production quantities fully automatically in B RVBTJDPOUJOVPVT PQFSBUJPO TBZT 5PCJBT 3JDIUFS QSPEVDU NBOBHFS JO UIF 4ZTUFNT #VTJOFTT (SPVQ BOE responsible for high-pressure equipment at Multivac. (Patent applications for the process have been filed.)

3 “ARC Says Automation Services Market to Grow,” Automation.com reporting data from ARC Advisory Group, May 31, 2009.

4 “Multivac Caters for the Efficient Line Integration of High Pressure Treatment Equipment,” News Archive, Interpack, Jan. 25, 2011.

44

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Line Integration

Capturing the Opportunity Manufacturers seeking to outsource their line-integra-

Integration Partner Criteria

tion activities and upgrades first must select an integrator, basing the decision on five key factors: Project similarity: Look for integrators who have successfully designed and installed projects similar to the proposed project. First, consider the scope of the project. Some integrators excel at complete line and complex assembly jobs. Others are best at stand-alone work cells. Still others focus on integrating particular lines, such as conveyor systems or packaging lines. Next, con-

Project similarity Equipment maker or integrator Partner bench strength Project management culture Due diligence

sider whether to partner with a specialist or a generalist.

Manufacturers in industries that are large enough, such as pharmaceutical, food, and oil/gas industries, can find numerous integrators who specialize in their particular industries, nearly guaranteeing that the integrator will

Engineering Expertise

understand the subtleties of the business. Other manufacturers may prefer to choose an integrator with experi-

Integration process plan: Explore how the integrator

ence installing a particular type of line in a variety of

works with its clients, including initial project specifica-

industries, to ensure that the project gets the benefit of

tion requirements, project changes or updates, cost and

new perspectives.

timeline estimates, and on-going service and support.

Product variety and partner preference: Decide

Will the integrator help to create the design document

whether to partner with an equipment vendor or a third-

that describes the present system and the proposed im-

party integrator. Executives who’ve decided to purchase

provements, or require that the manufacturer provide it?

a particular brand of equipment might opt to have the

Does the integrator work on a time-and-material basis,

vendor integrate the line to take advantage of the ven-

or fixed-quote? Will the integrator allow for updates and

dor’s in-depth knowledge of the equipment. Leaders

changes to the project? Is there a formal or informal pro-

who’d rather hire third-party integrators tend to want

cess for handling changes? And, finally, does the inte-

to tap the integrators’ familiarity with a variety of prod-

grator offer ongoing service and support?

ucts, seeking the best overall solution. However, many

Due diligence: Verify the integrator’s financial stability

equipment vendors say they are willing to integrate oth-

by reviewing public documents and assessing the inte-

er vendors’ products, and are designing products that

grator’s reliability by interviewing customer references.

can integrate with third-party systems.

Ask peers how—and how quickly—the integrator solves

Project team type: Ask if the line-integration project will be staffed by subcontractors or in-house experts.

problems and whether the integration project met expectations and stayed on time and on budget.

Generally, subcontractors could provide the benefit of increased specialization, but too many subcontractors could needlessly increase the price and complexity of managing the project. The use of in-house staff could make managing the project more cost-efficient and easier to implement.

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Line Integration

Managing the Integration

Once the partnership is es-

technology, processes, and ex-

tablished, a manufacturer needs

pertise that derive from the part-

to manage six key partnership

nership. In particular, successful

elements to ensure its ongoing

partnerships acknowledge that

Win-Win Thinking

success. They include:5 Clarity of roles: Each

Flexibility

End-User Focus

participant must understand how its contribution allows

the equipment vendor cannot

form at an optimum level.

Clarity of Roles

Manufacturers should expect to share detailed informa-

all-encompassing

set a length of time during which

Shared Goals

the equipment vendor cannot sell the solution to a competitor, with the understanding that

tion about customer needs,

by the time the vendor is free to

as well as the particular

resell solutions, the partnership

competitive advantage they

will have begun implementing

hope to achieve with the new

the next project. A shorter time

line integration or upgrade. Long-term partnerships

limit—or no limit at all—should be granted for re-

require that each participant agree on a road map that

sale to noncompetitors. Ultimately, the manufacturer

unites current and expected customer requirements

must feel confident that the implementation will not

with the hardware, software, and services that will

be sold to a competitor, while the vendor/integrator

deliver on those requirements.

must be able to capitalize on the knowledge gained

End-user focus: The manufacturer should

from a new implementation.

expect the machine equipment vendor/integrator to

Shared goals: In collaboration, parties must agree

understand end-user needs. They should be willing

to production standards and benchmark metrics.

to work to understand not only the manufacturer’s

They must work in tandem to maximize overall com-

requirements, but also the customer requirements

petitiveness, including joint efforts to improve qual-

of that manufacturer. For example, line configura-

ity and delivery.

tions would address changeover needs resulting

Flexibility: Both parties must understand the

from a customer base with varied and/or frequently

need to quickly change course to meet inevitable

changing demand patterns.

changes in the marketplace. Use of common infor-

Trust: In addition to the leap of trust required to

mation-technology systems, as well as proactive,

share the end-user information necessary to forge a

periodic, and systematic assessment and analysis of

successful partnership, the manufacturer and equip-

the partnership, can facilitate this flexibility.

ment vendor/integrator must come to an understand-

Win-win thinking: A stable, long-term part-

ing regarding the degree to which the partnership’s

nership requires that both the manufacturer and

line configurations are proprietary. Noncompete

the equipment provider/integrator profit from the

agreements must delineate which industries and to

relationship.

what extent the vendor/integrator may sell the new

5 List adapted from: David Drickhamer, “Envisioning the Ideal Value Chain,” IndustryWeek, May 21, 2001.

46

noncompete

agreements. Many agreements

Trust

the production line to per-

be held hostage to unending,

Trends in Manufacturing

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Line Integration

Today, experienced manufacturers and their equipment providers understand the need for continuous, rapid change, as well as the resulting need to question every business practice and experiment with new methods and processes. They understand and expect that new strategies will be copied quickly and may become standard business practices (see Material Handling System Integration). And they know that within each new strategy lie the seeds of the next change. Companies that recognize early the need for change will be first to capitalize on new opportunities.

The common theme throughout any industryâ&#x20AC;&#x2122;s restructuring is the imperative to shift specific process responsibility to that link in the supply chain that most effectively fulfills it in terms of cost, quality, speed, and expertise. Savvy manufacturers will recognize line integration and upgrades as processes that require the specialization that outsourcing can bring.

Material Handling Systems Integration6 Material handling equipment (MHE) manufacturers are increasingly seeking SPMFT BT TZTUFNT JOUFHSBUPST 4*T BDDPSEJOH to Cliff Holste, Materials Handling editor.

-BSHF DPOWFZPS PS GVMM MJOF .)& QSPWJEFST are at the front of this trend, as are &VSPQFBO .)&T "O 4* SPMF JOWPMWFT iUBLJOH complete (or nearly complete) responsibility for system design, hardware selection, engineering, software support, and systems JNQMFNFOUBUJPO w )PMTUF XSJUFT UIBU 6 4 mSNT BSF EFWFMPQJOH 4* TUSBUFHJFT UP t (FU DMPTFS UP DVTUPNFST BOE BEE NPSF project value. t #FUUFS DPNQFUF XJUI &VSPQFBO QSPWJEFST iXIJDI IBWF CFFO BU UIJT game for a while.â&#x20AC;? t "EESFTT DVTUPNFST EFTJSFT GPS iVOCJBTFEw FRVJQNFOU TFMFDUJPO BOE access to more than one vendor. t 0GGFS JO TPNF DBTFT B MFWFM PG guarantee of throughput, provided they own all of the system.

6 Cliff Holste, â&#x20AC;&#x153;Logistics News: The Material Handling Equipment Manufacturer as System Integrator,â&#x20AC;? Supply Chain Digest, June 8, 2010.

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Notes

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48

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Performance Measures

Powerful Performance Measures That Drive Improvement

E

very organization has its favorite metrics—

t Why is the problem occurring? Performance-driv-

measurements that gauge control, progress, and

en executives invest time and effort in understanding

success. At a world-class organization, these

the root causes of the problems they seek to solve. For

measures serve as a common “performance

example, quality problems in the form of rising war-

language” that links corporate strategy, divisional goals,

ranty costs might be traced back to employee error, poor

plant targets, departmental budgets, and individual in-

supplier components, customer misuse of product—or

centives into a unified, results-oriented system. But at a

a combination of all three. World-class manufacturers

mediocre or failing organization, these measures too often become a meaningless management mantra—targets repetitively tracked but offering little insight into how value is created for customers or the organization. Metrics at

Building Powerful Performance Measures Continuous Improvement

these organizations are straitjackets—restraints that waste resources, aggravate employees, and block improvement.

How can companies break out of the metrics maze and develop a more successful performance-management process? By focusing executive effort on what

Available

Targeted

Repeatable

makes performance measures powerful and useful—

Support manufacturing strategy

and by implementing a seven-step review that continu-

Solve problems

ously analyzes, updates, and transitions new and better metrics into the organization.

What Makes a Powerful Measure?

keep digging until the real cause is found. For example, some companies with poor safety performance have looked not at accidents that have occurred (which they

World-class manufacturers use performance measures as

are required to track and report to OSHA) but at tracking

tools to help their companies or plants solve problems—

events that almost occurred (i.e., “near misses”). Hank

problems that can result in poor performance or block

Sarkis, president of The Reliablity Group, writes that

improvement. Every measure must either stretch their

“on average, respondents who experienced a near miss

organizations toward better performance or be required

(an accident or injury that almost happened) were two

for financial reporting or regulatory compliance. Power-

and one-half times as likely to also be injured at work

ful performance measures answer questions that emerge

(the probability of sustaining an injury increases from

from the problem-solving process:

10% to 25% for respondents who experienced a near

t What is the problem? World-class manufacturers clear-

miss).”1 Thus, by tracking and measuring near misses,

ly identify the problem that a measure should help solve or

an organization homes in on the root causes of safety

prevent—costs, quality, delivery, safety, productivity, etc.

problems and can reduce the likelihood of accidents.

1 Hank Sarkis, “Developing Cultures for Safety & Reliability in Manufacturing Organizations,” The Reliability Group.

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49

Performance Measures

t How can recurrence of the problem be reduced

there’s a quality problem—without narrowing the prob-

or prevented? World-class manufacturers establish mea-

lem to specific processes or causes. Similarly, if on-time

sures that accurately identify the occurrence of root

delivery to customers is always near 100% but requires

causes, thus helping employees to eliminate them and

significant overtime or expediting, then management

improve performance. But at mediocre firms, metrics

must seek more targeted measures such as internal on-

often measure the wrong processes and results. For

time delivery between production processes, expediting

example, customer-support staff may be measured on

costs as a percentage of all logistics, etc. It’s important

call volume, regardless of whether customer problems

that organizations work to uncover performance mea-

have been solved. A more effective performance metric

sures that highlight multiple process problems. This

would be the number of callbacks per customer and case

isn’t easy, but it saves time and resources by focusing

number—allowing analysis to discover the underlying

the organization on what matters most. t Be readily available: Unfortunately, some valu-

problem(s).

Like any tool, a performance measure must be applied in the appropriate context. A powerful metric will:

able metrics may prove impractical or too costly to capture, particularly if information needs to be leveraged

t Support the manufacturing strategy: Manufacturers

on a real-time basis. If, for example, a measure requires

can only solve problems within the scope of their cho-

repeated documentation by a production operator, the

sen manufacturing strategy—which means all measures

process of collecting the metric may undermine the op-

must support that strategy. Plant management must focus

erator’s primary objective of producing a quality prod-

on what it can control; problems uncovered outside the

uct. If a tough-to-capture metric is crucial, smart compa-

scope of manufacturing—e.g., chaotic sales promotions

nies may consider:

that create demand and scheduling fluctuations—will be

– Capturing the metric less frequently;

shared with other teams with the authority (and metrics)

– Using automation, if possible, to collect the measure;

to solve them. It’s because of this need to “scope” the

– Videotaping the process and calculating an

measures that lean organizations practice strategy de-

average measure; or

ployment, cascading broad corporate measures down to

– Developing a metric that indirectly measures the

departments and locations, and then empowering those units to establish detailed targets, measures, and action

same thing (e.g., assemblies touched per shift per

plans supporting the broader corporate measures.

operator, which indicates if substantial assembly rework is occurring).

t Target specifics that reveal the bigger picture: Broad

50

performance measures are a necessity, but they must be

t Be consistent and repeatable: If a metric varies

supported with metrics sampled at a variety of distinct

constantly with no repeatable distribution, it will never

process points to provide targeted problem-solving. For

offer insights. And while most measures will vary, there

example, tracking finished-product yields or customer

must be a reasonable distribution pattern that allows an

returns may only validate what’s already known—that

organization to distinguish good performance from bad.

Trends in Manufacturing

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Performance Measures

Revitalizing Performance Measures

Within this framework, world-class manufacturers use a process—such as the following seven steps—to identify,

1

adopt, and implement a system of powerful performance measures.

1. Organize and Communicate A transition to better performance measures can begin from a variety of starting points. For example, at a small company or plant, a CEO or plant manager may

1. Organize and communicate 2. Evaluate existing measures 3. Identify alternative measures 4. Assess potential new measures 5. Merge and purge, old and new 6. Test measures 7. Roll out and regularly review

Improved Performance

4

5

and plants, leading the transition usually or individuals in charge of performance

3

6

organize the effort. In larger companies falls to a continuous-improvement team

2

7

© 2004 The Manufacturing Performance Institute

management. (In large organizations, the

monthly) and have sufficient time dedicated for team

metrics-improvement process may be piloted in a “mod-

activities and assignments.

el” facility or department and then expanded throughout

After being briefed on the process and the concept of

the organization.) Regardless of the person or group that

powerful performance measures, the PM team communi-

starts the effort, the initiative must establish a clear goal:

cates the process and objectives to the rest of the organi-

identification of metrics that help illuminate and solve

zation, describing why the company or plant is undertak-

corporate problems, improve performance, and support

ing this effort and how it will help the plant or company

the organization’s manufacturing strategy.

improve. This initial communication should also solicit

If a continuous-improvement team is not in place,

comments and ideas from everyone within the company

consider a cross-functional performance-measure (PM)

or facility. Each PM team member discusses the process

team with representation from all elements of the orga-

in more detail with his or her departments and/or loca-

nization. If, for example, the transition is being led at a

tions, encouraging shop-floor personnel to submit mea-

corporate level, PM representation can be by location or

sures that get to the root causes of problems. (If strategy

division (e.g., by regions or markets served) or by func-

deployment exists in an organization, its structure and

tion or department (e.g., finance, marketing, operations).

communication tools—such as A3s and planning docu-

The PM team should meet on a regular basis (weekly,

ments [see A3 Example]—will handle these activities.)

A3 Example2

2 Free example of manufacturing A3 report, eVSM, www.evsm.com, 2011.

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Performance Measures

3. Identify Alternative Measures

2. Evaluate Existing Measures If a performance-measures database does not already ex-

Next the PM team looks externally to find measures used

ist, the PM team gathers into one master spreadsheet or

by other manufacturers both inside and outside their

database all metrics (good and bad) tracked by the plant

industries. During this step, the performance-measures

or company. This material should be organized in a way

process intertwines with a sound benchmarking program.

that makes the most sense to the organization; for ex-

As in benchmarking, PM team members will seek compa-

ample, if most measures are tracked by department (e.g.,

nies that have solved problems similar to those that vex

purchasing, engineering), findings should be presented

their own organizations. Online benchmarking resources

in that manner.

can help the PM team to quickly identify what measures

PM team members will have individual responsi-

other companies and plants track. In addition, each mem-

bilities, too, for finding and logging metrics required by

ber should call on his or her own network of colleagues

their constituents. For example, a maintenance supervi-

(e.g., association members, mentors) to learn whatâ&#x20AC;&#x2122;s avail-

sor will record machine-related measures such as mean

able and useful. During this step, the PM team should err

time between equipment failures, while a divisional VP

on the side of bringing back too many measures, even if

might gather measures that allow his colleagues to as-

itâ&#x20AC;&#x2122;s not obvious how the measure can be applied; if a best-

sess a plant network, such as return on invested capital

practices company tracks it, there may be an excellent

(ROIC). Accompanying each measure in the spreadsheet

reason thatâ&#x20AC;&#x2122;s not immediately apparent.

There are many good repositories of performance

should be: t 'SFRVFODZ XJUI XIJDI UIF NFUSJD JT USBDLFE

measures and the practices that support them. For ex-

t 8IP PS XIBU EFQBSUNFOU T JT SFTQPOTJCMF GPS

ample, many companies cull the criteria demanded of winners of the Malcolm Baldrige National Quality

tracking the measures; t )PX UIF NFUSJD JT UZQJDBMMZ DBQUVSFE F H WJTVBM recording, automated, outside auditor); t %FQBSUNFOU T PS QFSTPO T UIBU SFRVJSF UIF

Program. Baldrige organizations submit details showing performance achievements and improvements in seven key areas: leadership; strategic planning; customer focus; measurement, analysis and knowledge

measurement; t $VSSFOU SBUJPOBMF GPS USBDLJOH UIF NFUSJD BOE

management; workforce focus; operations focus; and

t 1SPCMFN UIF NFBTVSF QSFTVNBCMZ QSFWFOUT

results, frequently citing metrics they use to measure in each area.3

or solves.

The latter three pieces of information are critical to determining the need for existing measures. Why? Because once the spreadsheet is complete, the PM team will use them to remove measures that are no longer required.

The PM team will distribute a list of deleted metrics to all employees with a deadline for requests to â&#x20AC;&#x153;restoreâ&#x20AC;? a specific (deleted) metric. The PM team should remain flexible; if even one person in the company or plant can substantiate the need for a given metric, the measure should be restored. All others will be removed from the spreadsheet, with employees responsible for tracking these measures notified to stop their capture.

3 Malcolm Baldrige National Quality Award, National Institute of Standards & Technology, www.nist.gov.

52

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Performance Measures

4. Assess Potential New Measures

develops new, powerful measures from the maybe/ma-

The PM team then evaluates all the potential measures.

nipulate set, these are added to the spreadsheet.

This assessment process will enable the team to catego-

It’s important to note that overemphasis on any one

rize each measure as “must use,” “maybe/manipulate,”

performance measure—existing or new—is rarely pru-

or “remove.”

dent. Measures should work together or reflect/incor-

Must-use measures meet all the primary require-

porate many metrics. For example, it might be possible

ments of a powerful performance measure and are cer-

to improve OEE on the factory floor by annually replac-

tain to elicit a consensus response within the organi-

ing equipment, but that would defeat a higher-priority

zation. These usually spur comments such as, “I can’t

measure of corporate profitability. Most managers re-

believe we haven’t been tracking this,” and they often

alize this: According to the Maintenance Performance

turn out to be the most basic of metrics. Indeed, many

Metrics survey sponsored by Plant Services magazine

companies and facilities (especially among small- and

and Rockwell Automation, about 53% of respondents

mid-sized organizations) fail to track even rudimentary

use a category of “budget compliance” to measure the

process and operations measures. For example, manag-

performance of MRO (maintenance, repair, and opera-

ers at a plant with quality problems may track specific

tions) activities.4

causes for returns by both customer and channel, but neglect to track specific causes for returns—missing

5. Merge and Purge, Old and New

opportunities to identify the real problem, whether

The PM team then evaluates all the potential measures.

internal (e.g., components from a plant department

This assessment process will enable the team to catego-

or a specific supplier are breaking down) or external

rize each measure as “must use,” “maybe/manipulate,”

(e.g., the product doesn’t function properly in extreme

or “remove.”

humidity). Must-use metrics are immediately added to the spreadsheet.

During this step, the team will also review tracking frequencies for all measures. Tracked too often, a mea-

Maybe/manipulate measurements warrant discus-

sure may end up wasting manpower and effort. Tracked

sion, evaluation, and revision. For example, overall

too infrequently, a metric may gather data skewed by

equipment effectiveness (OEE) is a valuable measure-

seasonal or other fluctuations. The PM team must select

ment of efficiency, but the calculation can skew toward

tracking periods that encompass the volatility inherent

equipment-centric processes (see OEE Calculation). A

in a given metric (e.g., in a highly seasonal business,

manually intensive assembly operation within a cell

tracking periods must include an entire year to be ac-

might revise OEE by substituting a cell’s time-available-

curate). Conversely, a measure that changes rarely can

for-production for machine availability. As the PM team

be sampled less frequently.

OEE Calculation

OEE

=

Machine availability %

X

Quality yield %

X

Run rate as % of optimal

4 Berger, David, “Know the score,” Plant Services, Nov. 5, 2003.

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Performance Measures

7. Roll Out Measures and Regularly Review

Above all, the PM team must hone the spreadsheet down to a list of problem-solving measures that sup-

With final spreadsheet in hand, the PM team introduces

port strategy and accommodate all nuances of a given

the new measures (see Performance Measure Spread-

business, such as unusual product mix, market condi-

sheetâ&#x20AC;&#x201D;Production Example on next page). Plant-wide

tions, or customer needs. This customization is critical

meetings or corporate newsletters can reintroduce em-

for two reasons:

ployees to the performance-measure transition process

t .FUSJDT DVTUPNJ[FE OPX QSFWFOU FYDVTFT MBUFS for not meeting performance targets; and t $PNQBSJTPOT XJUI PUIFS PSHBOJ[BUJPOTÂ&#x2030;B DSVDJBM

and highlight the new set of metrics. In smaller settings, PM team members will discuss the new measures in detail with their departments or locations, coaching those

step toward becoming world classâ&#x20AC;&#x201D;are easier

responsible for capturing and using the new metrics.

and more accurate when measures are precisely

In situations where no performance-management system

designed and applied.

exists, the PM team will help to devise a rudimentary process (e.g., line supervisor reviews hourly operator

6. Test Measures

measures, department manager reviews daily supervi-

Before releasing a revised list of performance measures,

sor measures, plant manager reviews weekly department

the PM team will consult the source of metrics (e.g., the

measures).

Itâ&#x20AC;&#x2122;s crucial that the PM team monitor whether the

shop floor) and test the capture of each new measure,

new measures actually help the organization to solve

asking: t $BO JU CF USBDLFE

problemsâ&#x20AC;&#x201D;or if they merely create more work. The PM

t )PX FBTJMZ DBO JU CF USBDLFE

team also will monitor the use of new metrics, ensuring

t "SF SFTVMUT PG USBDLJOH JU MPHJDBM BOE SFQFBUBCMF

that performance measures are appropriately reported at

t 8IBU JT UIF NFBTVSF JOJUJBMMZ JOEJDBUJOH J F

all levels of the organization. When problems arise, the

will it really help to solve a problem)?

54

PM team must take immediate action. If, for instance,

Some measures that look useful on paper fail in

a measure requires too much effort in capture, hurting

real-world testing. The PM team will either revise or

production flow or creating counterproductive behavior

eliminate these. Production employees will be great al-

(e.g., measuring consecutive days without an OSHA in-

lies during this stage, offering insights on how to refine

cident may actually prevent employees from reporting

or capture measures that only they possess.

incidents), the PM team should discontinue its use.

Some metrics offer immediate insight, but others

The PM team will continue to meet periodically to

can only be tested over time, such as dollar savings due

discuss problem measuresâ&#x20AC;&#x201D;and its own future. The PM

to an improvement process or results from a training

team will select new members to replace its founders,

curriculum. Longer-term measures will be tracked until

passing on its process and responsibility for driving

they can be appropriately evaluated.

powerful performance to a new generation of leaders.

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Performance Measures

Performance Measure Spreadsheet—Production Example Production

Frequency

Source

Month avg.

Trend

Safety—reportable incidents

Daily

EHS team

2

K

Safety—near misses

Daily

EHS team

7

L

Weekly

QE Doug

91%

K

Daily

Mfg Bob

2%

L

Mean time to repair (% of schedule)

Weekly

Maintenance Phil

1.3%

L

Expediting costs (% of total shipping)

Weekly

Shipping Kim

11%

L

Perfect deliveries—no issues Unscheduled downtime (% of schedule)

Measure and Improve

new measures, and discarding old ones to help the orga-

Does every successful manufacturing company follow the

nization achieve operational excellence. The framework

process outlined here? Of course not. But every successful

for the process may differ or be known by other names,

organization embraces the fundamental concepts within

but manufacturers start on the journey toward world-class

the process, regularly reviewing current measures, adding

status by getting measurement right.

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Notes

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Benchmarking

Benchmarking â&#x20AC;&#x201D; Locating and Leveraging Best Practices

E

nvy may be one of the seven deadly sins, but

or should improve. But today 40% of U.S. manufactur-

its presence is vital when it comes to opera-

ers benchmark, and theyâ&#x20AC;&#x2122;re reporting impressive results

tions performance. Every executive wants his

because of it (see Power of Benchmarking).2

or her company or plant to be at least as good

as those of his or her peers; most want them to be better or best. Unfortunately, it takes more than hope to be the best. Outperforming competitors requires an intense study of those competitorsâ&#x20AC;&#x201D;of their financial results, of their operating metrics, of their management strategies and practicesâ&#x20AC;&#x201D;as well as a willingness to invest time, energy, and resources into adapting the results of that study to a new operations environment.

In short, every great performance, every continuous-improvement project, begins with a benchmark.

Manufacturing facilities that use benchmarking report that sales per employee are more than $31,000 (median) higher than plants that donâ&#x20AC;&#x2122;t.1 And while

no two organizations benchmark in the same fashion, there are four fundamental phases that manufacturing organizations must address to get the most out of a benchmarking effort (see Manufacturing Benchmarking on next page).

Why Benchmark?

World-class organizations believe that thousands of companiesâ&#x20AC;&#x201D;good and badâ&#x20AC;&#x201D;around the world offer a nearly infinite number of ideas on how to improve their own operations. And traditionally only high-performance organizationsâ&#x20AC;&#x201D;those that need improvement the leastâ&#x20AC;&#x201D; benchmarked, while the worst performers continued to stumble along without a clue as to how much they could

Power of Benchmarking Among U.S. manufacturing plants that benchmark, 42% report that their operations have made significant progress to or achieved world-class manufacturing status, and only 8% report that they have made no progress toward world-class status; of those plants not benchmarking, only 21% have made significant progress to or achieved world-class status, while 20% have made no progress. Performance metrics at these two groups of plants also point to correlations of benchmarking with operational improvements: t 4BMFT QFS FNQMPZFF benchmarkers report $204,000 (median); nonbenchmarkers report $172,214. t 5PUBM JOWFOUPSZ UVSOT benchmarkers report 9 inventory turns (median); nonbenchmarkers report 6.9 inventory turns. t "OOVBM MBCPS UVSOPWFS benchmarkers report 6% labor turnover (median); nonbenchmarkers report 8% labor turnover. t 8BSSBOUZ DPTUT BT B QFSDFOUBHF PG TBMFT Benchmarkers report 0.5% (median); nonbenchmarkers report 1%.3

1 MPI Manufacturing Study, combined U.S. data from 2006-2010 studies, The MPI Group, 2011.

2 Ibid.

3 Ibid.

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Benchmarking

Getting Started

facturers or companies in similar industries, executives

How does a company or plant start to benchmark? It

remain unaware of how much improvement is possible

does it by assigning responsibility for monitoring fi-

and the competitive challenges they face.

nancial and operational health. Depending on the size

These comparisons spur the executive or CI team/

of the plant or company this assignment will vary,

leader to look for specific solutions that address prob-

but it typically falls to a senior executive or continu-

lems. It’s important to note that a “problem” isn’t always

ous-improvement (CI) leader or team. This person or

an obviously poor metric, but can instead be any issue

group gathers internal data and observations—even as

that blocks progress toward world-class performance or

simple “we’re losing customers” or “sales are off by

a particular issue affecting customer satisfaction—i.e.,

40%”—which then trigger a search for potential targets

it’s all about giving customers precisely what they want

or performances against which to compare. Addition-

and how and when they want it.

ally, there should be no limit to the number of individuals and departments feeding early “signals” of financial and operational health in the direction of the CI execu-

Where to Benchmark?

tive or team. Ideally, organizations will guide their im-

Although many organizations focus their initial search

provement efforts with a robust strategy deployment

for benchmarking ideas beyond the walls of their own

process—a core planning method for setting strategy

plants, experienced executives and CI teams make

and cascading goals and action plans down through an

sure to look within their own companies as well.

organization—that will involve rigorously, continuous-

They know that innovation and best practices are of-

ly reviewing metrics, from companywide goals down to

ten as close as the next work cell or facility—and that

process and line metrics, and then sharing this informa-

homegrown solutions may be easier to adopt. This is

tion widely.

especially true for companies with extensive plant

This internal assessment and subsequent overview

networks that stretch across the country or around the

of the manufacturing landscape are crucial to bench-

globe; indeed, for proprietary issues, this may be the

marking: Without comparisons culled from other manu-

only available resource.

Manufacturing Benchmarking Why

Where

Internal problems/ needs

Institutions

Industry information stimulates awareness

Colleges and universities

Assemble team

NIST MEPs

Operations models

Benchmarking consortiums

Identify and organize requirements

Big ideas

Others Companies

Publicized results Via suppliers and customers

©2011 Manufacturing Performance institute

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Trends in Manufacturing

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Broad

Narrow

Process improvements Tools

Award winners

Internal

How

World-class comparisons

Consultancies

Competitive challenges

What

www.machinesitalia.org

People and contacts

Assign accountability Document findings Assess and prioritize

Implement

Benchmarking

Eventually, however, every dedicated benchmark-

As part of its total-quality strategy, which led to a

ing effort must seek data and best practices from other

Malcolm Baldrige National Quality Award, Trident Pre-

organizations. First-time benchmarkers are often sur-

cision Manufacturing tracked operational and financial

prised at how willing other companies are to exchange

performance, and analyzed internal and external data

ideas, especially through trade or industry associa-

collected from semiannual surveys of customers, suppli-

tions. Why are even world-class companies so willing

ers, and employees; benchmarking studies; discussions

to share? Because they realize that while it’s one thing

with customers; employee forums; market reports; quar-

to know a best practice, it’s quite another to execute the

terly quality audits; and an independent assessment of

practice and coordinate the momentum and resources

Trident’s competitive position in its industry.4

for implementation.

World-class

companies

also

pass

along

tips

through direct contact and observations at their gemba (the place where work happens), such as plant tours, speaking engagements, industry magazine articles, published technical papers, and other published documents. Other good preliminary sources include suppliers and customers (who better to identify best practices in a given industry?).

Smart benchmarkers make sure they also look beyond the walls of their own industry; some of the greatest competitive leaps result from transplanting ideas from one industry into another. For example, a beverage maker may have problems with quickly changing over equipment when processing distinct beverage flavors or colors. The paint process at an appliance maker may have faced the same challenge when shifting from dark pigments to light pigments. Cultural issues and

Cross-Industry Benchmarking Xerox, seeking to improve its orderfulfillment process, looked to the catalog retailer L.L. Bean and examined its practices for quickly processing customer orders and providing timely deliveries.5 Benchmarking is intended to seed new ideas, approaches, targets, and practices throughout an organization so that manufacturers can explore and test new means to improvements (some that will work, and some that won’t). Smart benchmarkers don’t restrict their search to territory they already know—they look anywhere and everywhere.

best practices are even more broadly applicable; many service industries, for instance health care, have now embraced the application of lean manufacturing to business processes in general. Thanks to cross-industry benchmarking, the lean practices that began at Toyota decades ago are now helping call centers, retail stores, and banks to improve their operations as well. (See Cross-Industry Benchmarking.)

4 “Malcolm Baldrige National Quality Award 1996 Recipient: Trident Precision Manufacturing Inc.,” www.quality.nist.gov,

National Institute of Standards and Technology, 2001.

5 Christine Letts, William Ryan, Allen Grossman; "Benchmarking: How Nonprofits Are Adapting a Business Planning Tool

for Enhanced Performance,” The Grantsmanship Center Magazine, Winter 1999.

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Benchmarking

What to Benchmark?

Identifying where to look guides benchmarkers in their search for what to benchmark, a process made more efficient by having standardized processes to capture and implement benchmarking ideas. This phase should take on both a broad perspective, coordinated at the company or plant level, as well as a series of narrower, tactical targets and improvements.

The broad approach uncovers new improvement principles and searches not for specific tools or tactics, but instead for companies and organizations with great ideas and leadership. These leading companies may be identified by awards or publications (see Benchmarking Jump Start) or by organizations that foster the exchange of best practices, such as benchmarking consortiums, NIST Manufacturing Extension Partnerships, colleges, and universities. For example, Ohio State University is home to the Center for Operational Excellence,6 a consortium of business leaders, educators, and researchers that share a common goal of achieving world-class operations excellence. Similar networks exist throughout the country.

Through the Ohio State center and like-minded organizations, executives interact with world-class manufacturers. Smart benchmarkers introduce themselves into this group, meet with members, and then: t 8BML UISPVHI UIFJS PQFSBUJPOT

Broad Perspective An overarching benchmarking approach is vital because it: t 6TFT B GBDU CBTFE BQQSPBDI UP QPTJUJPO the organization relative to world-class enterprises (even if the facility is already at or near world-class standards); t 4USVDUVSFT UIF FGGPSU XJUIJO UIF DPOUFYU of the companyâ&#x20AC;&#x2122;s existing manufacturing strategy (although it may identify weaknesses in the manufacturing strategy); t 0GGFST BO BSHVNFOU GPS PSHBOJ[BUJPO wide changes if internal analysis and benchmark comparisons lead to evidence of systemic weaknesses (e.g., inherently flawed plant manufacturing practices, methods, or strategies); and t &TUBCMJTIFT BO VNCSFMMB TUSBUFHZÂ&#x2030;TVDI as strategy deploymentâ&#x20AC;&#x201D;to uniformly upgrade all operations and plants, focus the company or plant on goals that are most important, reduce the likelihood of rogue efforts, and minimize resistance to change.

t .FFU XJUI B SBOHF PG UIFJS FYFDVUJWFT NBOBHFST and supervisors; t 5BML XJUI GSPOUMJOF FNQMPZFFT t 4IBSF EBUB BOE QSPDFTTFT BOE t 4QFBL XJUI UIFJS DVTUPNFST BOE TVQQMJFST

6 The Ohio State University, Fisher College of Business, Center for Operational Excellence, http://fisher.osu.edu/centers/coe.

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Benchmarking

A common experience of first-time benchmarkers is

if benchmarking efforts arenâ&#x20AC;&#x2122;t centralized, and various

that the exposure to new ideas offered by these tours and

teams are left to their own devices to find scattered solu-

information exchanges rapidly expands their own lists

tions to increasingly fragmented problems.

of goals and targets. But benchmarkers should be careful

t 5PPMT This category includes everything from

to frame their efforts based on whatâ&#x20AC;&#x2122;s applicable to their

training manuals and literature to pieces of equipment

organizations and manufacturing strategies. Additional-

or software applications that help a company function

ly, although improving operations to industry standards

more efficiently. Smart benchmarkers cast a critical eye

is always beneficial, too slavish an imitation of another

on recommendations in this category since they often

companyâ&#x20AC;&#x2122;s strategy (i.e., markets to pursue, products to

require higher levels of investment. Tools may indeed

develop) may permanently brand an organization as an

be necessary, but due diligence and well-documented

industry bridesmaid. Leaders may benchmark processes

return-on-investment calculations are required for any

and performances for how to make decisions and man-

investment. And applying new technology to a flawed

age strategy, but they must always devise their own

process only automates mistakes. t 5BMFOU Few (if any) organizations are blessed with

paths to market greatness.

all the talent needed to take on major improvements.

Smart benchmarkers compile a list of skills among

Tactical Focus

management and plant-floor personnel necessary to

In conjunction with a broad and ongoing review of oper-

implement improvements, and then determine where

ations and relevant practices and metrics, benchmarkers

gaps exist. Next, they determine whether they can train

regularly prioritize a list of tactical problems and pos-

for these skills or if they need to recruit new employees.

sible solutions to address:

Benchmarking also can help identify where and how

t 1SPDFTTFT Benchmarkers will uncover myriad

to find talented staff, on a temporary or full-time basis,

ways to upgrade processes, and many of these will touch

as well as indicating an approach to developing skills

various improvement methodologies. But benchmarking

within communities (e.g., apprenticeship programs with

teams must be wary of grabbing only pieces of process

local schools and universities). Some initial improve-

improvements. No improvement methodology works as

ment efforts require an expert (â&#x20AC;&#x153;senseiâ&#x20AC;? or â&#x20AC;&#x153;black beltâ&#x20AC;?

well on a piecemeal basis as it does when deployed in

or similar title) to lay a knowledge foundation.

a complete and holistic manner. This is especially true

Benchmarking Jump Start t .BMDPMN #BMESJHF 1FSGPSNBODF &YDFMMFODF 1SPHSBN Under the guidance of the National Institute of Standards and Technology, this U.S. award program recognizes companies that exhibit exemplary product and process quality, selecting winners from manufacturing, health care, nonprofit/government, education, and service industries.

[XXX RVBMJUZ OJTU HPW] t .1* .BOVGBDUVSJOH 4UVEZ 0OF PG UIF MBSHFTU TVSWFZT DPOEVDUFE PG NBOVGBDUVSJOH QMBOUT UIJT FGGPSU SFTVMUT JO B database of manufacturing and management practices and metrics that can be analyzed by industry, value chain, and many other criteria. MPI data have recently included international plants.

[XXX NQJ HSPVQ OFU UPPMLJU] t 4IJOHP 1SJ[F GPS 0QFSBUJPOBM &YDFMMFODF Administered by Utah State Universityâ&#x20AC;&#x2122;s College of Business, this award program recognizes operational excellence.

[XXX TIJOHPQSJ[F PSH] t *OEVTUSZ8FFL T #FTU 1MBOUT This award program, run by *OEVTUSZ8FFL magazine, annually recognizes 10 â&#x20AC;&#x153;best plantsâ&#x20AC;? from North America based on best practices and metrics (e.g., management, employee development, operations, safety, environmental, supply chain).

[XXX JOEVTUSZXFFL DPN JXJOQSJOU CFTUQMBOUT]

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Benchmarking

All processes, tools, and talent should tightly mesh

2. Itemize targets and findings: Smart benchmarkers

with the findings of the broad review, collectively

aggregate the types of benchmarking data and practices

pointing toward the operations targets the company

they find and then prepare a database to house the infor-

hopes to achieve.

mation. This database or spreadsheet can include various types of information, but at a minimum should include: t *OUFSOBM QSBDUJDFT VOEFS SFWJFX t *OEVTUSZ DPNQBSJTPOT

Armstrong World Industriesâ&#x20AC;&#x2122; Building 1SPEVDUT 0QFSBUJPOT DPOEVDUFE benchmarking studies the year before winning the Malcolm Baldrige National Quality Award.7

t 8PSME DMBTT DPNQBSJTPOT t #FTU QSBDUJDFT JEFOUJmFE t $PNQBOJFT FYIJCJUJOH CFTU QSBDUJDFT JODMVEJOH contact information; t 5FBN JOEJWJEVBM BTTJHOFE UP UIJT QJFDF PG improvement effort; and t (PBMT UJNF GSBNFT BOE QFSJPEJD USBDLJOH PG improvement.

How to Benchmark

A database of performance measures and ongoing improvements may already exist in some format within

Once benchmarkers know what to look for and where to

a plant and can be augmented with the new benchmark-

find it, they need to learn how to turn that groundwork

ing information. In addition, as systematic, plant-wide

into operational improvements. Many companies have

improvements are sought through a planning process,

invested heavily in benchmarking efforts, only to fail

such as strategy deployment, information should be

at adopting the best practices theyâ&#x20AC;&#x2122;ve uncovered. Smart

culled from planning documents that track performance

benchmarkers follow the steps below, with variations

targets and actions and guide tactical improvements.

based on cultures and project management practices:

(Note: Many best-practice plants and companies host

1. Assemble a benchmarking team: Smart bench-

tours in exchange for visitorsâ&#x20AC;&#x2122; benchmarking informa-

markers pull together a cross-functional team(s) of em-

tion and databases, and find other unique ways to sup-

ployees assigned to categories of improvement (e.g.,

plement the compilation of benchmarking data.)

quality, downtime, purchasing, safety) and/or specific

3. Assign individual accountability/responsibility:

problem areas (e.g., maintenance, receiving dock); these

Regardless of the benchmarking venueâ&#x20AC;&#x201D;online database

teams are then charged with finding practices and met-

searches, plant tours, attending conferencesâ&#x20AC;&#x201D;everyone

rics that can drive improvement. A benchmarking team

on a benchmarking team must have specific assignments.

reports to the CI team or executive, but includes repre-

If, for example, a firm opts to send a benchmarking team

sentation significantly broader than the CI team itself.

to a conference, each benchmarker should focus on spe-

Some team members will have an immediate stake in

cific information related to previously identified needsâ&#x20AC;&#x201D;

the improvement process, such as a quality supervisor

asking questions, talking privately to speakers, reviewing

or a production employee in a cell targeted for quality

event materials, and meeting with other attendees. With-

improvement. Other team members may have indirect

out division of labor, a benchmarking team can quickly

influence (e.g., they work in a process that receives

be overwhelmed by the volume of information.

product from the troubled cell, or in a cell scheduled to undergo similar improvements). Many organizations will select areas of focus, team members, and roles as part of their existing continuous improvement or kaizen process, mirroring the teaming structure and processes involved with kaizen events.

7 â&#x20AC;&#x153;Malcolm Baldrige National Quality Award 1995 Recipient: Armstrong World Industries Building Products Operations,â&#x20AC;?

www.quality.nist.gov, National Institute of Standards and Technology, 2001.

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Trends in Manufacturing

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Benchmarking

4. Codify the findings, and update the benchmark-

ensuring that enough options have been considered and

ing database: After external benchmarking efforts, em-

that collateral results (e.g., effects on other areas or pro-

ployees will need to update the database with specifics

cesses) have been taken into account. Regular meetings

on what theyâ&#x20AC;&#x2122;ve found, and prepare recommendations

will also help to determine whether benchmarking ef-

they plan to put before the CI team. Supporting analy-

forts have stalled (i.e., no team reports any updates). Out

sis, such as estimates of return on investment, should

of these meetings will emerge specific implementation

be included. For ongoing benchmarking work, establish

assignments, timetables, and resource allocations.

timeframes for updating information.

Although the benchmarking effort technically ends

5. Assess and prioritize action steps: During regu-

here, the real work is just beginning. Successful imple-

lar meetings between the benchmarking team(s) and CI

mentation will mean ongoing progress toward world-

team, participants will deliver their findings, evaluate

class statusâ&#x20AC;&#x201D;and toward becoming a plant or firm that

options, and prioritize specific actions the team recom-

competitors envy. And since competition never sits still,

mends. Participants must question and constructively

that means the benchmarking journey never ends.

criticize any planned action by a benchmarking team,

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Notes

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Smart Capital

Smart Capital — Savvy Manufacturer’s Guide to Equipment Purchases

I

ndustrial machines aren’t off-the-shelf commodi-

Equally disturbing is that a significant number of pur-

ties—and their purchase can’t be based solely on

chases came directly from the plant floor, without any

price and product. Instead, smart manufacturers

real involvement of either local or corporate purchasing

treat the purchase of capital equipment as a stra-

departments. In some ways, it’s a wonder that any plant

tegic investment, one that boosts performance and profit

got any equipment it actually wanted or needed.

while building long-term customer value. Savvy manu-

Purchasing capital equipment without the active

facturers use an eight-step process to make sure they se-

participation of operations personnel inevitably leads to

lect the right equipment from the right vendor under the

decisions based solely on price—often with disastrous

right conditions to serve their needs today and tomorrow.

consequences. “Many purchasing agents earn bonuses

They:

based on their performance of driving down the cost of

1. Assemble a cross-functional Capital Investment Team (CIT);

the equipment they purchase. However, these agents are never asked to pay back their bonuses when later this

2. Complete a strategic-needs review;

same equipment experiences high maintenance costs

3. Determine individual plant viability and

and frequent failures.”2 On the other hand, investing in

life expectancy;

capital equipment without the expertise of a corporate

4. Perform an operations analysis;

purchasing department often results in organization-

5. Assess vendors;

wide inefficiencies, including overpayment, missed

6. Detail equipment specifications;

economies of scale, and lack of integration between fa-

7. Compile and evaluate price, total cost, and return

cilities and business units.

on investment; and 8. Negotiate and close the purchase.

Savvy manufacturers avoid both these pitfalls by assembling a capital-purchase team that combines the broad skills of purchasing and manufacturing, as well as

Assemble a Cross-Functional Capital Investment Team

the strategic input of senior executives. Customers and suppliers should also be consulted to ensure that the new equipment will create new value both in processes and

Approximately $130 billion was spent on capital expen-

in the final product. In some cases, for example, custom-

ditures (new and used) by U.S. manufacturers in 2009,

ers and suppliers may be willing to renegotiate existing

representing nearly $12,000 per manufacturing em-

contracts or even to help finance the new equipment.

ployee.1 Yet many of those investment decisions were made by purchasing departments with insufficient input from operations executives or manufacturing engineers.

1 “Annual Survey of Manufactures,” 2009 data, U.S. Census Bureau, Dec. 3, 2010.

2 “Ask Your OEM to Accessorize New Equipment for Lubrication Excellence,” by Jim Finch, Machinery Lubrication, January 2003.

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Smart Capital

Figure 1. Capital Investment Team Senior Management % " % % $ " "

CIT Procurement

Operations

% #

% " $ "

% "

% "

% $ #

% ! " $

The different members of the cross-functional capi-

robotic paint lines) to low-cost high-touch equipment

tal investment team (CIT) form an equipment-purchas-

(e.g., manual-load and -unload machines) to custom-

ing nucleus for the company and bring specific skills to

built production lines.

Lean advocates and others cite the problems en-

the purchasing process (Figure 1).

countered when trying to incorporate â&#x20AC;&#x153;monumentsâ&#x20AC;?â&#x20AC;&#x201D;

Develop a Strategic-NeedsReview Process

66

large, inflexible pieces of equipment that must run large batchesâ&#x20AC;&#x201D;into more streamlined production processes. A lean philosophy stresses the need for operations to grad-

The first job of a CIT is to develop a strategic-needs-

ually incorporate equipment selections that are flexible,

review process that assesses capital equipment invest-

portable, and capable of handling small lots. Organiza-

ments against a background of overall corporate strategy,

tions focused on lean should think twice before invest-

focusing on development of a prioritized list of capital

ing in highly automated, large-batch-processing equip-

investments. In a small company, this process may be

ment that cannot be customized. Customer requirements

quite simple (i.e., the CEO is the purchaser and manu-

change constantly, and manufacturers must be able to

facturing leader), but in large organizations this review

quickly and with minimal effort adapt their machinery

may involve business units from around the globe.

to accommodate changes to product specifications.

A key component of the strategic-needs review is

Even in capital-intensive, large-batch industries such

understanding the compatibility of the purchase with

as oil refining or steel making, a corporationâ&#x20AC;&#x2122;s particular

the companyâ&#x20AC;&#x2122;s approach or methodology for opera-

approach to technological development can significant-

tions improvement (lean manufacturing, six sigma, total

ly influence the selection of capital equipment. Nucor

quality management, etc.) and technological develop-

Corp., for example, became one of the largest steel pro-

ment. A proposed capital-equipment purchase must fit

ducers in the United States by aggressively seeking out

within the firmâ&#x20AC;&#x2122;s operations philosophy, particularly in

and investing in new technologies to support its â&#x20AC;&#x153;mini-

discrete-production industries where capital-equipment

millâ&#x20AC;? strategy, allowing it to surge ahead of other steel-

options range from highly automated machinery (e.g.,

makers hobbled by antiquated equipment.

Trends in Manufacturing

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Smart Capital

Other manufacturers find competitive advantage by

Savvy manufacturers periodically review their ros-

customizing capital equipment in ways that develop

ter of plants regarding the strategic roles of each and

proprietary processes. One U.S. high-tech manufacturer

then use this analysis to reward plants that are fulfill-

was able to double the productivity for a product line

ing their purpose (e.g., new capital equipment, new

simply by customizing a single machine. This opportu-

product introductions) or to wean plants from the cor-

nity is highlighted by the fact that studies show manu-

poration (downsizing, plant closings, outsourcing).

facturers have been increasing the amount of assembly equipment they build in-house or customize.

Yet important as this information is to capital equipment investments, it is often unknown to purchasing or operations personnelâ&#x20AC;&#x201D;making the inclusion of senior

Determine Plant Viability and Life Expectancy

executives on the CIT vital. Companies that fail to assess and manage their plant roster, especially during the purchase of capital equipment, face the prospect

A key factor in capital-equipment investments is vi-

of disastrous decisions down the road, such as sudden

ability and life expectancy of the plant requesting the

plant closings, consolidations, and massive equipment

investment. In larger firms, the roster of production fa-

sell-offs.

cilities always consists of plants with a variety of reasons for their existence, including:

The review process also can indicate if relocation of equipment among plants is possible. Similarly, a key

t 1FSGPSNJOH BU XPSME DMBTT MFWFMT

consideration for the CIT at this stage is to determine if

t 1SPEVDJOH UIF NBKPSJUZ TIBSF PG UIF DPNQBOZ T

outsourcers, suppliers, or even customers can alleviate

primary product; t 1SPWJEJOH BO FYBNQMF QJMPU PG UFDIOPMPHJDBM advancement; t 0GGFSJOH CFTU QSBDUJDFT USBJOJOH GPS NBOBHFST PS

the need for a particular piece of equipment. In some instances, such as when production is on-site at the customerâ&#x20AC;&#x2122;s location, the equipment may be acquired by the customer and then leased back.

t 4FSWJOH BT B OJDIF NBSLFU QSPEVDFS

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Smart Capital

Perform an Operations Analysis

Assess Vendors

After developing a strategic-needs-review process and an

Next, the CIT assesses potential vendors against both

understanding of the current facility lineup, the CIT re-

standard supplier criteria and requirements unique to

quests an operations analysis of each capital equipment

capital equipment vendors. Standard supplier criteria

request that provides quantitative projections on how

include:

the new equipment will affect sales, profit, productivity,

t 1BTU QFSGPSNBODF SFHBSEJOH EFMJWFSZ UP QSPNJTF EBUF

quality, deliverability, manufacturing costs, etc., as well

t 5JNFMZ GPMMPX VQ BOE TFSWJDF BOE

as intangible benefits such as improved working envi-

t 8JMMJOHOFTT UP PGGFS BJE BOE BTTJTUBODF

ronment. This analysis should include a review of the

Criteria specific to equipment vendors will include:

required technical skills to install, operate, and maintain

t "CJMJUZ UP DVTUPNJ[F FRVJQNFOU PS JOUFHSBUF

the new equipment, as well as any additional training

in-house equipment designs with turnkey solu-

costs. In addition, the analysis should also review how

tions;

well (or poorly) a facility has leveraged past equipment

t 0O TJUF USBJOJOH

purchases, especially as compared to sister plants also

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requesting equipment.

options; and

This analysis may also include consideration of as-

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set management services from the equipment vendor

Unless vendor proximity is important, national

or a third party. In many industries, particularly heavy

and international providers should join the poten-

industrial machinery, the complexity, costs, and skills

tial vendor list. The challenge is to create dossiers on

necessary to maintain equipment can be prohibitive.

remote firms comparable to those regarding known ven-

Many OEM equipment vendors offer maintenance and

dors. Pay particular attention to vendor viability and rep-

predictive planning capabilities that can guarantee ma-

utation when making acquisitions via an online market.

chine availability at cost-effective prices, serving as a

Along with comparing standard evaluation criteria,

TPSU PG BTTFU JOTVSBODF QPMJDZ 8FJHI UIF CFOFmUT BOE

the CIT should interview potential vendors for their

costs of these service upgrades against the potential for

opinions on equipment trends, industry outlook, and

a costly breakdown.

the types of support and services available for equip-

One note of caution regarding operations analysis:

ment. Vendors should be willing to share as much in-

Too often, equipment purchases are approved or reject-

formation as is available to them and their engineers;

ed based solely on whether a company can afford the

reluctance to do so warns of trouble during the post-

investment this year. Savvy manufacturers understand

purchase relationship.

that health, safety, and regulatory concerns override all other purchase considerations; if OSHA or EPA standards can only be met by acquiring equipment, the real question becomes: â&#x20AC;&#x153;Do we acquire equipment nowâ&#x20AC;&#x201D;or do we shut down?â&#x20AC;?

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Smart Capital

Detail Equipment Specifications The CIT then requires a detailed report of precise equip-

Evaluate Price vs. Return on Investment (ROI)

ment specifications. This list should be exhaustive and

One of the most important roles of the CIT is to evaluate

include all appropriate parameters, such as:

costs and benefits in an appropriate financial framework.

t 5ISPVHIQVU

Purchase price is merely one factor in determining the

t $BQBDJUZ

total cost of capital equipment and ultimate return on

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investment (ROI). Instead, savvy manufacturers use

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total cost of ownership (TCO) and potential ROI to

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evaluate the effectiveness of various capital equipment

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investments.

t 5PMFSBODFT

TCO can be tracked in various ways, but most

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methodologies aggregate direct costs, including capital

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investment and freight charges, as well as indirect costs,

The CIT also should require a report regarding

including maintenance, utilities, and operating labor for

unique factors beyond specifications, such as the

the life of the equipment. TCO then builds to an ROI pro-

equipmentâ&#x20AC;&#x2122;s ability to withstand the demands placed

jection that captures potential cost savings and revenue

upon it within a particular manufacturing environ-

increases through scenarios such as greater productivity,

ment (e.g., continuous operations, wet or abrasive con-

increased product volume, and new process capabilities.

EJUJPOT IJHI MPX UFNQFSBUVSFT

During this process, savvy manufacturers require potential vendors to offer product historiesâ&#x20AC;&#x201D;especially safety and environmental track recordsâ&#x20AC;&#x201D;and, if possible, references within similar industries and under similar operating conditions. These manufacturers also ask whether the capital equipment under consideration is the latest model or a product thatâ&#x20AC;&#x2122;s being phased out. Older models arenâ&#x20AC;&#x2122;t necessarily badâ&#x20AC;&#x201D;unless users report poor performance, safety or environmental recordsâ&#x20AC;&#x201D;and could provide functionality at a lower price.

Note: Most industries have trade exhibitions where equipment specific to their production environments can be seen and touched. Timing the review of equipment and vendors around such exhibitions can significantly speed the purchasing process.

Maintenance Costs and ROI ROI is significantly affected by equipment maintenance costs. While a rule of thumb is that maintenance costs should not exceed 5% of an asset value, benchmark performances in the chemical industry have achieved maintenance costs of 2% or less. Even in a small company with just $1 million in asset values, that difference (2% vs. 5%) in maintenance needs can add up over 20 years to more than $2.16 million (accumulated value of 20-year maintenance opportunity cost at weighted average cost of capital).3

3 â&#x20AC;&#x153;The Cost of Maintenance Destroys Your Capital Investment Returns,â&#x20AC;? Mike Sondalini, MaintenanceResources.com.

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69

Smart Capital

Overall equipment effectiveness (OEE)—a factor of machine availability, quality yield, and production rate—is critical when estimating ROI for new equipment. For example, at a firm with annual sales of $10 million and an OEE of 70%, an increase in OEE to just 73% can add as much as $430,000 annually to the bottom line (about $143,000 per point of OEE). One note of caution: Although individual equipment OEE should be considered, primary emphasis must be on the purchase’s effect on overall efficiency of production. “For example, OEE can appear improved by purchasing oversized equipment, providing redundant supporting systems and increasing the frequency of overhauls.”4 Be familiar, too, with overall market trends in pricing, which could spur or delay action. A starting point is the producer price index—a family of indexes that measure change over time in the selling prices received by domestic producers of goods and services—tracked by

Asset Depreciation Critical to U.S. manufacturers in identifying a total cost of ownership in 2011 is accounting for Bonus Depreciation. Bonus Depreciation was expanded by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and will offer 100% depreciation on qualified assets placed in service after Sept. 8, 2010, but no later than Dec. 31, 2011, and 50% for assets placed in service from Dec. 31, 2011, to Dec. 31, 2012.

The Bonus Depreciation also allows a company to take the rest of the depreciation (50%) for assets in late 2010, and allows a company to deduct a portion in the current year (e.g., 60%) followed by normal depreciation schedules over the life of the remaining investment (e.g., the remaining 40%).

For many firms, this government incentive to spur investment will influence their decisions to purchase in 2011 rather than delay capital expenditures.

the U.S. Bureau of Labor Statistics. For example, “machinery manufacturing” experienced a 1.7% producer price index increase from Feb. 2010 to Feb. 2011.5

4 “Understanding Overall Equipment Effectiveness,” Downtime Central, Business Industrial Network, www.downtimecentral.com.

5 Producer Price Index, Bureau of Labor Statistics, April 2011.

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Smart Capital

Negotiate and Close Purchase

CITâ&#x20AC;&#x2122;s response must be: How quickly can the machinery

As the purchasing process enters the stage of solicit-

produce to our quality yields? The last thing any com-

ing requests for quotes, purchasing members of the CIT

pany can afford is to damage relationships with custom-

will coordinate negotiations with equipment vendors

ers by unnecessarily compromising a lineâ&#x20AC;&#x2122;s performance

to develop optimum packages. In fact, a good purchas-

during an equipment installation.

ing staff can substantially lower the cost of capital

Finally, the CIT will make a consensus decision on

through negotiation without jeopardizing the vendor

the equipment from the pool of vendors and equipment

relationship. Key factors to consider at this stage are

options, and then close the purchase.

financing, lease and rental options, along with the

The process (see Smart Capital Process) is thor-

ramifications of each (e.g., taxes, warranties, asset

oughâ&#x20AC;&#x201D;especially rigorous for a small organization fo-

management, ROI, etc.). Operations members of the

cused on a one-time buyâ&#x20AC;&#x201D;but once a CIT and its proce-

CIT will continue to monitor specifications as changes

dures are established, the capital equipment investment

in the package develop.

process becomes a standard procedure within an organi-

The CITâ&#x20AC;&#x2122;s overall focus will be to emphasize TCO

zation. More importantly, the results of the CIT process

and ROI, which starts by ensuring the optimum window

will inform the next round of equipment purchases, and

for delivery and acceptance of equipment. For example,

decisions will rarely be second-guessed as ROIâ&#x20AC;&#x201D;and

when presented with a turnkey equipment proposal, the

profitsâ&#x20AC;&#x201D;take flight.

Smart Capital Process Start

Identify: $

$ $

Identify

! # Ye

!

! # Ve

Stop

"

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Negotiate and purchase

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71

Machinery Manufacturer Benchmarks

Machinery Manufacturer Performance Benchmarks

A

re machinery manufacturers operating at world-class levels? It’s an important question, the answer to which will determine whether customers are getting optimum

value from their current vendors. To find out, though, equipment buyers have to understand the productivity and profitability of these vendors’ operations—and how well vendors’ manufacturing acumen translates into improved productivity and profitability at customer organizations.

Having the right benchmarks against which to assess machinery manufacturers is a huge step in evaluating equipment providers, and can also help with a critical second step: persuading machinery manufacturers to share metrics so that customers can gain insights into vendors’ ability to aid customers’ organizations.

This chapter explores benchmarks for all U.S. machinery manufacturers that participated in the MPI Manufacturing Study from 2006 to 2010 (see Profile of Machinery Manufacturers), and also compares the benchmarks of machinery manufacturers at or near worldclass manufacturing status (plants reporting “significant progress” or having “fully achieved” world-class status) against those of machinery manufacturers furthest from world-class manufacturing status (plants reporting “no progress” or “some progress” toward world-class status).

The term “world-class manufacturing” has become well known among U.S. executives, and typically implies a level of operational excellence that provides a competitive advantage anywhere in the world. In addition to the world-class groups, benchmarks also are sorted by parent corporation revenues.

72

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Profile of Machinery Manufacturers Some 337 U.S. machinery manufacturing facilities participated in the MPI Manufacturing Study, 2006– 2010, identified by the North American Industry Classification System code (333) for “machinery manufacturing.” Of this combined four-year group, 77% of these machinery manufacturers are part of a private company, and 75% have been in operation for more than 20 years. The majority (59%) describe their operations as low volume/ high mix. Median plant revenue is $22 million (average $110.4 million), and the median revenue of corporate parents is $34 million (average $1.6 billion). The plants are staffed by median 100 employees (average 215).

Approximately 16% of machinery manufacturers indicate that they’ve made “no progress” toward world-class manufacturing status, and another 51% have made only some progress—the two categories furthest from world-class status and identified collectively in tables as “furthest from world class.” Only 4% of these plants have “fully achieved” world-class status, and 29% have made “significant progress” toward world-class status— the two categories at or near world-class status and collectively identified in tables as “at or near world class.” In most instances, the group at or near world-class status outperforms those plants furthest from world-class status (based on “median” or typical performances for the group).

Machinery Manufacturer Benchmarks

Human Resources Machinery manufacturersâ&#x20AC;&#x2122; employees have unique

vs. $15.67 at machinery manufacturers furthest from

skills for designing and building products and man-

world-class status. But machinery manufacturers at or

aging the processes that bring those goods to market.

near world-class provide their workforces far higher lev-

Most machinery manufacturers recognize the impor-

els of training, a key benefit that can be as compelling as

tance of employees to their success, but many firms

cash: 45% train each employee annually more than 20

hinder their ability to satisfy customers by not satisfy-

hours, vs. just 28% of machinery manufacturers furthest

ing employees.

from world-class status.

Approximately one-quarter of machinery manufac-

Nearly all U.S. machinery manufacturers surveyed

turing plants report annual labor turnover of 15% or

by the MPI Manufacturing Study offered paid vacation

higher; the median for all machinery manufacturers

days to their workforces, and most offered employees

is 6% labor turnover. Employees leaving a company,

other traditional benefits, including medical benefits

voluntarily or involuntarily, take valuable corporate

and review and raise programs. But machinery manu-

knowledge with them that must be replaced, add-

facturers at or near world-class status are more likely to

ing costs eventually passed on to equipment buyers.

offer programs that affect the productivity and quality of

Not surprisingly, machinery manufacturers at or near

their workforces, operations, and products, including:

world-class status report labor turnover 3 percentage

t 'PSNBM TBGFUZ IFBMUI QSPHSBN WT PG machinery manufacturers furthest from world-

points lower than machinery manufacturers furthest

class status),

from world-class status: 5% (median) vs. 8%.

It seems counterintuitive that lower labor turnover

t 'PSNBM FNQMPZFF USBJOJOH QSPHSBN WT

rates among machinery manufacturers at or near world-

t -FBEFS TVQFSWJTPS EFWFMPQNFOU WT

and

class status are achieved despite paying lower hourly wages to their production employees: $15.38 (median)

t 5FBNJOH UFBN CVJMEJOH QSBDUJDFT WT

HUMAN RESOURCES TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

What is the plantâ&#x20AC;&#x2122;s annual labor turnover rate for the most recent year?

Median

6.0%

8.0%

5.0%

5.0%

5.0%

Average

10.7%

10.7%

10.6%

11.5%

8.1%

75th Percentile

3.0%

3.0%

2.8%

2.0%

2.0%

25th Percentile

15.0%

15.0%

12.0%

10.0%

12.8%

What percentage of plant production workers are represented by a union(s)?

0%

84.9%

84.7%

85.3%

93.1%

76.0%

1 â&#x20AC;&#x201C; 25%

1.2%

0.5%

2.8%

1.2%

0.0%

26 â&#x20AC;&#x201C; 50%

1.5%

2.3%

0.0%

0.0%

1.3%

51 â&#x20AC;&#x201C; 75%

1.5%

0.9%

2.8%

0.0%

1.3%

76 â&#x20AC;&#x201C; 99%

3.9%

3.6%

3.7%

1.2%

9.3%

100%

7.1%

8.1%

5.5%

4.6%

12.0%

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73

Machinery Manufacturer Benchmarks

HUMAN RESOURCES TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

What percentage of production employees participate in empowered or self-directed work teams?

0%

25.0%

30.3%

15.6%

25.6%

25.7%

1 – 25%

31.3%

33.9%

25.7%

19.8%

31.1%

26 – 50%

11.5%

11.5%

10.1%

11.6%

10.8%

51 – 75%

9.9%

7.8%

14.7%

11.6%

9.5%

76 – 99%

11.1%

6.4%

20.2%

16.3%

13.5%

100%

11.1%

10.1%

13.8%

15.1%

9.5%

What are the approximate wages for production employees (hourly rate without overtime)?

Average wage Median

$15.75

$15.67

$15.38

$16.50

$16.00

Average

$16.18

$16.19

$16.17

$16.35

$16.91

75th Percentile

$18.00

$18.00

$18.00

$19.29

$18.30

25th Percentile

$13.00

$13.00

$13.88

$13.00

$14.65

Median

$12.00

$12.00

$12.00

$11.00

$12.00

Average

$12.13

$12.24

$11.97

$11.69

$12.56

75th Percentile

$14.00

$14.00

$14.00

$14.00

$14.00

25th Percentile

$10.00

$10.00

$10.00

$9.00

$10.00

Starting wage

What are the average annual hours of formal training received by each plant employee?

Less than 8 hours

27.2%

35.3%

9.4%

28.2%

8.2%

8 – 20 hours

39.0%

36.2%

45.8%

40.0%

48.0%

21 – 40 hours

25.1%

22.9%

29.9%

23.5%

31.5%

8.8%

5.5%

15.0%

8.2%

12.3%

More than 40 hours

Which of the following human-resource practices/programs are used at this plant? (multiple responses allowed) Paid vacation days

95.4%

95.5%

96.8%

94.1%

98.7%

Paid medical benefits

88.0%

88.2%

88.9%

87.1%

89.3%

Formal safety/health program

77.1%

71.8%

87.3%

64.7%

94.7%

Annual review and raise program

78.9%

75.5%

85.7%

77.7%

86.7%

Education reimbursements

75.4%

72.7%

81.0%

70.6%

84.0%

Paid sick and/or personal days

69.1%

70.9%

65.1%

68.2%

78.7%

Formal employee training program

61.1%

54.6%

74.6%

56.5%

66.7%

Bonus plan

60.6%

59.1%

65.1%

58.8%

62.7%

Leader/supervisor development

54.3%

45.5%

71.4%

41.2%

72.0%

Teaming/team-building practices

41.7%

30.9%

61.9%

28.2%

57.3%

Profit- or revenue-sharing plan

45.1%

44.6%

46.0%

50.6%

45.3%

Recruiting and hiring program

33.7%

29.1%

41.3%

28.2%

44.0%

Apprenticeship program

24.0%

20.0%

28.6%

18.8%

32.0%

Employee-ownership options

10.9%

11.8%

9.5%

8.2%

14.7%

0.0%

0.0%

0.0%

0.0%

0.0%

None of these

74

Trends in Manufacturing

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www.machinesitalia.org

Machinery Manufacturer Benchmarks

Operations The core of any manufacturing operation is its ability

'PVS NFBTVSFT PG QMBOU PQFSBUJPOT BSF QBSUJDVMBSMZ

to accurately and swiftly satisfy customer demand with

useful in understanding a machinery manufacturerâ&#x20AC;&#x2122;s

high-quality products in a cost-efficient, increasingly

success in satisfying customers while maintaining sta-

QSPEVDUJWF NBOOFS 'PS JOEVTUSJBM FRVJQNFOU QSPWJE-

ble business performance:

ers, that combination of goals often creates competing interests as delighted customers could result in excessive production costs. Many machinery manufacturers successfully balance customer demand with corporate efficiency and profitability, while others have trouble hitting these goals consistently.

Modern operations require a clear path for improvJOH BOE TBUJTGZJOH DVTUPNFST 'PS PG 6 4 NBDIJO-

t 4BMFT QFS FNQMPZFF NFBTVSF PG PQFSBUJPOT productivity), t .BOVGBDUVSJOH DPTUT NFBTVSF PG BCJMJUZ UP control internal costs), t *OWFOUPSZ UVSO SBUFT NFBTVSF PG WFMPDJUZ BOE cash flow), and t 0VUQVU NFBTVSF PG NBSLFU EFNBOE BT XFMM BT available capacity).

ery manufacturers, that path has been the adoption of

Sales per employee was $205,000 (median) at ma-

lean manufacturing as their improvement approach;

chinery manufacturers at or near world-class status vs.

89% of machinery manufacturers at or near world-

$169,750 at machinery manufacturers furthest from

class status have adopted lean. But as in other indus-

world-class status. More than one-quarter of machinery

tries, many of the concepts and tools that support lean

manufacturers at or near world-class status (26%) re-

manufacturing principles are missing, even among so-

port that sales per employee increased by 10% or more

called lean plants, including:

year to year, vs. just 10% of machinery manufacturers

t 7BMVF TUSFBN NBQQJOH PG BMM NBDIJOFSZ manufacturers report using mapping, and 44%

furthest from world-class status.

While material costs vary due to economic conditions

of machinery manufacturers that use lean manu-

BOE PS UIF UZQF PG HPPET CFJOH QVSDIBTFE UIF SFNBJO-

facturing report using value-stream mapping),

ing component of manufacturing costs (on a per-unit

t ,BJ[FO FWFOUT CMJU[FT1 (35% and 43%), and

basis) is a measure that reveals a machinery manufac-

t 8BTUF FMJNJOBUJPO UFDIOJRVFT BOE

turerâ&#x20AC;&#x2122;s ability to manage its operations. Approximately

Even among plants at or near world-class status,

52% of manufacturers at or near world-class status re-

adoption rates of lean concepts are only modestly

port that they have decreased per-unit manufacturing

higher. So while machinery manufacturers may be on

costs (excluding purchased materials) over a three-year

a lean journey, for many the journey has only just be-

period, compared to just 34% of manufacturers furthest

gun, and they have miles to go before customers see

from world-class status; 17% of machinery manufactur-

any impact.

ers furthest from world-class status have seen per-unit manufacturing costs increase by more than 10%.

1 Structured improvement activity, which typically lasts three to five days and addresses a focused problem or opportunity.

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75

Machinery Manufacturer Benchmarks

Machinery manufacturers also need to manage

Some U.S. machinery manufacturers have solid or

inventories in a lean manner: enough buffer or safety

even high-performing operations, yet other equipment

stock to guarantee customer deliveries, not bloated

plants still struggle to achieve key metrics:

inventories that consume cash flow and run the risk

t PG NBDIJOFSZ NBOVGBDUVSFST SFQPSU PO

of becoming obsolete. Machinery manufacturers at or

time delivery rates of 80% or worse; median

near world-class status are more likely to report higher

of 94% on-time delivery rate for all machinery manufacturers.

inventory turn rates for raw material, work-in-process, mOJTIFE HPPET BOE UPUBM JOWFOUPSZ 'PS FYBNQMF UIF

t PG NBDIJOFSZ NBOVGBDUVSFST SFQPSU mOJTIFE

total inventory turn rate is 8 turns at machinery manu-

product first-pass yield of 90% or worse; median of 96% finished-product first-pass yield.

facturers at or near world-class status vs. 5.5 turns for

t PG NBDIJOFSZ NBOVGBDUVSFST SFQPSU TDSBQ BOE

those furthest from world-class statusâ&#x20AC;&#x201D;i.e., 45% great-

rework rates (as a percentage of sales) of 4% or

er inventory efficiency.

higher; median of 1.8% scrap and rework rate.

-BTUMZ QSPEVDUJPO output is a clear signal that a machinery manufacturer offers goods desired by customers. Two-thirds of machinery manufacturers (67%) report that total units of production increased year to year, regardless of world-class status. Yet 21% of machinery manufacturers at or near world-class status report that output increased by more than 20% (vs. 10% of machinery manufacturers furthest from world-class status).

OPERATIONS TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

Please indicate which of the following improvement methodologies are followed at the plant: (multiple responses allowed) Lean manufacturing

73.0%

64.6%

88.9%

61.9%

88.0%

Total quality management

29.3%

21.8%

42.9%

26.2%

33.3%

Six sigma

33.3%

23.6%

49.2%

19.1%

50.7%

Theory of constraints

21.8%

19.1%

27.0%

20.2%

26.7%

Toyota Production System

20.7%

12.7%

34.9%

4.8%

42.7%

Agile manufacturing

9.2%

5.5%

14.3%

6.0%

12.0%

Other methodology(ies)

16.7%

20.0%

11.1%

25.0%

10.7%

No methodology

10.9%

16.4%

1.6%

13.1%

5.3%

What percentage of your workforce is fully engaged in your improvement methodology (ies)?

76

Median

50.0%

50.0%

68.0%

70.5%

50.0%

Average

58.4%

54.1%

66.8%

60.3%

55.8%

75th Percentile

90.0%

86.3%

98.8%

100.0%

88.8%

25th Percentile

25.0%

25.0%

41.3%

25.0%

30.0%

Trends in Manufacturing

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Machinery Manufacturer Benchmarks

OPERATIONS TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

Which of these programs and/or practices occur at this plant? (multiple responses allowed) Continuous-improvement program

75.6%

68.4%

92.7%

76.2%

85.3%

Quality certifications (e.g., ISO)

49.7%

41.7%

66.1%

40.5%

73.3%

Benchmarking

34.9%

28.4%

48.6%

41.7%

46.7%

PDCA problem-solving

42.2%

37.3%

50.0%

33.3%

53.5%

Value-stream mapping

36.2%

33.0%

42.9%

31.0%

45.3%

Waste elimination (i.e., seven wastes)

36.8%

32.8%

43.2%

37.7%

38.6%

Kaizen events/blitzes

34.5%

28.4%

46.0%

22.6%

50.7%

Strategy/policy deployment

35.1%

28.4%

47.6%

27.4%

45.3%

Total productive maintenance

28.6%

20.6%

45.0%

23.8%

48.0%

Open-book management

21.4%

18.8%

27.5%

25.0%

20.0%

9.3%

13.3%

0.9%

3.6%

1.3%

None of these

Please estimate the following operation/production measures for your plant: Manufacturing cycle time (start of plant production to completion of primary product) Median

24

24

20

29

8

Average

246

240

259

338

36

75th Percentile

6

6

6

6

2

25th Percentile

120

168

100

210

40

On-time delivery rate (% of goods delivered on time) Median

94.0%

90.0%

95.0%

95.0%

95.0%

Average

88.6%

86.5%

92.6%

88.5%

92.3%

75th Percentile

97.0%

96.0%

97.9%

98.0%

97.8%

25th Percentile

85.0%

84.0%

90.0%

90.0%

90.0%

Perfect delivery rate (% of goods on time, perfect quality, and to customer specifications) Median

93.5%

91.5%

95.0%

92.5%

95.0%

Average

88.1%

84.8%

92.2%

88.0%

88.0%

75th Percentile

98.0%

96.0%

99.0%

96.8%

98.0%

25th Percentile

86.0%

80.0%

90.0%

85.0%

87.0%

Finished-product first-pass quality yield (% of product that passes final inspection) Median

96.0%

96.0%

97.0%

97.0%

97.6%

Average

93.5%

93.1%

94.1%

93.7%

95.4%

75th Percentile

98.7%

98.7%

99.0%

99.0%

99.0%

25th Percentile

92.3%

90.0%

94.0%

95.0%

94.0%

Median

1.8%

1.5%

2.0%

2.0%

1.5%

Average

4.3%

3.4%

6.0%

4.4%

3.2%

75th Percentile

1.0%

1.0%

0.9%

1.0%

0.5%

25th Percentile

3.0%

3.0%

3.8%

3.3%

2.9%

Median

1.0%

1.0%

1.0%

1.0%

1.0%

Average

1.9%

1.9%

1.8%

1.4%

1.9%

75th Percentile

0.3%

0.3%

0.3%

0.3%

0.5%

25th Percentile

2.0%

2.0%

2.1%

1.2%

2.5%

Scrap and rework (as % of plant sales)

Warranty costs (as % of plant sales)

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77

Machinery Manufacturer Benchmarks

OPERATIONS TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more 13.3%

How has total production output (unit volume) changed in the past 12 months?

Decreased more than 20%

9.0%

10.0%

6.4%

18.8%

Decreased 11 – 20%

3.9%

3.6%

4.6%

9.4%

1.3%

Decreased 1 – 10%

7.2%

6.8%

8.3%

7.1%

13.3%

Stayed the same

13.2%

14.6%

11.0%

14.1%

12.0%

Increased 1 – 10%

25.8%

29.1%

17.4%

23.5%

24.0%

Increased 11 – 20%

27.5%

25.9%

31.2%

20.0%

20.0%

Increased more than 20%

13.5%

10.0%

21.1%

7.1%

16.0%

What are the plant’s costs as a percentage of costs of goods sold (COGS)?

Labor Median

18.0%

20.0%

15.0%

20.0%

10.0%

Average

21.4%

22.8%

18.6%

24.9%

12.8%

75th Percentile

30.0%

30.0%

25.0%

38.3%

15.0%

25th Percentile

10.0%

11.0%

9.4%

11.0%

8.0%

Median

26.3%

28.0%

25.0%

30.0%

25.0%

Average

28.5%

29.0%

27.7%

30.3%

26.7%

75th Percentile

35.5%

35.8%

35.3%

39.3%

35.0%

25th Percentile

20.0%

20.0%

15.9%

20.0%

15.0%

Median

50.0%

47.5%

55.0%

46.0%

60.0%

Average

48.8%

46.7%

52.9%

44.8%

60.5%

75th Percentile

62.0%

60.0%

67.5%

60.0%

72.3%

25th Percentile

34.0%

32.3%

40.0%

30.0%

46.0%

Overhead

Materials

What is the plant’s cost of goods sold as a percentage of plant revenue? (annual COGS ÷ annual revenue) Median

67.3%

66.5%

69.0%

68.5%

65.0%

Average

64.2%

64.0%

64.3%

65.7%

62.3%

75th Percentile

53.0%

51.0%

55.0%

50.0%

50.0%

25th Percentile

78.3%

79.3%

77.0%

80.0%

75.6%

What are the approximate sales per employee for the most recent fiscal year? (include all employees, not just direct labor) Median

$174,000

$169,750

$205,000

$158,000

$252,229

Average

$226,641

$206,343

$271,108

$182,590

$317,926

75th Percentile

$261,500

$244,750

$338,901

$240,000

$395,000

25th Percentile

$120,000

$115,038

$127,000

$120,000

$170,000

How have sales per employee changed in the past year?

Decreased more than 10%

7.4%

9.9%

1.9%

19.5%

5.8%

Decreased 6 – 10%

4.8%

4.4%

5.8%

3.9%

5.8%

Decreased 1 – 5%

78

8.4%

10.3%

4.8%

7.8%

7.3%

Stayed the same

12.2%

14.3%

8.7%

14.3%

10.1%

Increased 1–- 5%

22.5%

22.7%

22.1%

24.7%

29.0%

Increased 6 – 10%

29.3%

28.6%

30.8%

20.8%

24.6%

Increased more than 10%

15.4%

9.9%

26.0%

9.1%

17.4%

Trends in Manufacturing

I

www.machinesitalia.org

Machinery Manufacturer Benchmarks

OPERATIONS TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

How have per-unit manufacturing costs, excluding purchased materials, changed in the last 3 years?

Decreased more than 20%

2.2%

1.0%

4.8%

5.0%

2.8%

Decreased 11 – 20%

11.1%

6.8%

19.2%

5.0%

15.5%

Decreased 1 – 10%

27.0%

26.6%

27.9%

27.5%

29.6%

Stayed the same

12.1%

13.0%

10.6%

20.0%

7.0%

Increased 1 – 10%

34.3%

35.8%

30.8%

27.5%

33.8%

Increased 11 – 20%

9.2%

12.6%

2.9%

7.5%

8.5%

Increased more than 20%

4.1%

4.4%

3.9%

7.5%

2.8%

Which of the following practices are used to manage inventory? (multiple responses allowed) Just-in-time supplier deliveries

51.5%

44.6%

64.8%

56.0%

59.7%

Pull systems with kanban signals

43.2%

36.6%

57.4%

35.7%

68.1%

Vendor-managed or -owned inventories

45.4%

42.7%

51.9%

36.9%

68.1%

Quick equipment changeovers

31.5%

23.5%

48.2%

20.2%

43.1%

One-piece flow techniques

35.2%

28.2%

50.0%

22.6%

58.3%

Parts/goods supermarkets

21.3%

16.0%

32.4%

14.3%

37.5%

Production leveling/heijunka

18.8%

13.6%

29.6%

9.5%

36.1%

RFID and computerized inventory tracking

10.5%

7.5%

16.7%

6.0%

15.3%

None of these

16.7%

22.5%

4.6%

17.9%

1.4%

What are the plant’s inventory turn rates for the following categories of material?

Raw material (turns per year) (annual COGS ÷ average value of raw material on hand) Median

10.0

8.0

12.0

10.0

12.0

Average

33.8

42.7

18.6

55.5

14.1

75th Percentile

17.0

16.0

17.8

26.1

15.3

25th Percentile

5.0

4.5

6.1

5.0

4.6

Work-in-process material (turns per year) (annual COGS ÷ average value of WIP on hand) Median

13.0

12.0

16.0

15.0

16.0

Average

38.8

34.6

46.8

58.7

50.2

75th Percentile

30.0

28.4

41.0

49.0

40.0

25th Percentile

7.0

6.5

10.0

8.0

12.0

Finished goods (turns per year) (annual COGS ÷ average value of finished goods on hand) Median

11.5

10.0

13.0

19.8

9.0

Average

44.5

47.5

40.2

79.0

32.0

75th Percentile

25.0

25.0

30.5

54.0

22.0

25th Percentile

5.0

5.0

5.8

6.9

5.0

Total inventory (turns per year) (annual COGS ÷ average value of total inventory on hand) Median

6.4

5.5

8.0

6.5

8.0

Average

15.5

17.1

12.8

30.1

10.6

75th Percentile

12.0

9.0

13.5

12.2

12.0

25th Percentile

4.0

3.2

4.8

3.9

3.6

How has the total inventory turn rate changed in the last three years?

Decreased more than 20%

3.4%

3.6%

3.1%

5.1%

4.5%

Decreased 11 – 20%

4.1%

4.6%

3.1%

7.6%

1.5%

Decreased 1 – 10%

11.8%

11.8%

12.2%

13.9%

10.5%

Stayed the same

21.0%

24.1%

14.3%

25.3%

11.9%

Increased 1 – 10%

36.2%

36.9%

34.7%

34.2%

41.8%

Increased 11 – 20%

15.9%

13.3%

20.4%

10.1%

22.4%

7.8%

5.6%

12.2%

3.8%

7.5%

Increased more than 20%

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79

Machinery Manufacturer Benchmarks

Supply Chain Even the best efforts to service customers can be waylaid

Not surprisingly, many U.S. machinery manufac-

by poor collaboration with supply-chain partners and

turers struggle to achieve even typical supply-chain

customers. Yet developing close, coordinated working

performances:

processes among suppliers and customers is challeng-

t NFEJBO DVTUPNFS SFUFOUJPO SBUF GPS BMM

ing, and many machinery manufacturers fail to move be-

machinery manufacturers, but 30% report retention rates of 90% or lower.

yond rudimentary transactional relationships with these

t QBSUT QFS NJMMJPO NFEJBO DVTUPNFS SFKFDU SBUF

key partners.

for all machinery manufacturers, but 23% report

'VMMZ PG 6 4 NBDIJOFSZ NBOVGBDUVSFST JOEJcate they have only a â&#x20AC;&#x153;buy and sell (e.g., cost and qual-

reject rates of 1,000 parts per million or higher.

ity focus)â&#x20AC;? relationship with customers; only 19% de-

t NFEJBO PG QSPEVDUT TPME PWFSTFBT GPS BMM

scribe their relationship with customers as â&#x20AC;&#x153;partnership

machinery manufacturers, indicating an ability to

(e.g., sharing resources, intellectual property, and cost

engage with diverse markets, customer demands,

TBWJOHT w 3FMBUJPOTIJQT XJUI TVQQMJFST XFSF TJNJMBSMZ

and product regulations, but 19% report no over-

focused on buy and sell (44%), with just 18% indicat-

seas sales, and probably have limited knowledge

JOH UIFZ IBE B QBSUOFSTIJQ XJUI TVQQMJFST 0OMZ PG

of equipment specifications emerging from other

machinery manufacturers have partnering relationships

countries and regions.

with both customers and suppliers (the groundwork for

Most machinery manufacturers have seen costs rise

efficient supply chains); at the other end of the spectrum,

ESBNBUJDBMMZ 'PS FYBNQMF PG NBDIJOFSZ NBOV-

22% have only buy-and-sell relationships with both cus-

GBDUVSFST FBDI ZFBS SFQPSU UIBU MPHJTUJDT USBOTQPSU DPTUT

tomers and suppliers.

increased, and 9% indicate that transport costs rose by

Many of the supply-chain best practices and pro-

more than 10%. An inability to control costs is certain

grams necessary for deeper partnership relationships are

to affect product pricing. Many equipment-makers look

missing at a majority of machinery manufacturers:

to outsourcing as a way of managing internal costs (e.g.,

t $PMMBCPSBUJWF EFTJHO XJUI DVTUPNFST JO QMBDF BU 54% of machinery manufacturers), t $PMMBCPSBUJWF EFTJHO XJUI TVQQMJFST JO QMBDF BU 45% of machinery manufacturers), t "DDFTT UP DVTUPNFS GPSFDBTUT JO QMBDF BU PG machinery manufacturers), t ,JUUJOH QSFBTTFNCMZ GPS DVTUPNFST JO QMBDF BU 24% of machinery manufacturers), and t 4VQQMJFS NBOBHFNFOU QSPHSBN JO QMBDF BU POMZ 23% of machinery manufacturers).

80

Trends in Manufacturing

I

77% outsource some or all of their fabrication), but the efficacy of those programs in reducing prices to customers is debatable: 70% of machinery manufacturers report that the prices they charged customers had risen for the year in which they were responding, and 10% of machinery manufacturers had increased pricing by more than 10%. In addition, equipment buyers expect some capabilities, such as design, to reside in-house with machinery makers. Yet 32% of U.S. machinery manufacturers outTPVSDF TPNF PS BMM PG UIFJS EFTJHO BOE PS 3 % XPSL

www.machinesitalia.org

Machinery Manufacturer Benchmarks

SUPPLY-CHAIN TABLES Machinery Furthest from manufacturers world class

At or near world class

Less than $50 million

$50 million or more

Which of the following best describes your relationship with suppliers?

Buy and sell (e.g., cost and qualityfocus)

44.0%

50.0%

37.2%

48.0%

40.9%

Certification (e.g., broad qualifications established)

11.0%

8.9%

14.0%

8.0%

13.6%

Cooperation (e.g., sharing product ideas, best practices)

27.0%

25.0%

30.2%

32.0%

22.7%

Partnership (e.g., sharing resources, intellectual property, cost savings)

18.0%

16.1%

18.6%

12.0%

22.7%

Which of the following best describes your relationship with customers?

Buy and sell (e.g., cost and quality focus)

40.8%

47.3%

33.3%

35.3%

46.5%

Certification (e.g., broad qualifications established)

10.2%

7.3%

11.9%

7.8%

14.0%

Cooperation (e.g., sharing product ideas, best practices)

29.6%

30.9%

28.6%

37.3%

20.9%

Partnership (e.g., sharing resources, intellectual property, cost savings)

19.4%

14.6%

26.2%

19.6%

18.6%

Please estimate the following customer and supplier measures for your plant: Customer reject rates (parts per million) Median

120.0

100.0

200.0

25.0

500.0

Average

3,497.6

2,443.6

5,278.3

1,342.7

8,527.0

75th Percentile

5.0

2.0

10.0

1.0

11.0

25th Percentile

2,000.0

2,750.0

1,000.0

1,092.8

2,500.0

95.0%

95.0%

Customer retention rate (% customers retained from previous year) Median

96.0%

95.0%

98.0%

Average

93.5%

92.9%

94.6%

92.0%

94.7%

75th Percentile

99.0%

99.0%

99.2%

100.0%

98.0%

25th Percentile

90.0%

90.0%

90.0%

90.0%

90.0%

Overseas sales (as % of total dollar volume) Median

10.0%

8.0%

13.0%

6.5%

21.0%

Average

17.4%

15.5%

20.2%

14.8%

25.1%

75th Percentile

30.0%

25.0%

30.0%

20.0%

40.0%

25th Percentile

1.3%

1.0%

5.0%

0.0%

5.0%

Imported material/components (% of dollar volume purchased outside home country) Median

10.0%

10.0%

10.0%

5.5%

23.0%

Average

15.6%

15.0%

16.4%

15.0%

25.8%

75th Percentile

25.0%

20.0%

25.0%

16.3%

35.0%

25th Percentile

2.0%

1.0%

3.0%

1.8%

10.0%

Which of the following supply-chain programs and/or practices are in place? (multiple responses allowed) Certification of major suppliers

60.2%

55.4%

68.3%

50.0%

68.3%

Sharing forecasts with suppliers

53.1%

48.2%

61.0%

40.0%

68.3%

Collaborative design with customers

54.1%

57.1%

51.2%

60.0%

46.3%

Customer-satisfaction surveys

47.1%

36.2%

62.8%

36.5%

61.9%

Access to customer forecasts

31.6%

33.9%

29.3%

30.0%

29.3%

Collaborative design with suppliers

44.9%

39.3%

51.2%

44.0%

46.3%

Supplier-management program

22.6%

10.3%

39.5%

17.3%

28.6%

Kitting/preassembly for customers

23.5%

23.2%

24.4%

22.0%

26.8%

None of these

10.2%

10.7%

9.8%

16.0%

4.9%

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81

Machinery Manufacturer Benchmarks

SUPPLY-CHAIN TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

How have the following (on a per-unit basis) changed in the past 12 months?

Price for your products Decreased more than 10%

1.5%

0.9%

2.9%

3.5%

2.7%

Decreased 6 – 10%

3.1%

3.3%

2.9%

5.9%

1.4%

Decreased 1 – 5%

10.5%

10.3%

11.4%

15.3%

8.2%

No change

15.1%

13.1%

17.1%

20.0%

15.1%

Increased 1 – 5%

42.0%

46.7%

32.4%

34.1%

42.5%

Increased 6 – 10%

17.6%

16.4%

21.0%

14.1%

19.2%

Increased more than 10%

10.2%

9.4%

12.4%

7.1%

11.0%

Decreased more than 10%

0.0%

0.0%

0.0%

0.0%

0.0%

Decreased 6 – 10%

1.8%

1.9%

1.6%

1.2%

2.7%

Decreased 1 – 5%

9.4%

11.2%

6.5%

9.5%

9.6%

No change

6.4%

5.6%

8.1%

8.3%

5.5%

Increased 1 – 5%

29.2%

29.0%

29.0%

32.1%

30.1%

Increased 6 – 10%

29.8%

29.0%

32.3%

27.4%

30.1%

Increased more than 10%

23.4%

23.4%

22.6%

21.4%

21.9%

Decreased more than 10%

0.6%

0.0%

0.0%

0.0%

1.4%

Decreased 6 – 10%

0.6%

0.9%

0.0%

1.2%

0.0%

Decreased 1 – 5%

2.3%

2.8%

1.6%

4.7%

0.0%

No change

22.1%

22.2%

22.6%

22.4%

21.9%

Increased 1 – 5%

Component/material cost

Employee wages

71.5%

71.3%

74.2%

68.2%

75.3%

Increased 6 – 10%

2.9%

2.8%

1.6%

3.5%

1.4%

Increased more than 10%

0.0%

0.0%

0.0%

0.0%

0.0%

Decreased more than 10%

0.6%

0.9%

0.0%

1.2%

0.0%

Decreased 6 – 10%

0.6%

0.0%

0.0%

0.0%

1.4%

Decreased 1 – 5%

6.4%

5.6%

8.1%

5.9%

8.2%

No change

30.2%

27.8%

35.5%

30.6%

27.4%

Increased 1 – 5%

33.1%

34.3%

32.3%

28.2%

35.6%

Increased 6 – 10%

22.7%

24.1%

19.4%

23.5%

26.0%

6.4%

7.4%

4.8%

10.6%

1.4%

Decreased more than 10%

0.0%

0.0%

0.0%

0.0%

0.0%

Decreased 6 – 10%

1.2%

0.0%

1.6%

0.0%

2.8%

Decreased 1 – 5%

6.5%

6.5%

6.6%

4.8%

9.7%

No change

13.5%

15.9%

9.8%

16.7%

11.1%

Increased 1 – 5%

41.8%

40.2%

45.9%

45.2%

37.5%

Increased 6 – 10%

28.2%

26.2%

31.2%

26.2%

29.2%

8.8%

11.2%

4.9%

7.1%

9.7%

Decreased more than 10%

0.0%

0.0%

0.0%

0.0%

0.0%

Decreased 6 – 10%

0.0%

0.0%

0.0%

0.0%

0.0%

Decreased 1 – 5%

1.8%

1.9%

1.6%

2.4%

1.4%

No change

14.0%

16.8%

9.7%

15.5%

12.3%

Increased 1 – 5%

30.4%

28.0%

33.9%

27.4%

32.9%

Increased 6 – 10%

34.5%

32.7%

38.7%

35.7%

34.3%

Increased more than 10%

19.3%

20.6%

16.1%

19.1%

19.2%

Employee benefits

Increased more than 10% Logistics/transport costs

Increased more than 10% Utilities/fuel

82

Trends in Manufacturing

I

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Machinery Manufacturer Benchmarks

SUPPLY-CHAIN TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

To what degree are the following activities outsourced and, if outsourcing does occur, to what location?

Fabrication All

12.4%

18.0%

4.7%

9.3%

16.3%

Some

64.8%

67.2%

60.5%

68.5%

58.1%

None

22.9%

14.8%

34.9%

22.2%

25.6%

1.0%

1.7%

0.0%

0.0%

2.3%

Some

26.7%

21.7%

31.8%

18.5%

38.6%

None

72.4%

76.7%

68.2%

81.5%

59.1%

Assembly All

Electrical All

6.7%

6.8%

6.8%

1.9%

13.6%

Some

43.3%

44.1%

40.9%

39.6%

47.7%

None

50.0%

49.2%

52.3%

58.5%

38.6%

Design and/or R&D All

1.0%

1.7%

0.0%

0.0%

2.3%

Some

31.4%

31.7%

29.6%

33.3%

27.3%

None

67.6%

66.7%

70.5%

66.7%

70.5%

1.9%

3.3%

0.0%

1.9%

0.0%

Some

35.2%

41.7%

27.3%

33.3%

38.6%

None

62.9%

55.0%

72.7%

64.8%

61.4%

3.8%

5.0%

2.3%

7.4%

0.0%

Some

42.9%

41.7%

45.5%

46.3%

40.9%

None

53.3%

53.3%

52.3%

46.3%

59.1%

All

0.0%

0.0%

0.0%

0.0%

0.0%

Some

8.7%

6.7%

11.6%

3.7%

14.0%

None

91.4%

93.3%

88.4%

96.3%

86.1%

All

46.2%

46.7%

46.5%

40.7%

53.5%

Some

35.6%

36.7%

32.6%

35.2%

34.9%

None

18.3%

16.7%

20.9%

24.1%

11.6%

All

0.0%

0.0%

0.0%

0.0%

0.0%

Some

8.7%

3.4%

15.9%

5.6%

9.3%

None

91.4%

96.6%

84.1%

94.4%

90.7%

1.0%

1.7%

0.0%

1.9%

0.0%

Maintenance All

IT All

Purchasing

Transportation

Customer service

HR management All Some

13.3%

6.7%

22.7%

11.1%

15.9%

None

85.7%

91.7%

77.3%

87.0%

84.1%

0.0%

0.0%

0.0%

0.0%

0.0%

Some

24.8%

21.7%

27.3%

29.6%

20.5%

None

75.2%

78.3%

72.7%

70.4%

79.6%

Sales and marketing All

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83

Machinery Manufacturer Benchmarks

Capacity / Equipment / IT Machinery manufacturers arenâ&#x20AC;&#x2122;t afraid to invest in their

new equipment vs. 68% of machinery manufactur-

facilities, spending on capital equipment (median 4% of

ers furthest from world-class status.

annual sales), information technology (2% of sales), and

t *NQMFNFOUBUJPO PG OFX JOGPSNBUJPO UFDIOPMPHZ

process improvements (1.5% of sales).

45% of machinery manufacturers at or near world-

U.S. machinery manufacturers at or near world-class

class status report that profitability increased due

report higher levels of investment in capital equipment

to new IT vs. 32% of machinery manufacturers

and process improvements, but just as importantly, they

furthest from world-class status, and

were more likely than machinery manufacturers furthest

t 6TF PG JNQSPWFNFOU NFUIPEPMPHJFT PG NB-

from world-class to see a return from those investments:

chinery manufacturers at or near world-class status

t "QQMJDBUJPO PG OFX DBQJUBM FRVJQNFOU PG

report that profitability increased due to the use of

machinery manufacturers at or near world-class

improvement methodologies vs. 72% of machinery

status report that profitability increased due to

manufacturers furthest from world-class status.

CAPACITY/EQUIPMENT/IT TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

What are the following investments/expenses as a percentage of plant sales for the current year, and how is that percentage likely to change next year?

Capital-equipment spending Median

4.0%

4.0%

4.0%

3.5%

4.0%

Average

6.2%

6.6%

5.5%

4.5%

5.7%

75th Percentile

6.5%

6.4%

6.9%

5.0%

5.0%

25th Percentile

2.0%

2.0%

2.0%

2.0%

2.0%

Median

1.5%

1.5%

1.0%

1.0%

2.0%

Average

2.5%

2.4%

2.7%

2.3%

3.5%

75th Percentile

3.0%

3.0%

3.0%

3.0%

5.0%

25th Percentile

0.9%

1.0%

0.6%

0.5%

0.5%

Median

2.0%

1.5%

2.0%

2.0%

2.0%

Average

3.7%

3.3%

4.2%

3.1%

3.9%

75th Percentile

3.3%

4.5%

3.5%

4.8%

3.0%

25th Percentile

1.0%

0.5%

1.0%

0.6%

1.0%

Median

15.0%

17.5%

10.0%

16.0%

13.0%

Average

18.5%

22.0%

14.3%

21.4%

14.5%

75th Percentile

31.5%

35.0%

19.8%

40.0%

24.3%

25th Percentile

5.0%

5.0%

4.3%

5.0%

4.0%

Median

3.3%

4.3%

3.0%

4.0%

2.0%

Average

5.5%

6.2%

4.4%

5.7%

5.3%

75th Percentile

6.0%

10.0%

5.0%

8.0%

6.0%

25th Percentile

1.0%

1.0%

1.0%

1.5%

1.0%

Median

36.0%

32.5%

40.0%

30.0%

40.0%

Average

35.4%

33.3%

37.1%

30.4%

41.1%

75th Percentile

52.0%

50.0%

53.0%

49.0%

57.5%

25th Percentile

15.0%

15.0%

20.0%

12.0%

26.5%

Information technology spending

Process improvement initiatives

Employee costs (all wages, benefits, etc.)

Utilities/energy

Material and components

84

Trends in Manufacturing

I

www.machinesitalia.org

Machinery Manufacturer Benchmarks

CAPACITY/EQUIPMENT/IT TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

How did the following affect your companyâ&#x20AC;&#x2122;s profitability in the most recent year?

Use of improvement methodology (ies) Major increase

11.0%

5.8%

18.6%

11.5%

11.0%

Some increase

66.9%

66.0%

69.5%

57.7%

74.0%

No change

17.2%

21.4%

10.2%

24.4%

11.0%

Some decrease

1.2%

1.0%

1.7%

2.6%

0.0%

Major decrease

1.8%

2.9%

0.0%

2.6%

1.4%

Not applicable

1.8%

2.9%

0.0%

1.3%

2.7%

Major increase

11.7%

8.7%

17.2%

13.6%

11.8%

Some increase

58.0%

59.2%

56.9%

46.9%

67.7%

No change

24.1%

22.3%

25.9%

28.4%

19.1%

Some decrease

2.5%

3.9%

0.0%

4.9%

0.0%

Major decrease

0.6%

1.0%

0.0%

1.2%

0.0%

Not applicable

3.1%

4.9%

0.0%

4.9%

1.5%

Application of new capital equipment

Implementation of new IT Major increase

3.9%

3.0%

5.5%

1.3%

4.6%

Some increase

33.3%

29.3%

40.0%

27.5%

40.0%

No change

48.1%

52.5%

40.0%

58.8%

35.4%

Some decrease

6.4%

5.1%

9.1%

5.0%

9.2%

Major decrease

0.6%

1.0%

0.0%

1.3%

0.0%

Not applicable

7.7%

9.1%

5.5%

6.3%

10.8%

Major increase

11.5%

7.0%

15.8%

14.0%

10.0%

Some increase

52.1%

52.6%

52.6%

44.0%

62.5%

No change

34.4%

36.8%

31.6%

38.0%

27.5%

Some decrease

1.0%

1.8%

0.0%

2.0%

0.0%

Major decrease

0.0%

0.0%

0.0%

0.0%

0.0%

Not applicable

1.0%

1.8%

0.0%

2.0%

0.0%

Development of new products/services

Investments in the workforce Major increase

3.1%

1.7%

2.6%

2.0%

4.9%

Some increase

56.1%

46.6%

71.8%

52.0%

63.4%

No change

36.7%

44.8%

25.6%

40.0%

29.3%

Some decrease

0.0%

0.0%

0.0%

0.0%

0.0%

Major decrease

2.0%

3.5%

0.0%

4.0%

0.0%

Not applicable

2.0%

3.5%

0.0%

2.0%

2.4%

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85

Machinery Manufacturer Benchmarks

CAPACITY/EQUIPMENT/IT TABLES Machinery manufacturers

Furthest from world class

At or near world class

Less than $50 million

$50 million or more

Please estimate the following capacity/equipment measures for your plant: Production volume (as % of designed plant capacity) Median

75.0%

75.0%

80.0%

60.0%

72.5%

Average

70.9%

69.5%

73.3%

61.4%

71.3%

75th Percentile

85.0%

85.0%

86.0%

80.0%

85.0%

25th Percentile

58.0%

50.0%

60.0%

44.0%

50.5%

Machine availability (as % of scheduled uptime) Median

90.0%

85.5%

90.0%

85.0%

90.0%

Average

80.8%

80.4%

81.4%

80.2%

84.9%

75th Percentile

95.0%

95.0%

95.0%

95.0%

95.0%

25th Percentile

80.0%

80.0%

80.0%

70.0%

80.0%

Operating equipment efficiency (% machine availability X % quality yield X % of optimal rate that equipment operates) Median

80.0%

80.0%

82.0%

77.5%

80.0%

Average

77.4%

75.0%

81.5%

74.8%

77.0%

75th Percentile

90.0%

90.0%

90.0%

90.0%

85.0%

25th Percentile

72.8%

70.0%

75.0%

67.3%

70.0%

Return on invested capital (net operating profit after taxes รท by capital invested)

86

Median

18.0%

16.5%

20.0%

14.0%

20.0%

Average

26.5%

25.8%

27.9%

21.3%

31.9%

75th Percentile

33.0%

30.8%

40.0%

30.0%

55.0%

25th Percentile

7.3%

5.0%

10.5%

3.0%

11.9%

Trends in Manufacturing

I

www.machinesitalia.org

Conclusion

Conclusion

T

he investments and improvement activities

Equipment buyers should make sure that their

identified in the previous chapter help ma-

providers are operationally superior and on their way to

chinery manufacturers leverage their facili-

world-class status. Trends in Manufacturing identifies

ties for their profitability. This is especially

numerous best practices that can help equipment

true of superior firms, those that have made the most

buyers make informed decisions about assessing,

QSPHSFTT UPXBSE XPSME DMBTT NBOVGBDUVSJOH TUBUVT 'PS

buying, implementing, maintaining, and leveraging

FYBNQMF SFUVSO PO JOWFTUFE DBQJUBM 30*$ BU NBDIJO-

equipmentâ&#x20AC;&#x201D;and many of these decisions require close

ery manufacturers was 18% (median), but machinery

cooperation with machinery manufacturers.

NBOVGBDUVSFST BU PS OFBS XPSME DMBTT SFQPSU 30*$ PG

%P ZPV LOPX IPX DBQBCMF ZPVS NBDIJOFSZ WFOEPST

20% vs. 16.5% at machinery manufacturers furthest

are? Are they leveraging their successes for your

from world-class status.

company?

1-888-italtrade

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87

Associations

Innovation at Work in Global Markets AGRICULTURE/FARM MACHINERY UNACOMA represents Italian manufacturers of tractors, agricultural machinery and gardening machinery. These Italian manufacturers produce everything from power mowers for the homeowner to tractors and harvesters used by the world’s leading agribusiness enterprises. UNACOMA members account for 90% of Italian farm machinery production. Italian farm equipment manufacturers rank first in the world in terms of the range of machines produced. www.unacoma.com

CERAMICS Italian manufacturers of machinery and equipment for ceramics have earned a world-class reputation for providing solutions that meet a vast range of customer needs—from traditional ceramics to the latest design trends. Customers around the globe choose machinery produced by members of ACIMAC, the Association of Italian Manufacturers of Machinery and Equipment for the Ceramic Industry, because it is easy to program and simple to maintain; this machinery is also known for its ability to increase productivity and for its design flexibility. www.acimac.it

EARTHMOVING MACHINERY COMAMOTER is the group of UNACOMA representing the Italian manufacturers of earthmoving machinery, attachments and components. COMAMOTER has approximately 40 members (manufacturing over 80% of the total output) who build high-quality, reliable, heavy, medium and light equipment for worldwide use, valued at over $3 billion a year. Italy exports more than $1 billion of earthmoving machinery, equipment and parts annually to more than 140 countries worldwide. www.comamoter.com

FOOD TECHNOLOGY ASSOFOODTEC—the Italian Association of Machinery and Plant Manufacturers for Food Production, Processing, Preservation—representing, in a global leadership position, the most important reference of the Italian associations in technologies field for food industry. Prestigious and qualified companies, a great wealth of experience and reliability, an increasing technical development of products…this is what ASSOFOODTEC can offer. ASSOFOODTEC moreover operates within the Federation of Italian Mechanical and Engineering Association (ANIMA). www.assofoodtec.it

FOOTWEAR, LEATHERGOODS AND TANNING ASSOMAC is the association representing the Italian manufacturers of footwear, leathergoods and tanning machinery. The 180 member manufacturers are world leaders in this sector supplying the most advanced footwear, leathergoods and tanning technologies all over the world. The industrial sectors represented by ASSOMAC export almost 70% of their production. www.assomac.it

FOUNDRY AND METALLURGICAL MACHINERY AMAFOND is the Italian association of companies producing machinery, plants, furnaces and products for the foundry industry. Its 80 member companies provide machinery used in the manufacturing of everything from automobile engines and components to domestic appliances. AMAFOND credits the “Italian approach” to business—characterized by extra customer care and stronger personal relationships—as one of the reasons its member companies attract worldwide customers. www.amafond.com

GLASS As an evolution of the Italian glass-making tradition, GIMAV—the Italian Association of Glass-Processing Machinery and Accessory Suppliers—represents Italian excellence in glass-making machinery today. This industry sector has expanded internationally by employing innovative technology that meets today’s marketplace needs. GIMAV’s 80 member companies are known for customizing machines to meet exacting end-user specifications—from high-rise building construction to fine arts applications.

www.gimav.it

Associations

MARBLE AND STONE Three hundred and twenty-five companies form the foundation of Associazione Italiana MARMOMACCHINE (CONFINDUSTRIA MARMOMACCHINE), the association representing the Italian marble and stone machinery industries. These companies supply the advanced technology that makes Italy a global leader in the stone and manufactured stone industries. Italian machinery is engineered to be versatile and provide customers with unique solutions to process marble and stone at competitive prices. www.assomarmomacchine.com

METALWORKING UCIMU-SISTEMI PER PRODURRE is the Italian Machine Tools, Robots and Automation Manufacturers’ Association. As an official representative of the industry, UCIMU-SISTEMI PER PRODURRE acts as a worldwide ambassador for some of the latest technology developed in Italy. More than 200 member companies, who produce around 70% of the output for the sector, have won universal recognition for their quality, flexibility, reliability and customization. www.ucimu.it

PACKAGING UCIMA groups represent the Italian Manufacturers of Automatic Packing and Packaging Machinery.

Its members represent 70% of the total Italian production and, on average, 80% of Italian exports. One packaging machine out of every four in the world bears the wording “Made in Italy.” And the United States is the industry’s main outlet market for the sector. The worldwide success of the Italian packing and packaging industry is firmly rooted in a consolidated technological tradition and in the ability to find customized packing solutions. www.ucima.it

PLASTICS AND RUBBER The companies of ASSOCOMAPLAST, the Italian Plastics and Rubber Processing Machinery and Molds Manufacturers Association, are globally renowned for their “turnkey solutions”—addressing customer needs through sophisticated machines and engineering. As a result, the Italian plastics and rubber processing machinery industry has seen steady growth since its inception in 1960. Italian machines are highly prized by the world’s most industrialized and economically advanced countries. www.assocomaplast.org

PRINTING, GRAPHIC AND CONVERTING ACIMGA represents the Italian manufacturers of machinery for the graphic, converting and paper industry. Members of this association are world leaders in making machinery for rotogravure and flexographic printing, paper and cardboard processing, and converting. Most of what is produced is absorbed by the packaging market with 60% of the industry's turnover, followed by the graphic arts industry with about 35%, and the rest is employed in various sectors. www.acimga.it

TEXTILE MACHINERY ACIMIT is the Association of Italian Textile Machinery Manufacturers, representing 80% of the entire Italian textile machinery production. Each member takes pride in helping their manufacturing customers spin “cloth into gold.” Italian textile machinery manufacturers meet the full spectrum of industry needs (spinning, weaving, knitting and finishing machines), and leading American textile and clothing manufacturers rely on the quality of Italian high-tech machinery. www.acimit.it

WOOD In every segment of woodworking, from sawmills to the industrial processing of solid wood and panel to finishing, the Italian industry is present with technological solutions capable of responding effectively to a multitude of user requirements. ACIMALL, the Italian Woodworking Machinery and Tools Manufacturers’ Association, with over 220 of the most qualified companies in their field, represents 90% of the whole industry, both in terms of employees and in turnover. www.acimall.com

Chicago C/o Italian Trade Commission 401 N. Michigan Avenue, Suite 3030 Chicago, Illinois 60611 Toll free: 888-ITALTRADE (482-5872) Tel: 312.670.4360 Fax: 312.264.6209 E-mail: info@italtradeusa.com Mexico City C/o INSTITUTO Italiano Para El Comercio Exterior Edificio Omega – Campos Eliseos N. 345 Colonia Polanco – 11560 Mexico D.F. Toll Free: (in Mexico City) 5281 50 10 or (outside Mexico City) 1.800.696.6032 Tel: (+52 555) 2808425 2813950 – 2813957 Fax: (+52 555) 2802324 E-mail: info@italtrademexico.com Toronto C/o Italian Trade Commission 180 Dundas Street West, Suite 2002 Toronto, Ontario, Canada M5G 1Z8 Toll free: 888-ITALTRADE (482-5872) Tel: 416.598.1566 Fax: 416.598.1610 E-mail: info@italtradecanada.com The Italian Trade Commission is headquartered in Rome, Italy Published on behalf of the Office of the Italian Trade Commission in Chicago, USA

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