The Manufacturing Performance Management Benchmark Report

June 2006

The Manufactiuring Performance Management Benchmark Report

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

Key Business Value Findings

Best in Class companies, while still paying close attention to cost containment, have begun to turn their attention to outward facing improvements, including customer satisfaction and supplier collaboration. These companies maintain and increase their market leadership position through sustained vigilance, more accurate performance metrics, and improved flexibility in responding to demand. Better performance also correlates directly with frequency of measurement. Schedule compliance and complete and on-time shipments are very much the focus of attention, but even better performing companies still pay the price with high levels of inventory to ensure customer satisfaction.

Implications & Analysis

Lean manufacturing techniques are embraced by over three quarters of all companies in pursuit of manufacturing performance improvements. The pull strategies associated with Lean philosophies was evident in the majority of participating companies, a significant difference from Aberdeens study eighteen months ago. There is a significant difference in the business capabilities sought by Best in Class enterprises versus industry average and laggards. While poorer performers are seeking to identify and eliminate bottleneck and streamline operations, Best in Class have moved beyond these efforts to place more emphasis on collaboration with customers and suppliers. These Best in Class companies are more than twice as likely to deploy IT solutions, particularly for planning, execution and control. Even top performers still fall short of expectations in terms of analytical solutions: On-Line Analytical Processing (OLAP) has not made its way out of the financial and marketing departments.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup i

The Manufacturing Performance Management Benchmark Report

Recommendations for Action

The following specific actions are recommended for companies looking to improve performance management: Measure Key Performance Indicators (KPIs) more frequently quality deviations should be monitored and measured in real time; operational metrics such as shipment performance and schedule compliance should be measured daily; metrics that measure assets such as inventory should be measured weekly. Balance cost reduction efforts against customer satisfaction as acceptable customer service levels are achieved, work specifically to reduce inventory levels. Use available technology for data collection, operational efficiency and visibility integrated manufacturing and operations intelligence platforms, as well as analytics and other business intelligence tools Planning: scheduling, sequencing or load leveling production Execution: instruction, inspection or status Control: plan vs. actual status, alerting, re-planning or corrective action Analysis: effectiveness or improvement opportunity identification

All companies must consider the four elements of performance:

With very few exceptions, real-time integration across these 4 elements has been either non-existent or a custom effort, loosely coupled at best. All companies would benefit from a more focused effort on closing the loop between the first three of these critical elements, developing a philosophy of continuous improvement and promoting a culture where change is welcomed and embraced.

All print and electronic rights are the property of AberdeenGroup 2006. ii AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Table of Contents
Executive Summary .............................................................................................. i Key Business Value Findings.......................................................................... i Implications & Analysis ................................................................................... i Recommendations for Action..........................................................................ii Chapter One: Issue at Hand.................................................................................1 Chapter Two: Key Business Value Findings .........................................................4 Challenges and Responses........................................................................... 6 No Silver Bullets ............................................................................................ 7 Chapter Three: Implications & Analysis............................................................. 10 Process and Organization ........................................................................... 11 Key Capabilities........................................................................................... 12 Key Performance Indicators ........................................................................ 13 Technology Usage ....................................................................................... 15 Pressures, Actions, Capabilities, Enablers (PACE)...................................... 18 Chapter Four Recommendations for Action ....................................................... 20 Laggard Steps to Success........................................................................... 21 Industry Norm Steps to Success ................................................................. 21 Best in Class Next Steps ............................................................................. 22 Featured Sponsors............................................... Error! Bookmark not defined. Sponsor Directory ................................................ Error! Bookmark not defined. Author Profile ..................................................................................................... 23 Appendix A: Research Methodology .................................................................. 24 Appendix B: Related Aberdeen Research & Tools ............................................. 27 About AberdeenGroup ...................................................................................... 28

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Figures
Figure 1: Subtle Shift in Pressures ...................................................................................................... 2 Figure 2: Better than Industry Average Performance Attainment ...................................................... 3 Figure 3: Strategic Actions................................................................................................................... 5 Figure 4: Frequency of Operational Measurement .............................................................................. 8 Figure 5: Frequency of Asset-Oriented Performance Measurement ................................................... 9 Figure 6: Capabilities......................................................................................................................... 13 Figure 7: Respondents Self-Assessment of Complete and On-Time Shipments.............................. 14 Figure 8: Technology Adoption .......................................................................................................... 15 Figure 9: Technologies Most Important to Performance Management ............................................. 16 Figure 10: Tools Currently used to Monitor KPIs ............................................................................... 18

Tables
Table 1: Performance Improvements....................................................................................... 5 Table 2: Chevron Texacos El Segundo Refinery Business Improvement................................ 6 Table 3: Manufacturing Performance Management Challenges and Responses............................................................................... 7 Table 4: Manufacturing Performance Management Competitive Framework .........................11 Table 5: PACE Competitive Framework................................................................................. 19 Table 6: PACE Framework .................................................................................................... 25 Table 7: Manufacturing Performance Management Competitive Framework ........................ 26

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Chapter One: Issue at Hand

Key Takeaways No relief from pressure to drive prices and costs down Demand for increased speed and agility escalates Significant improvement in manufacturing performance takes time and effort

espite indications of a reviving economy and 2 decades of improvement in manufacturing productivity, continued global competition and increasing demands from customers, shareholders and regulatory agencies are forcing manufacturers to continue to seek ways to improve manufacturing performance. Manufacturing performance management strategies have produced reductions in inventory and manufacturing cycle times, and more complete and on-time shipments of better quality products. Yet there seems to be no relief in sight from the constant pressures of mandated cost reductions and higher expectations of cusCompetitive Framework tomer service. Key Aberdeens previous Manufacturing Performance Management Strategies Benchmark study, conducted eighteen months ago, found leading manufacturers looked to these strategies and supporting IT solutions in order to maximize current operations and foster continuous improvement. In December 2004, Aberdeen reported the number one pressure faced was the demand from customers for lower prices (69%), followed by the need to meet increased demand with the same level of resources (58%). Other factors were the drive to improve return-on-investment (ROI) (51%) and the demand for shorter lead times (50%). The Aberdeen Competitive Framework defines enterprises as falling into one of the three following levels of practices and performance: Laggards (30%) practices that are significantly behind the average of the industry Industry norm (50%) practices that represent the average or norm

Today we see a subtle shift in pressures. Customers continue to demand lower prices, with 64% of respondents selecting Best in class (20%) this as a top influential factor in driving manufacturing per- practices that are the best formance efforts, remarkably similar to results in late 2004. currently being employed However, customers demanding shorter lead times has now and significantly superior to become the number one pressure faced by manufacturers the industry norm (67%) (See Figure 1). Pressure to improve ROI has eased slightly, but over half of our participants indicated they were pressed to meet increasing demand with the same resources, an indication that the requirement to do more with less is alive and well in spite of signs of a recovering economy. This phenomenon is much more prevalent in companies who do not perform as well (82%). This comes as no surprise since success fuels growth.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 1

The Manufacturing Performance Management Benchmark Report

Figure 1: Subtle Shift in Pressures

Customers demanding shorter order lead times Customers demanding lower prices

50%

67% 69% 64%

Required to meet increased demand with same assets and people Improve return-on-invested-capital/assets Customers demanding more complete and on-time shipments High demand volatility/market is cyclical 26% 23%

58% 55% 43% 37% 39% 51%

0% 10% 20% 30% 40% 50% 60% 70% 80% 2006 2004

Source: AberdeenGroup, June 2006

Companies in the United States and Canada in particular feel the manufacturing economy is still under fire from several directions. North American companies have been challenged by the introduction of lower priced products coming into their markets from countries with inexpensive labor, causing the trend in recent years toward low cost country sourcing (LCCS), in turn, introducing a higher level of complexity into the supply chain. In the meantime some of these offshore companies, having grasped a foothold in US market share, have moved more operations to the United States, yet are still managing to keep costs and prices low. Toyota is a prime example. After establishing its market leadership position, it has continued to move operations closer to its US consumers. Today 85% of Toyota parts are manufactured in the United States, which subsequently reduces supply chain complexity, shortens lead times, and sets the bar higher for its competitors. In order to remain competitive, manufacturers need to differentiate by developing flexibility to respond to customers who have become more demanding in what they want and when they want it. In the consumer market, additional pricing pressure is felt from the introduction of controversial knock-off products. The quality of these imitations of well-known and premium-priced brands has improved to the extent that all but the least cost-sensitive consumers consider them in their comparison shopping, thereby squeezing margins and making pricing pressure a constant.

All print and electronic rights are the property of AberdeenGroup 2006. 2 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

PACE Key For more detailed description see Appendix A

Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organizations market position, competitiveness, or business operations Actions the strategic approaches that an organization takes in response to industry pressures

Enterprises that have mastered what Aberdeen describes in the manufacturing performance management competitive framework as Best in Class practices have made significant progress in: Reducing manufacturing cost Shrinking manufacturing cycle times Improving schedule compliance Satisfying demand for more complete and on-time shipments

Aberdeens December 2004 study observed a Capabilities the business process disproportional number of manufacturing competencies required to execute performance improvement initiatives had corporate strategy produced little or no results and suggested Enablers the key functionality enterprises plan for a long term commitment of technology solutions re- to programs. Methodologies and technologies quired to support the organiza- are not enough to guarantee success. As outtions enabling business prac- lined in Aberdeens PACE methodology, tices there needs to be a clear linkage between the business pressures, strategic actions and required capabilities, as well as technology enablers. Figure 2 clearly demonstrates some improvements take longer to attain. While significant improvements in throughput and complete and on-time shipments can be achieved in 1-2 years, improvements in product quality take longer, but there is value gained from continued improvement efforts. Findings also imply that early gains are not necessarily sustained. Figure 2: Better than Industry Average Performance Attainment
40% 35% 30% 25% 20% 15% 10% 5% 0% Product Quality Complete and online shipment ManuThroughput facturing cycle time Manufacturing Cost Return on Inventory Schedule compliance Turns: Assets F/G Inventory Turns R/M & WIP 36% 35% 30% 36% 28% 25% 23% 18% 26%

More than 5 years

2-5 Years

1-2 Years

Less than 1 year

Source: AberdeenGroup, June 2006

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 3

The Manufacturing Performance Management Benchmark Report

Chapter Two: Key Business Value Findings

Key Takeaways Best in Class seek market differentiation while others strive to compete Data collection and culture issues present challenges Customer satisfaction comes with a price Best in Class monitor key performance metrics more frequently

anufacturers have traditionally focused on three dimensions of performance: quality, price and delivery. Virtually all manufacturing performance measurements fall into one of these three categories, making manufacturing the focus of performance improvement. Aberdeens research findings show that enterprises with Best in Class operations and performance improvement practices were significantly more likely to outperform their competitors in complete and on-time shipments and schedule compliance. However, even in Best in Class companies this achievement was often at the expense of increased inventory levels. This explains why almost a third of Best in Class companies still view reduction in finished goods inventory as a top choice for strategic action. There are some notable differences in the strategic actions of Best in Class companies versus the combination of industry average and laggards (Figure 3). While better performers remain focused on reducing costs, they also pay much more attention to building agility and flexibility into their manufacturing processes, seeking better market differentiation. Enterprises that have not achieved this level of performance spread their attention more evenly across the more traditional activities in order to achieve market acceptance, which is a lower standard than market superiority. Although absolutes are difficult to compare across industries and even from one company to another, Best in Class companies have reduced manufacturing costs 13% on average, as compared to a disappointing 4% for all other respondents (see Table 1.) Measurement of manufacturing cycle times presents the same challenge. However, better performers were able to reduce cycle time by 16% and average lead times were significantly shorter. Schedule compliance and complete and on-time shipments are much easier to benchmark across companies and industries. Aberdeen found that while Best in Class companies achieved a slightly smaller percentage increase, these better performers were either approaching or had already reached a plateau where smaller increments signal significant improvement.

All print and electronic rights are the property of AberdeenGroup 2006. 4 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Figure 3: Strategic Actions

Reduce manufacturing costs Improve manufacturing flexibility/agility Improve quality Reduce manufacturing lead time Reduce finished goods inventory Improve schedule compliance Improve throughput Reduce raw material inventory Reduce WIP inventory 0 0 14% 18% 29% 31% 28% 36% 36% 48% 62% 64% 79%

28% 21% 28% 21% 34% 28% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Best in Class

All Others
Source: AberdeenGroup, June 2006

Table 1: Performance Improvements KPI

Before Manufacturing Costs1 Complete and on-time shipments Schedule compliance Manufacturing cycle time (days) 46% 87% 81% 25

Best in Class
After 40% 97% 94% 21 % Improvement 13% 11% 16% 16% Before 55% 73% 66% 30

All Other Respondents

After 53% 82% 77% 26 % Improvement 4% 12% 17% 13%

Source: AberdeenGroup, June 2006

Measured as a percent of total revenue.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 5

The Manufacturing Performance Management Benchmark Report

Challenges and Responses

Data collection and culture issues present the greatest challenge to companies seeking to make significant strides in managing manufacturing performance. In general our research found the priority of responses to these challenges appropriate. Data collection is still done manually in the vast majority of companies, including over half of those in our Best in Class category. Yet an equal number of respondents indicated plans for simple and automated data collection, although even better performers sometimes struggle to cost justify automated solutions on the factory or shop floor. However, better performers have done a much better job of creating methodologies to define value and prove the real impact on business. Without timely collection of data, performance deviations surface much too slowly to allow for immediate corrective action and effective communication. And without adequate data, it is hard to justify continued support and further investment. A real-time operations intelligence solution had dramatically contributed to the bottom line at Chevron Texacos El Segundo Refinery. A refinery competes on a worldwide basis using commodity raw materials, making productivity levels critical to competitiveness and profitability. Chevron Texacos approach was to implement an integrated operations intelligence platform, XHQ (from IndX Software, a Siemens Company) in order to aggregate, relate and present operations data drawn from a variety of sources across the enterprise. A subsequent business value assessment found that the implementation of this solution, combined with a newly empowered workforce, contributed dramatically to the results shown in Table 2. Table 2: Chevron Texacos El Segundo Refinery Business Improvement Business Improvement Category
Reduced Operating Expenses Increased Facility Utilization Increased Operational Availability Increased High Value Product Production Reduced Environmental Incidents Reduced OSHA Recordable Injury Rate

Multi-Year Average
8% 8.5% 2.5% 10.5% 18% 39%

Cultural change can be critical to manufacturing performance success. Without a performance driven culture with a philosophy of continuous improvement, manufacturers will continue to struggle and performance improvement initiatives will falter and fail. In most instances cultural issues trickle down from the top, making top management commitment equally important as a critical success factor. One in three respondents indicated that IT solutions did not meet the necessary requirements to support manufacturing performance improvements. While almost half of Best in Class intend to deploy these solutions, only 15% of average performers and laggards indicated plans to do so.

All print and electronic rights are the property of AberdeenGroup 2006. 6 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Table 3: Manufacturing Performance Management Challenges and Responses Challenges

1. Data collection challenges 2. Significant cultural change required 3. No financial justification 4. Lack of top management commitment 5. IT solutions do not meet requirements 6. Workforce unwilling to use technology 7. Manufacturing processes constantly changing

% Selected
58% 53% 42% 33% 32% 32% 21%

Responses to Challenges
1. Simple and automated data collection 2. Create a methodology to define value 3. Measure business impact 4. Seek top management commitment 4. Introduce change gradually 6. Deploy IT solutions in support of MPM 7. Demonstrate the value of IT solutions to supervisors

% Selected
58% 54% 50% 38% 24% 19% 11%

Source: AberdeenGroup, June 2006

No Silver Bullets
Significant manufacturing performance management improvements come at a price however. Figure 2 in Chapter One illustrated that sometimes initial improvements are not sustained. Best in Class companies are not only more vigilant and persistent in their efforts, but Figure 4 indicates they also monitor and measure KPIs more frequently. The widely accepted management principle of you cant manage what you dont measure applies universally. However, not all KPIs require the same level of timeliness. Operational KPIs which measure product quality, throughput, schedule compliance and operation completions should be monitored daily, at a minimum, in order to trigger effective corrective or preventive action. Best in Class companies are moving steadily towards real-time monitoring of these dynamic metrics so that performance deviations are known immediately, local corrective action can be undertaken and communicated to downstream functions.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 7

The Manufacturing Performance Management Benchmark Report

Figure 4: Frequency of Operational Measurement

60% 50% 40% 30% 20% 10% Quarterly Monthly Weekly Ad hoc Never 0% Realtime Daily Best-in-Class All others

Throughput

70% 60% 50% 40% 30% 20% 10% 0% Realtime Quarterly Daily Monthly Weekly Ad hoc Best-in-Class All others

Product Quality
Source: AberdeenGroup, June 2006

KPIs which measure inventory levels, return on assets (ROA), cycle time and manufacturing costs change more slowly over time, and remedial actions take longer to produce results. Therefore daily or real-time monitoring is not as critical. Our research did however show a dramatic difference between Best in Class and others in how frequently these performance indicators were measured. These findings show a direct correlation between Best in Class performance and frequency of measurement.

All print and electronic rights are the property of AberdeenGroup 2006. 8 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Figure 5: Frequency of Asset-Oriented Performance Measurement

70% 60% 50% 40% 30% 20% 10% 0% Quarterly Monthly Weekly Ad hoc Never Realtime Daily Best-in-class All others

Manufacturing Cost

Source: AberdeenGroup, June 2006

Dow Chemical is one company which has placed significant emphasis on near real-time performance monitoring. Recent mergers and acquisitions have added new production capability to their worldwide manufacturing grid. With 150 primary facilities located around the world, the company was experiencing considerable variability in performance, performance measurement tools and work process. It found no quantifiable reason for poor performance in underperforming assets and therefore began to question the data integrity. Dows solution was to provide near real-time (24 hour) visibility of manufacturing performance in order to enable rapid response to non-conforming product, service or business expectations. The company implemented Real-time Performance Management (RtPM) from IndX, a Siemens Company, to provide common data transfer methods from legacy and strategic plant information systems, as well as manual updates. Dow demonstrated tangible progress by implementing pilots in 4 plants across 3 business units, providing drill-down capability to detailed performance data to detect defects, root causes and variability. In doing so, it was able to reconcile differences between run rates and global benchmarks and analyze reasons for discrepancies. Today they have deployed the solution in 60 plants and are well on their way to full implementation across all 150 locations.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 9

The Manufacturing Performance Management Benchmark Report

Chapter Three: Implications & Analysis

Key Takeaways Lean Manufacturing techniques that eliminate waste are embraced as a path to manufacturing performance improvement Better performance correlates with frequency of KPI measurement Laggards are only fooling themselves as the gap in performance widens Best performing companies emphasize interoperability along with price, quality and delivery. s shown in Table 3, survey respondents fell into one of three categories laggard, industry average, or Best in Class based on a combination of KPI performance and characteristics in five key categories:

1. Process: the ability to integrate manufacturing effectively throughout the enterprise and the supply chain 2. Organization: corporate focus/philosophy, level of collaboration among stakeholders 3. Knowledge: visibility and understanding of performance

4. Technology: enablement of performance management initiatives 5. Performance measurement: metrics that promote customer focused performance and continuous improvement Best in Class manufacturers run the tightest ships, managing to focus on customers and supply chain partners without losing control of internal processes. Our research found best performers also make the best use of technology for data collection, operational efficiency and enterprise management and provide more proactive knowledge to operators and knowledge workers to enable effective operational decision-making. Laggard companies tend to view manufacturing departments and processes as non-integrated islands with little automation or technology to enable performance management. Operators see little beyond their own work stations and have no feel for how their individual performance impacts the rest of the company.

All print and electronic rights are the property of AberdeenGroup 2006. 10 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Table 4: Manufacturing Performance Management Competitive Framework Laggards

Process

Industry Average

Best in Class

Non integrated set of manufac- Manufacturing functions integrated Inbound and Outbound processes into a single process across the supply chain integrated turing functions with manufacturing processes. Fragmented functional depart- Lean work cells in pilot stage or in Lean work cells are common; Manuments within manufacturing, little limited use; Manufacturing organ- facturing organization integrated and coordination across departized as a single function with regu- coordinated with customer service, ments, no interaction with IT lar coordination between functions logistics and delivery organization; and departments; little interaction make collaborative decisions with IT with IT Performance deviation known well after the fact, not in time for corrective action and not communicated to downstream functions Manual paperwork and/or spreadsheet planning & analysis, paper based execution, reporting mechanism only, no supporting controls; no interaction with IT; technology decisions made independently of business owners Performance deviation known immediately after it has occurred, local corrective action undertaken and communicated to downstream functions Performance deviation anticipated before deviation occurs, corrective action undertaken to prevent product deviation and minimize schedule impact; downstream functions are included in corrective action.

Organization

Knowledge

Technology

Planning, execution and analysis Integrated planning, execution and solutions are separate and loosely analysis solution that constantly coupled. Performance goals and monitors performance in real time, attainment displayed on shop floor; providing feedback when disruption limited interaction with IT; technol- occurs or are anticipated; collaboraogy decisions influenced by busi- tion with IT; business owners own the ness owners solutions

Performance Meas- Focus is on unit cost and asset Focus is on-time ship performance Focus is on customer responsiveness; urement utilization at the department and total cost cycle time, flexibility, throughput and level resource effectiveness.
Source: AberdeenGroup, June 2006

Process and Organization

While all manufacturing companies understand the dynamics associated with the 3 dimensions of manufacturing performance price, quality and delivery best performing manufacturers recognize a fourth dimension interoperability as a necessary component of the success equation. Successful orchestration of the complexities of operating across an extended supply chain is dependent upon a companys ability to effectively and efficiently communicate, collaborate and inter-operate with its customers and suppliers. The first step in this journey toward productive collaboration is to make this standard practice internally. The purpose of collaboration is to shorten lead times, improve responsiveness and drive out costs, including the cost of inventory. Most top performers today have embraced Lean manufacturing philosophies which focus on the following tenants:

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 11

The Manufacturing Performance Management Benchmark Report

Specifying value from the customers perspective. Identifying the value stream or set of actions required to bring product or solution to the customer; from concept to product launch, from order-to-delivery, and from raw materials to finished product. Making it flow by converting from departments and batches to product teams that redefine the work of departments. Pulling from the customer back by making exactly what the customer wants just when the customer wants it; let the customer pull the product as needed rather than pushing product, often unwanted, into inventory. Striving toward perfection is an ongoing process of reducing effort, time, space, cost, and mistakes.

Our research found that 76% of all companies active with Manufacturing Performance Management programs have embraced Lean manufacturing techniques. The pull strategy associated with Lean philosophies is supportive of a make-to-order manufacturing mode, which requires a strong integration with customer-facing departments and functions and coordination with the supply side of the full value chain. A majority of respondents (84%) indicated they operated in a make-to-order environment, as compared to 74% eighteen months ago, further validating the trend to Lean. However, our research indicates that most companies also use other techniques, such as Material Requirements Planning (MRP), in parallel or in conjunction with Lean. Fifty seven percent of all companies and 64% of Best in Class use MRP, indicating the relative maturity of Enterprise Resource Planning (ERP) implementations in better performing companies. In addition, 40% of all companies and 50% of Best in Class performers have Six Sigma programs in place. Aberdeens Lean research has found a growing number of companies combining these two complementary strategies. While Lean focuses on the elimination of waste, Six Sigma focuses on the elimination of process variability. Best performing companies tear down the walls separating manufacturing from the rest of the enterprise, and further break through the traditional boundaries isolating manufacturers from the integrated value chain.

Key Capabilities
The business process competencies cited as necessary to support strategic actions varied significantly between Best in Class, Industry Average and Laggards. Industry Average companies are focused primarily on identifying and eliminating bottleneck operations, streamlining operations and removing non-value added costs (see Figure 6). Best in Class companies value these capabilities, but have already made significant progress in this regard and are now able to turn their attention to more customer and supplier-focused priorities. These better performers selected capabilities that support a buildto-order environment and those that provide suppliers with upstream visibility. These top performers also keep a vigilant eye on streamlining operations and seek to re-use designs and process changes efficiently. They are more likely to place emphasis on collaboration between customer service and manufacturing than their poorer performing peers.

All print and electronic rights are the property of AberdeenGroup 2006. 12 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

The attention of laggards is not as concentrated on any particular capability, although, as with the industry average enterprises, the ability to identify and eliminate bottlenecks did outweigh any other capability. Figure 6: Capabilities
ID & eliminate bottleneck operations Streamline opns ; remove non -value added costs MTO; components delivered to order Better visibility to Mfg opns Collaboration: Cust Svc & Mfg Provide suppliers upstream visibility Re-use designs; process change orders
28%

55% 29% 36% 43% 36% 50% 36% 61%

67%

Laggard Average Best in Class

28%

29%

27% 14% 18% 11% 18% 11%

33%

43% 43%

0%

20%

40%

60%

80%

Source: AberdeenGroup, June 2006

Key Performance Indicators

Aberdeen defines KPI effectiveness by examining KPI values and the frequency of measurement. As noted in Chapter Two, there is a direct correlation between Best in Class performance and frequency of measurement. Measurement strategies that allow companies to impact performance immediately or before problems actually occur are called Managing. This is typically within the day, daily, weekly, or in some instances monthly. Fast moving manufacturing June require performance measured to the minute. KPI measurement frequency that is significantly after the fact and can impact only long term performance is called Reporting. Best in Class do a much better job of gauging the required frequency; they recognize some metrics require more frequent monitoring. These companies also have a more realistic view of their performance relative to other companies in similar industries. Our survey posed performance metrics questions in two ways. Aberdeen first asked companies for a qualitative self assessment, asking them to rate themselves in comparison to their peers in the same or similar industries. We then asked for specific quantitative measurements such as the percent of orders shipped on-time and complete. Best in Class companies responses to both types of questions correlated well. Companies that claimed to perform better than their peers in on-time and complete shipments, generally performed at 95% or better.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 13

The Manufacturing Performance Management Benchmark Report

Aberdeens findings discovered a significant discrepancy between quantifiable metrics and qualitative self-assessment of schedule-related metrics in poorer performing companies. When asked how their company performed relative to industry averages, 60% of laggards rated themselves as about average and 10% rated themselves as better than most, but the numbers told a very different story, with an average of 69% of shipments complete and on-time. Similarly, 63% of laggards rated themselves as performing about average, and 13% indicated they performed better than most in terms of schedule compliance Yet on average these companies were only performing at 56% of full compliance. This delusional view of the world gets to core of the matter. Without a clear and honest assessment of performance, the gap between Best in Class and the rest of the world will continue to widen. Figure 7: Respondents Self-Assessment of Complete and On-Time Shipments
70% 60% 50% 40% 30% 20% 10% 0% Better than most About average Worse than most 10% 0 11% 57% 44% 43% 44% 30% 60%

BIC

Average

Laggard
Source: AberdeenGroup, June 2006

The measurement of Complete and On-Time shipments was chosen as an example for two reasons. First of all, along with schedule compliance metrics, it is one of the few universal KPIs that can easily be compared despite industry, size of company, geography or any other variable. And secondly, because it is the one metric that poorer performing companies typically use to fool themselves. Aberdeen interviewed one Vice President of Quality Assurance who had been hired to bring a $60 million manufacturer of flow control valves through ISO 9000 certification. Upon his arrival several years ago, the company boasted a 95% record of complete and on-time shipments. Within months of this VPs arrival that percentage plummeted to 89%. Had their performance slipped dramatically? The answer was a resounding, No! The company had actually improved marginally, but it also began measuring performance correctly. The valve manufacturer had been measuring itself against an internal scheduled completion date, which typically bore no relationship at all to the customer requested delivery date. Then when the schedule

All print and electronic rights are the property of AberdeenGroup 2006. 14 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

began to slip, the scheduled completion was pushed out and the new date was used in computing the performance metric. So as schedules were missed, the response was to lengthen the yardstick against which the company measured itself, thus assuring good performance.

Technology Usage
Figure 8 shows that Best in Class companies are twice as likely to deploy IT solutions as an integral part of their manufacturing performance management strategies. Aberdeen investigated current implementations and plans to implement technology in support of planning, execution and control, three elements that form a closed loop manufacturing system, along with analysis. Findings indicate the use of enterprise applications was not as pervasive as is commonly believed. Where systems are deployed, integration remains a challenge. Figure 8: Technology Adoption
120% 100% 80% 60% 40% 20% 0% Planning Execution Control All Others Analysis 64% 16% 37% 64% 29% 20% 57% 17% 28% 15% 12% 17% 36% 21% 21%

36%

Best in Class Implementing Now Fully Implemented

Implementing Now Fully Implemented

Source: AberdeenGroup, June 2006

While almost all companies surveyed expressed interest in and understood the value of existing and emerging technologies, these technologies are not widely used. While workflow technologies tops the list as most important to performance management (see Figure 9), manual spreadsheets remains as the technology of choice in actual practice (see Figure 10). Aberdeen interviewed companies from all three categories laggards, industry average and Best in Class and found all aspired to real time data collection, with events managed through automated work flows that would trigger alerts directly from both enterprise level and manufacturing execution systems. Dave Simpson, director of operations for The Original Cakerie, the largest privately owned dessert manufacturer in Canada, observed that since most everyone today is overworked, the only way out is to have the work call you, instead of having to go out and look for problems and opportunities. Dave would ultimately like to apply event management concepts at the SCADA (Supervisory Control and Data Acquisition) level,
All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 15

The Manufacturing Performance Management Benchmark Report

with deviations triggering an automated response and appropriate escalation to page a supervisor. However - first things first. The Original Cakerie, is just now completing its evaluation and selection of an integrated ERP and will follow with the implementation of automated data collection. And yet the company has achieved Best in Class status with respect to complete and on-time shipments and schedule compliance. But without advanced technology, it has traded customer service for high inventory levels. Even so, manufacturing performance improvement efforts, although mostly manual at present, will reduce required inventory levels in half. Figure 9: Technologies Most Important to Performance Management
60% 50% 40% 30% 20% 10% 0%
Workflow technologies Business process modelers Portal technologies Rules based Triggers and event management Alerts Predictive technologies Data historians 3D Visualization

56%

35%

33%

29%

27%

22%

16%

10%

All Participants
Source: AberdeenGroup, June 2006

Almost 90% of companies surveyed have some level of ERP deployed, although a surprising 22% indicated ERP was home-grown or custom developed. While businesses cannot operate competitively today without it, ERP alone cannot deliver Best in Class results, and home grown or custom developed systems typically cannot keep pace with mature packaged applications. In the back office, ERP is an effective tooling for planning, recording, documenting and reporting on the business, yet ERP is not necessarily reflective of reality in manufacturing. One hundred percent of Best in Class companies have either fully implemented or are now implementing planning systems (applications which schedule, sequence or load level production), although many still rely heavily on ERP and home grown or custom developed systems. NIBCO, a $500 million manufacturer of commodity plumbing products, is one Best in Class company that has effectively leveraged technology to make strides in their Lean pursuit of the perfect order. Ninety five percent of NIBCOs transactional activity is processed through its SAP ERP system, yet the company realized ERP is limited in its view of manufacturing. Therefore, in 2004, the company implemented tools for strategic decision support to improve visibility using Informance. Data collection technology and real-time analytics allow the company to combine customer service strategies with inventory strategies, as well as manufacturing execution strategies.

All print and electronic rights are the property of AberdeenGroup 2006. 16 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

NIBCO manages two different components of its business. One side of the business is repetitive and make-to-stock. Items ordered are promised within 48 hours of receipt of orders. Supplying to demanding retailers such as Home Depot has required continuous improvement, both in theory and in practice. The other side of its business is made-toorder. SAP Available to Promise (ATP) tools are critical in determining commitment dates back to the customer. The company has developed a unique zone approach to inventory, which weighs factors such as representative lead times, average daily sales and manufacturing frequency. This approach, combined with real-time information, has reduced safety stock levels yet improved product availability to 98%. John Hall, Director of Lean Enterprise Systems indicates the company has reduced inventory by 41%, but is still on an inventory reduction journey. Charged with IT enablement, Johns small team of 4 people reports into the functional side of the business. Together the team has 115 years of experience and each is paired up with an IT specialist. One of NIBCOs secrets to success has been its philosophy of ownership. According to John, "We don't do IT as an ego trip. We require the business to own everything that we do." In Aberdeens Manufacturing Transparency: Turning Visibility into Value report, study participants cited disparate data sources, lack of cohesiveness among plant and shop floor systems and lack of integration with ERP as top barriers to achieving visibility into the manufacturing process. And without clear visibility, in highly capacity constrained environments, orders cannot be reliably released. Without integrated real-time information, deviations, even if detected early, cannot be corrected before negatively impacting schedules and downstream operations. While the majority of Best in Class companies reported planning, execution and control systems were either fully implemented or being deployed, only 50%, and even more disappointingly, only 30% of all others indicated the same for analytical solutions. In spite of the fact that these solutions have been available for years, they seem not to be well understood in manufacturing. Aberdeen reported similar results in its December 2004, and it appears little progress has been made since then. Spreadsheets remain the tool of choice (84%). On-Line Analytical Processing (OLAP) tools seem to be relegated to the finance and marketing departments. While manufacturing decision makers admit there are better tools, Microsoft Excel has established itself as the universal instrument. Easy to use and easy to understand, it is generally viewed as good enough. However, a select few manufacturers have made use of analytics and other business intelligence (BI) tools to bring an improved level of visibility to their manufacturing operations. Vicor Corporation, a designer and manufacturer of power conversion components and systems, has implemented Cognos tools to bring KPIs directly to line of business decision-makers. Joe Jeffery, Director of Manufacturing Systems, said the companys objective was to de-centralize expertise and service manufacturings business needs more directly. He indicated, We were spending too much time creating metrics and not enough time using them. Joe and his team services the manufacturing operations by listening to line of business managers issues and requirements, creating a pilot and delivering it via a portal to the managers desktop. His secret to overcoming resistance is to not ask these operational managers to design multi-dimensional data cubes or drill paths, yet create a pilot they can quickly touch and feel. Acceptance comes from being able to drill into detail quickly and pose very specific questions about actual performance.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 17

The Manufacturing Performance Management Benchmark Report

Figure 10: Tools Currently used to Monitor KPIs

Spreadsheets Reporting from other enterprise applications Reporting from ERP Executive dashboards Events trigger alerts to desktops Events trigger alerts to wireless devices Operator cockpits OLAP Predictive technologies 23% 14% 7% 5% 5% 0% 49%

84% 70%

0% 20% 40% 60% 80% 100%

Source: AberdeenGroup, June 2006

While spreadsheets and reporting from applications such as quality management systems and ERP are the most widely deployed means of monitoring performance, some of the top performing companies we spoke with indicated a broader adoption of emerging technologies. Ford Motor Company is one such early adopter. Ford uses ActivPlant Corporations enterprise manufacturing intelligence platform to monitor KPIs. While all ActivPlant data is available in real time, Ford chooses to monitor most performance metrics at the end of each shift, providing a tool for the area manager, together with the assigned work group, to evaluate lost time and waste. However a few selected KPIs, such as jobs per hours, are monitored in real time. In addition, Ford also takes full advantage of paging devices triggered by alarms and alerts. Almost every individual not working directly on the production line is equipped with some wireless device such as a belt pager, cell phone or PDA (personal digital assistant). Alarms signal problems while alerts simply notify individuals of status periodically.

Pressures, Actions, Capabilities, Enablers (PACE)

We have shown that there is a clear relationship between the pressures companies identify and the actions they take, and their subsequent competitive performance. All participants should examine their prioritized PACE selections and determine whether there are valuable perspectives to be gleaned by comparison with the PACE priorities of Best in Class companies. What is behind this increased focus and priority? Customers demanding shorter lead times and lower prices were ranked as the strongest driving pressures behind their decisions to optimize manufacturing performance. Aberdeens PACE (pressures, actions, capabilities, enablers) analytical framework (Table 2) maps the causal relationship between these four factors.

All print and electronic rights are the property of AberdeenGroup 2006. 18 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Table 5: PACE Competitive Framework Priority

1

Pressures
Customers demanding shorter lead time

Actions
Reduce manufacturing lead time

Capabilities
Provide suppliers with upstream visibility; minimize queue and wait time

Enablers
Solution that optimizes the path through production; solution that generates early warning demand signals to suppliers and technology infrastructure to connect with supply chain partners Solution that helps identify and eliminate non-value added activities (waste)

Customers demanding/competitors driving products prices down

Reduce manufacturing costs

Streamline operations; remove non-value added costs

Producing more with the same set of resources including people, machines and equipment Improve return on invested capital/assets Customers demanding complete and on-time shipments

Improve throughput, find hidden capacity

Identify and eliminate bottlenecks; optimize throughput through these operations Build-to-order with materials/components delivered for that order Address manufacturing deviations as they occur; Better visibility into manufacturing processes

IT-enabled solutions that can help design the supply chain based on Lean principles and load level the manufacture and delivery of orders Solution that supports pullbased manufacturing and supplier replenishment Solution that alerts operators to deviations in quality and schedule in real-time; Realtime processing of alerts and event management Solution that can dynamically route orders through the shop floor, taking into account equipment and work force capabilities Real-time processing of alerts and event management

Reduce inventory, find hidden capacity Improve schedule compliance

High Demand Volatility

Improve Manufacturing flexibility/agility

Minimize lot size; provide multiple production paths; increase workforce flexibility Better visibility into manufacturing processes; streamline collaboration between customer service, engineering and manufacturing; capability to re-use existing designs and easily process change orders

Customers demanding more customization and flexibility - need to process change orders further into the manufacturing cycle

Create re-usable and configurable designs

Source: AberdeenGroup, June 2006

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 19

The Manufacturing Performance Management Benchmark Report

Chapter Four Recommendations for Action

Key Takeaways Take a balanced approach across the four key elements of performance: planning, execution, control, and analysis Measure KPIs more frequently quality deviations should be measured in real time; operational metrics such as throughput and schedule compliance should be measured daily; metrics that measure assets such as inventory should be measured weekly. Balance cost reduction efforts against customer satisfaction as acceptable customer service levels are achieved, work specifically to reduce inventory levels. Use available technology for data collection, operational efficiency and visibility integrated manufacturing and operations intelligence platforms, as well as analytics and other business intelligence tools n Aberdeens December 2004 study, best performers were found to have a different philosophy concerning the value drivers of manufacturing and the role manufacturing performance management strategies play. Best in Class enterprises had begun to make the shift from internal cost reductions to more of an outward focus on customer service. This shift appears to be continuing, with best performers using performance management strategies and IT solutions as vehicles for market differentiation. Not only have they shifted focus toward customers, but also to improved collaboration with suppliers and partners in the value chain. All companies must consider the four elements of performance: Planning: The strategies, processes and supporting IT solutions which help manufacturers schedule, sequence or load level production in order to reliably meet the combination of customer satisfaction, throughput and financial goals. Planning capabilities are crucial to ensure schedules are feasible, resources are leveraged, sequence and change-overs are minimized to improve operations. Execution: The strategies, processes and supporting IT solutions which provide instruction to the work force and automation to better meet schedule and quality requirements. Execution systems include equipment and technology to support work instructions, testing, inspection or work status, inventory status and replenishments. Execution capabilities synchronize resources and track performance Control: The strategies, processes and supporting IT solutions which measure plan vs. actual performance in real-time, alert the work force to actual or potential deviations, and proactively re-plan or suggest corrective action. Analysis: The strategies, processes and supporting IT solutions which aid in understanding complex operations and their impact on financial performance. Analysis determines operational effectiveness and identifies improvement opportunities.

All print and electronic rights are the property of AberdeenGroup 2006. 20 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

With very few exceptions, real-time integration across these 4 elements has been either non-existent or a custom effort, loosely coupled at best. All companies would benefit from a more focused effort on closing the loop between these critical elements, developing a philosophy of continuous improvement and promoting a culture where change is welcomed and embraced. Whether a company is trying to gradually move its manufacturing performance from Laggard to Industry Average, or Industry Average to Best in Class, the following actions will help spur the necessary performance improvements:

Laggard Steps to Success

1. Make sure your foundation is secure. Leverage enterprise and manufacturing control and execution solutions to synchronize operations and performance measurement. ERP is a necessary infrastructure upon which improvements can be built. If ERP is deployed, take a good hard look at the acceptance and discipline across your organization. If your foundation is not structurally sound, take the time and effort now to shore it up. Also look at current manufacturing processes and identify ways in which you can gain better visibility and control over what is happening in the plant or on the shop floor. 2. Make sure key performance indicators accurately reflect performance Many manufacturing organizations fall short of Best in Class status because their performance metrics are too constrained. They look only at internal metrics such as asset utilization and cost and they ignore the impact on the customer. Achieving 98 - 100% complete and on-time shipments is meaningless unless the target lines up reasonably well with customer demand. Establish scheduling metrics that keep the customer foremost in priority. If business processes are not built and followed with the customers needs at the core, then consistent client satisfaction is at risk. 3. Measure more often Most poor performers rely on monthly reporting of metrics, which prevents them from adequately managing the results. Frequency of measurement correlates directly with improved performance. Quality deviations should be monitored and measured in real time. Operational metrics such as complete and on-time shipments and schedule compliance should be measured daily and key performance indicators measuring assets such as inventory should be measured weekly.

Industry Norm Steps to Success

1. Gain better balance between internal cost reductions and customer satisfaction Many industry average companies have made significant progress in improving quality and schedule compliance, as well as increasing the percentage of complete and on-time shipments. But many times this is done at the expense of inventory. Pay particular attention to cycle time, production efficiency, and production variability to accelerate the supply chain while limiting inventory expo-

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 21

The Manufacturing Performance Management Benchmark Report

sure. Look beyond the basics of ERPs infinite capacity view to gain a more realistic picture of manufacturing. 2. Extend performance management efforts into the supply chain. Focusing on customer satisfaction is an intuitive next step, but dont stop there. Collaborate with suppliers to improve flow of materials and processes through the supply chain. Simple web based supplier collaboration solutions go a long way toward improving overall performance. Best performing companies emphasize interoperability along with price, quality and delivery performance. 3. Look to technology solutions to take that next crucial step. Reduce paper and spreadsheet-based processes, and consider Web-based technology solutions. Outdated or lack of appropriate technology will breed error and inefficiency within a manufacturing organization. Once clear business and customer requirements are in place, consider leveraging or expanding existing technology investments. Begin to close the gap between enterprise applications and manufacturing execution systems. Accelerate the automation of data collection and leverage this data with analytical tools.

Best in Class Next Steps

1. On-time shipments and product quality are now givens. Seek performance improvements that will produce the flexibility and agility that will lead to market differentiation. As competition continues to drive prices down and customers become more demanding, expecting what they want, when they want it, the only way to be competitive is to offer something others cannot. 2. Take full advantage of emerging technologies. What was considered bleeding edge technology just eighteen months ago has matured, reducing the associated risk of adoption. Start with workflow technologies, but dont stop there. Enhance overall processes with both passive and active event management, taking advantage of triggers and alerts and wireless mobile technology. Let the exceptions call out to the decision-maker in order to take appropriate remedial or preventive action. In addition to increased product quality, better delivery and better margins, taking the above steps can directly impact a companys overall costs, revenues, and profitability.

All print and electronic rights are the property of AberdeenGroup 2006. 22 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Author Profile
Cindy Jutras Vice President and Service Director Manufacturing Research AberdeenGroup, Inc.
Cindy Jutras is vice president of manufacturing research and service director for AberdeenGroup. In this role Cindy oversees all research programs, products and services, related to Manufacturing and ERP. Prior to joining AberdeenGroup, Cindy was a Senior Director at SSA Global and Vice President of Product Strategy for interBiz, a division of Computer Associates. She has also led manufacturing consulting groups and held a variety of positions in software design and development, project and general management for manufacturing, consulting and software companies. Cindy is the author of the original supply chain concept, Virtually Vertical Manufacturing, as well as the book ERP Optimization.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 23

The Manufacturing Performance Management Benchmark Report

Appendix A: Research Methodology

etween April and May, 2006, AberdeenGroup and AutomationWorld magazine examined the manufacturing performance management strategies, experiences, and intentions of more than 130 enterprises in automotive, high-tech, industrial products, and other industries.

Responding manufacturing, logistics, and operations executives completed an online survey that included questions designed to determine the following: The degree to which manufacturing performance management impacts corporate strategies, operations, and financial results The structure and effectiveness of existing performance management procedures Current and planned use of automation to aid these activities The benefits, if any, that have been derived from manufacturing performance management initiatives

Aberdeen supplemented this online survey effort with telephone interviews with select survey respondents, gathering additional information on manufacturing performance management strategies, experiences, and results. The study aimed to identify emerging best practices for manufacturing performance management and provide a framework by which readers could assess their performance management capabilities. Responding enterprises included the following: Job title/function: The research sample included respondents with the following job functions: business process management (33%), manufacturing (28%) procurement (14%), supply chain/logistics (12%) and IT (5%). Job titles represented were manufacturing/operations executive or director (31%); manager (28%); CEO or other C-level officer (16%), and internal consultant (19%). Industry: The research sample included respondents exclusively from manufacturing industries. High-tech manufacturers accounted for 19% of respondents, followed closely by industrial equipment manufacturers at 14%. Automotive manufacturers represented 12% of the sample, while manufacturers of metals and metal products accounted for 9% of respondents. Other sectors responding included medical equipment, construction/engineering, and aerospace & defense, chemicals and pharmaceuticals. Geography: Study respondents were from all parts of the world. Almost 64% of the companies are headquartered in and 70% have plants located the Americas; 22% are headquartered and 65% have plants in EMEA (Europe, Middle East and Africa; 14% are headquartered in and 49% have plants in Asia Pacific; Company size: About 30% of respondents were from large enterprises (annual revenues above US$1 billion); 39% were from midsize enterprises (annual reve-

All print and electronic rights are the property of AberdeenGroup 2006. 24 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

nues between $50 million and $1 billion); and 32% of respondents were from small businesses (annual revenues of $50 million or less). Solution providers recognized as sponsors of this report were solicited after the fact and had no substantive influence on the direction of the Manufacturing Performances Management Benchmark Report. Their sponsorship has made it possible for AberdeenGroup and AutomationWorld to make these findings available to readers at no charge. Table 6: PACE Framework PACE Key
Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organizations market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product/service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products/services, ecosystem partners, financing) Enablers the key functionality of technology solutions required to support the organizations enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)

Source: AberdeenGroup, June 2006

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 25

The Manufacturing Performance Management Benchmark Report

PACE and Competitive Framework How They Interact

Aberdeen research indicates that companies that identify the most impactful pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute.

Table 7: Manufacturing Performance Management Competitive Framework Laggards

Process

Industry Average

Best in Class

Non integrated set of manufac- Manufacturing functions integrated Inbound and Outbound processes into a single process across the supply chain integrated turing functions with manufacturing processes. Fragmented functional departments within manufacturing little coordination across departments. Performance deviation known well after the fact, not in time for corrective action and not communicated to downstream functions Manual paperwork and/or spreadsheet planning & analysis, paper based execution, reporting mechanism only, no supporting controls Manufacturing organized as a single function with regular coordination between functions and departments Performance deviation known immediately after is has occurred, local corrective action undertaken and communicated to downstream functions Planning, execution and analysis solutions are separate and loosely coupled. Performance goals and attainment displayed on shop floor Manufacturing organization integrated and coordinated with customer service, logistics and delivery organization Performance deviation anticipated before deviation occurs, corrective action undertaken to prevent product deviation and minimize schedule impact; downstream functions are included in corrective action. Integrated planning, execution and analysis solution that constantly monitors performance in real time, providing feedback when disruption occurs or are anticipated

Organization

Knowledge

Technology

Performance Meas- Focus is on unit cost and asset Focus is on-time ship performance Focus is on customer responsiveness; urement utilization at the department and total cost cycle time, flexibility, throughput and level resource effectiveness.
Source: AberdeenGroup, June 2006

All print and electronic rights are the property of AberdeenGroup 2006. 26 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

Appendix B: Related Aberdeen Research & Tools

Related Aberdeen research that forms a companion or reference to this report include: Manufacturing Transparency, December 2005 The Lean Benchmark Report: Closing the Reality Gap, March 2006 Global Manufacturing: MES and Beyond, May 2006

Information on these and any other Aberdeen publications can be found at www.Aberdeen.com.

All print and electronic rights are the property of AberdeenGroup 2006. AberdeenGroup 27

The Manufacturing Performance Management Benchmark Report

About

AberdeenGroup
Our Mission
To be the trusted advisor and business value research destination of choice for the Global Business Executive.

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible business value from technology-enabled solutions. Through continuous benchmarking and analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and services to help Global Business Executives accomplish the following: IMPROVE the financial and competitive position of their business now PRIORITIZE operational improvement areas to drive immediate, tangible value to their business LEVERAGE information technology for tangible business value.

Aberdeen also offers selected solution providers fact-based tools and services to empower and equip them to accomplish the following: CREATE DEMAND, by reaching the right level of executives in companies where their solutions can deliver differentiated results ACCELERATE SALES, by accessing executive decision-makers who need a solution and arming the sales team with fact-based differentiation around business impact EXPAND CUSTOMERS, by fortifying their value proposition with independent fact-based research and demonstrating installed base proof points

Our History of Integrity

Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers tangible value to executives trying to advance their businesses with technology-enabled solutions. Aberdeen's integrity has always been and always will be beyond reproach. We provide independent research and analysis of the dynamics underlying specific technologyenabled business strategies, market trends, and technology solutions. While some reports or portions of reports may be underwritten by corporate sponsors, Aberdeen's research findings are never influenced by any of these sponsors.

All print and electronic rights are the property of AberdeenGroup 2006. 28 AberdeenGroup

The Manufacturing Performance Management Benchmark Report

AberdeenGroup, Inc. 260 Franklin Street, Suite 1700 Boston, Massachusetts 02110-3112 USA Telephone: 617 723 7890 Fax: 617 723 7897 www.aberdeen.com 2006 AberdeenGroup, Inc. All rights reserved June 2006

Founded in 1988, AberdeenGroup is the technologydriven research destination of choice for the global business executive. AberdeenGroup has over 100,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, AberdeenGroup offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services.

The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is not guaranteed by Aberdeen. Aberdeen publications reflect the analysts judgment at the time and are subject to change without notice. The trademarks and registered trademarks of the corporations mentioned in this publication are the property of their respective holders.