Manufacturers’ success rests largely on how effectively they measure financial and operational performance, according to a new industry study. Manufacturing Enterprise Solutions Association (MESA) International and Industry Directions Inc. unveiled the results of the “Metrics that Matter” research project at the MESA Plant2Enterprise Conference in Orlando, Fla., on Oct. 9.
The study indicates that manufacturers that leverage technology to share key performance information between operations and finance more frequently have demonstrated clear advantage over those who don’t. At the same time, the study reveals that only a fraction of manufacturers who responded report having those effective links in place for measuring performance.
“What we’re talking about is manufacturers’ survival,” said Julie Fraser, Principal of Industry Directions, based in Cummaquid, Mass. “If operations and finance aren’t on the same page at the same time, you have a company at cross-purposes. And most manufacturers can’t afford to be in that position today.”
Dashboards and MES
The study shows that manufacturers who improved the most against financial performance metrics—the so-called Business Movers—have a metrics framework that links operations to finance, speeds data collection and feedback to the operation, and leverages plant software. The study also reveals that the top two manufacturing applications planned for investment in the next 12 months are plant dashboards and manufacturing execution systems (MES). A larger percentage of the companies currently using these two applications have improved significantly against both operations and business metrics than others.
The study found that 80 percent of “Business Movers” who improved significantly against financial metrics also improved performance significantly on operations key performance indicators (KPIs). Only 3 percent of study respondents report very effective links between operations KPIs and business metrics; this means that most companies’ management does not have views that accurately represent progress and plant contribution. On-time delivery to request is a more common KPI than on-time to commit, indicating great progress in demand-driven and supply chain metrics.
Respondents using MES are more than twice as likely to have improved by more than 1 percent annually, on average, in the past three years in upside production flexibility, energy cost per unit of production and market share. Respondents using plant dashboards are more than twice as likely to have improved significantly in cash-to-cash cycle times and total inventory on hand. More respondents achieved return on investment (ROI) in under two years on broad functionality software—enterprise resource planning (ERP), MES and enterprise asset management (EAM)—than other applications.
MESA made two key documents available at the conference: “Metrics that Matter: Uncovering KPIs that Justify Plant Improvements” presents the findings of an online and telephone survey of 135 manufacturers, surveyed during the summer of 2006, from a wide range of industries. The “Metrics that Matter Guidebook & Framework” describes how to develop a sound system of performance metrics, and provides guidance for managers and teams developing performance metrics and IT systems to track and display performance.
The MESA Metrics that Matter research team was headed up by Industry Directions’ Fraser, independent analyst and consultant David Caruso, and Industry Directions’ Principal William Brandel. The Industry Council that guided the process included Scott Daugherty, plant manager of Cormetech; John Plassenthal, project manager, Strategic Integration, Enterprise Applications IT, of International Truck and Engine; John Moore, quality program manager of KLA Tencor; Neil Crew, group IT director of Princes Ltd.; and Brian Leinbach, MES Deployment Team lead of a leading pharmaceutical company. The consultants who developed the Guidebook include representatives of each sponsor plus EnteGreat and Invensys.
Lead sponsors for the Metrics that Matter research and educational program are: Apriso Corp., Camstar Systems Inc., GE Fanuc Automation, IBM Corp., OSIsoft, Rockwell Automation Inc. and Siemens Energy & Automation Inc. Acumence LLC is a supporting sponsor of the research effort.
Camstar Systems Inc.
GE Fanuc Automation
Rockwell Automation Inc.
Siemens Energy & Automation Inc.