Metrics are major determinant of manufacturers’ success

Manufacturers’ success rests largely on how effectively they measure financial and operational performance, according to a groundbreaking industry study released October 10. Manufacturing Enterprise Solutions Association (MESA) International and Industry Directions Inc. unveiled the results of the “Metrics that Matter” research project, which 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 for measuring performance.

“What we’re talking about is manufacturers’ survival,” said Julie Fraser, principal of Industry Directions Inc. “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.”

The research is being unveiled at the MESA Plant2Enterprise Conference in Orlando, Fla. The study shows that manufacturers who improved the most against financial performance metrics – the 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.

Research highlights include:

·     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.

·     More than 70 percent of respondents measure on-time delivery, OSHA-reportable incidents per year and manufacturing cycle time in their operations.

·     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.

·     One in three respondents plan to buy plant dashboards in the next 12 months, and 29 percent plan to buy MES, making them the top investments planned for the year, out of 18 software technologies in the survey.

·     Respondents using MES are over twice as likely to have improved 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 over twice as likely to have improved significantly in cash-to-cash cycle times and total inventory on hand.

·     More respondents achieved ROI in less than two years on broad functionality software – ERP, MES and EAM – than other applications.

MESA made two key documents available today: 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 valuable guidance for managers and teams developing performance metrics and IT systems to track and display performance.

Guidebook & Framework lays out the principles and steps for building metrics.

The findings of the online study indicate that those who improved their businesses the most had better linked, faster, and higher quality metrics systems. To boost MESA member companies’ ability to achieve that financial success, the research team combined with consulting experts to develop the MESA Metrics that Matter Guidebook & Framework.

The Guidebook & Framework shows how to create an effective metrics framework that links plant and operations metrics to financial and business metrics. Divided into sections for managers as well as practitioners, the Guidebook explains the roles, needs, challenges and conflicts of each of the major players on the metrics team: Operations (including plant, quality, engineering, maintenance, etc.), finance and information technology (IT). Beyond concepts, it provides a step-by-step construction process for both operations KPIs and financial metrics. It also shows an example of how to justify a plant system investment with sample spreadsheet data.

The MESA Metrics that Matter research team was headed up by Industry Directions Principal Julie 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.

Manufacturing Enterprise Solutions Association (MESA) International is a not-for-profit organization of manufacturers and information system providers focused on leveraging technology to achieve business goals. The organization is a community of manufacturing end-users, technology suppliers and consultants – focused on improving the flexibility and agility of manufacturing production. For more than a decade, MESA has been a premier venue for the manufacturing community to share and create unbiased information on the topic of solving business issues with technology. For more information about MESA, visit www.mesa.org.

Industry Directions is an industry analyst firm that conducts research on the business processes and enabling technologies used in manufacturing value networks in specific vertical industries. These industries include every type of manufacturing, from pure process industries such as oil and gas to batch process such as food and pharmaceuticals to discrete such as automotive, electronics and aerospace, to mixed mode industries such as consumer durables. Areas of focus include supply chain, business-to-business, production, lean & other improvement initiatives, enterprise management, product lifecycle management and performance management.