A Platform Approach to Manufacturing Operations Management

Transcription

1 A Platform Approach to Manufacturing Operations Management Creating a Competitive Advantage out of Economic Uncertainty March 2009 Matthew Littlefield, Mehul Shah

2 Page 2 Executive Summary From the perspective of a manufacturing executive, the key reason to focus on an open and flexible Manufacturing Operations Management (MOM) platform is to create a competitive weapon. Firms that are able to accomplish this enjoy a more profitable and market-responsive supply chain with a holistically managed manufacturing network. However, many executives still have questions regarding how to implement such a platform. To answer these questions, this research will provide a roadmap for delivering such a platform in a cost effective way that still delivers benefits, such as more successful new product introductions and higher levels of profitability. Best-in-Class Performance Aberdeen uses three Key Performance Indicators (KPIs) to identify Best-in- Class performance, with the Best-in-Class averaging: 97% on-time and complete shipments 92% Overall Equipment Effectiveness (OEE) 99% production compliance Competitive Maturity Assessment Aberdeen's survey analysis shows that enterprises enjoying Best-in-Class performance differentiate themselves in many ways, including: Best-in-Class manufacturers are over twice as likely as Industry Average and Laggard manufacturers to have deployed a MOM system Best-in-Class manufacturers, on average, extend their MOM platform across 70% more facilities in their manufacturing network than other manufacturers Best in Class manufacturers, on average, spend 60% less per user on manufacturing IT and services supporting a MOM platform than do Industry Average and Laggard manufacturers Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Not fear their manufacturing operations but rather view them as a competitive weapon; this attitude should flow through the organization and drive a collaborative environment connecting manufacturing to the rest of the organization Leverage IT standards and tools like BPM, event management, SOA, and ISA-95 to reduce the time of implementation, ease the complexity of integration, and increase the scalability of a MOM platform across the manufacturing network Research Benchmark Aberdeen s Research Benchmarks provide an indepth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations "We are heavily exposed to client pressure to contain costs and improve logistics excellence. In fact, our customers asked that we reduce prices by 6% while simultaneously delivering 10% improvements in productivity. To address these pressures we have implemented a platform with both a Manufacturing Execution System and a Warehouse Management System providing real-time visibility and control for global manufacturing operations management." ~Pascal Ober, Director of Competency Centers, Saint-Gobain Sekurit

3 Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 Creating a Competitive Advantage...4 The Maturity Class Framework...5 The Best-in-Class PACE Model...6 Best-in-Class Strategies...6 Chapter Two: Benchmarking Requirements for Success...9 Competitive Assessment...9 The Manufacturing Operations Management Platform...12 Chapter Three: Required Actions...18 Laggard Steps to Success...18 Industry Average Steps to Success...18 Best-in-Class Steps to Success...19 Appendix A: Research Methodology...20 Appendix B: Related Aberdeen Research...22 Figures Figure 1: Pressures Driving Focus on MOM...4 Figure 2: Strategic Actions...7 Figure 3: Real-Time Interoperability with MOM...13 Figure 4: MOM Functionality...14 Figure 5: IT and Standards Used to Support MOM...15 Tables Table 1: Top Performers Earn Best-in-Class Status...5 Table 2: The Best-in-Class PACE Framework...6 Table 3: The Competitive Framework...9 Table 4: Characteristics of a Multi-Site MOM Deployment...16 Table 5: MOM Cost Benefit Analysis...16 Table 6: The PACE Framework Key...21 Table 7: The Competitive Framework Key...21 Table 8: The Relationship Between PACE and the Competitive Framework...21

4 Page 4 Chapter One: Benchmarking the Best-in-Class Business Context Given the current level of economic uncertainty manufacturers' face today; executives are scrambling to find a cohesive strategy that will position the firm for weathering the immediate storm while maintaining the flexibility needed to capitalize on tomorrow's opportunities. Over these past several years, Best-in-Class organizations have led the charge towards converging manufacturing with IT to create flexible and open manufacturing systems. In previous research, Aberdeen has demonstrated that these systems provide the Best-in-Class with a Manufacturing Operations Management (MOM) platform for holistically managing the entire manufacturing network and effectively breeding collaboration between disparate groups. However, the question facing manufacturers today is: whether or not such a trend will continue in our current economic conditions, and if so, what are the most cost effective ways to implement such a system? This report examines exactly how and why these trends continue to gain momentum and what this means for those manufacturers continuing to fall behind the adoption curve. Creating a Competitive Advantage Over the past several reports Aberdeen has published on manufacturing operations management, the overwhelming majority of participating organizations have been focused on cost as a driving pressure. Quite surprisingly, this has changed in our first report since the global downturn in economic activity, with the number one pressure now being maintaining or achieving a competitive advantage. Fast Facts Best-in-Class enterprises significantly outperform their competition. These manufacturers enjoy: 97% on-time and complete shipments 92% Overall Equipment Effectiveness (OEE) When compared to Laggard manufacturers, this accounts for: 17% more on-time and complete shipments 30% higher OEE Figure 1: Pressures Driving Focus on MOM Maintain or achieve a competitive advantage 45% Address the high cost of operations 37% Elevated economic and consumer uncertainty. Ensure quality and regulatory compliance and across operations Increasing free cash flow from operations 24% 24% 28% 0% 25% 50% All Respondents

5 Page 5 The takeaways here are twofold. First, the days of manufacturing organizations sustaining profitable performance without a core competency in manufacturing operations is long over. Second, many organizations in the marketplace today believe they can outperform their competition through more effective manufacturing operations, which translates into many additional market facing benefits outside of cost reductions, including: more successful new product introductions, a tighter coupling of supply to demand, and better customer service through higher quality products delivered on time and complete. Another data point worth mentioning is the 24% of respondents that indicated cash flow as a driver. Freeing up cash flow has long been a driver of organizations focused on supply chain and finance issues such as order to cash and cash conversion cycles. However, until now, we have not seen this same driver impacting why organizations are focusing on execution issues in manufacturing operations. Although not yet driving the majority of organizations, this is the first time freeing up cash flow in operations has made the top five and serves as further evidence that cash is king for every type of organization. The Maturity Class Framework In this study Aberdeen uses three key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard organizations. On-time and complete shipments. Products delivered on time and complete as compared to total original commitment Overall Equipment Effectiveness (OEE). Composite metric accounting for availability, performance, and quality Production compliance. Measured as a percentage of products produced that were in compliance to relevant processes regulations (documentation, ISO, GMP, et cetera) versus total products produced Respondents were divided among three categories based on their aggregate performances in these three metrics. Table 1 displays the average performance of Best-in-Class, Industry Average, and Laggard organizations. We define a competitive advantage in various ways to differentiate us from our competitors. We do this by adding value in the supply change by more effectively managing both our vendors and products. Typically this would involve feedback from vendors in their process capability, assembly issues, and customer feedback. We then bring this together to make improvements to the product and get buy-in from designers on the changes, which is generally the hardest part. This leads to lower defect rates, reduced reliance on goods inwards inspections, and increased yields. Finally, our assembly teams are divided into customer teams that have cross functionality with other departments to gain a greater understanding of customer needs. ~ Large Electronics Manufacturing Services Co. Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 92% OEE 97% On-time and complete shipments 99% Production compliance 81% OEE 94% On-time and complete shipments 95% Production compliance 71% OEE 84% On-time and complete shipments 82% Production compliance

6 Page 6 The Best-in-Class PACE Model Achieving or maintaining a competitive advantage with manufacturing operations can be a daunting task. Table 2 summarizes some of the strategic actions, business process capabilities, and technology enablers Best-in-Class companies have implemented to address these market pressures. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Maintain or achieve a competitive advantage Improve efficiency across manufacturing operations Create or improve visibility and collaboration across the enterprise Automated work flows to manage manufacturing non-conformance and non-compliance events across the enterprise Dynamically update manufacturing business processes as best practices emerge System integrators engage at the executive level System integrators are strategic partners in the design and deployment of manufacturing systems Real-time visibility into customer demand and supplier performance Automated data collection from across manufacturing operations Operational metrics are linked with financial metrics Executives have real-time visibility into the performance of global manufacturing operations Scorecard for normalizing performance across operations Drill down in KPIs by geography, product line, mix, etc. Technology interoperates across MOM, PLM, SCM, and ERP in compliance with ISAS-95 standards Manufacturing Operations Management (MOM) or Manufacturing Execution System (MES) extending across majority of manufacturing sites and the functional areas of production, quality, inventory, and maintenance Enterprise Manufacturing Intelligence (EMI) deployed and used for data collection, abstraction, and aggregation with analytical and dashboard capabilities Business Process Management (BPM) used to orchestrate manufacturing processes and best practices across the organization Service Oriented Architecture (SOA) Information Technology (IT) environment for creating real-time interoperability between Manufacturing Operations Management (MOM), Product Lifecycle Management (PLM), Quality Management Systems (QMS), Supply Chain Management (SCM), and Enterprise Resource Planning (ERP) Best-in-Class Strategies Regarding the strategic actions executives are taking in response to the market pressures faced, there is commonality between the top choices of both the Best-in-Class and other manufacturers. Both groups are more likely to have chosen the strategic action of improving efficiency than any other, but those manufacturers underperforming the Best-in-Class are actually about 25% more likely to be focused on this strategic action. Many factors contribute to this fact but the most readily apparent is that, by

7 Page 7 definition, the Best-in-Class are already operating in a more efficient manner than their underperforming counterparts. Given this uneven playing field, there are more manufacturers among the Best-in-Class that have already addressed efficiency and can now focus on more complex issues, like collaboration and synchronizing production with demand. This idea of maturity helping to build towards the strategic action being taken is exemplified by the fact that the Best-in-Class are more likely to have adopted each of these two strategies. However, it may even be more interesting that all three of these strategies (improving manufacturing efficiency, fostering collaboration, and synching demand with production) enable the basic value proposition of a MOM platform. In the following chapters Aberdeen will show how exactly Best-in-Class manufacturers have leveraged these platforms to ensure the success of these strategic actions. Figure 2: Strategic Actions Improve the efficiency (e.g. cost per unit) of manufacturing operations 45% 56% Create or improve collaboration across functional groups (e.g. product development, manufacturing, supply chain) 32% 28% Improve quality execution across manufacturing operations (e.g. product, suppliers, process) 27% 27% Synchronizing the output of manufacturing operations to match changes in demand 23% 32% Create or improve visibility between manufacturing operations throughout the enterprise 14% 21% 0% 30% 60% All Others Best-in-Class

8 Page 8 Aberdeen Insights Defining a Competitive Advantage There is a significant range of interpretation regarding how manufacturers define a competitive advantage with their manufacturing operations. When asked, a few manufacturers responded as follows: "We consider manufacturing to be a competitive advantage through our global sourcing strategy. We focus our technology on product design in collaboration with manufacturing to hit our cost targets. We model our total supply chain costs in our evaluation. We use an integrated business management approach with each process step... product... demand... supply... integrated reconciliation... and management business review, fully engaging each function in the assessment and decisions. We use SCOR metrics to monitor and improve performance. Furthermore, we fully engage our key suppliers in the evaluation of product design and material flow design," said the Vice President of a Large Chemical Manufacturer. "The specific excellence in manufacturing that we leverage for competitive advantage is our ability to fabricate, assemble, and test complex equipment in a time frame that is less than our competition due to internal control of most aspects of the process," said an employee at a Midsized Engineer to Order Capital Equipment Manufacturer. "In the semiconductor business, manufacturing operations have a very critical role in the company's ultimate financial success. It dictates if products can be ramped in time or ahead of competition and can dictate, through cycle-time, equipment utilization and level of scrap. Ultimately determining if the company and its products are profitable or not," said an employee at a Large European Semiconductor Manufacturer.

9 Page 9 Chapter Two: Benchmarking Requirements for Success The way in which manufacturers implement the business processes designed to manage manufacturing operations and support the strategic actions being taken is highly correlated to successfully responding to market pressures and the achievement of Best-in-Class performance. Competitive Assessment Aberdeen analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the standardization and management of processes across the enterprise); (2) organization (continuous improvement teams and role-based visibility to all levels of organization); (3) knowledge management (automating data collection and using it as actionable intelligence); (4) technology (the software and capabilities that are crucial for achieving operational excellence); and (5) performance management (measuring the metrics and linking those metrics to financials). These characteristics serve as guidelines for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 3: The Competitive Framework Process Organization Knowledge Management Industry Best-in-Class Laggard Average Manufacturing business processes are dynamically updated as new best practices emerge 50% 32% 25% Automated work flows to manage manufacturing nonconformance and non-compliance across the enterprise 50% 32% 17% Executive sponsorship for initiatives on improving manufacturing operations 91% 75% 65% System integrator engage at the executive level 50% 32% 20% System integrators are viewed as strategic partners in the design and deployment of manufacturing systems 50% 30% 36% Executives have real-time visibility into the performance of global manufacturing operations 64% 45% 9% Fast Facts Over 90% of the Best-in- Class have a focus on improving manufacturing operations at the executive level Best-in-Class manufacturers are over twice as likely as Laggard manufacturers to be using IT tools like BPM and SOA and conforming to open standards like ISA-95 Best-in-Class manufacturers extend their MOM platform across 70% more of the manufacturing facilities in their organization than the Industry Average and Laggards Best-in-Class manufacturers enjoy 12% more successful NPIs and 42% higher operating margins than Laggard manufacturers

10 Page 10 Knowledge Management Performance Management Technology Industry Best-in-Class Laggard Average Operational metrics are linked to financial metrics 68% 60% 51% Adverse events are monitored and escalated in real time to decision makers. 68% 54% 27% Real-time visibility between manufacturing operations and customer orders 73% 49% 35% Real-time visibility from manufacturing operations into supplier performance 68% 32% 3% Energy consumption and costs used as KPI for operational decision making 45% 45% 45% Scorecard for normalizing performance across operations 59% 51% 27% Drill down and aggregation in KPIs by geography, product line, mix, etc. 50% 32% 18% MOM* (Manufacturing Operations Management) 58% 26% 25% QMS (Quality Management System) 79% 69% 56% ERP (Enterprise Resource Planning) 81% 81% 62% SCM (Supply Chain Management) 55% 40% 31% EMI (Enterprise Manufacturing Intelligence) 25% 6% 6% Note: * Survey respondents using what they understand to be a MES (Manufacturing Execution System) were instructed to choose MOM (Manufacturing Operations Management). Aberdeen has chosen to make this distinction because of the broad range of understanding in the market place over what is considered MES. In this report Aberdeen will be using the term MOM to include MES systems along with all other systems designed to control and optimize production at the execution level. EMI will still be analyzed separate from MOM and includes systems designed to aggregate data, abstract data, analyze data, and ultimately deliver data as contextualized intelligence to decision makers in a role-based way. In the next section, Aberdeen will begin to examine what should be understood as a "MOM platform" This will be defined through the lens of the Best-in-Class and will include definition at both the functionality as well as IT tool level. Process The Best-in-Class are differentiating themselves by putting in place the ability to standardize and then update best practices across the entire manufacturing network. Examples of this can include the ability to create and update KPIs along with how to optimize production schedules or inventory levels. Second, the processes governing responses to nonconformance and non-compliance events are being standardized. In fact, the Best-in-Class are over three-times as likely as Laggard manufacturers to automate these work flows. Examples of these processes include: when or

11 Page 11 how to open a Corrective and Preventive Action (CAPA), root cause problem solving techniques, or alerting when a adverse event occurs. By standardizing these processes the Best-in-Class are able to make quicker and more effective decisions that then impact the organization in a consistent way across all facilities. Organization Architecture There is a close relationship between creating a competitive advantage through manufacturing operations and how an organization attempting to do so focuses on these same operations. When the Best-in-Class are analyzed, it becomes clear that the executives of these organizations are much more engaged in the success of their manufacturing operations, which only makes sense because it truly takes such a vantage point to be cognizant of how manufacturing operations can drive an overall competitive advantage for the entire firm. Furthermore, these same executives do not presume to have all the answers surrounding manufacturing operations nor do they purport to be experts in the area. In fact it is quite the opposite, Best-in-Class manufacturing executives are more likely than their underperforming counterparts to leverage the expertise of system integrators for shaping their vision of how to design, deploy, and leverage the necessary systems for achieving a competitive advantage. By engaging this expert council, Best-in- Class manufacturers often have a more focused vision of how excellence in manufacturing operations can be leveraged as a competitive advantage. Efficiency is generally assessed through direct or indirect key performance indicators. Yield, cycle-time, OEE, OCM are general indicators used, and regularly controlled through balanced score card methods. ~ Large European Semiconductor Manufacturer Knowledge Management There are two major ways Best-in-Class companies are differentiating from the Industry Average and Laggards regarding how they manage knowledge across the enterprise. First and foremost, the Best-in-Class have the capability to monitor adverse events like non-conformances on the shop floor and underperformance in KPIs. The Best-in-Class are then more likely to be able to both deliver this information to executive decision makers and then contextualize this information by linking operation metrics to financial metrics. Second, the Best-in-Class are more likely than the Industry Average and Laggards to extend visibility beyond just their own manufacturing operations to forward and backward at least one node in the supply network. This allows the Best-in-Class to not only respond to what is currently happening within the four walls but be proactive in dealing with future issues such as improving promise date commitments to customers and enhancing collaboration with suppliers to improve supplier reliability and quality performance. Performance Management There is a tight correlation between how the Best-in-Class differentiate in their performance and knowledge management capabilities. In general, both

12 Page 12 sets of capabilities are largely focused on improved decision making. The Best-in-Class are more likely than the Industry Average and Laggards to have put in place the capability to fairly compare performance across different facilities with score-carding. They are also more likely to have put in place the capability to perform drill down analytics by product line, production line, geography, and more. Finally, to further assist in linking operational metrics with financial metrics the Best-in-Class are more likely to use energy costs in operational decision making, allowing Best-in-Class manufacturers to make closer to optimal decisions. Technology There is a correlation between the technologies a manufacturer adopts, and achieving Best-in-Class performance. The technologies that correlate to Best-in-Class performance span the ISA-95 technology stack; starting at the data and controls layer, moving up through manufacturing operations with MES or MOM, and ending with enterprise applications focused on interdependent functional areas including engineering and distribution. Such a technology strategy complements the strategic actions around manufacturing efficiency, production demand balancing, and collaboration being undertaken by Best-in-Class organizations by connecting manufacturing to the rest of the enterprise and upon further analysis it will be shown that these strategic actions are best supported by a platform approach to manufacturing operations management. The following section will discuss in more detail the functionalities this technology stack provides, specifically how it can be used to create a MOM platform, best practices for deploying this platform, and benchmark data for the specific costs and benefits that can be expected from such a platform. By being able to have sufficient flexibility in the MES solution and visibility across the manufacturing facilities of the supply chain, the MES became a fundamental piece of product and process comparison and improvement, through the standardization of processes and practices. ~ Large European Semiconductor Manufacturer The Manufacturing Operations Management Platform There has been a lot of confusion over the past several years around what the definition is and differences are between Manufacturing Execution System (MES) and Enterprise Manufacturing Intelligence (EMI). Furthermore, there is no clear understanding of how these relate with other newer terms such as MOM, collaborative production systems, or manufacturing 2.0. Finally, to further confuse the market, many of the vendors previously going to market with MES or EMI have had, or are planning new releases with rearchitected software and marketing messages that do not clearly fit into any of the old buckets. In an attempt to lend some clarity, Aberdeen is now referring to MES only as a subset of systems that qualify as MOM. Furthermore, it is generally true that as more software vendors release new solutions the old definition and understanding of MES is less relevant. In fact, as Aberdeen conducts further analysis of how these systems are deployed and the functionality they deliver, the ways that the Best-in-Class are delivering these systems looks very little like the original definition of MES. For this reason, the overall relevance and prevalence of the term MES in the market place is likely going

13 Page 13 to be reduced over the coming years. Finally, to help capture the Best-in- Class' new approach to managing manufacturing operations, Aberdeen now uses the term "manufacturing operations management platform." The following analysis will help show exactly what is meant by a MOM platform and how the Best-in-Class are assisting in the definition of this term through their thought leadership and desire to innovate. Real-Time Interoperability across Technology To start this analysis we will begin by examining how organizations are interoperating across the technology stack described in the previous section. First and most importantly Best-in-Class manufacturers are more likely than both the Industry Average and Laggards to be investing in realtime interoperability across the technologies they have adopted. This allows the Best-in-Class to more easily create real-time visibility and automated workflows to manage manufacturing operations and connect manufacturing operations to the supply chain. It also helps Best-in-Class manufacturers deliver the entire range of functionalities needed on the shop floor that is generally broader than the original definition of what MES should deliver or really what any one application can deliver. Figure 3: Real-Time Interoperability with MOM 100% 95% 95% 88% 80% 50% 50% 43% 91% 89% 86% 83% 69% 50% MOM helps us principally in three areas: First, to target the OEE exercises, it helps us see where the losses are and improve efficiency. Second, MOM helps us improve our process control; to capture and analyze process data. Thirdly, MOM helps us with product and component traceability. All of these combine to improve efficiency, productivity and quality for the customer. ~ Global Supplier for Automotive, Aerospace, Power Generation, Industrial, Marine, and Rail Aftermarket Parts 0% PLM (Product Lifecycle Management) SCM (Supply Chain Management) QMS (Quality Management System) ERP (Enterprise Resource Planning) Best-in-Class Industry Average Laggards Another point worth mentioning before moving on is PLM and MOM interoperability. In the previous section, PLM was noticeably absent but this should actually not be a surprise given the KPIs used for the Maturity Class Framework were quality, execution, and delivery focused; not the traditional areas of strength for PLM. However, PLM does play a critical role, specifically in how well it enables manufacturing and vice versa. Clearly, the Best-in-Class are enjoying better performance in quality, execution, and delivery, which is in no small part due to increased collaboration and a closed feedback loop between design and manufacturing. For more analysis regarding the benefits of interoperability, please see the August 2009 report, Global Manufacturing Operations Management.

14 Page 14 Drill Down on MOM Functionality In general, the technology enablers that are more likely to be used by the Best-in-Class transcend those that were traditionally delivered by MES like scheduling and dispatch, traceability and genealogy, and Work in Process (WIP) inventory optimization; all these are certainly the most prevalent functionalities. When the set of functionalities shown in Figure 5 is looked at holistically it turns out that it spans all aspects of manufacturing operations, including: maintenance, production, quality, and inventory. Furthermore, it also extends out beyond manufacturing operations to begin synchronizing manufacturing operations with the supplier network and helping to close the loop between design and manufacturing; further highlighting the need for interoperability between enterprise applications like SCM, PLM, QMS, ERP, and MOM. Figure 4: MOM Functionality Scheduling and Dispatch Traceability and Genealogy WIP Inventory Optimization Manufacturing Process Planning Preventive Maintenance Supplier Quality Management Dashboards and Analytics Engineering Change Orders NC/CAPA Predictive Maintenance 90% 69% 49% 81% 74% 50% 81% 58% 47% 76% 56% 40% 72% 65% 44% 72% 56% 39% 71% 50% 30% 69% 66% 53% 67% 68% 51% 43% 39% 26% 0% 25% 50% 75% 100% Laggard Industry Average Best-in-Class

15 Page 15 Aberdeen Case Study Volvo Construction Equipment Volvo Construction Equipment (CE) is one of the world s largest manufacturers of construction machines, with 17 plants on four continents. Expansion has primarily been through mergers and acquisitions, thus integrating its various plants and supply chains has been essential for survival in the competitive marketplace. To increase efficiency in manufacturing operations, Volvo CE has focused on having its plants share process innovations and best practices, something that has been a consistent challenge. At the same time, the company wanted increased visibility, both within each plant and throughout the enterprise. To accomplish this, Volvo has linked main assembly lines, fabrication lines, quality management, and ERP. Currently, operations at plants in the United States and South Korea collect process data from individual facilities, and then consolidate it on a single MOM platform. This platform also controls the entire production process from end to end. It sequences production, verifies that everything flows properly, and ensures that components are delivered to the right place at the right time. This data is then fed to suppliers and significantly improved performance and deliveries. The Role of IT Tools and Standards The roles real time interoperability and a broad set of functionality play in achieving Best-in-Class performance are clear. However, achieving this interoperability is no small feat. Often the road to getting there is paved with mistakes including the over use of costly professional services or an overall system architecture that ends up being inflexible when changes are needed. Again, looking to how the Best-in-Class have already travelled this road, we see they are more likely to have leveraged a number of IT tools and open standards like BPM, SOA, and ISA-95 compliance that reduce the risk of these mishaps occurring. Figure 5: IT and Standards Used to Support MOM BPM (Business Process Management) Event Management ISA-95 Standards are Adhered to SOA (Service Oriented Architecture) 30% 19% 32% 27% 10% 21% 13% 13% 21% 13% 13% 55% 0% 25% 50% 75% Laggards Industry Average Best-in-Class

16 Page 16 Multi-Facility MOM Deployments The above IT tools also do more than just enable enterprise application interoperability; they actually help elevate MOM to being an enterprise application. Hence, we are seeing Best-in-Class manufacturers deploy a MOM platform across a larger share of their manufacturing footprint, deliver it quicker, and not surprisingly deliver it in a manner that more closely aligns to the original scope of the project. In the next section we will examine in even further detail the additional benefits this is delivering to the Best-in-Class. For more information on the benefits of extending a MOM platform across multiple manufacturing sites see the August 2009 report, Global Manufacturing Operations Management. Table 4: Characteristics of a Multi-Site MOM Deployment Best-in-Class All Others Months for MOM to go live in first facility Months for MOM to go live in subsequent facilities 9 10 MOM functionality delivered out of the box versus promised by vendor 71% 66% Share of facilities managed with MOM platform 85% 50% The Costs and Benefits of a MOM Platform At first glance the numbers in Table 5 look counter intuitive. In Figure 3 and Figure 4 the analysis showed how the Best-in-Class are delivering more functionality and investing in more interoperability, which leaves an interesting question: How are the Best-in-Class delivering this at a lower cost? The answer can be discovered when Figure 3 and Figure 4 are considered in the context of Figure 5 and Table 4. Best-in-Class manufacturers are also more likely to invest in IT tools like BPM and SOA, leverage open standards like ISA-95, and are less likely to take a siloed plant by plant approach. All of these together, on average, allow the Best-in-Class to deliver more functionality across 70% more of their overall manufacturing network at a cost of $2,500 per user less than Industry Average and Laggard manufacturers. We don't have a formal definition for efficiency in manufacturing, but I believe it is related to three factors: parts reusing, improving our maintenance, repair and operations, and increasing the mean time between failures of our parts. Currently we are leveraging MES for the improvement of some important factors, such as KPIs, tracking, and better decisions to influence production and cost management. Since we started using MES we reduced our manufacturing operations costs by more than 25% and boosted productivity in more than 20%. ~ Large Asia Pacific Semiconductor Test Equipment Manufacturer Table 5: MOM Cost Benefit Analysis MOM Costs Best-in-Class Industry Average Laggard MOM Software and MFG IT costs per MOM user $2500 $2500 $5000 MOM Service costs per MOM user $2500 $4000 $4000

17 Page 17 Additional Benefits Best-in-Class Industry Average Laggard Share of NPIs hitting time, quality, and volume targets 91% 86% 81% Operating Margin 20% 18% 14% Finally and perhaps most importantly, it should be noted that the Best-in- Class are enjoying success outside of the previous analysis and truly creating a competitive advantage. The previous analysis has been focused on showing the benefits Best-in-Class manufacturers are experiencing by achieving operational excellence in manufacturing. However, Table 5 shows that the Best-in-Class enjoy more; the Best-in-Class are able to translate this into success for more market facing areas like new product introductions and operating margins. In fact, this elevated performance is the reason and justification of why executives are now focusing on manufacturing operations management. Aberdeen Insights Summarizing the MOM Platform A MOM platform is more than a single software application or set of functionalities and work flows. It involves the use of IT tools and best practices, conformance to standards, interoperability across the entire manufacturing technology stack and more. Based on the how the Best-in- Class are differentiating from the Industry Average and Laggards, the following points largely characterize an effective architecture for a MOM platform: Functionality that spans production, inventory, quality, and maintenance management Functionality that focuses on improving collaboration between product development and engineering, procurement, and distribution Real time interoperability between MOM and PLM, SCM, QMS, and ERP IT tools such as BPM, SOA, and event management are leveraged ISA-95 Standards are adhered to A roadmap should be put in place for consolidating plant level systems to a single MOM solution extending across the manufacturing network

18 Page 18 Chapter Three: Required Actions Whether a company is trying to move its performance in manufacturing operations from Laggard to Industry Average, or Industry Average to Bestin-Class, the following actions will help spur the necessary performance improvements: Laggard Steps to Success Executives need to focus on manufacturing operations. Organizationally, focus has to start right at the top. Executives can not fear their manufacturing operations but rather must view them as a competitive weapon. This attitude should flow through the organization and drive a collaborative environment connecting manufacturing to the rest of the organization. Best-in-Class manufacturers are 40% more likely than Laggards to have executive sponsorship of initiatives focused on improving manufacturing operations. Extend manufacturing best practices across the enterprise. This can take the form of standardized production optimization, KPI measurement, or adverse event management processes across the enterprise. Such best practices sharing is critical for gaining the full benefits of further investment in enterprise wide MOM. Best-in- Class manufacturers are twice as likely as Laggards to have extended manufacturing best practices across the enterprise. Look beyond just manufacturing efficiency. From a strategic perspective do not overlook the importance of achieving efficiencies in manufacturing (this should not be the only strategy). Many Best-in- Class organizations have moved beyond efficiency to focus on synchronizing demand with production or collaborating across disparate groups like engineering and manufacturing. These strategies are the cornerstones of Best-in-Class organizations. Recommendations To improve performance, organizations should consider taking the following steps: Executives need to focus on manufacturing operations Extend manufacturing best practices across the enterprise Establish an executive vision for manufacturing operations Extend the MOM platform across multiple facilities Create real time interoperability between MOM and other enterprise applications Don t build a MOM platform with out a clear IT architecture established first Industry Average Steps to Success Establish an executive vision for manufacturing operations. To help shape the enterprise vision for manufacturing operations, executives should engage with systems integrators and software vendors to help understand the design and deployment of a MOM platform and how this can deliver value to the organization. Best-in- Class manufacturers are over twice as likely as Laggards to engage with system integrators at the executive level. Extend the MOM platform across multiple facilities. Leverage a collaborative approach between line of business manufacturing, engineering, quality, and corporate IT to begin standardizing multiple plants on a single MOM platform, holistically

19 Page 19 managing maintenance, production, quality, and inventory. Best-in- Class manufacturers extend their MOM platform across 70% more of the manufacturing facilities in their organization than Industry Average and Laggards Extend shop floor functionality beyond the traditional definition of MES. At the functional level, focus on spanning the full suite of manufacturing operations management. Best-in-Class manufacturers differentiate by going beyond scheduling and dispatch, traceability and genealogy, and WIP optimization; Best-in-Class manufacturers also focus on advanced maintenance and quality capabilities. Best-in-Class Steps to Success Create real time interoperability between MOM and other enterprise applications. With an enterprise-wide MOM platform in place, begin to interoperate in real-time across other enterprise applications such as PLM, SCM, QMS, and ERP. Use this interoperability to create real-time visibility and automated workflows to manage handoffs between design and manufacturing and both quality and inventory across suppliers and customers. Don t build a MOM platform with out a clear IT architecture established first. To increase the flexibility of global deployments, increase time to deployment and minimize the cost of both software and services; leverage IT tools such as BPM, event management, and SOA, along with remaining compliant to open standards such as ISA 95. The ultimate goal should be improving market facing deliverables. Focus on both internal operational excellence as well as improving market facing performance like profitability and new product introduction. By achieving Best-in-Class performance in MOM organizations are much more likely to achieve a competitive advantage in these regards. Best-in-Class manufacturers enjoy 12% more successful NPI s and 43% higher operating margins than Laggards. Aberdeen Insights Summary Executives face numerous challenges in effectively creating a competitive advantage in rolling out a MOM platform. To achieve this, Best-in-Class manufacturers are creating a collaborative enterprise that drives operational excellence in manufacturing and significantly impacts market facing aspects of the organization like successful new product introductions and profitability. With this research a clear road map to success has been laid out but it remains to be seen if organizations not yet on this path can follow it through the upcoming economic uncertainty and turmoil.

20 Page 20 Appendix A: Research Methodology Between January and February 2009, Aberdeen examined the use, the experiences, and the intentions of more than 150 enterprises using Manufacturing Operations Management (MOM) applications in a diverse set of manufacturing enterprises. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on Manufacturing Operations Management strategies, experiences, and results. Responding enterprises included the following: Job title / function: The research sample included respondents with the following job titles: CxO or President (11%); Vice President (12%); Director (17%); Manager (35%); Staff (13%); Consultant (6%); Other (7%) Industry: The research sample included respondents exclusively from the following industries: automotive (24%); aerospace/defense (14%); industrial equipment manufacturers (11%); medical devices (10%); high technology manufacturers (9%); industrial products (other than equipment) (9%); consumer electronics (8%); consumer packaged goods (7%); metals and metal products (7%); other manufacturing (17%) Geography: The majority of respondents (72%) were from North America. Remaining respondents were from the Europe (18%) and Europe (7%). Company size: Twenty-three percent (23%) of respondents were from large enterprises (annual revenues above US $1 billion); 37% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 40% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Twenty-nine percent (29%) of respondents were from small enterprises (headcount between 1 and 99 employees); 37% were from midsize enterprises (headcount between 100 and 999 employees); and 29% of respondents were from large businesses (headcount greater than 1,000 employees). Solution providers recognized as sponsors were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge. Study Focus Responding manufacturing executives completed an online survey that included questions designed to determine the following: The degree to which manufacturing operations management is deployed in their manufacturing operations and the financial implications of the technology The structure and effectiveness of existing manufacturing operations management implementations Current and planned use of manufacturing operations management to aid operational and promotional activities The benefits, if any, that have been derived from manufacturing operations management initiatives The study aimed to identify emerging best practices for manufacturing operations management usage in manufacturing, and to provide a framework by which readers could assess their own management capabilities.

21 Page 21 Table 6: The PACE Framework Key Overview 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 organization s 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 organization s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Table 7: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) Practices that represent the average or norm, and result in average industry performance. Laggards (30%) Practices that are significantly behind the average of the industry, and result in below average performance. In the following categories: Process What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization How is your company currently organized to manage and optimize this particular process? Knowledge What visibility do you have into key data and intelligence required to manage this process? Technology What level of automation have you used to support this process? How is this automation integrated and aligned? Performance What do you measure? How frequently? What s your actual performance? Table 8: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework How They Interact Aberdeen research indicates that companies that identify the most influential 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 those decisions.

22 Page 22 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: The Cost of Quality: Defining the Value of Enterprise Quality Management; August 2008 Compliance and Traceability in Real-Time: Accelerating the Speed of Business; December, 2008 Manufacturing Operations Management: The Next Generation of Manufacturing System; January 2008 Event Driven Manufacturing Intelligence: Creating Closed Loop Performance Management; May 2008 Global Manufacturing Operations Management; August 2008 Information on these and any other Aberdeen publications can be found at Authors: Matthew Littlefield, Senior Research Analyst, Manufacturing matthew.littlefield@aberdeen.com; Mehul Shah, Research Analyst, Manufacturing mehul.shah@aberdeen.com Since 1988, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte- Hanks (Information Opportunity Insight Engagement Interaction) extends the client value and accentuates the strategic role Harte-Hanks brings to the market. For additional information, visit Aberdeen or call (617) , or to learn more about Harte-Hanks, call (800) or go to This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.