Justifying MES/MOM Investment: A Practical Approach MESA International s Guidebook for ROI and Justification for MES Kevin Totherow, US Business Development Manager Schneider Electric and MESA International Board of Directors Member kevin.totherow@schneider-electric.com Do you know MESA?
Meet the Speaker Kevin Totherow, MESA International Board of Directors Member Chairman Membership Committee
From optimizing Machines/ Processes Plants/ Business
MESA from an ISA View
Introduction to MESA International MESA is building bridges-of-understanding from the Plant to the Enterprise to drive clarity on the role and value of modern Information Technologies in production operations
How MESA Delivers MESA International: Building Bridges-of-Understanding from the Plant to the Enterprise Peer -to- Peer Points -of- View Global Education Program Speaking with the Voice of Industry s Practitioners
MESA s Working Groups ROI Guidebook Working Group Founded in 2010 Focused on documenting the business case for MES/MOM initiatives, from project identification to benefits and costs identification and analysis Open for new members (must join MESA to participate) Published MESA ROI Guidebook in May 2014 Chaired by Darren Riley, Solutions Consultant at Apriso, a division of Dassault DELMIA
Members want to know Metrics & ROI Working Groups Metrics that Matter: Metrics, quality matter Members form WGs Research History Holistic Metrics: Supply chain Harnessing the Power of Metrics to Diagnose & Solve WP#35 Metrics Framework and Guidebook: 2 nd Edition ROI WG Formed Metrics Maturity Model WG forms Members drive new ROI & Performance Metrics WGs MESA Metrics Research Timeline 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Need for data Metrics Framework and Guidebook: Core practices Metrics for Major Initiatives: Lean, RTE, Quality Correlating Plant to Business Performance Liaison to ISO #22400 Plant KPI Standards begins Pursuit of Performance Excellence Metrics Makeover Contest ROI Guidebook
Mesa Metrics Guidebook: ROI and Justification for MES PROJECT DEFINITION Definition and Assessment Process Stakeholder Identification BENEFITS IDENTIFICATION & ANALYSIS Introduction Critical Manufacturing Issues Estimated Business Impact Identifying Business Impact Increased Revenues Reduced Costs Cost Avoidance Reduced Risk Qualitative (non-quantified) Benefits Quantifying Benefits Benefit Timing Summary Cost Components Total Life Cycle Costs of Projects Planning Cycle with TCO Costs Outside of MES/MOM Planning, Preparation and Feasibility Phase Internal Services Project Development Phase Hardware Infrastructure and Application Software Internal Costs
Mesa Metrics Guidebook: ROI and Justification for MES (cont) Services and Consulting Risk Management Support Phase Hardware Software Internal Costs Services and Consulting Risk Management Other Methods of Cost Definition Soft Costs for Benefits Cost Benefit Analysis Return on Investment Payback Time-Value of Money Future Value Present Value Capital Structure Debt Equity Owners Equity Weighted Average Cost of Capital (WACC) Net Present Value Internal Rate of Return Modified IRR Project Go/No Go Criteria Mutually Exclusive Projects Analysis Real Option Method Capital Budgeting Process
Need for Project Definition Are we meeting the needs of the plant and the Business? The Illusion When we finish the project we re done 2011 Atos Origin. All Rights Reserved.
Transformation Strategy: Set the Tone for agility and responsiveness The Reality: Progressive Insights Drive Needed Scope Changes 2011 Atos Origin. All Rights Reserved.
Strategy is: A Starting Point Business Goals As Is To Be Gaps Road Map 13
Quick Survey Business People Technology
The need for ROI is compelling But we need to focus on the business and people Business People Technology Governance,. not Technology, Drives Measurable Value from MES 2012 Gartner, Inc.
Improve Time to Value Governance, not Technology, Drives Measurable Value from MES 2012 Gartner, Inc.
..to help achieve the business case. We are struggling Governance, not Technology, Drives Measurable Value from MES 2012 Gartner, Inc.
Is it all bad?
Metrics at a more granular level Mode Most Used Operational metrics Most Used Business and Financial metrics Batch Continuous Packaged Goods Mixed Mode Reportable Health and Safety Incidents Reportable Environmental Incidents Throughput Schedule or production attainment Capacity utilization Reportable Health and Safety Incidents Reportable Environmental Incidents Number of non-compliance events/year Percentage planned vs. emergency maintenance work orders Capacity utilization Reportable Health and Safety Incidents OEE Time to make changeovers Downtime in proportion to operating time Throughput Net operating profit EBITDA Manufacturing cost as a % of revenue Average unit contribution margin Return on assets / Return on net assets Net operating profit Manufacturing cost as a % of revenue Total manufacturing cost per unit excluding materials EBITDA Energy cost per unit Net operating profit Manufacturing cost as a % of revenue Total manufacturing cost per unit excluding materials EBITDA Customer fill rate/ On-time delivery/ Perfect Order % Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics, MESA International and Cambashi Inc. 2012
MES Is The Path to Better Performance Higher portion of MES Users achieved at least a 10%improvement on key financial metrics EBITDA MES/MOM Users Others Manufacturing cost as % of revenue 0% 5% 10% 15% 20% Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics MESA International and Cambashi Inc. 2012
MES delivers value and benefit 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Respondents who improved at least 1% per year on commonly used operational metrics Manufacturing production cycle time Batch/lot/unit right first time OEE MES/MOM Users Others Reportable environmental incidents/year Cost of lost time/stoppages Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics MESA International and Cambashi Inc. 2012
Design and Costs
Importance of Good Design High Risk Accumulated Cost Low Requirements 1x Design 3-6x Coding 10x Development Testing 15-40x Acceptance Testing 30-70x Operation 40-1000x Support System life cycle
Costs at each phase of an MES project Risk Software Hardware Services Internal Risk Planning Preparation Feasibility Internal and External Resources SMEs Management Opportunity Exposure Development and Deployment Applications Infrastructure 3 Rd party Servers Clients Peripherals Network Infrastructure Deployment, Consulting Project, Test SMEs Training Operations IT Opportunity Support and Continuous Improvement Help Desk Consulting SMEs Training Operations IT Opportunity Accumulated Cost
Some regularly missed costs! Training Energy Opportunity (cost) of other uses of resources Risk (call it future exposure) Costs of no action (status quo) Soft costs (did we miss the soft benefits) Can you think of others?
Defining ROI ROI Payback
Some others to consider Net Present Value (NPV) using your Weighted Average Cost of Capital (WACC) Internal Rate of Return (IRR) Modified IRR Mutual Exclusive Project Determination Real Option Method
Key - Organizational Alignment Understand corporate objectives and how your project fits supports them Ensure you are directly supported by owner/executive of one of these areas/objectives Ensure post deployment work process utilization is coordinated outside your department. MOM systems touch many departments, work processes, and final metrics. Facilitate communication (don t hide) and bring visibility to your project. If you identified benefits, clear metrics, and have executed, you should be delivering those and visibility is positive. If no one knows your project exists, it will fail.
Summary Handle costs outside MES Scope appropriately ERP, Automation, Process.. Establish a framework and baseline for comparison of ROI Before and After Spend time to identify the metrics for benefit Excess Capacity Don t underestimate the supports costs Continuous improvement will exceed first use cost Speak in terms that finance team understands Attempt to quantify soft costs and benefits They may be what is strategic to your business
MES Best Practices through MESA Talk to me during this conference Go to MESA.org Global Education Program Resource Library Committees & WGs Social Media
More MESA Resources MESA Metrics that Matter Research Studies MESA Guidebook: ROI and Justification for MES B2MML and BatchML XML instantiations of ISA- 95 Other presentations or webcasts Global Education Program modules 100s of materials available to Premium members at no additional charge
Join the discussion. Join MESA. As MESA sets off on its journey for the next 20 years, the only thing missing is YOU! Contact MESA Headquarters or visit mesa.org to join today. John Jackiw jjackiw@altavia.com Mike Yost President Mikeyost@MESA.org
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