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Jul 20 2012

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My Lessons Learned from 5 Years of Assessing Manufacturing Operations

If you are trying to evaluate the implementation (or upgrade) of a new manufacturing execution system, one approach is to perform an assessment of your manufacturing operations. At Apriso, we call this an Operational Value Assessment.

This exercise involves analyzing your strategic initiatives and goals while identifying short- and long-term operational challenges. Then, the new business processes are designed alongside with the enabling solution. The outcome includes not only an executable implementation plan and a solution architecture roadmap, but also a financial analysis to measure the costs and benefits of such an implementation.

After having completed dozens of these types of assessments over the past couple of years, I thought it might be helpful to provide some detail on the benefits that our customers have either anticipated or actually achieved. These figures can then be a benchmark for you to validate your own analyses. Of course, your own cost savings will depend upon the size of your plants, the number of plants impacted and as well as other operational characteristics. Further, the cost savings that you achieve is also based on what solution you implement … not all manufacturing operations management solutions are the same, so not all will be able to deliver each of these benefits.

Specific financial benefits you can reasonably expect from implementing a next generation, platform-based solution for manufacturing operations management:

  • Improve accuracy of inventory tracking – $200K-$10M inventory reduction per plant
  • Integrate quality and other processes on an end-to-end basis, across different functions, to remove waste in the process – $184 – 318K per plant
  • Reduce paper, manual data entry, wait time, mistakes and paper storage costs by going paperless – $100-870K per plant
  • Increase efficiency surrounding data collection across inventory, production, quality and maintenance process – $100-350K per plant; one client I worked with estimates they will save over $1M per year based on reducing manual data entry efforts!
  • Improve equipment uptime – $250K per plant and 10 – 50% improvement in throughput
  • Ease the complexity your manufacturing IT systems architecture – 20K-500K
  • Reduce Shadow IT costs – one client estimated cost savings of $25M; read more about the cost of Shadow IT here
  • Warranty cost reduced by 5-20%
  • Streamline Engineering Change Order process – possible savings range from $10-100K in overhead reductions and $500K in scrap savings

Here are a few more benefits, but these were a bit harder to put a financial figure on, as they tend to relate more to increasing efficiency or improving a throughput. The manufacturers that achieved these benefits, however, know exactly what benefits ultimately resulted – by how much their bottom line increased!

Increased operational efficiency by 10-20%

  • Achieved greater accuracy of shipping schedules by 3-10%
  • Improved operational throughput for an entire plant’s output by over 25%
  • Realized a lead time improvement of 10-50%

Based on my experiences in implementing these projects, I would identify the following five key steps to achieving the above referenced benefits:

  1. Formulate a clear business strategy on manufacturing operation management
  2. Align the details of operational initiatives with the business strategy
  3. Establish the right organization to execute, sustain and govern your new operational initiatives
  4. Adopt the right solution platform to enable fast implementation of the operational initiatives and hence allowing quick-wins to create momentum for changes that result in measurable business impact
  5. Systematically roll out your proven solution, based on step 4’s findings, across your entire global operations (see this post on the benefits of aligning global operations)
  6. Continue to improve your implemented solution through continuous process improvement initiatives and best-practice sharing

This measurement and evaluation process is not only an exercise of number-crunching for financial justification, but is also a process to coach manufacturing companies on their path to business transformation. I would therefore strongly advise global manufacturers to be cautious about the methodology on how your financial justifications are derived. If the projections simply focus on automating existing processes, then the above savings will most likely not be achieved. Instead, you really need to look at how to redefine how you do business, undertaking a manufacturing transformation that changes people, process or technology to help you “leap” ahead in productivity, performance or agility. Upgrading your existing systems to be capable of faster automation won’t set you apart from your competition.

 

 

Permanent link to this article: http://www.apriso.com/blog/2012/07/my-lessons-learned-from-5-years-of-assessing-manufacturing-operations/

4 comments

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  1. Belinda

    Thank you for this article. It is interesting from so many perspectives. I too have visited hundreds of factories, and most have been in the US and Europe. While it is true that so much manufacturing has moved, it is equally true that manufacturing in the US can be profitable. I am interim executive for two companies that produce entirely in the US, and will do so for a long time. My own studies have shown that while much commodity production migrates to Asia, this happens for social reasons more frequently than many realize.

  2. Jim

    Thanks for the information! Sounds like you learned a lot after assessing manufacturing operations for 5 years!

  3. James Mok

    Matt,

    Thanks for the insightful response. I cannot agree more with your statement about companies are struggling to understand financial impact of operational metrics. LNS has some interesting studies, I will definitely visit your site more often and recommend others who are interested in benchmarking performance of manufacturing operation.

    James

  4. Matthew Littlefield

    Hi James,

    Strong Post – I agree with your thoughts on aligning strategic initiatives with operational challenges. Our research shows that many companies struggle with this alignment and don’t quantify it financially. These struggles are especially true outside of the typical metrics of manufacturing like scrap or material variance. Companies today struggle with understanding the financial impact of OEE, Cost of Quality, or Reliability just to name a few.

    At LNS Research we are in the midst of a benchmarking project on Quality Management and will be starting a new benchmarking project in Manufacturing Operations Management next month. It will be interesting to see how your numbers above compare to our results.

    If any of your customers are interested in reading the results they can be accessed here: http://www.lnsresearch.com/research-library

    ~Matt Littlefield

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