The digital difference in measuring production performance

Production performance and its organisation are very important to each enterprise, this is why we take-up this subject in TextileFuture’s Newsletter today. It is based on a paper of McKinsey and the second feature will teach you How digital manufacturing can escape ‘pilot purgatory’. In any case, again a lot of food for thoughts.

By guest authors Karel Eloot and Stanley Wang. Karel Eloot is a senior partner in McKinsey’s Shanghai office, and Stanley Wang is a consultant in the Shanghai office. The authors wish to thank Yuanpeng Li, Antonio Sun, and Xiaofan Wang for their contributions to the article.

Here starts feature One:

Measuring production performance digitally—and acting on the insights—can give a kick to the bottom line and be the first step on a digital transformation journey

We typically think of performance management as a system for managers to rate, review, and reward their direct reports. Done well, it lifts performance at the individual level and multiplies the effect across the entire organization.

But, it is not just employees that need to be carefully managed. By extending the system to machines, resources, and processes, manufacturers are better able to identify problems before or as they happen, meaning managers and the front line can make real-time adjustments to keep production on track. And, by better tracking and analysing performance metrics, the best factories can identify new ways of working to trim costs and boost productivity and profitability.

But, what makes a performance-management system effective? We find that the ideal performance-management system comprises five elements: right data; right source; right time and place; right person; and right decisions (Exhibit 1). When functioning well, it creates a standardized workflow that captures data from multiple sources, then provides it to a skilled leader with insight and authority to make a decision and communicate it back to the production line for execution.

The rewards of performance management

The elements may sound common-sensical, but that does not make them easy to achieve. And, if any of them is out of alignment, value starts to leak out of the system. Because a typical materials manufacturer has five to seven major processes—energy, mechanics, quality control—up to 35 stress points can lead to system failure. Factor in multiple shifts across multiple production lines and the system’s complexity increases exponentially.

Moreover, in many basic-materials sectors, such as metals and chemicals, today’s performance-management systems are often poorly designed or partially implemented. And, a bad system can be worse than no system at all.

In these situations, the rewards of performance management are well worth the investment, as a Chinese metals manufacturer found when it recently finished implementation of a performance-management system in step with a broader lean transformation. The three-year project yielded significant improvements through greater performance alignment, including throughput increases of more than 10 percent and cost reductions of more than five percent.

That summary hints at the trade-offs. The first is time: It usually takes between one and two years for a new performance-management system to become a cultural norm, and another three to five years for it to be fully embedded with all other business systems. And, that is if there is a very determined CEO or COO driving the change.

The second is effort. The initial system was almost entirely analogue, relying on heavily manual processes such as whiteboards and spreadsheet printouts. In one factory, almost half of the back office had to start quite early each day to manually generate daily KPIs for review in the morning planning meeting—meaning that more than 20 % of total back-office capacity was spent on basic data processing.

And, the third is completeness. For example, a steel-plant manager following recommended quality-control practices might visit the cooling water pump three times a week to look for deviations. But, this means a problem could still go undetected for days.

The potential from digital

Fortunately, success encouraged the company to look at a faster, easier, and more thorough option: digital performance management, which it decided to pilot. Thanks to developments in data processing, network hardware, Internet of Things (IoT) sensors, and IT infrastructure design, it is possible to digitize a new performance management system as it is developed and implemented (Exhibit 2).

The pilot was designed and rolled out in less than three months. By standardizing the way of working, the factory raised knowledge and capability levels among more than 100 frontline supervisors and staff, and ensured that all shifts worked to the same performance standards. Faster, more robust problem solving also enabled it to reduce cycle times by more than five percent while also increasing throughput—in return for very little capital outlay.

Importantly, its new systems can generate the same data that otherwise would require half of the entire back office to spend hours producing—freeing up about 15 percent of back-office capacity and enabling better, more timely decision-making.

The role of people

Other manufacturers are pushing even further. Schneider Electric’s facility in Le Vaudreuil, France was named a “Lighthouse” manufacturing site by the World Economic Forum for its successful application of Fourth Industrial Revolution technologies. As part of its digital transformation, the factory introduced digital performance management to fundamentally revolutionize the the role of its plant managers.

The previous duties would be familiar to those at our Chinese metal manufacturer: checking execution, correcting issues, and driving the workforce to achieve the plant’s KPIs. Now, digital performance management has freed up time and effort and made more sophisticated data available, including information obtained directly from machines and processes, allowing managers to focus on benchmarking and analysis to drive real improvements to the factory. For a global manufacturer, this feedback is particularly important in driving improvement not only at one location, but, across an entire production network spanning dozens of countries. Managers can benchmark and compare the performance of their own factory against others to drive improvement across the organisation.

It is a long way to go before the Chinese metals manufacturer can challenge Schneider for scale, but both are reaping the advantages of digital performance management. For the Chinese company, piloting digital performance management across one process as part of its ongoing lean transformation has built faith in digital technologies from the boardroom to the shop floor, and is a potential first step on a much larger (and even more profitable) digital-transformation journey. While it does so, it can keep an eye on beacons like Schneider.

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Visit our Manufacturing page

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How digital manufacturing can escape ‘pilot purgatory’

By guest authors  Andreas Behrendt, Richard Kelly, Raphael Rettig, and Sebastian Stoffregen from McKinsey. Andreas Behrendt is a partner in McKinsey’s Cologne office, Richard Kelly is a partner in the Stamford office, Raphael Rettig is a consultant in the Düsseldorf office, and Sebastian Stoffregen is an associate partner in the Munich office.

Despite enthusiasm for digital manufacturing, few companies have realized its potential at scale, according to our new survey. Six success factors can help.

The global race for innovation leadership in digital manufacturing1 is picking up pace: two-thirds of industrial companies worldwide say that digitizing the production value chain is one of their highest priorities (Exhibit 1). That’s according to our latest research in the area, which we explore in a new report, Digital manufacturing—escaping pilot purgatory.

To achieve this goal, companies are actively pursuing a broad range of digital-manufacturing use cases in three areas (Exhibit 2):

  • Connectivity. This enables the flow of relevant information to the right decision makers in real time. Examples include digital performance management and the use of augmented reality to communicate interactive work instructions and standard operating procedures.
  • Intelligence. Use cases relate to applying advanced analytics and artificial intelligence to an array of data to generate new insights and enable better decision making. Examples include predictive maintenance, digital quality management, and AI-driven demand forecasting.
  • Flexible automation. In this area, new robotic technologies are leveraged to improve the productivity, quality, and safety of operational processes. Examples include autonomous guided vehicles and using cobots for assembly processes.

Despite this focus and enthusiasm, McKinsey’s collaboration with the World Economic Forum on the future of production has shown that many companies are experiencing “pilot purgatory” in which they have significant activity under way but are not yet seeing meaningful bottom-line benefits from this (Exhibit 3).

To more fully understand how manufacturers across the globe are approaching their digital-manufacturing transformation and the challenges they are facing, McKinsey conducted its fourth Digital Manufacturing Global Expert Survey (see sidebar, “Overview of McKinsey’s Digital Manufacturing Global Expert Survey”). The results of this survey provide interesting insights into how manufacturers’ approaches differ across the world, as well as concerning behaviors that are contributing to pilot purgatory.

In the first part of our report, we share the results our 2018 survey. These show largely continued levels of enthusiasm and prioritization related to capturing benefits from digital manufacturing, with notable acceleration in China and India and regression in Japan. However, while there is significant importance placed on the topic and many pilots have been launched across a range of use cases, less than a third of respondents cite having moved critical use cases—such as digital performance management—into large-scale rollout. At the same time, more than 90 percent of surveyed companies believe that they are either at the forefront of digital manufacturing in their industry or, at least, on par with the competition.

In the report’s second part, we offer perspectives on six success factors that manufacturers demonstrating at-scale impact from digital manufacturing are following. These factors span the transformation categories of process, infrastructure, and organization:

Process

  • Approach the opportunity “bottom-line-value backward,” rather than technology forward.
  • Establish a clear vision and change story for how digital manufacturing will create competitive advantage and develop a phased road map and business case.

Infrastructure

  • Form an early view on the comprehensive target-state technology stack that is scalable and analytics-enabled and that supports the digital-manufacturing road map.
  • Build and lead a focused ecosystem of technology partners to rigorously manage the building of the stack.

Organisation

  • Drive the transformation from the top (and via profit-and-loss owners) and coordinate implementation widely—do not treat it as an isolated IT implementation effort.
  • Get ahead of the capability gap: build the skills to achieve impact and the culture to sustain it.

The move from the current version of factory production to digital manufacturing holds the promise of significant value, and according to the results of McKinsey’s 2018 survey, this shift is a top strategic priority for manufacturers across the globe. Despite the importance placed on it, most manufacturers are struggling to take the digital-manufacturing successes they have experienced in limited pilots to a scale that would bring the full benefit of the technology.

A holistic approach to digital manufacturing—one that considers the fundamentals of the organization and the business as much as it focuses on the technology-related factors—can help manufacturers get over the hurdles that stand between pilot success and company-wide rollout.

The good news is that, as demonstrated by several real-world cases, a rollout is not a mystery, and successes exist. These “lighthouses” have the power to help unify a manufacturer’s vision of digital manufacturing. The knowledge from these case examples can also help build a solid business case and chart the course for company-wide implementation.

Download Digital manufacturing—escaping pilot purgatory, the full report on which this article is based (PDF—5.6MB).

Overview of McKinsey’s Digital Manufacturing Global Expert Survey

Our survey entailed a couple elements:

  • more than 700 qualified respondents from companies with more than 50 employees and over USD 10 million in revenues, spanning a range of industry sectors from automotive to chemicals to transport and logistics
  • impact, strategy, key solutions, and implementation approach assessed for seven key markets: Brazil, China, France, Germany, India, Japan, and the United States

Would you like to learn more aboutMcKinsey’s Operations Practice? Visit our Manufacturing page

www.mackinsey.com

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