February 25, 2015 / benchmarking, best practices, continuous improvement, customer delivery, industry news, KPIs, LIT, operations metrics, performance metrics, predictive management, productivity, quality, strategic planning
In today’s market, knowing what your peers are doing is critical to staying competitive. One way to do this is by benchmarking. According to management consultancy McGladery, the use of benchmarking is on the rise as companies look to offset the effects of the uncertain economy by reducing costs and improving effectiveness. “Benchmarking provides an objective analysis of existing business processes and insight into improving those practices, identifying gaps or inefficiencies,” the consultant firm says in a white paper. “It presents a measurement to make informed business decisions against, as well as develop strategies and create initiatives to provide a road map for growth, if not survival.”
However, as this article from iSixSigma explains, benchmarking is not a quick or simple process tool. In fact, the article lists 18 “vital steps” companies should follow when benchmarking. Unfortunately, many forging operations don’t have the resources to take on their own benchmarking initiatives. The good news is that there are several industry sources that offer companies the opportunity to participate in benchmarking surveys. While it may be tempting to keep your company’s information close, leaders know that no amount of competitor research can replace the value that true comparison can provide.
For forges, there are several external benchmarking resources out there that offer both competitive and strategic data, as well as the opportunity for participation. Whether your goal is to find out how you stack up among your forging peers or if you simply want to gain best practice insight from some manufacturing leaders, here are a few resources that may be useful:
- Forges that want to see how they measure up to their direct competitors may want to sign up to receive one of the many benchmarking reports from the Forging Industry Association. The association’s Marketing Benchmarking Report, for example, provides information on rejection rates, inventory turns, on-time delivery, receivable turns, and quoting success rates among other forging companies.
- Managers interested in zeroing in on a specific process area can check out the LENOX Institute of Technology’s Benchmark Survey of Industrial Metal Cutting Organizations. The study, which surveyed more than 100 companies, identifies key trends happening in industrial metal-cutting among forges, fabricators, machine shops, and metal service centers. Data on productivity, scrap rates, training programs, safety, and other operational issues are covered in the report.
- For a broader picture of what other leading manufacturers are doing outside of the forging and metalworking industry, IndustryWeek’s benchmarking reports provide a wealth of information. In addition to its annual Best Plants and Best Manufacturing Companies reports, the online business publication collects financial, salary, and other key data about manufacturing leaders throughout North America.
January 10, 2015 / benchmarking, best practices, continuous improvement, Cost Management, customer satisfaction metrics, KPIs, LIT, operations metrics, performance metrics, predictive management, quality, strategic planning
As most manufacturing experts will attest, measurement is the only way fabricators can truly optimize their operations. By choosing the right metrics, today’s managers are able to quantify their successes, identify areas for improvement, and anticipate possible failures.
Unfortunately, knowing what to measure is the hardest part. When it comes to metrics, more is not always better. In fact, the goal should always be quality, not quantity. As this blog post from MESA International says, if you find your shop measuring things like parking space vacancy and food trucks, it’s probably time to re-evaluate.
Choosing the right metrics for your shop needs to be a strategic decision, which means there isn’t a sure-fire formula. However, there are some basic guidelines that can help you gauge if you are at least headed in the right direction. Below are a few tips that may help:
- Know the key categories. While metrics will vary depending on the size and type of manufacturing operation, there are few key categories that are a good starting point. According to a research project conducted by LNS Research and MESA International, there are four key operational metrics most manufacturers should consider. Based on results from a survey, the project found that Inventory, Efficiency, Quality and Responsiveness have biggest impact on average annual improvements in financial/business performance. The project also found that successful new product introductions (NPIs) and overall equipment effectiveness (OEE) were among the top individual metrics that contributed to positive financial/business performance. The detailed numbers behind all of these can be found in the eBook report, which can be downloaded here. A summary report of the project findings can be downloaded here.
- Size doesn’t matter. Don’t think that metrics are only for high-volume, low-mix shops. Jett Cutting Service, Inc., a metal-cutting service center featured in a white paper from the LENOX Institute of Technology, knows this is certainly not the case. Orders are constantly changing at the Bedford Park, IL-based company, which runs 10 precision circular saws and 8 band saws and averages about 700,000 cuts a month. Because of this, Mike Baron, vice president, says he can’t rely on accurate forecasting to provide a buffer when bottlenecks occur. To combat this, Baron relies on daily measurement to not only monitor production, but to keep tabs on his operators and costs. Operators are required to track how many pieces they cut on their shifts, and if their totals are lower or higher than the goal set by Baron, it is addressed immediately.
- Don’t fool yourself. The old adage that “numbers don’t lie” is typically true, but as this article from Forging magazine points out, people can manipulate them. Decision makers need to be sure they are not allowing themselves to be persuaded by selective use of data. “I often wonder if we have arrived at a moment in time when there is so much information available, and available so easily, and so cheaply, that we succumb to the temptation to select the most congenial facts, and ignore the rest that might make our immediate task more difficult,” the author asks. Optimization requires managers to closely choose and analyze their metrics, even if it means opening up a can of worms. Be selective, be fair, and when in doubt, re-check those numbers.
- Benchmark. Knowing what your peers are doing is critical to staying competitive. One way to do this is to benchmark. According to management consultancy McGladery, the use of benchmarking is on the rise as companies look to offset the effects of the uncertain economy by reducing costs and improving effectiveness. “Benchmarking provides an objective analysis of existing business processes and insight into improving those practices, identifying gaps or inefficiencies,” the consultant firm says in a white paper. “It presents a measurement to make informed business decisions against, as well as develop strategies and create initiatives to provide a road map for growth, if not survival.” Interested to know how you measure up to your peers? Check out our exclusive study, Benchmark Survey of Industrial Metal Cutting Organizations, or the Financial Ratios and Operational Benchmarking Survey from Fabricators & Manufacturers Association, Intl.
November 15, 2014 / benchmarking, best practices, continuous improvement, human capital, KPIs, LIT, operations metrics, operator training, predictive management, root cause analysis, strategic planning
Industrial metalworking companies, like other segments of the manufacturing industry, are constantly looking for ways to achieve operational excellence. Case studies, market research, and benchmarking surveys are critical tools for today’s managers as they search for new ideas to improve efficiency, lower costs, and increase profitability. This type of research is especially important for midsize metals companies, which may not have the resources to hire a consultant or take on a large-scale improvement initiative.
However, good ideas won’t actually do any good if they aren’t executed correctly and maintained. The key to truly achieving operational excellence is to sustain it. Otherwise, continuous improvement will start to feel like nothing more than a continuous hamster wheel.
According to a recent report from the National Center for the Middle Market at Ohio State University, sustaining operational improvement is a challenge for most midsize businesses. “In observing dozens of companies over the years, we had been struck by the regularity with which gains are made, then fade,” the authors write in the report, The Operations Playbook: A Systematic Approach for Achieving and Maintaining Operations Excellence. “Even when improvements are significant, it isn’t unusual for a company to end up closer to where it started than at the stepped-up level it enjoyed at the conclusion of a change program.”
To help demystify the issue, the organization conducted a survey of 400 C-suite executives—250 of them from middle-market firms, 150 from larger firms. The authors focused their research efforts on the middle market (i.e., companies with annual revenues between $10 million and $1 billion) because they feel this segment drives U.S. growth and competitiveness.
“When it comes to operations, middle-market companies are the perfect size because they are large enough to institute formal processes but small enough that their leadership is still closely involved in the day-to-day functions,” Dr. Peter T. Ward, Director for the Center for Operational Excellence at The Ohio State University Fisher College of Business, said in a press release. “Leaders can be closer to the work of the business, which helps them to communicate strategic goals, be more involved in developing the skills of employees, and recognize and solve problems as they arise.”
Based on the study findings, the authors concluded that operational improvements tend to last longer when they are comprehensive and systematic. Specifically, the authors suggest that operations should be managed as a four-part system. Each system, along with a set of the report’s suggested strategies, is summarized below.
Problem Solving Subsystem. This system includes the actions taken by the operations team when addressing a problem. Recommended best practices include:
- Institute an open reporting system to raise problems
- Train supervisors and employees to use problem solving tools that focus on identifying root causes
- Use cross-functional, team-based approaches to solve problems
- Share lessons learned
Daily Management Subsystem. This includes the practices leaders use every day to identify possible issues and manage critical activities. Recommended best practices include:
- Implement visual controls (i.e., white boards) that report on production goals, defect rates, and safety measures
- Develop a list of tasks that operations leaders should perform every day
- Hold short, stand-up meetings on the shop floor at least once per day
Strategic Subsystem. The focus of this system is to ensure that workers understand the higher level strategy and how it should guide their actions and their priorities. Recommended best practices include:
- Executives and supervisors need to communicate and interpret the organization’s strategy down to the shop floor
- Check for understanding by soliciting production ideas from employees and encouraging them to challenge the status quo
- Projects should be prioritized and aligned with the organization’s strategy
People Development Subsystem. This system is devoted to equipping staff with the necessary skills and capabilities to fill critical gaps in operations. Recommended best practices include:
- Identify key functional experts and post contact information or make it readily available when there is a problem
- Provide training on how to coach for new supervisors and frequent refresher courses for existing managers
By following these operational strategies, the authors state that mid-market companies are on the right path to both achieve and maintain higher levels of effectiveness in their operations. You can read more about the study findings and download the entire report here.
October 15, 2014 / agility, benchmarking, best practices, blade failure, bottlenecks, continuous improvement, Cost Management, customer delivery, LIT, material costs, operations metrics, Output, predictive management, preventative maintenance, productivity, resource allocation, ROI, strategic planning
Reports continue to show that U.S. manufacturing is on the upswing. According to the latest data from the Institute for Supply Management (ISM), manufacturing continued to expand in October, and new orders posted growth for the 17th consecutive month. The Fabricated Metal Products sector in particular reported growth in October, with one ISM survey respondent stating that “weakness in commodity prices has been very positive” for business.
All of this good news means that fabricators have a prime opportunity for growth and increased profitability. However, because many companies are already running lean, managers will need to get creative with how they meet increased demand, especially if they can’t afford huge capital expenditures.
Looking for ways to do more with less? Below are three key ways fabricators can increase manufacturing output without breaking the bank:
- Improve Raw Material Use. In a recent Manufacturing.net article, Philip Odette, the CEO of Global Supply Chain Solutions, lists raw materials as the go-to starting point for improving operations. Because of the fluctuating costs surrounding raw materials, Odette says the key is to focus on reducing waste, both in materials and processes. This can mean everything from reducing scrap rates to changing up your material purchasing strategies. Odette admits that there is no “magic bullet” that every manufacturer can use to make gains around raw materials, but he does believe data analytics should be a part of the process. “To improve how well you use your raw materials, you’ll need to collect information on the use at every point in your supply chain and production cycle,” he says in the manufacturing.net article. “Track whichever metric is most important for your manufacturing, such as weight and waste production. If steps in your process require a specific transition, you should make note of these special characteristics, such as temperature throughout, if one step waits for metal to cool.”
- Get the Most Out of Old Equipment. While brand new equipment could certainly increase productivity, the reality is that most companies are still running on tight budgets and old equipment. However, there are strategies that can ensure that your current machinery stays as productive as possible. A recent article from IndustryWeek offers five tips for optimizing aging equipment:
- Identify Trouble Spots. Take an assessment of the factory floor to find machinery that’s either close to failure or not producing as expected.
- Estimate your savings. Once you fully understand the impact of the old equipment on your floor, run some calculations.
- Find your MacGyvers. Seek out specialists who’ve been handling specific types of equipment for years and see what creative ideas they have to boost efficiency.
- Set bounties for difficult challenges. Track each efficiency experiment to get a sense of what may be possible. Then, set bigger targets and attach a bounty to encourage friendly competition among experts.
- Raise the stakes. Engage everyone by creating factory-wide incentives for when targets are met.
- Adopt Smarter, More Predictive Operations Management. In today’s fast-paced market, it may be tempting for managers to fall into “react mode.” However, experts continue to say that proactive operations management strategies offer the best return. Data from LIT’s industry benchmark study, for example, suggests that fabricators and other industrial metal-cutting operations with high machine uptime can benefit from investing in smarter, more predictive operations management approaches. According to the survey results, 67 percent of industrial metal-cutting operations that follow all scheduled and planned maintenance on their machines also report that their job completion rate is trending upward year over year—a meaningful correlation. The implication is that less disruptive, unplanned downtime and more anticipated, planned downtime translates into more jobs being completed on time. By utilizing proactive strategies such as preventative maintenance, operations managers can actually predict issues like machine downtime and blade failure and, as a result, can plan around it.
September 10, 2014 / agility, benchmarking, best practices, continuous improvement, customer delivery, lean manufacturing, predictive management, productivity, resource allocation, strategic planning
As customer demands for faster delivery increase, one of the biggest challenges fabricators face is scheduling. No matter how big or small an order, it is not uncommon for today’s customer to expect next-day or two-day turnaround. And, of course, there is almost always an expedited request thrown into the mix.
When it comes to scheduling, today’s managers need to be able to adapt on the fly, keep production moving, and still get everything out the door on time. As any manager will attest, this is no small feat. While 99 percent on-time delivery is always the goal, the reality is that a host of variables makes it almost impossible to achieve.
This is especially challenging for high-mix fabrication operations, where there are even more variables to consider. According to the annual Financial Ratios & Operational Benchmarking Survey from the Fabricators & Manufacturers Association International, many custom fabricators are achieving on-time delivery (OTD) rates between 85 and 88 percent. In other words, there is room for improvement.
As this white paper from the LENOX Institute of Technology (LIT) states, meeting delivery demands starts with having the right equipment and efficient production processes. However, it also means making sure your scheduling processes are helping—not hindering—your operation. Below are a few strategies to help today’s fabricators tackle their scheduling challenges and, hopefully, improve their OTD rates:
- Evaluate your current software system. If your scheduling software creates more headaches than assistance, it may be time to upgrade or make some necessary changes. “Some older systems are so unwieldy and cumbersome that the best description one can give them is just plain cruel,” states consultant Dick Kallage in a recent column on thefabricator.com. “They may have many screens, lots of interconnected pages, and no visual indicators of time buckets in the operations and their loading.” According to Kallage, complex and dated scheduling systems create a steep learning curve and increase the chance of error. Scheduling software should be easy to use, effective, and as this IndustryWeek article stresses, built specifically around your manufacturing needs
- Check your parameters. Kallage also believes that in most cases, the parameters going into the scheduling system are the real problem. Specifically, he feels most managers don’t correctly estimate their capacity and/or the time it takes for one or more operations. As a solution, Kallage suggest that managers focus on making time and capacity estimates more realistic and less optimistic. “You can keep the ‘targets’ the same, but targets should not have any part in actual scheduling,” Kallage states in thefabricator.com article. “Many companies do not update parameters in the system based on actual results. This means that not only is the current order schedule tanked, but so are the future ones.” The end result, he concludes, is a lower OTD rate.
- Follow First-in-First-Out (FIFO) Principles. One of the biggest scheduling challenges for managers is balancing last-minute orders from key customers. As a recent blog from consultant Kien Leong describes, all customers are born equal, but there are always some that are “more equal.” When last-minute orders come in and inventory is low, the question becomes: How do you decide on demand allocation of inventory to customer orders? In times of shortage risk, some manufacturers are tempted to hard allocate inventory (also known as “hard pegging”), which means stock is held against the sales order upon order confirmation. However, Leong says that hard allocation leads to lower performance and that inventory is best managed with first-in-first-out (FIFO) principles. “Hard allocation violates FIFO, because a long lead-time order can consume inventory, even though there may be some demand and supply that comes in between,” he says. In most cases, Leong says your best bet is to follow FIFO and keep the stock flexible. You can read the rest of Leong’s argument here, where he also offers a free, downloadable demand allocation tool.
August 5, 2014 / benchmarking, best practices, continuous improvement, human capital, lean manufacturing, LIT, material costs, Output, performance metrics, predictive management, preventative maintenance, productivity, quality, strategic planning
Whether or not you consider yourself a “lean” operation, there are some lean manufacturing principles that are universal to almost every manufacturer. One of those is waste. As a metal service center, your ultimate goal is to turn material into profit as efficiently possible, which means you want to avoid waste and downtime at all costs. And while this isn’t groundbreaking information, many service centers aren’t effectively tackling waste because they don’t know where to start.
Identification of the Six Big Losses is one tool manufacturers can use to understand the most common forms of waste or “loss” within their operations. According to leanproduction.com, the Six Big Losses are key because ”they are nearly universal in application for discrete manufacturing, and they provide a great starting framework for thinking about, identifying, and attacking waste.”
The first step to reducing waste in your organization is to identify your losses. There are six types of loss every manufacturing operation faces, and each fall under three main categories—downtime loss, speed loss, and quality loss.
The following is a brief description of each of the Six Big Losses:
- Breakdowns. These are considered a downtime loss and could include tooling failure, unplanned maintenance, and motor failure.
- Setup and Adjustments. This is also a downtime loss and could include changeover, material shortage, operator shortage, and warm-up time.
- Small Stops. This is considered a speed loss, and it only includes stops that are less than 5 minutes and don’t require maintenance. This might include a blocked sensor or minor cleaning.
- Slow Running. This is another speed loss, and it covers anything that prohibits equipment from running at its optimal speed. Incorrect setting of parameters and equipment wear are prime examples.
- Startup Defects. This quality loss covers any scarp or rework that occurs during setup or very early in the production phase.
- Production Defects. This is the second form of quality loss. This refers to any scrap or rework that happens during the steady-state production process.
Once you have identified the Six Big Losses and the events that contribute to them, the next step is to record and monitor what you find within your operation. The only way to do this effectively is through measurement and documentation. This article from oee.com gives several tips for addressing each loss category and includes helpful links to help you accurately measure your losses.
The final step is attacking your losses and preventing them from happening again. This is where strategy comes into play. In a recent benchmark study of industrial metal-cutting organizations, the LENOX Institute of Technology (LIT) identified three key areas where organizations can gain additional productivity and efficiency on the shop floor. These include the following:
- invest in smarter, more predictive operations management;
- embrace proactive care and maintenance of saws and saw blades; and
- invest in human capital.
To read more about these recommendations, you can download the full report here.
As a service center that cuts and processes metal, some waste and loss are inevitable. However, the only way to keep those losses from hurting your business is to identify, monitor, and attack them, one by one. Add in a little strategy, and you might just be able to turn those losses into opportunities for improvement and growth.
July 15, 2014 / benchmarking, best practices, blade failure, continuous improvement, human capital, LIT, predictive management, preventative maintenance, productivity
In today’s challenging operating environment, it is critical that managers stay on top of industry trends. Benchmarking what your peers are doing, the latest strategies they are using, and even the pain points they are facing can help you gauge your company’s competitive edge. In fact, management consultancy McGladery, which has strong experience in the manufacturing and industrial arena, says the use of benchmarking is on the rise as companies look to offset the effects of the uncertain economy by reducing costs and improving effectiveness.
In Fall 2013, the LENOX Institute of Technology (LIT) conducted a Benchmark Survey of Industrial Metal-Cutting Organizations to identify key trends happening in industrial metal-cutting – especially among Fabricators, Forges, Machine Shops, and Metal Service Centers. The study surveyed more than 100 companies within this group and collected information on productivity, scrap rates, training programs, safety, and other operational issues.
The survey revealed that there are three pain points today’s industrial metal-cutting companies continue to face, despite industry efforts to improve operational effectiveness. These challenges included machine downtime (35%), blade failure (27%), and operator errors (15%).
The key findings, however, identified how leading industrial metal-cutting companies are addressing these challenges. Based on LIT’s survey results, there are three strategies industry leaders are using to not only tackle their top pain points but, even more so, to optimize their operations. These include the following:
- Invest in Human Capital. While the trend has been for managers to invest in technology, LIT’s study results suggest that it is just as important to invest in human capital. More than 64% of companies that cited that operator turnover is reducing every year also reported that their on-time job completion is trending upward. Investing in such areas such as employee training can improve operator effectiveness and reduce errors – translating into improved customer delivery.
- Embrace Proactive Care and Maintenance of Saws and Saw Blades. Seventy percent of organizations that report their scrap and rework costs are less than five percent also say they “always” break in their band saw blades. By breaking in blades properly, organizations are able to reduce “soft” failure that leads to waste and scrap, and, in turn, eats into their bottom line. This type of proactive care can help managers save costs, as well as improve cut quality.
- Invest in Smarter, More Predictive Operations Management. No matter how efficient an operation, some machine downtime is inevitable. The key is to be proactive and minimize it as much as possible. For example, LIT’s study showed that 51% of companies that strictly adhere to a preventative maintenance program say they can predict blade failure “always” or “mostly.” Managers that can predict blade life can have better control over maintenance costs and improve overall productivity.
For more information about the results found in LIT’s Benchmark Survey and to download a complete copy of the report, visit the LENOX Industrial Metal Cutting Resource Center.
June 28, 2014 / agility, best practices, continuous improvement, customer delivery, customer satisfaction metrics, lean manufacturing, LIT, predictive management, preventative maintenance, productivity, root cause analysis, strategic planning, value-added services
As customers continue to redefine delivery expectations, manufacturers need to have strategies in place to not only meet those changing requirements but, even more so, anticipate them. Getting ahead of customer needs is the key to both retaining and gaining customers in today’s metals industry. As many leading manufacturers are discovering, agility is what sets you apart.
What does it mean to be an agile manufacturer? According to this overview from leanproduction.com, agile manufacturing “places an extremely strong focus on rapid response to the customer—turning speed and agility into a key competitive advantage.” An agile company is able to take advantage of short windows of opportunity and adapt to fast changes in customer demand. This tactic can be especially attractive for industrial metal-cutting companies that are trying to gain an advantage over offshore competitors.
Whether you are a high-production machine shop or a low-mix metal service center, below are a few best practices we gathered to help your industrial metal-cutting organization move from an “on-time” service provider to an agile, customer-focused partner:
- Invest in Smarter, More Predictive Operations Management. Manufacturing agility starts with adopting more predictive operations management approaches. For example, don’t just focus on avoiding downtime; find ways to plan for it. According to a recent benchmark study from the LENOX Institute of Technology, 67% of industrial metal-cutting operations that follow all scheduled and planned maintenance on their machines also report that their job completion rate is trending upward year over year—a meaningful correlation. The implication is that less disruptive, unplanned downtime and more anticipated, planned downtime translates into more jobs being completed on time. By implementing a strategy as simple as adhering to a preventative maintenance schedule, managers can actually anticipate maintenance bottlenecks and turn “interruptive downtime” into “predictive downtime.” This not only makes it easier to schedule and meet time demands, but it can also help with other operational aspects such as improving cutting performance and extending equipment life—all of which add up to happy customers and lower costs.
- Think (and Plan) Like Your Customers. Being agile goes beyond completing a job on time. It also means taking the extra step to anticipate customer needs and then plan accordingly. Karay Metals, a metal service centered featured here in Modern Metals (MM) magazine, has taken this approach with its mandrel tubing customers. Typically, drawn over mandrel tubing comes in certain standard lengths, usually anywhere from 17 feet to 24 feet, the MM article states. However, Karay discovered that such a wide variance creates guesswork for its customers and as a result, can hamper their productivity. In response, Karay now offers tubing in 20- to 24-in bundles so its customers know exactly what they are getting, adding a convenience that its customers have come to expect and appreciate. As the MM article reports, the service center takes the same approach with inventory, stocking items its customers may need quickly. These strategies may veer away from traditional “lean” approaches, but they also build customer trust and loyalty—benefits that may not be measurable, but could prove to be valuable. This also a great example of how being “lean” isn’t necessarily the same thing as being “agile.”
- Above all else, communicate. Put simply, agile manufacturing requires fast turnaround. However, as this article from thefabricator.com confirms, on-time delivery continues to be a struggle for most industrial metal-cutting companies. Why? According to thefabricator.com article, most manufacturers would blame overproduction, subcontracting, customer mix, and scheduling. And while those issues certainly contribute to late deliveries, the article suggests that they are not the root causes. The real culprit, it states, is often poor communication and documentation. For example, improper labeling may cause an operator to cut the wrong material, or a sales person may fail to explain certain job specifics. Neither of these issues has anything to do with the actual cutting of the part. “Often a part spends more time in the virtual world, being discussed in e-mail after e-mail, than it does on the shop floor,” the article states. As senior editor Tim Heston suggests, this means that today’s managers should be focused on breaking down departmental barriers with strategies like cross-training and procedural documentation, to name a few. This type of communication is especially critical for manufacturers looking to achieve speed and agility. There is simply no time for mistakes.
April 30, 2014 / agility, benchmarking, best practices, continuous improvement, industry news, KPIs, LIT, operations metrics, Output, performance metrics, predictive management, preventative maintenance, productivity, strategic planning
A recent report from Gartner continues to build the case that metrics and smarter, more predictive management strategies are critical for industrial metal-cutting companies that want to succeed in today’s competitive landscape. In fact, according to the consulting firm, organizations that use predictive business performance metrics will increase their profitability by 20 percent by 2017.
“Using historical measures to gauge business and process performance is a thing of the past,” Samantha Searle, research analyst, said in a Gartner press release. “To prevail in challenging market conditions, businesses need predictive metrics—also known as ‘leading indicators’—rather than just historical metrics (aka ‘lagging indicators’).”
Gartner said that predictive risk metrics are particularly important for mitigating and even preventing the impact of disruptive events on profitability. The key is for companies to have predictive metrics that contribute to strategic key performance indicators (KPIs); however, Gartner discovered that many companies are failing to do just that.
Metrics vs. Strategic KPIs
After conducting a survey of 498 business and IT leaders in the fourth quarter of 2013, Gartner analysts found that while 71% of business and IT leaders understood which KPIs are critical to supporting the business strategy, only 48% said they can access metrics that help them understand how their work contributes to strategic KPIs. In addition, only 31% had a dashboard to provide visibility into KPIs.
However, according to Searle, even visible metrics won’t help drive strategic business outcomes if business leaders don’t have the right metrics in place. The problem, she says, is that managers often misinterpret the goal of a KPI.
The first thing companies need to realize is that KPIs are metrics, but not all metrics are KPIs. A KPI is a measure that should indicate what you need to do to significantly improve performance—or that indicates where performance is trending—which means it is predictive in nature. However, Gartner’s Searle says many companies don’t have predictive measures in place. “They persist in using historical measures and consequently miss the opportunity to either capture a business moment that would increase profit or intervene to prevent an unforeseen event, resulting in a decrease in profit,” she explains.
If you are still unsure of what qualifies as a KPI, check out this article, which lists five rules for selecting the best KPIs for your manufacturing organization. As the article states, “the key to success is selecting KPIs that will deliver long-term value to the organization.”
The larger lesson here is that in today’s fast-moving market, companies need to anticipate business events—not react to them. From a high level, Gartner is saying that this requires KPIs that are predictive. But what does this mean from a plant-floor level? What type of shop floor metrics can help businesses anticipate business events and provide input into strategic KPIs?
A benchmark study from the LENOX Institute of Technology (LIT) may provide a little insight. The following are two of the study’s key findings:
- 67% of industrial metal-cutting operations that follow all scheduled and planned maintenance on their machines also report that their job completion rate is trending upward year over year—a meaningful correlation. The implication is that less disruptive, unplanned downtime and more anticipated, planned downtime translates into more jobs being completed on time.
- 51% of organizations that “always” follow scheduled and preventative maintenance plans say that blade failure is predicted “always or “mostly.” This shows that preventative maintenance helps operations predict blade failure. And as any metal-cutting leader knows, predicting blade failure not only keeps production flowing, it also helps tooling and maintenance costs under control.
Both of the benchmark findings are, in fact, key metrics that can help industrial metal-cutting companies better understand strategic KPIs. In this case, we discovered that a proactive strategy like preventative maintenance can help managers plan for downtime and, in essence, allows them to create “predictive downtime,” which can actually improve cutting performance and extend equipment life. This is a much different from “interruptive downtime,” which can hurt performance, reduce on-time customer delivery, and increase material costs.
Based on this example, the KPI might be whether or not an organization is hitting its preventative maintenance schedule or whether or not the cadence of preventative maintenance is increasing or decreasing. For instance, if production was increasing but preventive maintenance measurements were static, it could predict massive failure issues.
Moving forward, here are a few questions to consider: What metrics are you using to measure business performance? Are they KPIs? Are your management strategies focused on being proactive or reactive? Are there ways you can predict business events such as blade failure and machine downtime?
Answering these key questions may help you determine whether or not your company is on track to increased profitability or at risk for being stagnant. Proactive strategies like the predictive metrics suggested by Gartner and the preventative measures suggested by the LIT study are critical for industrial metal-cutting companies that want improve their agility and, most importantly, their bottom line. Leaders are realizing that they need to act now—not later—if they want to be successful in the future. When it comes to today’s manufacturing landscape, good things will not come to those who wait.
April 28, 2014 / continuous improvement, Cost Management, human capital, industry news, lean manufacturing, LIT, predictive management, preventative maintenance, strategic planning
For most of the industrial metal-cutting industry, things are staring to look up. Earlier this month, the World Steel Association released its Short Range Outlook for 2014 and 2015. The forecast projects that global apparent steel use will increase by 3.1% in 2014 and by 3.3% in 2015. Regional projections are also positive. While the U.S. showed a decrease of -0.6% in apparent steel use in 2013, the global association forecasts that apparent steel use in the U.S. will grow by 4.0% in 2014 and by 3.7% in 2015.
However, even with its positive forecast, World Steel expects continued volatility and uncertainty to create a challenging environment for steel companies this year. And many metals executives are feeling that uncertainty. As stated in LIT’s 2014 Outlook for Industrial Metal-Cutting Companies, most industrial metal-cutting companies are only cautiously optimistic about today’s market.
This is especially true of many forging industry executives, who were encouraged by sales increases in 2012, only to be disappointed with no growth and some decreases in 2013. Specifically, the Forging Industry Association (FIA) reports that total industry shipments for the custom impression die forging industry were at $7.313 billion in 2013, down slightly from $7.337 billion in 2012. Meanwhile, 2012 total industry shipments by the custom open die forging industry were 15% below 2012, and shipments for the custom seamless rolled ring forging industry were basically flat. (You can view FIA’s final sales data here.)
As forging executives move into the second quarter, there are some trends unfolding in 2014 that they should be watching closely. A recent column from IndustryWeek does a good job of describing five higher level trends that are affecting most of the manufacturing industry. These include the following:
- Increased reliance on automation and robots
- Rapid prototyping
- Smaller orders
- Leaner factories
On an operations level, there is perhaps one prevailing trend—the relentless push for continuous improvement. In an uncertain market, operations managers are realizing they have no choice but to optimize and become more agile. In some cases, this requires capital investment, but many industry leaders are discovering alternative ways to improve operations. LIT’s benchmark study of industrial metal-cutting companies, for example, identifies three key areas where managers can make improvements without adding new capital expense:
- Invest in Smarter, More Predictive Operations Management
- Embrace Proactive Care and Maintenance of Tools & Equipment
- Invest in Human Capital
Of course, there is no crystal ball for what 2014 will bring, and as the last few years have taught manufacturing executives, nothing is ever certain. In the end, the key will be for forging companies to strategically consider industry trends (i.e., smaller orders), while also proactively improving what is happening inside their doors.