8 45 am amr research alison smith - sapfm.sap.com/pdf/8182/03_smith.pdf · manufacturing philosophy...

Global Manufacturing Trends and Challenges Driving IT Investments in Supply Network Operations: 2006 and Beyond

September 28 2006

Alison J. SmithSr. Research AnalystAMR Research

AMR Research 2006

AMR Research… Heritage in Manufacturing

Over 700 companies and over 15,000 business & IT executives workwith AMR Research, including:

– 16 of the top 20 Consumer Products companies

– 13 of the top 15 Life Sciences companies

– 6 of the top 10 Chemicals companies

– 22 of the top 40 Retailers

– 25 of the top 30 Technology & Services providers

More real world data and analysis on the supply network and the effective use of enterprise applications to support manufacturing than any other organization

1986AMR Research Founded

Co-foundedSupply Chain

Council

Coined MES(Manufacturing

ExecutionSystem)acronym

LaunchedDemand-DrivenSupply Network

(DDSN)

Co-FoundedMESA

organization

Defined Advanced Planning

and Scheduling (APS)Marketing

Demand-DrivenSC Research

Identifies$450B Margin Opportunity

1986 1994 1996 1997 1998 2000 2003

Co-developedSCOR Model

Coined EMI (Enterprise

ManufacturingIntelligence)

acronym

First-ever PLMresearch publishedBy AMR Research

1988 2004 2005

Identified MES Market Crosses

$1B Barrier

Established Supply Network Operations

(SNO) as the connection between manufacturing and

the DDSN

2006

20 years of Advanced

Manufacturing Research

AMR Research 2006

Outline/Agenda for Today’s Presentation

Trends: Manufacturing Operations tops “most

wanted” strategic applications list for 2007

Manufacturing Metrics & Performance Challenges

Manufacturing operations: The “sweet spot” for

composite applications

Questions & Answers

AMR Research 2006

Evolving Global Manufacturing Environment –the Drivers

� More Product Variants

� Shorter New Product Development & Launch

� Regulatory Compliance

� Cost Reduction

� Better Short Term Demand Visibility

� More Dynamic Supply Networks

Demand Supply

Product

Supply Network Operations:

The synchronized execution of compliant manufacturing and logistics processes across a dynamically reconfigurable supply network,

to profitably meet demand.

AMR Research 2006

% of Responses. N=100

2 weeks11%

Days13%

1-2 weeks6%

3- 4 weeks38%

4- 5 weeks32%

Time to Sense Changes in Customer Demand

Supply Network Operations –Average 22 Sites

40+ manufacturing sites30%

11-20 manufacturing sites15%




1 manufacturing site2%

Evolving Global Manufacturing Environment –the Supply Network Operations Challenge

AMR Research 2006

Profitability and Predictable Manufacturing Performance

Supplier Quality

Supplier On-Time

PurchCosts

Dir MtlCosts

RM Inv

Cost Detail

Production Sched

Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time

Perfect Order Detail

AP ARInventory

Total

Cash-to-Cash

Perfect Order

SCM Cost

Demand Forecast

Source: AMR Research Benchmark Analytix – Hierarchy of SC Metrics

• Right product• Right place• Right time• Right price

Perfect Order Performance correlates with:•15% less inventory•17% stronger perfect order fulfillment•35% shorter cash-to-cash cycle times•1/10 of the stock outs of their peers

What Improvements Meanto “the Street”

• 10% = 50 Cents Better EPS• 5% = 2.5% Better ROA• 3% = 1% Improved Profit

AMR Research 2006

Profitability and Predictable Manufacturing Performance

Supplier Quality

Supplier On-Time

PurchCosts

Dir MtlCosts

RM Inv

Cost Detail

Production Sched

Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time


AP ARInventory

Total

Cash-to-Cash

Perfect Order

SCM Cost

Demand Forecast

Source: AMR Research Benchmark Analytix – Hierarchy of SC Metrics


PROFITABILITY

Still a lot of guesswork

+/- 6% to +/- 20%

Manufacturing Impact 72 out of 100 companies

interviewed.

AMR Research 2006

Manufacturing’s Role in Delivering the “Perfect Order”

AMR Research Alert “DDSN and Local Execution: It's All About Predictable Product SupplyWednesday, June 08, 2005

“When we talk about DDSN, we tend to focus on the demand visibility side of the

equation. Visibility into demand helps us understand what to make, how much to

make, when to make, and where to ship. But with demand visibility comes the

need to respond faster and more reliably.

As such, DDSN embeds an important assumption about local execution. The

assumption is this: When you get the demand signal and flip the “SUPPLY”

switch, you’ll respond by churning out product predictably.

In short, the ability to predictably supply product is a DDSN linchpin, and if “SUPPLY” doesn’t work, repercussions are felt throughout the network.

Coming full circle, predictable product supply demands local execution

excellence, and global coordination demands visibility into local execution

performance across the network of execution capabilities—whether you own

them, outsource, or use a blend of the two”.

AMR Research 2006

Manufacturing Architecture Integrated and Governed With Enterprise Systems

Multiple Point Solutions Autonomously Deployed

IT Strategy

VP Supply Network Operations, Plant ManagerVP Manufacturing, Plant ManagerManagement

Capability, Profitable To PromiseInventory, Available To PromiseOrder Promising

High Volume, High MixHigh Volume, Low MixProduct Flexibility

Profit Velocity Material & Capacity Utilization Driver

VMI, SMI, CPFR - Networked and Real Time SMI - Slow Collaboration

Real Time WIP, Schedules, Costs and Capability

Completed Orders, FG Inventory

Manufacturing Visibility

Event Driven S&OP, Closed Loop Scheduling

Master Production Scheduling

Planning

In-house/Outsourced, DynamicIn-houseCapacity

Dynamic Re-sequencing CampaignsOrder Execution

Pull, Lean ReplenishmentPush, RM/FG Buffer Inventories

Inventory Philosophy

Rapid, In-house/Contracted R&D, Time To ValueInfrequent, In-house R&DNPD&L

Supply & DemandSupplyManaged Variability

ETO, MTO, ATO, CTO, Outsourced/ContractedMTSManufacturing Philosophy

Demand Driven ManufacturingTraditional Manufacturing Characteristics

Evolution of Demand Driven Manufacturing

AMR Research 2006

Capabilities: Global Coordination and Local Execution

Enterprise Consolidation Trends – Supply Network Operations

� Products and Specifications managed centrally and electronically communicated across fleet of assets (plants) – owned and outsourced

� Global Visibility of production performance and traceability, genealogy, and quality management across the extended supply network needed for warranty, safety, & compliance

� Event driven (demand variation, new supply network constraints) Sales & Operations Planning (S&OP), and same day scheduling across fleet of assets (plants), requiring deeper insight of equipment and process capability (Network Finite Capacity Scheduling)

Local Plant Execution Components – Production Operations

� Product or Specification Management

� Production Order & Recipe Execution

� Flexible plant automation for rapid changeovers

� Track & Trace, Genealogy, Quality

� Equipment & Process Capability, Plant Production Dispatching/Scheduling

AMR Research 2006

2006: Manufacturing Operations Ranks # 2

5%

3%

15%

21%

9%

11%

39%

4%

12%

22%

10%

14%

34%

3%

Customer Management

Product Lifecycle Management

Sourcing and Procurement

Supply Chain Management

ManufacturingOperations

Desktop software

ERP

RIFD (workflow management)

Product and process traceability and genealogy

Product quality and compliance management

Asset maintenance and equipment reliability

Business process integration with ERP, PLM, and LIMS

Shop floor work order/recipe scheduling/sequencing

Execution of production orders

Production performance monitoring(yield, cycle times, OEE, etc.)

Largest Dollar (n=439)Most Important (n=442)

Source: AMR Research 2005 Application Spending Survey

AMR Research 2006

15%

15%

8%

14%

19%

7%

Customer Management

ManufacturingOperations

Sourcing & Procurement

ERP

12%12%

23%

19%

8%

6%6%

10%

Supply Chain Management

Product Lifecycle

Management

Performance Management

2007: Manufacturing Operations Ranks #1


Largest Dollar (n=939)Most Important (n=939)

AMR Research 2006

The Manufacturing Operations ‘Spend Trend’

Manufacturing Operations

Share of Software Budget

13%

15%16%

2005 2006 2007

18% year over

year growth

6% year over year

growth

AMR Research Annual Software Application Spend Survey - 2006

AMR Research 2006

Manufacturing Execution

Systems (MES) 22%

Enterprise Asset Management (EAM)

5%

Data Historians 2%

LIMS3%

Product QualityManagement (SPC)

14%

Quality Issue Tracking (CAPA, nonconformance,

Complaints)15%

Advanced Process Control / Simulation

(APC/APS) 12%

Batch Execution 6%

SCADA/HMI3%

Specification & Product Data/ Recipe Management

10%

Enterprise Manufacturing

Intelligence (EMI)8%


Manufacturing Operations Investment Categories by % projected 2007 investment

AMR Research 2006

Key Takeaways: Market Trends

� Demand-Driven Manufacturing: Leaders are adopting demand driven business models to profitably align with the demands of global markets, diverse customer populations and demographics, and the complex landscape of regulatory requirements

� Predictable, Profitable, Product Supply: Demand-driven business models depend on the ability to supply products to target markets predictably and profitably

� Global Coordination & Local Execution: ERP has potential to play global coordination role – focused applications deliver operational excellence at the local level – both capabilities are required

� Your competitors recognize that manufacturing is strategic to their businesses: they intend to invest

AMR Research 2006


Manufacturing Operations tops “most wanted”

strategic applications list for 2007




Questions & Answers

AMR Research 2006

Recap: Assessing the Contribution of Manufacturing

Supplier Quality

Supplier On-Time

PurchCosts

Dir MtlCosts

RM Inv

Cost Detail

Production Sched

Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time


AP ARInventory

Total

Cash-to-Cash

Perfect Order

SCM Cost

Demand Forecast

Source: AMR Research Benchmark Analytix


New Product Supply Metrics

AMR Research 2006

An (as yet unpublished) Hierarchy of Manufacturing Metrics

What it is What it tells you

OperationalExcellence

Demand Volatility

RightFirstTime

Mfg Cost

RM, WIP + FG

Inventory

RightFirstTimeDetail

MfgCost Detail

SupplierQuality

SupplierOn-Time

ScheduleCycle

Variances

AssetPerformance

(OEE+)

ScheduleAdherence

Complexity(COs vs

Mix)

ScheduleChanges

FirstPass Yield

Req. RMTo Prod

Cycle TimesRM

InspectStageTimes

FGInspect

Sched ToDispatch

Production ContractComplexity

Supply NetworkInvestment

• Responsiveness• Costs

PerformanceConstraints

Mfg Cycle Times• Manufacturing Complexity• Manufacturing Agility

• Root Cause Analysis• Surgical Intervention

AMR Research 2006

2006 Manufacturing Metrics Study

� AMR Research examined 100 manufacturing firms to prioritize, segment, and assess the importance/impact of manufacturing metrics.

�The research sample was split between process and discrete manufacturers to enable side-by-side comparisons.

�The sample distribution also enabled comparisons by company size (under 10,000 employees vs. over 10,000 employees), and by job function/role (IT vs. Executive Management vs. Manufacturing Management).

• Process industries included: Pharma, CPG, Chem, Pulp andPaper, Oil and Gas, and Primary Metals

• Discrete industries included:Auto, High Tech, A&D, andFabricated Metals

• Respondent titles includedCorporate executives (36%),IT (23%), Ops/Production (27%)

• The average responding firmhad over 22 manufacturingfacilities

AMR Research 2006

Manufacturing Metrics Tracked Today


Mfg quality metrics

Supplier quality metrics

Mfg costs metrics

Mfg responsiveness metrics

Schedule adherence metrics

Mfg flexibility metrics

Measuring demand metrics

AMR Research 2006

Key Research Findings: Manufacturing Metrics

�The typical manufacturing organization only tracks 9 different performance metrics.

�Of the nearly 20 different manufacturing metrics examined, only 6 were used by more than 60% of the respondents. None were used by all.

�Most manufacturing firms rely on static metrics such as inventory levels, fixed cost measures, and average production or cycle time. Very few rely on predictive measures such as asset availability, variance analyses, or supplier-related metrics.

�Between 30% and 60% of responding firms believes their management ability and their agility is impacted by a lack of metrics.

Visibility into performance levels are moderately high in some areas, but the systems, tools, and optics provided tend not to focus on advanced/predictive metrics.

AMR Research 2006

Importance of Key Manufacturing Metrics

% of Responses indicating a 4 or 5 on a 5-point scale

Avg. score

out of 5

4.7

4.5

4.3

4.3

4.2

4.1

4.0

AMR Research 2006

Manufacturing Metrics Gap Analysis: Importance vs. Perceived Performance

% of Responses indicating a 4 or 5 on a 5-point scale

AMR Research 2006

Areas Most Lacking Visibility Today


AMR Research 2006

Obstacles Preventing Metrics-Based Decisions

%of Respondents. N=100

AMR Research 2006

Key Research Takeaways: Metrics & Performance

�Among the vast array of metrics examined, quality-related issues ranked as the most important, followed by cost metrics, and agility/flexibility/responsiveness.

�Respondents stated that their lack of optics into supplier quality, demand measurement, and manufacturing costs were their most critical vulnerabilities.

�Visibility into performance metrics is impacted by inaccurate reporting/forecasting processes, disparate systems, lack of participation by key stakeholders, and inadequate staffing/tools.

The research clearly shows that respondents are both aware and deeply concerned about the lack of performance optics and metrics across their manufacturing lifecycle.

AMR Research 2006

Importance of Metrics Capabilities to Drive Decisions

%of Responses indicating a 4 or 5 on a 5-point scale

50% respondents > 20 sites

AMR Research 2006

Capabilities Gap Analysis: Importance vs. Perceived Performance

%of Responses indicating a 4 or 5 on a 5-point scale

AMR Research 2006

Key Research Findings: Supporting Capabilities

�A multi-site view of performance is perceived as important; respondents are beginning to connect core capabilities with that desired outcome.

�Composite metrics are desired, but remain elusive.

�Establishing relationships between key performance indicators and key performance drivers is the next challenge that manufacturers will focus on.

A multi-site, multi-environment, and multi-geography focus are increasingly important to major manufacturers.

Mature manufacturers are focused on assembling capabilities that will support performance visibility on this scale.

AMR Research 2006

Responsibility for Manufacturing Metrics


AMR Research 2006

Ultimate Purchasing Responsibility for ERP and MES


AMR Research 2006

Key Research Findings: Responsibilities

�The gap in decision making between ERP and MES (read “plant floor systems”) is fairly broad with senior management and IT dominating ERP decisions and business operations, plant-level IT and plant management dominating MES.

�Effective metrics solutions need to address the specific needs of each constituency.

�Financial and executive management is the leading influencer in determining which metrics are captured and used, but plant management and plant-level IT are also highly involved.

�Among the primary decision drivers will be TCO, reliability, ease of use, functionality, and ease of implementation.

For application providers, a multi-site, multi-environment, and multi-geography focus are seen as key strengths.

Cost, ease of use, and speed of payback are key attributes.

Applications must have a value proposition for both corporate level and plant level constituents.

AMR Research 2006


Manufacturing Operations tops “most wanted”

strategic applications list for 2007




Questions & Answers

AMR Research 2006

Enterprise Manufacturing Intelligence

Enterprise Visibility of Manufacturing Performance: a Strategic Capability

Supplier Quality

Supplier On-Time

PurchCosts

Dir MtlCosts

RM Inv

Cost Detail

Production Sched

Variance

Plant Utilization

WIP + FG Inventory

Order Cycle Time


Source: AMR Research Benchmark Analytix


Perfect Order

SCM Cost

Demand Forecast

AP ARInventory

Total

Cash-to-Cash

Getting visibility

is the first step!

AMR Research 2006

A larger slice

A month’s production output for a range of products across many facilities with supplemental data from outside sales

Access to Accurate Real-time Data about Demand and Response

A single value (Most granular data)

A day’s production actuals for product W

A slice

A day’s production actualsfor products W through Z

Decision Makers Need Visibility to Proactively Manage

Complexity IncreasesComplexity IncreasesComplexity IncreasesComplexity Increases

AMR Research 2006

Executive Metrics to Line Level Measures

Executive Level

Plant Level

Line Level

Tie Decision Makers to Execution Tie Decision Makers to Execution Tie Decision Makers to Execution Tie Decision Makers to Execution �� Maximum ReturnMaximum ReturnMaximum ReturnMaximum Return

Line Level data rolls up to summary at Plant Level reporting

Executive targets feed Plant Productivity targets

Plant Level data rolls up to summary at Executive Level reporting

Plant targets feed Line Level targets

AMR Research 2006

To CrossTo Cross--Facility ComparisonsFacility Comparisons

AMR Research 2006

To Root Cause Analysis of Product To Root Cause Analysis of Product

Supply Problems at Specific SitesSupply Problems at Specific Sites

AMR Research 2006

Enterprise Manufacturing Intelligence is an Architecture, not an Application

VISUALIZECONTEXTUALIZEe.g. Capable/Profitable to Promise

ANALYZE

DEVICE I/O

TAGS

EQUIPMENT

& ASSET

ORDERS

SPECIFICATIONS

INSTRUMENT

BUSINESS

RULES

MATERIAL

& PRODUCT

FLOWS

PRODUCTION MODELS,

RECIPES/ BOMS

& ROUTES

COST-BASED

MODELS

Large volumes of extremely detailed production data from multiple back-end

data sources.

Operating data transformed into asset performance KPIs

Correlations between equipment data and product data

Overall process performance metrics

Performance to schedule

PerformTo Demand

AMR Research 2006

Beyond Portals and Widgets – Composite Applications

� Metrics and ‘KPIs’ are composite values – multiple data stores managed by multiple and disparate applications - “heterogeneity is a fact of life” in manufacturing

� New EMI capabilities bring the power of predictive analytics and discovery tools to bear

– Data modeling and model management

– Data mining/ Discovery

– Data Lifecycle Management

– Process Modeling

– Simulation/ Scenario Analysis

� EMI or “Operations Intelligence” begins to resemble classical BI –expect a similar evolutionary path

� Operations Intelligence will be delivered through composite applications that federate multiple sources of “manufacturing master data” at the elemental level

AMR Research 2006

Manufacturing Execution

Systems (MES) 22%

Enterprise Asset Management (EAM)

5%

Data Historians 2%

LIMS3%

Product QualityManagement (SPC)

14%

Quality Issue Tracking (CAPA, nonconformance,

Complaints)15%

Advanced Process Control / Simulation

(APC/APS) 12%

Batch Execution 6%

SCADA/HMI3%

Specification & Product Data/ Recipe Management

10%

Enterprise Manufacturing

Intelligence (EMI)8%


Manufacturing Operations Investment Categories by % projected 2007 investment

AMR Research 2006

Perceptions of Technology on the Plant Floor – Enterprise Players Wanted

Perceptions of Plant Floor & Manufacturing Applications/Technology % of Responses

77%

71%

67%

64%

61%

54%

53%

17%

22%

24%

26%

27%

31%

30%

5%

7%

9%

11%

12%

14%

17%

I would prefer to have a single, integrated solution for

managing our manufacturing capabilities

It would be valuable to allow shop floor and manufacturing

personnel to access a broader range of operational

information

I would prefer to source my manufacturing solution from a

large stable software provider

My organization can effectively collaborate and share

information between headquarters and shop floor systems

I would prefer to source my manufacturing application from

my ERP provider


information between our operations and my contract

manufacturer's systems


information between our operations and my supplier's

systems

Agree Neutral Disagree

AMR Research 2006

REAL-TIME OFF-LINE, BATCHEDTRANSACTIONAL

Historians

EMI Frameworks

Real-time Process Control, SCADA, HMI/MMI

OP

ER

AT

ION

SP

RO

CE

SS

BU

SIN

ES

S

MES Operational Data Store

Interfaces to ERP/EAM

Pure Business

Intelligence Applications

/ Data Mining

Who will deliver Composite Applications?

Enterprise Resource Planning,

Supply Chain Management, Enterprise Asset Management,

Advanced Planning and

Scheduling

AdvancedAnalytics

and Modeling

Tools

EMI

TIME GRANULARITY OF ANALYTICAL INFORMATION

CO

NT

INU

UM

OF

OP

ER

AT

ING

CO

NT

EX

TS

ERP

Ecosystem partnersBest-of-breed and Systems Integrators

xMII as the EMI framework

AMR Research 2006

In Closing

� Manufacturers recognize the strategic nature of manufacturing operations and are prepared to make investments

�Visibility into predictable and profitable product supply performance is a key driver, though specific metrics are a work in progress

� Performance metrics on this scale will require architectures that provide federation of data from multiple disparate applications and data stores – financial and operational

� Composite applications – including EMI or Operations Intelligence -offer a mechanism that coordinates the architectural elements that comprise emerging manufacturing operations management architectures

� Buyers would prefer applications from a single, stable, provider –ERP is the logical point of contact

� Ideal partnership between Enterprise Systems (Global) and best-of-breed applications in the local manufacturing environment

AMR Research 2006

Q&A

Thank you for your time today.

Alison J. SmithSr. Analyst – Manufacturing & Production OperationsAMR [email protected]

SAP Adaptive Manufacturing Summit 2006

Colorado Convention Center

Denver, Colorado

September 27-28, 2006

8 45 am amr research alison smith - sapfm.sap.com/pdf/8182/03_smith.pdf · manufacturing philosophy...

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