In this article we will discuss a four-level model for manufacturing enterprises and focus on how performance metrics can be assigned at each level that link back to strategic goals.

Consider a very simple hierarchical model of a manufacturing enterprise comprised of: the entire corporation, the various Business Units (BUs), the plants within those business units, and the manufacturing lines within each plant. For the purpose of our discussion, this serves as a simple model allowing us to demonstrate how each level is a ‘black box’ to their parent level and how the ability to open this box and shine a light onto the activities within, helps meet performance, business and ultimately strategic goals.

Let us start with the corporation, which is the entire manufacturing enterprise made up of various business units possibly organized by geography, product, or service. The corporation will typically establish strategic goals, stated in financial terms, and assign each Business Unit performance metrics that support the achievement of those goals. For example, a corporation may be focused on maximizing its return on capital employed, and to realize this, may assign margin improvement numbers to each Business Unit and track the performance on a regular basis.

From a manufacturing perspective, the BU is comprised of a number of plants. In order to meet the performance goals established by the corporation, BU Leaders will assign Key Performance Indicators (KPIs) to each of their plants to support the achievement of the corporate strategy. For example, if margin needs to be increased by 10%, BU Leaders will look at KPIs that impact the Cost of Goods Sold (COGS), which may include the costs of raw material, labour, energy, and inventory. We would also like to add that the hidden costs associated with inefficiencies, losses and a lower production throughput than possible, impact margin by inflating unit costs. As such, BU Leaders will assign KPIs around Work In Progress, Inventory, Downtime, OEE, unit labour costs, unit energy costs etc., where the performance targets are set and assigned to the plants. Oftentimes the KPI targets are set based upon historical data. From a previous article, recall that inaccurate information is a major source of poor investment decisions for continuous improvement dollars. Here again, inaccurate information rears its ugly head. Since the targets are set on historical data and that data is inaccurate, the targets are likely to be inaccurate as well. A manufacturer we work closely with established product specific performance targets for OEE based on such a method and struggled to find improvement as the targets were incorrect. When visibility into the real targets was provided, as well as a means to reach those targets, it was clear that the previous production targets, based on inaccurate historical data, were actually hurting the company.

At the Plant level, Plant Leaders are responsible for ensuring that the right processes exist to meet the KPIs established at the BU. It is the Plant Leaders’ responsibility to ensure that the right processes exist to support the improvement of metrics and achievement of targets for Downtime, OEE or unit labour costs. They need to review their plants’ performance, in real-time, against these metrics and identify problems as they are occurring. It is no longer possible to wait until the next day or later to discover that something has gone wrong, it is important to discover the problem as it is occurring and take corrective action immediately.

It is at the Line Level where true progress is made. Here efficiency and throughput improvements are reflected in the Plant KPIs, which roll up to the BU and Corporate levels. Tactical measures result in the realization of strategic goals at the line level. Our experience has shown that operator engagement and real-time feedback to operators is critical in changing behaviour on the plant floor in order to align with the strategic direction established by the corporation. With accurate, real-time information, the operator is able to meet their performance targets which, as discussed, are linked directly back to strategic goals.

The plant floor is a major determinant of costs as well as revenue generation. By linking performance metrics from the line -to the plant – to the BU and to the corporate strategy; manufacturing enterprises have the visibility, at every level, to improve their competitive position.

		George Dalle Ave George Dalle Ave is the Director of Solutions Development at Shoplogix Inc.