Lean principles led to standardized performance, but digital performance systems are their high-powered successor.
By Howard Heppelmann, Craig Melrose, James Zhang and David Immerman
Manufacturing has been historically revolutionized by generational novel methods to ‘do something differently.’ Eli Whitney’s philosophies on standardized parts established conformity to manufacturing products and a foundation for present-day mass production. Then Henry Ford took the next step with the assembly line to standardize production processes across factories, creating conformity with machines and frontline workers.
The next revolutionary manufacturing strategy was the introduction of lean methodologies. These enabled manufacturers to combine the components of standard parts, products, and processes into a single, high-functioning system.
Manufacturers have built on these lean concepts and adjusted their production systems with standardized work to suit their strategy. More recently, lean movement pioneers including James Womack re-adapted lean principles to standardize performance. In these principles, people became the most important component in tying parts, products, and processes together to drive continuous improvements.
However, these manufacturing methodologies and performance management systems are analog and as a result fragile. Lean is a challenge to implement for most companies from these characteristics resulting in performance or improvement plateaus.
The time has come for a manufacturing performance management system providing more actionable, timely and accurate insights to the right places. A digital-native system can remove these fragile and analog elements through consistently monitoring operations and providing real-time information to empower frontline workers.
Digital enables a closed-loop system that removes fragility, increases transparency, and ensures the quality of information. Digital continuously monitors and measures improvements across the factory and standardizes information delivery across the entire enterprise. Digital will be the holy grail of the last 200 years by providing actionable insights identifying the most important items in a manufacturing environment within a matter of minutes or even seconds.
This Digital Performance Management (DPM) system provides a robust foundation to unlock double-digit financial and operational performance improvements across the entire production network at every level.1
From 200 Years to 200 Seconds
Incremental improvements to manufacturing have spanned the past 200 years, but manufacturers now require highly adaptive lean systems to make decisions every 200 seconds. Supply disruptions and demand volatility force manufacturers into this fast-paced ecosystem where lost minutes equal lost dollars. Global events like trade wars and the COVID-19 pandemic further propel this disruption and volatility; 63% of manufacturers anticipate a renewed focus on resiliency as the greatest future impact on their supply chain in the new normal2.
Traditional analog systems are ill-equipped to maintain production resiliency and agility in this new era where responses to market changes affect the bottom line.
Traditional analog systems are ill-equipped to maintain production resiliency and agility in this new era where responses to market changes affect the bottom line. There are considerable points of failure with minimal context or information, requiring intervention and interpretation to make effective decisions and tradeoffs.
Diminishing Returns from Analog Systems
Many manufacturing systems are designed to solve yesterday’s problems. Without a flexible and agile system to support rapid adjustments to market demands, production environments are constrained, decisions are fragmented, and bottlenecks are prevalent.
Traditional analog systems are geared toward minimizing waste, but they do so from misguided assumptions. This includes the “anyone at anytime” dilemma where the system assumes everyone has a similar experience and required expertise to interpret information in real time and make the best decision.
The inflexibility of these systems forms an inability to harness valuable insights from a seemingly infinite degree of variability. Disconnected processes, unstructured and inaccessible data insights are performance inhibitors formed from analog systems. Current execution of continuous performance improvements is limited from these fractured management, technical, and people systems.
Fragmented Processes between Top Floor and Shop Floor: Management systems underpin critical processes, yet most lack horizontal and vertical connections. This fractured system promotes multiple points of failure and a lack of operational visibility, hindering effective decision making.
There is rarely a common system supporting processes from the top floor to the shop floor, creating a vertical disconnect in the organizational hierarchy. Different business units and functions leverage dissimilar metrics, reporting processes, and data models. It is a challenge to benchmark financial and operational performance data in this environment to then quickly update and efficiently implement learned best practices across a production network.
Executives and managers use reporting tools for aggregated performance metrics based on preceding events to make strategic decisions for budgeting, network optimization, and capacity planning in a highly dynamic operating environment. With the vertical disconnect, top floor managers are unable to measure and assess the actual impact of continuous improvement initiatives with front-line behavior on the bottom floor. A massive sunk cost is created from the lost opportunity of accelerating and reinforcing impactful continuous improvement processes across the factory or bottom floor.
While daily decisions differ between executives (concerned with high-level financials), middle management (operational metrics), and front-line workers (tasks and deliverables), they should be aligned. The lack of connection and communication within processes in this hierarchy have limited potential continuous improvements to a finite amount.
People have become the most important component in tying parts, products, and processes together to drive continuous imporvements.
Similarly, horizontal organizational disconnects will form when there are several management systems in place across different sites and functions. Managers in different functions (operations, quality, maintenance etc.) at the same site could be using different systems inclusive of non-digitized elements such as hand-written standard operating procedures. These analog processes are largely sequential and siloed, supporting one-to-one information exchanges within a specific department or role. To solve complex issues like downtime, manufacturers need a one-to-many or preferably many-to-many system.
Technology obstacles limit data and decisions to siloed systems and places: Most manufacturers are aware of the limitations of their traditional IT systems and industrial software stack. Many conclude that overhauling these dissimilar systems into a unified infrastructure would require significant capital investments, lengthy software deployment cycles, and substantial reliance on system integrators.
The traditional industrial software stack consists of fragmented systems with point functionality solving a single issue in a single place. Implementing one-off integrations strain resources and limit the ability to source relevant data. These systems are not adjustable or responsive for tomorrow’s customer demands or next month’s materials shortage, among other countless unforeseen events.
Manufacturers with a waterfall development method of incremental point solutions geared toward a siloed system at a single site will never achieve flexibility and agility at scale. A more intuitive and agile system that connects the right data to the right person in the right place is needed.
Misrepresentation from ‘Good Behavior’ Systems: Many management frameworks and the manufacturing systems they underpin are based on ‘good behavior’. This assumes manufacturing processes are predictable and people are perfect, completing tasks exactly as expected every time, every day.
These systems may paint a picture of the best-case scenario, but this is different from reality. Manufacturers are the first to admit the best case is rarely fully achieved. Errors are common in the manufacturing world; limiting their impact is the goal.
The lack of accommodation, measurement, analysis, and optimization of time is the common denominator of these manufacturing challenges. Derived from analog processes, good behavior systems cannot measure real-time abnormalities or make on-the-fly adjustments to worker tasks, dragging out cycle times. Similarly, manufacturing change requests do not dynamically modify industrial processes or work instructions for products to fulfill the order, limiting OEE and overall capacity.
The mismeasurement and mismanagement of time-driven events has material impacts on daily operational metrics and the bottom line. For example, 80% of manufacturers3 cannot accurately calculate downtime, losing between 5-20% in productivity and running up millions in sunken costs.
Current execution of continuous performance improvements is limited from fractured management, technical, and people systems.
Michael Coxon, Partner in McKinsey’s Manufacturing practice, describes a relevant scenario, “A food manufacturer was plagued daily by machine-performance issues in its first shift creating widespread production inefficiencies. The lack of real-time visibility into the first shift’s performance prevented the scheduling system from sequencing and optimizing the re-ordering of production lots. By installing a digital system providing real- time performance data back to its scheduling system, the company can dynamically sequence its production runs, improve its productivity and delivery performance to customers.”
Needed: A Better Way to Empower Front-Line Workers
Front-Line Workers are a critical ingredient in the manufacturing performance mix for every industrial company. These factory floor operators, engineers, and other personnel are provided daily goals at the start of their shift and correlating work instructions. This information delivery method does not accommodate for updates to plans or provide a continuous feedback loop to each employee. An employee could waste valuable time searching and gathering information for a task now deemed immaterial, which McKinsey estimates a single employee spends nearly 2 hours a day doing or ~25% of an 8-hour shift4. Multiply this inefficiency across an entire workforce and the massive impact on daily operating costs is irrefutable.
Frontline workers also have minimal immersion into broader manufacturing production. They are seldom able to measure their individual performance and correlating impact on production. Pressed by worker retention issues and a looming skills gap, manufacturers cannot afford unmotivated frontline workers and their impact on the bottom line.
Accumulating performance knowledge propels frontline worker engagement and provides stakeholders with shift performance visibility, operator recognition, and overall accountability. If a manufacturer can orchestrate and optimize the collective intelligence of all their employees, including frontline workers, they can drive unimaginable levels of performance.
From the Front Line to the Bottom Line
Digital has never been more primed to rejuvenate lean principles. A digital performance management system standardizes the vast array of unstructured and structured processes existing across operations. For example, equating key performance indicators and metrics on the shop floor to financial dollar impacts on the top floor provides a standardized time-based system that can promote unparalleled levels of visibility.
Here are a few key capabilities where manufacturers can wrap digital capabilities around their existing management, technical, and people systems, and extend benefits across the organization.
Closed-loop management processes integrate top-down performance management and bottom-up problem solving: Decisions are being made instantaneously across the top floor and shop floor. Maintaining the integrity and availability of the information fueling these decisions promotes resilient operations and an intuitive workforce. To date, these decisions are mostly being made using different sources of data.
DPM enables a single source of truth across the global production network seen through the lens of what matters most to each person and role as they work to achieve manufacturing excellence. The flexibility of a single digital system to support many subsystems allows manufacturers to gain visibility across products, lines, and sites and tackle production bottlenecks. Standardizing critical data creates a benchmark for performance, and opportunity for real-time reinforcement of positive actions.
Optimizing the collective intelligence of all employees, including frontline workers, can drive unimaginable levels of performance.
The top floor is also better informed from real-time operational information contextualized into financial impact. For example, a chief operating officer understands the real-time production bottlenecks across the entire supply chain and anticipated impacts on costs. The chief financial officer similarly sees this and adjusts financial planning, budgeting, and forecasting. Contextualizing these time-based events into currency provides CxOs with a vetted stake in daily operations and tangible insights into operational pain points. Linking performance metrics and strategic goals to corporate initiatives enables senior leaders to monitor progress and results.
Middle managers are better equipped to make quicker data-driven decisions with all operational information available at full scale and real-time contextual insights to critical questions. Supervisors on the line are empowered to tweak processes and better optimize machines and workers.
The benefits of bottleneck identification and analysis is also applicable to front-line workers. Identifying critical problems enables a worker to make real-time remediating actions, improving the metrics they are measured on such as OEE or mean time to repair. Scaling this rapid decision making elevates the entire workforce and generates continuous improvements on a massive scale.
Standardized and scalable digital systems serve as the new lean foundation: Technology and digital leaders are tasked to build, manage, and procure a digital system that supports the modern-day manufacturing infrastructure. These technology executives make up 71% of digital transformation manufacturing leaders5 and 60% have formal budget ownership.
To date, many IT-oriented budgets have been constrained to supporting the many technical systems common across a manufacturing environment. A strong digital foundation is key to maintain continuity and support standardized work across these systems and processes. Leveraging out-of-the-box digital capabilities including bottleneck identification, Loss Paetro and waterfall analysis, and scorecards provides more granular insights into the root causes of production bottlenecks and enable workers to focus on solving the most impactful problems.
With Industry 4.0 technologies, manufacturers now must build this digital foundation in an agile approach on what they already have (their ‘brownfield’ production networks), combining disparate IT and OT data sources, then homogenizing and normalizing the data to generate digitally charged operational insights and transform processes.
Empower people and reinforce ‘good behavior’: Manufacturing performance management is largely centered around a non-inclusive continuous improvement culture with only a few engineers looking at performance data and counts on the ‘good behavior’ of people across the process. With a DPM system, the vast manufacturing frontline workforce taps into the process and the ‘good behavior’ is consistently reinforced.
With digital capabilities, people are empowered, processes are accelerated, products are improved, and places are synchronized
Digital performance management expands problem solving past the hands of tens of continuous improvement engineers and puts them into the gloves of tens of thousands frontline workers. Operators are provided ‘first person’ yet standardized views into their task at hand, spending less time on finding information and more on problem solving.
Forming a baseline that fully represents the true status or behaviors of manufacturing operations is a prerequisite to optimizing it for performance. Understanding this ground truth provides ‘most likely’ scenarios that measure current operations and predict future variability.
DPM provides the real-time reinforcement to measure, manage, analyze and optimize this actual behavior. Acting as a closed loop management system, DPM detects deviations in performance such as underutilized capacity or a machine with faltering availability on the most impactful processes, analyze the root cause, and reinforce the corrective actions for problem solving. Gleaning data-driven insights from these digital guardrails lessens the severity and frequency of unforeseen events, impacting critical KPIs like throughput and OEE.
Employees can identify performance areas that require attention across the value chain. Improvements are truly driven continuously instead of at time intervals as real-time performance measurement can be re-optimized during and after project implementations. Resources are more properly allocated to fuel the projects lifespan and ultimately its success.
Michael Coxon explains that ‘knocking down information siloes and rallying the organization around common data systems and metrics provides a new way to apply traditional lean frameworks to modern manufacturing problems. Solving the “last mile” of data transparency through a real-time DPM system is necessary to ensure that digital truly scales across the manufacturing enterprise.
With future advancements in Spatial Computing, senior leaders will leverage ‘third-person’ views that can see and analyze the characteristics and interactions of multiple people with each other and with products and assets. This digital third-person view and analytics will be used for invaluable use cases like line balancing for people in labor intensive manufacturing processes.
Creating a Better Future for Manufacturing
Digital Performance Management ties people, products, processes and places together to sustain a closed loop management system from the top floor to the shop floor. With DPM, operations will spend less time maintaining systems but more time using them; people at every level will spend less time finding problems but more time solving them.
Real-time reinforcement will remove the fragility caused by human intervention and establish standardized processes across assets, lines, plants, production network and value chain. With these digital capabilities, people are empowered, processes are accelerated, products are improved, and places are synchronized.
Optimizing these four P’s will enable manufacturers to accelerate and reinforce performance improvements with speed and at scale. This digital powered performance management system will provide manufacturers with resiliency to overcome today’s rapidly changing marketplace and emerge as industry leaders in the next normal and beyond. M
Footnotes
1 https://www.mckinsey.com/business-functions/operations/our-insights/digital-performance-management-from-the-front-line-to-the-bottom-line#
2 https://www.manufacturingleadershipcouncil.com/2020/06/10/the-opportunities-ahead/
3 https://www.simutechmultimedia.com/the-true-cost-of-downtime-what-you-dont-know-about-how-downtime-affects-your-productivity/#:~:text
=The%20automotive%20industry%20is%20a,high%20as%20%2450%2C000%20per%20minute
4 https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/the-social-economy
5 https://www.ptc.com/en/industry-insights/digital-transformation