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Performance and Evaluation of Manufacturing Systems

K.K.B. Hon (1) Department of Engineering, University of Liverpool, Liverpool, UK

Abstract The monitoring and control of the input and output of manufacturing systems is an essential task for the system optimisation. Performance of manufacturing systems covers a wide spectrum of technology and management activities. This paper reviews the historical evolution of and modern developments in manufacturing performance measurement within a systems framework based on five metrics and five levels from single workstation to the entire manufacturing network. A summary of an industrial survey in the aerospace industry is also included to provide an industrial perspective. The implications of emerging topics of growing importance in sustainability, agility, e-manufacturing, complexity and biomimetics are also discussed. Keywords: Manufacturing, System, Performance

1 INTRODUCTION 1.1 Background and Overview Performance measurement is indispensable to manufacturing enterprise. If the effective efficiency of an activity cannot be measured, it could not be properly controlled. While mechanistic or physical measurements could be made extremely accurately due to advances in metrology, the measurement of manufacturing performance remains an unsettled subject due to the diverse and multi-dimensional nature of manufacturing. By definition, performance is concerned with what happened in the past or what is happening in the present instance and therefore it is observable and measurable. Performance measures are indispensable for management to understand the state of the manufacturing system and to take appropriate action for maintaining competitiveness as shown in Figure 1. The generic functions of manufacturing performance measures are summarised as follows: a. To reflect the current state of manufacturing situation. b. To monitor and control operational efficiency. c. To drive improvement programme. d. To gauge the effectiveness of manufacturing decisions. Look ahead Look back Roll up Cascade down Compare Motivate and compensate
Performance Measurement

practical and theoretical ones, the choice have to be related to the specific manufacturing goal [2]. While the classical goal for manufacturing aiming to produce the required quantity at the required time by the best and cheapest method remains valid today, such a generic goal needs further amendments in the present environment based on the competitive stance chosen by the company [3]. Since 1990s, there have been a surge of interests in performance measurement after the proposal of the Balanced Scorecard by Kaplan and Norton [4]. However, most of such performance systems were developed from a business perspective which gives full coverage on management and financial performance. The purpose of this paper is therefore to provide a manufacturing perspective to address performance from a systems and technology point of view. 1.2 Evolution of Measures Manufacturing measures are not new as they have been around ever since production functions exist. However, the emphasis was different in different era and this shows the evolutionary nature of performance measurement as depicted in Figure 2.

Monitoring and control

Drive improvement Degree of Comprehensiveness Succinct overview Strategy alignment Decision effectiveness Benchmarking Multidimensional Quality

Productivity Cost

Figure 1: Functions of performance management. The timeliness of information, the range of coverage, the appropriateness of data for decision support and the cost of implementation are major considerations for the design of a performance measurement system [1]. As there are a vast number of performance measures, including both





Figure 2: Evolution of performance measures.

In the 1960s, Productivity Centres and Councils were set up as a means to enhance manufacturing performance and business competitiveness. The adopted approach focused on method study, work measurement and low-cost automation. Most measures introduced in this period were mainly based on cost and labour contents of manufacturing [5]. In the 1980s, a great deal of emphasis was given to total productivity measures. While such measures could provide a fuller picture of the overall performance, they were more difficult to understand and to measure [6, 7]. Due to the difficulties in calculating such measures in practice, there were not always accurate. As a result of strong criticism on the use of financial measures, this led to the development of activity-based costing. During this period, a significant shift was made on the importance of quality with the ascendancy of total quality management as epitomised by ISO9000 [8]. Numerous initiatives were made at national level for promoting the importance of quality. With a greater awareness and mandatory requirements for suppliers to world-class companies, the era of quality started to fade in the late Nineties. The next decade of the 1990s witnessed the challenge to the traditional assessment of a companys performance based on one dimensional financial view with the new multi-dimensional ideas proposed by Eccles, Kaplan and Norton [9, 4]. Kaplan and Norton viewed the Balanced Scorecard primarily as a tool for communicating strategy. Its purpose is to translate an enterprise's mission into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system [10]. The basic message is that the use of financial measures alone is no longer sufficient for the new business environment. The old notion in using a single measure such as earnings per share to represent the performance was deemed outdated and inadequate. The catalyst effect of the Balanced Scorecard led to a step increase in research in performance system, mainly by researchers from the Business School community. It is now generally accepted that it is necessary to measure all kinds of performance indicators, such as cost, speed, dependability, quality and flexibility. 1.3 Types of Performance Measures The Management School approach suggests that there are four types of measures for a business organisation covering all major aspects [11]. Market valuation The valuation of a company in capital markets gauges the performance of the entire company but not individual functional units or assembly lines. It is concerned with prospective future cash flows, and it is also widely used to motivate and compensate top executives. Financial measures Financial measures penetrate somewhat deeper into the organisation and serve more purposes. Financial measures gauge the performance of the firm as a whole and its business units but not any further. In principle, financial measures look back rather than ahead because they capture the results of the past performance. Non-financial measures The driver for non-financial measurement came from the quality movement, for instance, the Malcolm Baldrige award in the USA which requires seven sets of measures concerning leadership, human resources, product quality and customer satisfaction as shown in Table 1 [12]. This type of measures is usually more complicated, ubiquitous and cannot be easily rolled up or cascaded down within an organisation.

Cost measures Cost measures usually provide more insight down to the functional unit level. As all cost measures use the same currency, they could be rolled up from working level of the organization to the top and cascaded down from top to the working level. 2005 Categories and Items Leadership Strategic Planning Customer and Market Focus Measurement, Analysis and Knowledge Management Human Resource Focus Process Management Business Results Point Values 120 85 85 90 85 85 450

Table 1: Criteria for performance excellence of the Malcolm Baldrige Award. As manufacturing is one of several functions within a company, manufacturing measures form a sub-set of overall metrics feeding valuable information into the measurement system. It is evident that the Management School approach is highly oriented to cost and financial measures and the most commonly known measure is return on capital employed because it gives a single statistic on the overall effectiveness of the entire company. It is also apparent that non-financial measures are the weakest link in this framework as the impact of technology is only expressed in terms of costs and quality results. 1.4 Properties of Performance Measures An ideal performance measure should have a number of properties related to its usability, adaptability and relevance to the organization outlined as follows: Simplicity: a practical measure is a simple measure which is easy for data collection and informative, for instance, stock turnover, throughput time. Predictive ability: the look-ahead function of a leading measure is useful to guide planning, for instance, the total order on hand. In contrast, financial measures are lagging indicators as they purport to summarise events happened earlier in financial terms. Pervasiveness: a pervasive measure could be applied throughout the organisation in both horizontal and vertical levels. This will facilitate comparison and analysis as against a highly specific single-purpose measure. In practice, there is a tendency for companies to overload themselves with performance measures. This will not only introduce unnecessary strain on resources but also defocus critical issues which need constant monitoring. In fact, it is quite common for companies to have 50 to 60 top-level measures, both financial and non-financial. It is reported that a Swedish financial services company was using 117 measures [13]. Another set of property of a performance measure is based on the purpose it is meant to provide. Meyer proposed that performance measures could have seven different purposes as shown in Figure 3 [11]. In terms of the time dimension, a measure could either look back or look forward. From the organisational perspective, a measure could be summed from the bottom to the top of the company to allow a clear visible linkage between the

unit performance and the organisational performance. Likewise, it could cascade down from the centre to individual operating units. It could also be used for performance comparisons among horizontal operating units across the company to facilitate performance comparison. Finally, from the human perspective, a measure could be used for motivational and compensation needs. In the context of manufacturing systems, all seven purposes are required from the operational and control point of view. Look Back Look Ahead

automated manufacturing cells, often addressed as FMS, evolved from the original group technology concept. Flow Line For high volume production especially for consumer goods, a tightly coupled and finely balanced production line based on Henry Fords principle is the best choice when minimum cycle time is the key objective. In this case, line balancing, materials handling, materials flow control in terms of push or pull mechanism become essential elements of consideration [19]. In automotive industry, the Toyota model of JIT manufacturing systems has become the paradigm for high volume manufacturing of identical or non-identical products [20]. Factory The original concept of manufacturing systems first proposed by Merchant is applicable to the entire factory. This means that the entire cycle from design, planning, programming, manufacturing, production control and dispatch should be considered as a complete system [21]. The Merchant model will avoid the undesirable effects of seeking a local optimum performance instead of the global system optimum. More recent developments in holonic systems [22, 23], digital factory [24], fractal factory [25] are further advances made possible with the ever-increasing hardware and software computing power. Production Network The introduction of the internet and the realization of globalization provide the main drivers for the emergence of production network as depicted in Figure 5. The Wiendahl model of production network recognises the critical role of supply chain in the total manufacturing environment [26, 27]. The idea of vertical integration of making all or most parts is long gone and it is replaced by a production network linked by supply chains where each node of the chain possesses its own core manufacturing competence. As this is an evolving idea, research in this area is at an early stage. Collaborator Tier 1 supplier Tier 2 supplier Tier 2

Roll up

Roll down

Compare Compensate Motivate

Figure 3: Seven purposes of a performance measure. 2 MANUFACTURING SYSTEMS 2.1 Types of Manufacturing Systems Single Machine The most basic form of a manufacturing system is a single machine or workstation. The scientific and the systems aspects for a single machine is therefore of fundamental importance. The Peklenik model of manufacturing systems starts with a single machine which consists of a P system for positioning, K systems for kinematics and an E system for the transmission of energy as shown in Figure 4 [14]. The system has a feedback loop for control purposes and the summation point takes place at the cutting edge in the case of a metal cutting machine. While the level of sophistication of machine increases from CNC, DNC to adaptive control and intelligent control, the Peklenik model remains applicable with its elegant inputoutput systems approach based on cybernetics principles [15]. M Process

Tier 1

E subsystem P subsystem K subsystem Figure 4: The Peklenik model of a manufacturing system. Manufacturing Cell A component usually requires a number of different manufacturing steps and this means several machines are required for achieving the desired geometrical features. The arrangement of machine tools to form a manufacturing cell based on Similarity Principles for a family of parts represents the most efficient method for batch manufacturing. The Mitrofanov model for cellular manufacturing was further enhanced by numerous researchers in classification and coding [16, 17], group formation methods [18], and optimization techniques. Starting from the late 1960s, a new generation of highly


Figure 5: Schematic representation of a production network. 3 PERFORMANCE MEASUREMENT FRAMEWORK 3.1 Existing Performance Measurement Frameworks Most of the existing performance measurement frameworks were designed for the use by general

management. This is because the management needs a system to review, monitor, intervene, control and predict its performance. A well conceived framework should be able to support the following decisions [28]: the choice of what to measure, how and when to measure and how to interpret the results. As outlined in Section 1.2, there is a plethora of performance measurement frameworks today [29]. A summary of the more notable ones is given in Table 2 [30-35, 4, 36-38]. Performance Measurement Model Performance Criteria System PM Matrix PM for WCM PM Questionnaire SMART pyramid Results & determinants Framework Balanced Scorecard Performance Prism PM System Integrated PM system Originator Globerson, 1985 Keegan, et al, 1989 Maskell, B.H, 1989 Dixon et al, 1990 Lynch and Cross, 1991 Fitzgerald et al., 1991 Kaplan & Norton, 1992 Neely & Adams, 2000 Medori & Steeple, 2000 Bititci et al., 2000

Financial Perspective
Goals Measures

How do we look to shareholders?

How do customers see us?

Customer Perspective
Goals Measures

What must we excel at? Vision & Strategy

Internal Business Perspective Goals Measures

Innovation & Learning Perspective Goals Measures

Can we continue to improve and create? Figure 6: The Balanced Scorecard system. the lack of definition of internal business process [35]. Recently, new framework derivatives of the Balanced Scorecard concept have been developed, for instance, integration with the with Baldrige approach. Browns model consists of five stages in a business process, i.e., inputs, processing system, outputs, outcomes, and goals [41]. As each stage is the driver of the next stage, this model is able to demonstrate how inputs affect the performance of processing systems and ultimately the toplevel goals of the organization. Now Before Time Financial Perspective Customer Perspective Internal Business Perspective Innovation and Learning Perspective Performance Performance Performance of the firm of the firm of the firm Figure 7: New orientation of the Balanced Scorecard. It should be noted that very few performance measurement systems are designed for the purpose of manufacturing systems. As the behaviour of a manufacturing system and its ability to achieve strategic goals are affected by the way it is measured, it is imperative that performance measures must be aligned with the functional requirements of the systems [42]. 3.2 Characteristics of Performance Measurement Frameworks A number of major characteristics of performance measurement frameworks have been observed by various researchers [11, 29, 38]. Strategic Objective Strategic Objective Strategic Objective Strategic Objective

Table 2: Summary of performance measurement models. Before the introduction of the Balanced Scorecard concept, a number of frameworks have been developed in a holistic and balanced manner The Performance Measurement Matrix is such an example as it provides a simple and yet logical framework to include any measures required by the user [31, 39]. This allows an organization to plot its measures and identify where there is a need to adjust measurement focus. Another example is the SMART (Strategic Measurement and Reporting Technique) pyramid which was developed by Wang Laboratories as a four-level hierarchical system [34]. It cascades from corporate vision, business units, business operating units to departmental level. The foundation of this performance pyramid includes operational measures on quality, delivery, process time and cost covered under customer satisfaction, flexibility and productivity. The most popular of the performance measurement frameworks has been the Balanced Scorecard proposed by Kaplan and Norton as shown in Figure 6 [4, 10]. The Balanced Scorecard translates an organization's mission into a comprehensive set of performance measures that provides the linkage between measurement and the strategic goals. The Balanced Scorecard identifies and integrates four different ways of looking at performance, i.e., financial, customer, internal business, and innovation and learning perspectives. It is now generally recognised that the multi-dimensional approach and the equal weighting given to different aspects of the organisation provides a more complete picture on the overall performance. More recently, Kaplan and Norton have re-oriented the Balanced Scorecard as a management system intended for the effective communication of strategies and objectives as shown in Figure 7 [40]. Despite its widespread use, a number of shortcomings of the balanced scorecard approach have been identified. For instance, the absence of competitiveness dimension and

Firstly, all performance measures should be integrated both across the organization's functions and through its hierarchy, encouraging alignment of goals and actions. Without such alignment, the local maximum of a performance measure may not have any effect on the global performance [43]. Secondly, the need for gaining a total picture of the manufacturing enterprise in complex modern environment is better satisfied with multi-goal performance measurement systems. Such a system should cover all measures, financial and non-financial, internal and external, important to the systems performance. Thirdly, the system should provide a succinct overview of the organization's performance from the top to the bottom level. The linkage of measures should be transparent and direct. It is always an attractive proposition if a measurement system is able to support cause-and-effect analysis. In reality, this is confounded by the problem of explicit and implicit interactions of different measures. Fourthly, one of the primary functions of a measurement system is to provide data for reviewing past performance and planning future performance. This means that measures are required to contribute to the organization's feed-forward planning and feedback control system. As the external environment changes due to new product introduction, new global competitors, new technology and new business models, the framework should be adaptive to cope with such changes [44]. Finally, a creditable performance measurement system must be able to explain 80% of the performance gap [45]. 3.3 Performance Measurement Framework for Manufacturing Systems The classical view of manufacturing based on 4M- man, machine, material and method is no longer adequate in the present environment as the coverage is too constrained. Today, the general approach for performance measurement is based on measuring input and output and yet there are other relevant dimensions for consideration. In the first instance, a viable framework is essential for the overall manufacturing functions. Based on the systems approach pioneered by Merchant and Peklenik and taking into account modern development in extended enterprises, a hierarchical 5-level approach will form the basic framework for this review [14, 21, 26]. The 5-levels cover machine, cell, line, factory and network. This framework recognises that the basic building block of a manufacturing system is a single machine or workstation and the highest macro-level is manifested in the form of a number of collaborative factories in a network formation, sometimes known as extended enterprise or virtual enterprise depending on the degree of coupling. The inclusion of cellular system and flow line is specifically based on the need to cover low, medium and high volume production. Within each level, five major metrics are used for performance measurement, i.e., Time, Cost, Quality, Flexibility and Productivity as shown in Table 3. Under each metric, specific measures are used for measuring a specific characteristic on manufacturing performance at that level. The matrix framework thus covers all the essential elements for manufacturing from a systems point of view. Naturally, there are specific measures designed for different levels of manufacturing systems [46-49]. A sub-set of the measures could be chosen for practical implementation or simulation for performance analysis for a particular manufacturing system [50]. The scope of this framework is focussed on those activities which are the direct responsibilities of the Manufacturing Department within a company. Therefore, performance in other areas such as marketing, customer satisfaction,

share price, human resources are outside the scope of this framework. Level Machine Cell Line Factory Network Table 3: Performance measurement systems for manufacturing systems. The hierarchical approach adopted in this framework is able to meet all seven purposes described in Section 1.4 especially for satisfying the monitoring and control functions. While large companies require all seven functions in order to exercise complete control of the company, SMEs will need far fewer organisation measures due to size effect. 3.4 Manufacturing Systems Performance Measures In a recent comprehensive survey of performance measures for manufacturing systems, a total of 442 individual measures have been collected under the framework described in Section 3.3 as summarised in Figure 8 [51]. It is quite natural to note that costs measures and flexibility measures occupy the top and the bottom ranking respectively because of the long tradition of accounting and the lack of standards for flexibility.
120 100 80 60 40 20 0
t Q ua lit y Pr od uc t Fl ex ib ilit y C iv ity Ti m e os

Figure 8: Collection of manufacturing systems measures. As it is not feasible to include all such measures in this paper, representative salient measures under each metric are given as follows less the detailed equations: Time measures: average batch processing time, average lead time, changeover time, cycle time, machine downtime, mean flow time, on-time delivery, setup time, Takt time, throughput time. Cost measures: overhead cost, scrap cost, setup cost, tooling cost, total quality cost, unit labour cost, unit manufacturing costs, unit material cost, work in progress. Quality measures: average outgoing quality limit, incoming quality, MTTF, not right first time, process capability index, return rate, rework %, scrap %, vendor quality rate, warranty claim %.

Flexibility measures: component reusability, delivery flexibility, machine flexibility, number of different parts, process flexibility, process similarity, routing flexibility, supply chain flexibility, total system flexibility, volume flexibility. Productivity measures: assembly line effectiveness, direct labour productivity, machine effectiveness, network effectiveness, overall equipment effectiveness, return on assets, stock turn, throughput efficiency, total productive maintenance, value-added per employee. 4 PRACTICAL ISSUES AND BENCHMARKING 4.1 Practical Aspects of Performance Measurement The implementation of a performance measurement system needs to beware that all performance measures are merely indicators of an uncertain future. Due to human psychology, people will generally improve what is measured, and sometimes, people will improve what is measured without improving the underlying performance that is sought. It is also quite common to note that improvement in what is measured, with or without accompanying improvement in performance, usually shrinks differences in measured performance. Hence, the distinction between performances tends to become less obvious over time. Such diminution of differences has been addressed as the running down of performance measures. As existing measures run down, new measures capable of discriminating good from bad performance need to be developed. This means that performance measures should not be static but changes with time [11]. This conjecture is supported by the observation that the lack of appropriate performance measurement systems is an obstacle to the migration from ISO9000 to TQM [52] The choice of measures is directly related to the nature of the manufacturing activities. A relevant measure for a flow-line will be totally meaningless for a mixed volume high variety assembly cell. A viable approach to facilitate the choice of measures is to identify the manufacturing characteristics based on complexity and uncertainty as shown in Figure 9 [53]. This approach will simplify the measurement system design process by focussing on the key performance indicators on its core manufacturing competence. High High Uncertainty Complexity Low

are seldom mentioned by management scientists and yet if the tool life is very low, it will have a direct impact on manufacturing cost, time and quality. Tool: tool life, G ratio. Process: cutting forces, acoustic emission. Workpiece: material utilization, surface integrity. Information: machinability, CAPP. On the other hand, there is a whole range of nonquantitative measures which have direct effect on the overall function of the organisation. The values of such measures could only be assessed in a qualitative manner. Some examples are: Leadership: vision, autocratic, participative, delegative, motivation. Culture: value system, practices, team dynamics, learning. Organisation: classical, matrix, global, virtual. Personnel: recruitment, training, morale, job satisfaction.

Capital goods Machine tools Aerospace Process plant Product Design & Devt Durables White goods Pumps and valves Automotive Supply chain flexibility

Short Life Cycle Textiles Spare parts Fashion products Time to market Commodity Components Fasteners Mouldings Productivity and cost

4.2 Company-Related Findings Previous research on performance measurement systems showed that [38] all organizations have a performance measurement system of some form that may be formal or informal, structured or unstructured. Very few organizations can demonstrate an understanding of the cause and effect relationships between the performance measures used. Most organizations have a static performance measurement system, and this has a negative effect on the agility and responsiveness of the organization. The main barriers for organisations to adopt a more dynamic approach to performance measurement system are due to a lack of structured framework, absence of a flexible platform and the inability to quantify the relationships between performance measures. In a study on the relationship between manufacturing strategy and performance, two measures were used, i.e., stock turn and throughput efficiency. The former measure is used to distinguish between a broad or narrow range product company and the latter measure on manufacturing resources commitment. The results show that there is a homogeneity linking manufacturing strategy with performance [54]. This result is compatible with the manufacturing systems behaviour for high volume and low volume production. An investigation on the size effect on the use of world class manufacturing practice and manufacturing performance showed that micro companies which employ up to 20 people did not score lower on operational and business performance. In fact, they score significantly better on cycle time, stock turns and customer satisfaction. This suggests that, despite the informal and short-term oriented management style of micro companies, they are able to compensate with their inherent flexibility and technical skills [55]. 4.3 Problems with Productivity Measurement There can be no single universal measure of productivity because various stakeholders have different goals, and in turn must use alternative sets of productivity measures for appropriate circumstances [56-58]. In fact, three dominant views from the accountant, economist and the engineer exist on productivity measures. Many of the productivity measures used today were originally developed by accountants in those times when labour costs were predominant. The most well known one is Return on Capital Employed. Essentially, there are no limits to the number of ratios that can be derived. Foulke


Figure 9: Classification of manufacturing enterprise based on complexity and uncertainty. Finally, one of the weaknesses of the prevalent performance measurement systems is their lack of emphasis on the use of technology-based performance measures which are essential for a bottom-up view. Commonly used technological measures given as below


suggests that five hundred or more can be constructed [59]. Most economists use indicators that are macro in nature, i.e., the study of whole economies rather than activities at plant level. In fact, most countries have national statistics offices for keeping and tracking the national productivity for each industrial sector. The underlying principle is to convert all input factors to labour time as proposed by Adam Smith. A popular measure from the Economist school is the use of 'Added Value per Employee' as a measure of productivity. The engineering approach to productivity is based on the conversion efficiency of input to output. This approach is most compatible with the systems thinking and it has become the generally accepted form of productivity measurement today. However, there are a number of common problems of productivity measurement including the following questions [5]: How to combine different inputs into one acceptable denominator? How to deal with qualitative changes in inputs or outputs over time? How to keep input and output measurements independent of each other? Changes over time complicate measurement as the technology, degree of automation, materials and energy costs, make versus buy policy, etc. may have changed significantly. Sometimes, even the unit of output has changed, for instance, from a 1.6l car to 1.8l car making direct comparison difficult. Recent developments are concerned with finer division of productivity measurements into: Total productivity, Total factor productivity and Partial Productivity and this will further complicate the general awareness of the subject [6, 60, 61]. While the use of partial productivity could provide a focus, it could ignore other factors and may cause distortions in another area. For instance, the classical productivity paradox highlights the adverse effect if too much emphasis is placed on manpower but ignores investments in robotics [62]. 4.4 Benchmarking Performance measurement is an internal process, its use for external comparison is a natural extension. As every company has to compete in the market place, finding its competitive position through benchmarking is a core business process [63]. Benchmarking is defined by Xerox as a continuous, systematic process of evaluating companies recognised as industry leaders, to determine business and work processes that represent best practices and establish rational performance goals. The standard model of benchmarking as shown in Figure 10 depicts four identifiable phases [64]:

1. Identifies what to benchmark and calibrates gap. 2. Supports new improvement strategy and learns new approaches. 3. Measures the progress of closing performance gap. 4. Maintains the stimulus for continuous improvement. In practice, the dynamics of benchmarking is illustrated by Figure11 which shows that best-in-class companies will also use benchmarking to maintain its leadership position. Another weakness of the benchmarking process is that knowing a gap exists does not mean that better methods could be found readily. + Best-in-class Company

Improving Company

Regressing Company

+ Time Figure 11: Dynamic model of benchmarking. Over the years, five distinct phases of benchmarking development can be identified as companies move into the era of globalisation [65]: 1950-1975 Reverse Engineering 1976-1986 Competitive Benchmarking 1982-1988 Process Benchmarking 1988+ Strategic Benchmarking 1993+ Global Benchmarking Based on regression analysis using data collected from 660 European plants, Voss and Hanson demonstrated that the use of benchmarking is linked strongly to both improved operational and business performance [66]. Presently, there is a proliferation of Benchmarking clubs, networks which could be sector-based, region-based, supply-chain based or global [67]. However, joining a Benchmarking club does not provide the solution automatically as the organisation still has to find the right measures for comparison, analyse the causes for performance gap and to search for innovative solutions. INDUSTRIAL SCENARIO Industrial View on Performance Measurement in the Aerospace Sector An industrial survey on the use of performance measurement was undertaken in Spring 2004 for providing an industrial and pragmatic view. A questionnaire was designed to survey the use of performance measures in the aerospace industry in the North West of England where a strong cluster is located. The aerospace industry was chosen based on technology and size distribution considerations. The structure of the questionnaire is based on the same framework as described in Section 3.3. The choice of individual measures take into account various research findings as cited in Section 3.4 as well as the Society of British Aerospace Companies, the Department of Trade and Industry because of their sectoral relevance [68]. The key questions of the survey seek to ascertain the current state on: Use of modern lean manufacturing techniques. Most important performance measures. 5 5.1


Best-in-class performance 3 4 Current performance

1 gap

Time Figure 10: Standard model of benchmarking.

The number of performance measures used. Applicability of performance measures. Future plans on performance measurement. A total of 41 responses were received from the survey. As shown in Figure 12 which gives a breakdown on the company sizes, 60% of the respondents were SMEs. The companies were engaged in a wide spectrum of aerospace manufacturing activities given as below.

< 1 year Productivity Flexibility Quality Cost Time

1-5 years

5 years +




SME 30%

0% 20% 40% 60% 80% 100% Figure 13 : Use history of performance measures. measures were used as depicted in Figure 14. This result could be connected with the large amount of SMEs involved in the survey. Another relationship emerged from the survey is the correlation between the number of measures used under each metric and the length of time that particular metric was used within the company. For instance, that fact that 30% of companies use more than 10 quality measures is related to the observation that 50% of companies have been using quality measures for more then 5 years. By comparison, 95% of companies have less than 5 flexibility measures which correspond to 52% of these companies using flexibility measures for less than 1 year. <5 Productivity Flexibility Quality Cost Time Figure 14: Number of measures used by sample companies. Following the present framework of performance measurement, observations and analyses of the survey results are given under five headings. Emphases are given to the most significant results and findings: Cost Performance Measures The overwhelming concern for 83% of respondents in this survey is operating costs. This is followed by inventory and manufacturing costs as shown in Figure 15. This agrees with the general global trend of manufacturing resurgence in low-cost base countries. Essential Rarely used WIP Costs Return on Assets Operating Costs Manufacturing Costs Setup Inventory Downtime 0% 20% 40% 60% 80% 100% Used occasionally Not used 5-10 10 +

60% 5%

5% Figure 12: Breakdown of company size.

Airframe and components, 24%. Engine and components,17% Mechanical systems and components,15% Electrical and avionics,17% Other systems, 8% Standard aircraft consumables, 2% Defence systems,11% Ground equipment, 4% Raw materials, 2% The position of the respondents could be one of several areas from the top management. This step was introduced in order to minimise the bias that could be introduced due to the background of the individual. In the event, the distribution of the respondents positions is quite evenly distributed between director and manager levels. As the use of manufacturing technology is directly influenced by batch quantity, the dominant manufacturing flow characteristic is essential background information for the interpretation of results. As expected, 57% of companies in this survey were involved in batch processing, 12 % in job shop, 12 % in project, 11% in continuous production and 8 % in one-piece flow. In order to gauge the level of technology sophistications of the sample companies, it is necessary to find out the use of modern manufacturing concepts and techniques by such companies. The aerospace sector has a high awareness of modern manufacturing methods and their adoptions of such techniques are widespread within the sector. The most popular techniques tend to be those with high impact and relatively low capital investment: 5S, Continuous Improvement, Multi Function Employees, TQM, JIT, SPC, Elimination of 7W. Advanced technologies and methodologies such as QFD, FMS and six sigma are also used. The history of implementation of the performance measures varies form company to company but it is related to the introduction of modern manufacturing methods. From Figure 13, it is evident that quality measures are the most established within the sector. This can be attributed to a strong drive for ISO9000 accreditation in the UK in the 1990s. Secondly, it is mandatory for companies in the supply chain to have ISO9000 accreditation status. The traditional measures on cost and productivity were the next best established followed by time and flexibility. The number of measures used for each of the five areas revealed that in the majority of cases, less than 5

Figure 15 : Survey results on cost performance measures.

Time Performance Measures From an industrial point of view, the most significant time measures as demanded by customers are the overall lead time and on-time delivery as given in Figure 16. This is followed by set up time which plays a key role in JIT manufacturing requirements. Essential Rarely used Makespan Production Time Mean Flow Time Processing Time Job Flow Time Throughput Time On Time Delivery Cycle Time Setup Time Overall Lead Time 0% 20% 40% 60% 80% 100% Used occasionally Not used

established and best understood due to a series of drives at the national and OEM company level. Thirdly, flexibility measures are the least used by companies and hence have the lowest priority. Essential Rarely used Mix Flexibility Expansion flexibility Delivery Flexibility Process Flexibility Routing Flexibility Volume Flexibility Machine Flexibility 0% 20% 40% 60% 80% 100% Figure 18 : Survey results on flexibility performance measures. Essential Rarely used Labour Productivity System Productivity Line Assembly Overall Equipment effectiveness Assembly Line efficiency Supply Chain management Machine Utlization Effective Capacity of a machine 0% 20% 40% 60% 80% 100% Figure 19: Survey results on productivity performance measures.
5.2 Problems of Implementing Performance Measurement System Implementation of a performance measurement system will involve the entire company at every level. In seeking the problems associated with the implementation, it is therefore essential to address this issue at various levels in order to obtain a more complete view. This survey adopted a multi-level approach covering the top management, middle management, first line management, non-management personnel, for instance, machine operators, and finally, vendors. The results of the findings are summarised in Figure 20 which could be interpreted as follows:

Used occasionally Not used

Figure 16 : Survey results on time performance measures. Quality Performance Measures Major performance measures for the aerospace sector centre around scrap rate, defect ratio and rework rate as shown in Figure 17. This is probably due to more complex and higher cost parts used in this sector. Essential Rarely used Tolerance Value Machine Uptime Warranty Claims Rate Defect Ratio Scrap Rate Rework Rate Defective Inventory % DPMs Process Capability MTBF 0% 20% 40% 60% 80% 100% Figure 17 : Survey results on quality performance measures. Flexibility Performance Measures While the concept of flexibility is appreciated by all sample companies, performance measures in this category remain the least applied compared with other measures. Two particularly essential measures are process flexibility and delivery flexibility as shown in Figure 18. Productivity Performance Measures From a list of 8 productivity measures, the most important ones identified in this survey is the effective capacity of a machine and closely followed by machine utilization and labour productivity as shown in Figure 19. Overall, a few conclusions could be made from this industrial study. Firstly, companies are most concerned with overall lead-time, on-time delivery, operating costs, inventory level and scrap rate in a descending order of importance. Secondly, quality measures are the most well Used occasionally Not used

Used occasionally Not used

Lack of training is felt by people at all levels within the companies, particularly so for the top management. This suggests that a systematic introduction and induction of performance measurement is essential. Poor understanding is most felt by the top management mainly because of the technicalities of individual measures. Simplicity is therefore a useful attribute for a measurement system. Poor designation of tasks are reported by middle management, fist-line management as well as the operators. This is because these groups are key parties in their operational role of data collection and analysis for performance measurement.

Top management First Line Management Vendors, Customers 25 20 15 10 5

Middle Management Non-management Personnel

made at the Rio and Johannesburg Summits on Sustainable Development in 1992 and 2002. The basic idea is that there is an overwhelming case for maintaining a balance from the economic, environmental and social perspectives during industrial development as shown in Figure 22 [70-72].


Economic Lack of Poor Poor Lack of Lack training under- designation awareof standing of tasks ness resources Figure 20: Problems of implementing performance measures.


Figure 22: Three pillars of sustainability measures. In manufacturing, particular stringent sustainability targets have been set in the car industry as exemplified by the 2002 EU End-of-Life Vehicle Directive as shown in Table 4. As an example, a series of performance measures under the three sustainability headings is reported annually on industry-wide basis in the UK as shown in Table 5 [73]. This also means that each car manufacturer has to monitor its sustainability performance accordingly. As the causes for prolonging the use of natural resources, minimizing energy during manufacture and operation, minimizing wastes are highly commendable, the pioneering lead taken by the car industry is expected to spread to other industrial sectors. ELV Targets Reuse & recycling of materials Energy recovery Total recovery by wt Landfill 2006 >80% <5% >85% <15% 2015 >85% <10% >95% <5%

Lack of awareness is most likely a direct consequence of lack of training but it is felt most strongly by operators. Lack of resources is a special issue for the middle and line management as they are essentially responsible for the efficient and continuous operation of the system.

5.3 Future Plans of Performance Measures The intention of companies on the future plan for performance measurement was studied in the survey and the results are illustrated in Figure 21. Companies had the choice to state whether there would be more, less or no change in the development of new measures. Over 50% of companies stated that they wished to develop more measures in the area of cost.

More Measures Time Cost Quality Flexibility Productivity

Less measures

No change

Table 4: Recycling and recovery targets required by the EU End-of-Life vehicle Directive. Sustainability Measures in Car Industry

0% 20% 40% 60% 80% 100% Figure 21: Future plans of performance measures. The future plan for time, quality and productivity measures are mixed. This is expected from the sample because the duration of using performance measures vary between companies. As for Flexibility measures, only 32% of companies intend to use more measures and this strongly suggests that manufacturing competitiveness based on flexibility remains the least embraced by industry.
6.0 EMERGING ISSUES 6.1 Sustainable Development Considerations The concept of sustainable development was first articulated by the United Nation in 1987 as forms of progress that meet the requirement of the present without compromising the ability of the future generation to meet their needs [69]. Since then, further progresses were

Environmental Energy use Water use

CO2 equivalent

Economic Export R&D spend Turnover New cars produced No of direct/indirect jobs

Social % of female employee Lost time incidents Training days No of apprentices Staff turnover

Emission of volatile organic compound Waste to landfill Packaging wastes for recovery Packaging wastes for recycling

Table 5: Sustainability measures in car Industry.

The Dow Jones Sustainability Index (DJSI) was launched in 1999 tracking the financial performance of leading sustainability-driven companies worldwide. Membership of DJSI is based on integrated economic, social and environmental criteria with a strong focus on shareholder value covering 2500 companies. In 2003, The DJSI has outperformed the mainstream market repeatedly, the former increased by 23.1% while the latter by 22.7% in the same period [74] An analysis of 141 member companies of the World Business Council for Sustainable Development showed a more dramatic difference between this group of companies and the general industrial performance especially on longer term basis as shown in Figure 23 [75]. On a broader level, detailed studies by the World Economic Forum showed that there is a positive correlation between the environmental regulatory regime index and current competitiveness index as epitomized by Finland in Figure 24 [76]. It also provides strong evidence that environmental progress can be achieved without sacrificing competitive performance. MSCI world local Growth 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 1 Year 3 Year 5 Year WBCSD

Logistics covers the planning, implementation and control of the efficient, effective forward and reverse flow and storage of parts/products and related information between the point of origin and the point of consumption. The inbound logistics, operations and outbound logistics were highlighted by Porter as the primary activities for value creation in competitive manufacturing [77]. Performance indicators of logistics activities measure the performance of a logistics system and evaluate its efficiency level [78]. In general, such measures fall into two categories: cost indicators which indicate costs consumed in carrying out logistics activities and service indicators which relate to the results of logistics activities. The main purpose for measuring logistics performance is to reduce operating costs and to improve service efficiency. Due to the nature of materials flow in a logistics system, it could be decomposed into internal and external metrics. The internal metrics are concerned with a range of functions: transportation, warehousing, inventory control, production, maintenance and vendor selection. In the case of vendor selection, the normal criteria used are based on quality, cost and reliability of delivery. As for external metrics, they represent the customers view of the supply efficiency and cost-effectiveness. For detailed individual measures, numerous schemes have been reported from the functional level to systems level coverage [79-82]. As an example, the Supply Chain Operations Reference model (SCOR) proposes 45 measures under 11 metrics: on-time delivery, fill rate, perfect order fulfilment, supply chain response time, order fulfilment leadtime, upside production flexibility, total supply chain management costs, cash-to-cash cycle time, forecast accuracy, return and finance [83]. Similar to manufacturing performance, a whole range of logistics measures are necessary to capture and represent the performance of logistics fully.
6.3 Agility, Flexibility and Changeability Agility is the ability of a company to operate profitably in a competitive environment of continually and unpredictably, changing customer opportunities [84]. A number of key attributes have been associated with agile manufacturing: adaptability, responsiveness, reconfigurability, robustness, virtual enterprise, dynamic teaming and transformation of knowledge [85]. The concept of agility is closely connected with flexibility and responsiveness. A simple and pragmatic approach is to consider agility as the ability of an enterprise to adapt to unexpected changes in the external environment, for instance, emergence of a new competitor. In this framework, flexibility covers a companys internal ability to meet customers requirements within its constraints [86]. This view is compatible with Slacks Flexibility model which consists of systems flexibility and resource flexibility whereas the former is output-oriented and the latter is process-oriented. Each flexibility measure is further characterised by two dimensions under range and responsiveness [87]. In other words, one system is more flexible than another if it could handle a wider range of configurations, accommodate changes in shorter time, or implement the transition with lower costs [88, 89]. Another interpretation of manufacturing flexibility is based on the concept of sensitivity, i.e., the level of change a system can accommodate before corrective action is required [90, 91]. As neither the concept of flexibility nor its measurement is standardised, the use of flexibility measures in industry is rarely reported but its operational and strategic value is fully acknowledged by researchers [92-98].

Figure 23: Higher growth of companies implementing sustainable development.

Environmental Regulatory Regime Index

Clean path

Dirty path

GDP per capital Figure 24: Correlation between the environmental regulatory regime and current competitiveness.
6.2 Logistics The significance of supply chain is evident in JIT manufacturing environment. Without a reliable, timely and quality supply chain to the point-of-use in the assembly line, it is impossible to implement JIT.


Business Environment Technological Agility Reconfigurable Economical Environments



Flexibility Range

Virtual Enterprise Dynamic Teaming Knowledge Base

Systems Product mix Volume Delivery Responseness

Resource Process Supply Chain Control


Figure 25: Overall effect of a flexible manufacturing system. The overall effect of a flexible manufacturing system is demonstrated by its ability to change its mix, volume and timing of its output reactively as shown in Figure 25. This framework implies that the range of activities is known in the design stage for systems flexibility. On the other hand, reconfigurability is an approach to satisfy unknown or changing demands when a manufacturing system is in the operational phase. As this is an emerging area, new ideas are being proposed. The recent Wiendahls Changeability Model covers five levels of product from single geometric feature to the top-level product portfolio [99]. Each level is provided by a specific type of changeability from changeoverability, reconfigurability, flexibility, transformability to the highest level of agility. This model can be adopted for the calculation of the relevant costs of changeability using the techniques of scenario planning [100]. Industry Chemicals & pharmaceuticals Computers & electronic equipment Telecommunications Consumer packaged goods Defence & industrial Best-inClass 6.0 4.3 2.6 8.3 10.0 Median 30.0 30.0 25.5 42.0 30.0 pre-requisite for such agile performance is the ability to obtain additional inputs from a highly responsive supply chain [83, 102]. While there is a vast amount of literature on agile manufacturing, the development of measures specific for agility falls back to the fundamental aspects of time, cost and quality which support the framework adopted in this paper [86, 103].
6.4 e-Manufacturing e-Manufacturing is a new paradigm enabled by the ubiquitous internet and telecommunication facilities available today. It is the application of open, flexible, reconfigurable communications and computing for the enhancement of existing manufacturing practices and the creation of new business models and processes [104]. It is a natural component in the e-era in the context of ecommerce and e-business which has replaced paperbased transactions with internet-based ones. The main functions and objectives of e-manufacturing are [105]: Enable an Only Handle Information Once (OHIO) environment. Predict and optimize total asset utilization in the plant floor. Synchronize asset information with supply chain network. Automate business and customer service processes. As e-manufacturing is an embracive concept, it covers the total spectrum in the product life cycle from design, processing, logistics, operation and maintenance to endof-life recycling, re-use and re-manufacturing. It is particularly relevant in providing significant improvements in the efficiency, through-put and responsiveness of manufacturing activities through the seamless and instant information flow between the suppliers, factory and customers. While a consistent set of metrics for emanufacturing is not yet available, the impact of emaintenance and e-services identified in a NSF workshop include: quality, throughput, yield, costs, return of net assets, downtime, inventory, forecast of OEE, consumable replenishment and customer complaints [106]. It is very likely that generic metrics for manufacturing systems will also be applicable to e-manufacturing environment as the speed, quality and connectivity of information flow are the main differences.

Table 6: Average time in days required to achieve an unplanned sustainable 20% increase in production. In terms of the practical advantages of agile manufacturing, it was found that there is a positive relationship between agility drivers and performance measures based on a sample of 107 companies [101]. In a study on the average length of time it takes for companies in different industries to achieve an unplanned, sustainable increase in production, significant differences were found between the average performing and best-inclass companies as shown in Table 6. The differences were attributed to smooth production flow, flexibility of machine and labour resources, excess capacity and a key

6.5 Complexity Complexity, variability and uncertainty are embedded in the fundamental nature of manufacturing. There is growing research interests on complexity since the last decade when Chaos theory was first applied to manufacturing in 1991 by RMI to seven truck body painting booths at General Motors [107-111]. The results minimized paint changes in several booths saving time and materials. The principal motivation is to understand the non-linear nature of complex behaviour and hence apply new methods to reduce the degree of complexity in the system making it more productive and predictive. The main toolbox for dealing with complexity includes adaptive techniques such as genetic algorithm, intelligent agents, cellular automata, ant algorithm, chaos theory, edge of chaos, NK landscapes and fuzzy systems [112]. Several definitions of complexity exist presently. Efstathiou proposes that manufacturing complexity is a system characteristic which integrates several key dimensions of the manufacturing environment including size, variety, concurrency, objectives, information, variability, uncertainty, control, cost and value [113]. Two forms of complexity, i.e., structural and operational, are proposed [114]. In terms of measurement, Shannons information theory has been adopted to measure the structural complexity of a multi-station system, Hs, which is given as follows [115]:

H s = Pij log 2 Pij

i =1 j =1

Autonomy: acting on its self-created rules and strategy. Recognition: ability to understand its global objective. Perception: awareness of the local conditions and the environment. Learning: acquire new knowledge for the creation of new rules and strategy. Spontaneity: exercise action spontaneously when all conditions are satisfied. Co-operation: develop mutually acceptable plan with interacting elements. In order to acquire such new self-organising properties for the manufacturing systems, new tools and techniques have been developed and proposed. For instance, Ueda has demonstrated the viability of using evolutionary model [118], reinforcement learning [120] and field dynamics [121] for biological manufacturing systems. While research studies evaluate the performance of Biological manufacturing systems based on standard measures such as maximising throughput, minimising deviation from due date, minimising distance travelled, there is a case to consider measuring the intrinsic properties of such systems on their ability to learn, to recognize, to cooperate and the like. Such an approach will provide more insight into the efficiency of specific mimicry biological functions. As Biological manufacturing systems are designed to cope with uncertainty, they are more capable of working in a complex environment with continuous changes. This suggests that the optimum positioning of a Biological Manufacturing system is to close the gap between the operating domain for job shop and FMS as shown in Figure 26.

Pij : probability of resource i being in scheduled state j. S : Number of scheduled states M : Number of stations. Suh defined complexity as a measure of uncertainty in achieving the functional requirements. He proposes that there are four types of complexity: time-independent real complexity, time-independent imaginary complexity, timedependent combinatorial complexity, and time-dependent periodic complexity. The purpose of understanding and measuring complexity is to reduce the systems complexity thereby improving its reliability and overall productivity. Four approaches can be adopted towards this aim: 1. Reduction of the real complexity by creating uncoupled and decoupled designs. 2. Elimination of the imaginary complexity by understanding the relationship between functional requirements and design parameters of the design. 3. Elimination of the time-dependent combinatorial complexity. 4. Introduction of functional periodicity during the system design [116]. Presently, complexity measures remain a research topic of immense international interest and knowledge for the scientific base of the subject is building up for its industrial applications. Where
6.6 Biological Manufacturing Systems Biological systems are self-organising systems capable of adaptive behaviour in response to unpredictable and changing environment. Recognizing that such systems have a close parallel with the manufacturing context, it was studied in recent years as a Next Generation Manufacturing Systems concept [117-118]. An ideal biologically-inspired manufacturing system is attractive as it will possess a number of highly desirable properties [119]:

Figure 26: Optimum positioning of Biological manufacturing systems.

7 CONCLUSIONS In today's dynamic environment, developing a sound performance measurement system is a challenging and evolving task. Ideal local and global measures for a manufacturing system should exhibit a direct cause-andeffect relationship, not a correlation relationship. Performance measurement systems should be dynamic and they should evolve with and adapt to the changing internal and external environment. The question on when to change and how much to change requires a great deal of technical and business skills and technology foresight. Measures for manufacturing systems need to cover the key performance indicators in terms of cost, time, quality and flexibility and productivity considerations. Developments in ubiquitous computing, data mining and man-machine communication will bring new possibilities for performance monitoring and control. At a higher level, performance measurement systems must serve to support the alignment with manufacturing strategy and improvement process to drive competitive and innovative performance. With new technology, new

paradigms of manufacturing systems, there will be a continuous demand for new measures to monitor manufacturing performance intelligently in a natural progression from performance measurement to performance management [122].
8 ACKNOWLEDGEMENTS This is to acknowledge valuable information received from numerous CIRP colleagues, especially Professors H.P. Wiendahl, G. Chryssolouris, P.F. Cunha, J. Lee, T. Pfeifer, G. Seliger, S. Tichkiewitch, K. Ueda, E. Westkaemper; support from members of my research team: L. Crawford, G. Serna, F. Hernandez, S. Anantharamaiah, C.R. Li and S.Q. Xu. 9 [1] REFERENCES Neely, A., 2002, Business Performance Measurement- theory and practice, Cambridge University Press. Altiok, T., 1997, Performance analysis of manufacturing systems, Springer. Alford, L.P. and Bangs, J.R., 1955, Production Handbook, Ronald Press. Kaplan, R. and Norton, D., 1992, The balanced scorecard measures that drive performance, Harvard Business Review, 70/1:71-73. Norman, R. G. and Bahiri, S., 1972, Productivity Measurement and Incentives, Butterworth Barlev, B. and Cullen, J.L., 1986, Total Factor Productivity and Cost Variances: Survey and Analysis, J. Accounting Literature, 5, 35-36. National Research Council, 1979, Measurement and Interpretation of Productivity, The National Academy of Sciences. Deming, W.E., 1986, Out of the crisis, MIT. Eccles, R.G., 1991, The performance measurement manifesto, Harvard Business Review, 69/1: 131-137. Kaplan, R. and Norton, D., 1996, The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press. Meyer, M.W., 2002, Rethinking Performance Measurement, Cambridge University Press. National Institute of Standards and Technology, 2005, Baldrige national Quality program, Edvinsson, L. and Malone, M. S., 1997, Intellectual Capital: Realizing Your Company's True Value by Finding Its Hidden Brainpower, New York: Harper Business. Peklenik, J. 1971, Advances in manufacturing systems, Pergamon Press. Peklenik, J., 2003, Cybernetic Structures, Networks, and Adaptive Control of Work Systems in Manufacturing, in Manufacturing Technologies for Machines of the Future, Dashchenko, A. (Editor), Springer Verlag, 331-363. Mitrofanov, S.P., 1967, Scientific principles of group technology, National Lending Library. Opitz, H., 1970, A classification system to describe workpiece, Pergamon Press. Burbidge, J.L., 1989, Production Flow Analysis for Planning Group Technology, Clarendon Press. Wild, R., 1972, Mass production management: the design and operation of production flow-line systems, Wiley. Ohno, T., 1988, Toyota Production System: Beyond Large-Scale Production, Productivity Press. Merchant, M.E., 1961, The manufacturing system concept in production engineering research, Annals of the CIRP, 10/1:77-83.

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