Introduction to

Operational Excellence
 OPERATIONAL EXCELLENCE

• Our performance lags our competition and we must improve our

position in the marketplace
• Capital alone is not the answer, we must create a best in class
manufacturing organization
– Increase the throughput of our plants
– Make it easier for our customers to do business with us
• Driving cultural change is required for success
– Standardized processes
– Training & development; talent management and metrics
– Accountability; a performance driven culture
• Ultimately, we must lower our costs and build customer credibility
 SMURFIT-STONE NEEDS TO IMPROVE
PERFORMANCE TO BE COMPETITIVE
Production per Plant
1,000 – By Company, 2005 –
908 889
900

800 765

700 654
MSF
Shipped 600 546
Per 500
Plant
400

300

200

100

0
Weyerhaeuser Georgia Pacific Temple Inland International Smurfit Stone
Paper
Number of Box 86 54 69 67 130
Plants
Volume (BSF) 78.1 48 52.8 43.8 80.8

*57 plants to close gap, assuming 20% volume loss

Source:Pulp & Paper, June 5, 2006
 EXTERNAL BENCHMARKING DEMONSTRATES
WE ARE NOT RUNNING OUR CORRUGATORS
COMPETITIVELY
100 Smurfit-Stone Corrugators
MLF/MH
45
Only 6 of our corrugators
above competitor's average
40

35
Competitor #1
30

25

20

15

10

0
 ADDITIONALLY, RDC & FFG PERFORMANCE IS
BELOW AVERAGE
Rotary Die Cutter performance
MSF/MH vs. MSF/setup
45

40

TAPPI
35

30 SSCC

25

20

15

10

0
0 20 40 60 80 100 120 140 160 180
 What is Operational Excellence (OpX) ?
 Operational Excellence (OPX) is the way we will Operate our facilities
 Operational Excellence (OPX) focuses on creating and managing a best practice
manufacturing system through its customer centric, performance-based culture
 Operational Excellence is System Wide

• Increasing throughput of our machines

• Driving sustainability with Cultural change
– Standardized processes Capital alone
Getting is
the right
Operational
– Training & development with robust talent management not the answer
people we
focused
excellence
– Focus on metrics and accountability have to execute
(OPX) on the right things
• Building customer credibility – making it easier for our
customers to do business with Smurfit-MBI

Era 0 Era 1 Era 2

“Basic Manufacturing” “Core Manufacturing Excellence” “Enhanced Manufacturing
• Safety • Performance management Excellence”
• Waste • Performance • Supply chain/trailer utilization
• Quality • Set-up process • Maintenance (v 2.0)
• Environmental • Maintenance (v 1.0) • Scheduling (v 2.0)
• Scheduling (v 1.0) • Enhance printing
• Roles and responsibilities • Lean

 Operational Excellence is a Culture transformation for the entire Organization

 Our New Culture holds Accountabilities at all levels of the Organization for Performance &
Results in the areas of: Era 0, Era 1 & Era 2
 This is the way we will Operate our facilities
 OPERATIONAL EXCELLENCE IS AN END-TO-END
TRANSFORMATION THAT INTEGRATES ALL
ELEMENTS OF MANAGEMENT AND OPERATIONS

Operational Excellence (OPX) focuses on creating and managing a best practice

manufacturing system through its customer-centric, performance-based culture

Tools
OPX • Visual management boards
Management • Machine performance logs
System • Standard metrics and targets
Tools
OPX Operating
• OPX System
Playbook
• SSCC SOPs
• Local SOPs Smurfit-Stone Tools
Performance • Role descriptions
Culture • Talent review process
• Leadership development
/ training
 OPX PLAYBOOK IS THE STANDARDIZED SET OF
EXPECTATIONS FOR OUR MANAGERS AND
SUPERVISORS
Table of contents

1. Scheduling
2. Corrugating
3. Converting
4. Maintenance
5. Performance management
6. Roles and responsibilities
7. Safety
8. Quality
9. Waste
10. Environmental
Appendix

Playbook is an operational
guide supported by local
and division SOPs

Source:OPX Playbook
 LESSONS LEARNED DURING PREVIOUS
IMPLEMENTATIONS

• Foundational prerequisites are required

– Safety, quality, and waste fundamentals
– Equipment condition (basics)
– Right people in the right jobs ( talent management, vacancies)

• OPX requires a huge mindset shift for key roles:

– Managers and Supervisors – from “fire-fighting” / expediters to leaders to
which are action driven problem solvers.
– Schedulers – from corrugator centric to system thinking

• Large opportunity for standardization – the “right way” for basic processes

• Changing the habits is difficult

– Many hourly employees are ready to step up and embrace change
– But not everyone can or is willing to make the journey;
– Performance management and accountability is a foundation to change.
 OPERATIONAL EXCELLENCE INSTALLATION
FOLLOWS A 5-STEP APPROACH

1 2 3 4 5
Prepare Diagnose Design Implement
Sustain

Description
• Management • Create • Design • Execute • Check-in
reviews performance end state through plant and follow-on
• Introductory baseline • Create team coaching
training • Prioritize work plan • Replicate • Document
• Technical efforts through all lessons
prerequisites • Establish unit plants in the learned
(machine eval) specific area
• Fill data targets
requests
Duration
2-3 weeks 1 weeks 1 week 8-10 weeks continuous
 Implementation Tools
• Converting
– Performance Logs, SOP, Speed Trials, Setup Audits, Recipe
Cards
• Corrugator
– Performance Logs, Speed Boards by Grade, Starch, Heat,
Splice, Soak, Caliper Checks.
• Maintenance
– No work without a work order, PM Checklist, Cleanup Checklist,
PM Schedule
• Scheduling
– Scorecard, Order Based Scheduling, Cost Trim Solution
• Performance Management
– Shift Handover, Performance Logs, Top 3 Board
 BUILDING AN OPERATIONAL EXCELLENCE
MINDSET

Requirements for success

• Standardized processes
• Prioritized approach – pick the 2-3 important things to work on
and get them right
• Clearly defined performance metrics, targets and expectations
• Clearly defined roles and responsibilities
• Sustainable improvement in throughput
• Focus on continual process improvement
• Empowered and involved work force
• Accountability
 LEADERSHIP EXPECTATIONS FOR
OPERATIONAL EXCELLENCE

1. Do not rely on capital to improve performance

2. There are clear expectations of performance

• OPX defines roles and responsibilities
• There are clear targets through the organization
• Leaders will hold individuals accountable for performance

3. Leadership team is responsible for installing OPX in your plants

• OPX Team is responsible for providing support
• Line leaders are accountable for achieving targets

4. We will be an organization of continual improvement

• Operational performance year-over-year
• Individual’s skills and advancement in the organization, creating
the next generation of leaders
 OPERATIONAL EXCELLENCE IS HOW WE WILL
RUN OUR BUSINESS

The mindsets, principles and practices

encompassed by OPX and described in
the Playbook will become the Smurfit Way
and help us become the safest most
profitable company in the industry.

“ It is my expectation that every employee will not only

understand, by fully embracing the OPX culture.”

John Knudsen