Operational Excellence in The Process Industries

Operational Excellence in the
Process Industries
Staying Profitable through the Downturn
August 2009
Matthew Littlefield, Mehul Shah
Operational Excellence in the Process Industries: Staying Profitable through
the Downturn
Page 2
Executive Summary
Executives in the process industries have been witness to many changes Research Benchmark
over the past year; including the collapse of both price and demand in many Aberdeen’s Research
critical commodity markets. In industries where profitability is often based Benchmarks provide an in-
on high volume and low margins; the impact of increased variability in prices depth and comprehensive look
and final demand can be especially penal. This new research identifies how into process, procedure,
process manufacturers can respond and achieve Best-in-Class performance. methodologies, and
technologies with best practice
identification and actionable
Best-in-Class Performance recommendations
Aberdeen used the following five key performance criteria to distinguish
Best-in-Class companies:
· 89% Overall Equipment Efficiency (OEE)
· 96% Manufacturing schedule compliance
· +7% Operating margin versus plan
· 98% Perfect order
· 1% Raw material variance
Competitive Maturity Assessment

Survey results show that the firms enjoying Best-in-Class performance "We have assembled a cross
shared several common characteristics: functional energy reduction
committee. This committee is
· Best-in-Class process manufacturers are over twice as likely as
working toward optimizing off
Laggards to standardize optimization processes in manufacturing peak consumption, reducing
operations across the enterprise overall consumption of natural
· Best-in-Class process manufacturing executives are more than two- gas, water and electricity. The
times as likely to have real-time visibility into manufacturing committee has also brought in
outside energy experts to help
operations as Laggards
the process along. We
· Best-in-Class process manufacturers are nearly twice as likely as anticipate significant savings in
underperforming manufacturers to be focused on energy efficiency this fiscal year."
~ Ron Bedard, Vice President,
Required Actions Operations, Engineering and
Maintenance, Lakeside Steel
In addition to the specific recommendations in Chapter Three of this
report, to achieve Best-in-Class performance, companies must:
· Focus on using energy data in operational decision making to
optimize efficiency and profitability
· Provide role based visibility and well defined responsibility in the
case of an adverse event, and use automated work-flows to enable
optimal decision making in real time
· Provide real-time interoperability between critical systems to gain
visibility between different functional areas, including: design,
manufacturing, supply chain, and financials
© 2009 Aberdeen Group. Telephone: 617 854 5200

www.aberdeen.com Fax: 617 723 7897
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Table of Contents
Executive Summary....................................................................................................... 2
Best-in-Class Performance..................................................................................... 2
Competitive Maturity Assessment....................................................................... 2
Required Actions...................................................................................................... 2
Chapter One: Benchmarking the Best-in-Class.................................................... 4
Business Context ..................................................................................................... 4
The Maturity Class Framework............................................................................ 5
The Best-in-Class PACE Model ............................................................................ 6
Best-in-Class Strategies........................................................................................... 7
Chapter Two: Benchmarking Requirements for Success................................... 9
Competitive Assessment........................................................................................ 9
Capabilities and Enablers......................................................................................10
Chapter Three: Required Actions .........................................................................16
Laggard Steps to Success......................................................................................16
Industry Average Steps to Success ....................................................................16
Best-in-Class Steps to Success............................................................................17
Appendix A: Research Methodology.....................................................................18
Appendix B: Related Aberdeen Research............................................................20
Figures
Figure 1: Market Pressures in the Process Industries .......................................... 4
Figure 2: Strategic Actions for Responding to Market Pressures...................... 7
Figure 3: Technology Functionality for Process Manufacturers .......................15
Figure 4: Recipe Management Drill Down ............................................................15
Tables
Table 1: Top Performers Earn Best-in-Class Status.............................................. 6
Table 2: The Best-in-Class PACE Framework ....................................................... 6
Table 3: The Competitive Framework...................................................................10
Table 4: The PACE Framework Key ......................................................................19
Table 5: The Competitive Framework Key ..........................................................19
Table 6: The Relationship Between PACE and the Competitive Framework
.........................................................................................................................................19

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Chapter One:
Benchmarking the Best-in-Class
Business Context
Executives in the process industries are generally managing enterprises that Fast Facts
are asset intensive, at the mercy of global commodity markets, and face As compared to Laggards Best-
both low margins and high demand variability. Given these industry in-Class enterprises realize:
characteristics and the state of today's economy, still rife with uncertainty,
Ö 27% higher OEE
companies must find new ways to reduce operational costs as a means to
stay viable; while continuing to ensure that these cost cutting measures are Ö 21% higher manufacturing
not at the expense of gaining new market share or operational excellence. compliance
In Aberdeen Group's September 2008 Benchmark Report, Operational Ö 23% higher perfect order
Excellence in the Process Industries, research indicated that almost all process Ö 3% lower raw material
manufacturers have a nearly single-minded focus on cost reduction.
variance
However, only a small percentage of organizations are achieving
demonstrable benefits due to initiatives in operational excellence. Last year's
report also identified specific technologies and business capabilities that
supported initiatives in operational excellence and were correlated to actual
performance gains.
This year's report will examine how the pressures faced in the process
industries have changed over the past year and outline the strategic actions
which Best-in-Class companies are now taking to address these pressures. It
will then show how the Best-in-Class are driving competitive advantages in
their operations through a specific set of business capabilities and
technology enablers. The report will end with specific recommendations for
manufacturers to improve performance and achieve operational excellence.
Pressures Affecting Manufacturers in the Process Industries

As Figure 1 shows, the top pressure faced by manufacturers, with almost a
two to one margin, is the need to reduce operating costs.
Figure 1: Market Pressures in the Process Industries
Need to reduce operating costs 70%
Respond to demand uncertainty 42%
Need to reduce process operations variability 31%
Global competition from low cost sources 27%
Regulatory compliance (FDA, EPA, OSHA,
19% All Respondents
All Respondents
PHMSA, EU)
0% 20% 40% 60% 80%

Percentage of Respondents, n=91
Source: Aberdeen Group, August 2009
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With the need to reduce costs as top of mind for the majority of process
manufacturers (it was the top pressure last year as well with 76% of the
population choosing it as a top two pressure) the need for process
manufacturers to focus on operations is clearly evident and does not
represent a significant change from last year. However, the process
industries have seen a significant change since last year in the second most
prevalent pressure, responding to demand uncertainty; which moved from
fifth place last year with 18% of the population choosing it as a top two
pressure to second place this year with 42% of the population.
The take-away here is that it has been a decade or more since
manufacturers in a number of the process industries, like oil and gas, bulk
chemical, metals, mining, minerals, and others have had to deal with real
demand uncertainty. The previous mode of operation was "if you produce it
they will buy it," which just doesn't work in today's economic conditions.
This change in pressure is having a dramatic impact on the markets at large,
as well as on individual organizations. We are seeing changes in how
companies think about: the impact of capacity constraints, how maintenance
and asset up-time impacts operations, how supply chain planning impacts
process operations, and how new product introductions impact market
share. The remainder of this report will be a deep dive into these issues -
but first a base line of actual operational performance has to be set.
The Maturity Class Framework

Aberdeen used five key performance criteria to distinguish the Best-in-Class
from Industry Average and Laggard organizations:
· Operational Equipment Effectiveness (OEE) is defined as
availability x performance x quality
· Manufacturing schedule compliance is defined as the
percentage of work completed per schedule
· Perfect orders is defined as the share of orders delievered100%
complete and on-time with no errors
· Raw material variance, (given final production totals) is defined
as the actual material usage / theoretical material usage
· Operating margin versus corporate plan is defined as the
difference between actual operating margin and budgeted operating
margin
These metrics not only provide a basis for measuring internal operations
but also serve to ensure that while manufacturing operations are optimized
they are still satisfying the business need to keep share holders satisfied with
exceeding corporate performance targets, and customers satisfied by
delivering what is promised on time, complete, and with no defects.
Respondents were divided among three categories based on their aggregate
performances in these five metrics. Table 1 displays the average
performance of Best-in-Class, Industry Average, and Laggard organizations.
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Table 1: Top Performers Earn Best-in-Class Status

Definition of
Mean Class Performance
Maturity Class
§ 89% OEE
Best-in-Class: § 96% manufacturing compliance
Top 20%
§ +7% operating margin versus plan
of aggregate
performance scorers § 98% perfect order
§ 1% raw material variance
§ 79% OEE
Industry Average: § 91% manufacturing compliance
Middle 50%
§ +3% operating margin versus plan
of aggregate
§ 62% OEE
Laggard: § 75% manufacturing compliance
Bottom 30%
§ -1% operating margin versus plan
of aggregate
The Best-in-Class PACE Model

Reducing manufacturing operating costs in the face of high demand
uncertainty and Wall Street scrutiny requires a comprehensive set of
strategies, business capabilities, and technology enablers aimed at
synchronizing operations. Table 2 details how the Best-in-Class are
approaching their business to achieve superior performance.
Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities Enablers
§ Need to reduce § Synchronize § Standardize measurements § Data Historians
operating costs operational of KPIs across enterprise § Design (PLM) - Recipe Management,
performance with § Standardized processes for Specification Management, Process
corporate response to adverse events Simulation and Modeling
performance § All levels of the organization § Make (MOM) Advanced Process Control,
objectives have role based visibility and Batch Optimization, Scheduling & Dispatch,
§ Improve role- defined responsibility in the Traceability, WIP Optimization
based visibility case of an adverse event § Maintain (EAM) Spare Parts, Preventive
into § Cross-functional continuous Maintenance, Condition Based Monitoring
manufacturing improvement teams are § Deliver (SCM) Advanced Planning and
operations responsible for improving Scheduling, Demand Planning and
§ Reduce energy operational and corporate Forecasting, Inventory Management
consumption performance § ERP
§ Analytics and Dashboards

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Best-in-Class Strategies
Figure 2 shows that there is a difference between the strategic actions most
likely to be taken by the Best-in-Class and those strategic actions being
taken by underperforming organizations.
Figure 2: Strategic Actions for Responding to Market Pressures

Synchronize operational performance with 65%
corporate performance objectives 56%
Improve role based visibility into manufacturing 47%
operations 38%
35%
Increase energy efficiency
19%
29%
Focus on raw material management
45%
24% BestinClass
BestinClass
Optimize product mix across operations 36% All Others
0% 10% 20% 30% 40% 50% 60% 70%
When the top three most prevalent strategic actions are examined, it is
clear that these are all more likely to be taken by the Best-in-Class than
other manufacturers. It is also clear that these three strategic actions are
directly focused on addressing the top two market pressures highlighted in
the last section; reducing costs and high demand uncertainty. However, it is
interesting to note that the bottom two strategic actions also, to some
degree, address these same two market pressures. So why do we see such a
dramatic difference? One can reason that it has a lot to do with maturity
and how an organization connects operational and corporate performance.
In regards to raw material management, this is often low hanging fruit for an
organization and it can be safely assumed that most Best-in-Class
organizations have established successful business processes for effectively
managing raw materials, minimizing scrap, and maximizing yield. When
following this reasoning, the implication is not to ignore raw material
management, just make sure it is taken care of and then move on to more
impactful areas of the business. Raw material management is really a
necessary requirement for pursuing any Best-in-Class or operational
excellence journey and should not be ignored.
Optimizing product mix is an important strategy for a lot of organizations.
However, the value of this strategy to the organization has diminished as
global demand has diminished. When factories are operating at full capacity,
product mix can be absolutely essential for maintaining margins, however
when flexibility is infused to the factory with a lack of demand, optimization
is often overkill when good enough is exactly that. For organizations with

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this flexibility, strategies around visibility, synchronization or energy

efficiency may yield better results.
Aberdeen Insights — Strategy
Reducing the energy intensity of the process industries is an untapped

resource in both the quest for profits and social responsibility. Not
surprisingly, improving energy efficiency is the strategy that is more
differentiated by Best-in-Class manufacturers than any other. However, it
is still emerging as only 35% of even the Best-in-Class now have it is a top
strategic action. For many, this strategic action can still be a source of
competitive advantage.
For more information please see Aberdeen's April 2009 report Energy
Management: Driving Value in Industrial Environments, which reaffirms the
importance of focusing on energy efficiency, especially in the process
industries. In the next chapter, a number of business capabilities
specifically tied to enabling increased energy efficiency will be highlighted.
In the next chapter, we will see what the top performers are doing to
achieve these gains.

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Chapter Two:
Benchmarking Requirements for Success
The capabilities Best-in-Class companies achieve are giving them a Fast Facts
competitive advantage over their peers. Aberdeen uses a competitive As compared to Laggards, Best-
framework to describe these capabilities with respect to Best-in-Class in-Class companies are:
performance.
Ö Two-times as likely to
Case Study — DuPont implement Manufacturing
Operations Management
DuPont is a world leader in using science to create advanced materials (MOM) solutions
and chemicals to provide sustainable solutions to industry and consumers Ö Three-times as likely to
worldwide. Operating in more than 70 countries, DuPont offers a wide implement Enterprise Asset
range of innovative products and services for markets including Management (EAM)
agriculture, nutrition, electronics, communications, safety and protection, solutions
home and construction, transportation and apparel. Ö Two-times as likely to
DuPont has also recognized the importance of operational excellence as implement Supply Chain
essential to corporate success. DuPont strives to bring best practices to Management (SCM)
solutions
its operations in over 200 worldwide facilities to drive business
productivity by focusing on three main tenets: asset productivity, capital
effectiveness, and operational risk management. To do this, they provide
executive strategic clarity to all departments, instill a culture of
continuous improvement, and utilize advanced operational capabilities
within production. DuPont also has implemented real-time production
visibility and optimization coupled with strong integration between
enterprise systems connecting the supply chain with manufacturing and
other business systems while at the same time taking a holistic quality
approach throughout.
According to Farshad Amir, the Instrumentation and Control System
Technology Manager, “At DuPont, our pursuit of operational excellence
is centered around the implementation of best practices that use the
latest process optimization technologies to measure and monitor
production performance in real-time. Our solutions help us reduce
variability and improve product quality, allowing us to reduce the time-
to-market and better manage costs.”
Competitive Assessment
Aberdeen used the Best-in-Class framework in the previous chapter to
study the capabilities which set the Best-in-Class apart from Industry
Average and Laggard companies. In addition to having common performance
levels, each class also shared capabilities in five key categories: (1) Process
(standard procedures in place to run the business effectively); (2)
Organization (how members from different parts of the organization
work together to drive corporate performance); (3) Knowledge
Management (What data is used as actionable intelligence); (4)

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Technology (the software and tools which are needed to enable superior
performance); and (5) Performance Management (how organizations
use data for decision making to improve operations).
These characteristics shown in the following section serve as a guideline for
best practices, and correlate directly with Best-in-Class performance across
the key metrics of the study.
Capabilities and Enablers

Manufacturers in the process industries are facing two major competing
pressures. On one hand these organizations are attempting to reduce
operational cost, while on the other, there is a need to add flexibility due to
high degrees of demand uncertainty. To address these opposing market
pressures, Best-in-Class organizations are more likely to take three critical
strategic actions centered on synchronized operations, visibility, and energy
efficiency.
At face value, each of these strategies may seem straight forward in
implementation, but for many manufacturers it is often a surprising struggle
to drive actual business value from these strategies, which are core to any
initiative in operational excellence. In this section, we will examine the
specific business capabilities and technology enablers driving this business
value for the Best-in-Class. A summary of these capabilities and enablers can
be found in Table 3.
Table 3: The Competitive Framework

Best-in-Class Average Laggards
Standardized measurement of KPIs across the enterprise
88% 73% 33%
Standardized processes for response to adverse events
Process 71% 64% 35%
Standardized processes for optimizing operational
performance across manufacturing operations
73% 43% 26%
All levels of the organization have role visibility and
defined responsibility in the case of an adverse event
56% 53% 26%
Cross-functional continuous improvement teams are
Organization responsible for improving operational performance
76% 63% 29%
Cross-functional continuous improvement teams are
responsible for improving corporate performance
50% 47% 13%
Knowledge Automated data collection
59% 50% 38%

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Best-in-Class Average Laggards

Measure carbon emissions
38% 17% 17%
Measure energy consumption
80% 62% 29%
Energy consumption and costs used as KPI for operational
decision making
63% 32% 17%
Performance Real time non-conformance alerts used in decision making
Management 53% 38% 35%
Executives have real-time visibility into the operational
performance of manufacturing operations
56% 51% 22%
Technology currently used to support operational
excellence initiatives:
§ 60% Data § 47% Data § 36% Data
Historians Historians Historians
Technology § 42% MOM § 40% MOM § 14% MOM
§ 39% EAM § 37% EAM § 9% EAM
§ 30% PLM § 29% PLM § 14% PLM
§ 80% ERP § 74% ERP § 58% ERP
§ 75% SCM § 67% SCM § 50% SCM
Process
Best-in-Class companies are standardizing the measurements of Key
Performance Indicators (KPIs). These organizations are almost three-times ”As part of our strategic plan,
we decided to roll out one
as likely as Laggards to do so. In an effort to synchronize operational and
solution to all of our 52
corporate performance and more easily provide visibility into operations, manufacturing locations to
the entire business must use the same yardsticks. Large multinationals, combine product formulation,
especially with manufacturing operations across the world, have challenges manufacturing and business
to make sure that performance in all plants is measured in the same way so systems. With one standard
that the best business decisions can be made for the organization. When system, we expect to be able
executives have the same understanding of how operations are performing to provide much better
in each location, they can take steps to address any shortcomings and customer service knowing we
ensure that Laggard plants improve performance to meet corporate goals. have full visibility into our
financials and operations.”
The Best-in-Class also are also more than twice as likely as Laggards to
standardize how they respond to adverse events, such as equipment failure ~ Jeff Kadlec, Head of
Information Technology,
and operational emergencies. Each role in the organization should know Ridley Inc.
how to respond to an adverse event so that interruptions in production are
minimized, loss of in-process materials is minimized, and operational
efficiency is not drastically affected. Standardization can include how to
contact and mobilize members of different teams to solve complex
operational problems, escalation procedures, and how to conduct plant-
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wide emergency shutdowns to protect plant equipment and ensure

employee safety. This is probably one of the reasons Best-in-Class
companies are able to realize 10% and 27% higher OEE as compared to
Industry Average and Laggard manufacturers, respectively.
Finally, Best-in-Class organizations are again over twice as likely as Laggards
to standardize how production processes are optimized. This is important
for many reasons - but one reason that's particularly timely is the inclusion
of energy prices and energy use at the unit level in the production
optimization process. As more organizations are implementing enterprise-
wide energy management programs, a key component of program success is
enterprise wide deployment and the sustainment of these process
improvements over the long term. Both of which are greatly enhanced by
using a standardized approach for changing the way energy is included in the
production optimization process.
Organization
Best-in-Class companies help drive enterprise wide visibility by establishing
role based visibility and defined responsibility in the case of an adverse event
within the organization. In fact, the Best-in-Class are over twice as likely as
Laggards to have implemented this capability, which allows the Best-in-Class
to more easily improve metrics that depend on how quickly and effectively
adverse events are dealt with, such as perfect orders and OEE.
The Best-in-Class are also more likely to be instituting a cultural shift within
the company to help improve performance and meet objectives. They
institute cross-functional continuous improvement teams to improve
operational performance, but they also recognize that they should couple
this with helping employees understand how individual actions affect
corporate performance. Best-in-Class companies are over three-times as
likely as Laggards to put in place cross functional teams to improve
corporate performance. Establishing such an organizational structure is
critical for Best-in-Class companies to effectively execute the top strategy,
synchronizing operational performance to corporate performance, as shown
in Figure 2.
Knowledge and Performance Management

Best-in-Class organizations are more likely to automate data collection
across operations. Additionally, the Best-in-Class are also more likely than
Laggards to include energy and carbon data in the set of data collected
automatically, 2.8-times and 2.2-times as likely, respectively. This level of
automation allows manufacturers to improve the validity of collected data,
more effectively use historical data to optimize current decision making, and
deliver data in real-time to decision makers as actionable intelligence. By
adding energy and carbon data to the overall set of automatically collected
data also allows Best-in-Class manufacturers to include more of the relevant
constraints in the optimization process, especially those that are often
overlooked and often result in sub-optimal decision making.

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Tightly coupled with how Best-in-Class organizations manage knowledge is

how they manage performance. Interestingly, when we look at what
companies are doing with energy data, we see that there has been a big up-
tick since last year in the Best-in-Class using this data in production
optimization processes. Last year only 48% of the Best-in-Class were using
energy consumption and costs as a KPI for decision making, while this year
63% of the Best-in-Class are - which is nearly a 50% increase year over year.
Perhaps more than any other, the deployment of this capability is
responsible for the success of strategies around increasing energy efficiency.
Additionally, the Best-in-Class are using this energy data, along with other
automatically collected production data to drive non-conformance alerts to
improve decision making. This allows organizations to reduce the response
time to non-conformance and improve the decision making when such
events occur. Energy cost is a big percentage of the total operational cost in
most of the process plants. Including energy data in the optimization
process and using energy consumption as a KPI for decision making will
enable companies to reduce total operating costs; a pressure driving the
majority of process manufacturers.
Finally, the Best-in-Class are better focused on bringing operational metrics
and information to the executive level through real-time visibility, which
puts these organizations in a good position to compare performance across
a portfolio of plants. The Best-in-Class are more than twice as likely as
Laggards to do this. However, since last year we have seen a large up-tick in
how the Industry Average have adopted this capability. The Industry
Average are now almost as likely as the Best-in-Class to have adopted this
capability, where last year they were over 50% less likely that the Best-in-
Class to have adopted this capability. Such an improvement in adoption is a
strong move for the Industry Average. This capability is strongly aligned with
the strategic action of improving enterprise-wide visibility and now it is
really an issue of execution for many of the Industry Average organizations.
Technology
The most highly adopted enterprise technology, ERP, has also been shown
to enable Best-in-Class performance. ERP has been shown repeatedly,
across a number of different Aberdeen research initiatives, to enable Best-
in-Class performance. ERP should be used by process manufacturers to
form the basis of financial and operational control. However, perhaps even
more importantly, it should also form the basis of interoperable business
processes that span product design, process design, manufacturing
operations, asset reliability, and supply chain performance.
With a stable ERP implementation already complete, especially across global
fortune 1,000 companies, many Best-in-Class process manufacturers have
moved on to focus on many of the specific business areas highlighted earlier.
Supply Chain Management (SCM) is the most adopted of these technology
solutions, which is helping many manufacturers to more tightly couple the
supply chain planning and manufacturing operations, especially in industries

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like food and beverage where this can turn into a complex process very
quickly. SCM is also helping Best-in-Class manufacturers to optimize
distribution networks and delivery, which can often be the difference
between profitability or insolvency for process industries with a complex
distribution network like the combined up stream and down stream oil and
gas supply networks.
At lower adoption rates we are also seeing the Best-in-Class being more
likely to adopt technology across the design, make, and maintain business
processes. For the process industries, PLM is often more focused on
business issues like complex recipe management, packaging and labeling
management, or modeling and simulation for both products and processes.
Manufacturing Operations Management (MOM) is generally deployed by
processes manufacturers to help with issues around process control and
optimization, shop-floor traceability, work-in-process inventory
optimization, and quality management. Finally, EAM helps process
manufacturers optimize KPIs like Return on Asset (ROA) and OEE by
improving the control of spare parts inventories, incorporating reliability
centered strategies to maintenance management, and enhancing
collaboration between operations and maintenance.
Finally, given the proliferation of automation in the process industries, it
should not be a surprise to see high levels of adoption in data historians.
Data historians allow process manufacturers to manage large volumes of
collected data, which in turn helps deliver a number of the business
capabilities cited above regarding contextualizing real-time data.
Contextualizing current data is heavily dependent on understanding what
has happened previously in similar situations and how a particular process
has trended over time, all of which are all enabled by data historians.
Enablers
In our analysis of specific technology functionalities enabling Best-in-Class
performance it was found that these functionalities actually span the plan,
make, maintain, and deliver, business processes fairly evenly without any
clear winner. Therefore, in assessing where any organization should invest,
it is important to first understand which of these processes are most
important for success and where gaps in technology investment currently
exist. For example, in companies where traceability is a big issue, like
pharmaceuticals or food and beverage, investments should be focused on
shop floor control. However, for companies that are highly asset intensive,
like oil and gas or utilities, investment may be better served by improving
the performance of maintenance operations. Finally, for companies with high
demand uncertainty and complex supply chains, like consumer products,
investment should be focused in supply chain planning. Figure 3 highlights
some of the technology functionalities that are most likely to enable Best-in-
Class performance.

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Figure 3: Technology Functionality for Process Manufacturers
79%
Preventive Maintenance
58%
39%
60%
Advanced Planning and Scheduling
44%
23%
54%
WIP Inventory Optimization 35%
19%
53%
Dashboards 32%
17%
50% BestinClass
BestinClass
Energy Management 22% Industry Average
9% Laggard
0% 20% 40% 60% 80% 100%

Aberdeen Insights — Recipe Management
In addition to the technology functionalities that were highlighted in the

previous section, recipe management is also correlated with achieving Best-in-
Class performance and is a very important capability for batch processing
industries. Figure 4 provides a drill down of the specific characteristics of
recipe management that are most likely to enable Best-in-Class performance.
In essence, the capabilities in Figure 5 help batch processors either improve
control between sequential batches being run in the same plant or in the
control of batches being run across multiple plants. Accomplishing this
improves overall product quality, margins, and scrap rates.
Figure 4: Recipe Management Drill Down
88%
Change control for recipe parameters 52%
24%
75%
Manage substitute materials for a recipe 63%
12%
67%
Master recipe used across multiple plants 46%
29% BestinClass
BestinClass
Industry Average
63% Laggard
Design system maintains master recipes 54%
13%
0% 20% 40% 60% 80% 100%


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Chapter Three:
Required Actions
Whether a company is trying to move its performance from Laggard to Fast Facts
Industry Average, or Industry Average to Best-in-Class, the following Best-in-Class companies are:
actions will help spur the necessary performance improvements:
Ö Two-times as likely as
Laggards to standardize
Laggard Steps to Success process to respond to a
· Executives need to focus on operational excellence. adverse event
Organizationally, focus has to start right at the top. Executives can Ö Two-times as likely as
not fear their operations but rather must view them as a Laggards to use energy
competitive weapon. This attitude should flow through the consumption and cost as KPI
organization and drive operational excellence across the plan, make, for decision making
maintain, and deliver business processes.
Ö 51% more likely than
· Extend manufacturing best practices across the enterprise. Laggards to use real-time
This can take the form of standardized production optimization, KPI non- conformance alerts for
measurement, or adverse event management processes across the decision making
enterprise. Such best practices sharing is critical for gaining the full Ö Two-times as likely as the
benefits of further investment in enterprise wide MOM. Best-in- Industry Average to
Class manufacturers are over twice as likely as Laggards to have automatically measure
extended a number of these different manufacturing best practices carbon emissions
across the enterprise.
· Begin automating data collection and use it as the basis of
data driven decision making. Automated data collection is the
basis for creating the real-time enterprise, and significantly
differentiates top performers with Best-in-Class and Industry
Average manufacturers being 18% and 31% more likely than
Laggards, respectively, to have implemented automated data
collection. The set of data collected should also be extended to
include both energy and emissions data, which are both often left
out of production optimization calculations.
Industry Average Steps to Success

· Establish cross-functional continuous improvement teams
that focus on improving enterprise quality processes. The
Best-in-Class are already well ahead in a cultural shift towards
operational excellence. A key to this cultural transformation is
cross-functional continuous improvement teams being established
to improve both operational and corporate performance. The Best-
in-Class and Industry Average are over twice as likely as Laggards to
have already established each.
· Focus on creating visibility into manufacturing operations
as a strategic initiative for the organization. From a strategic
perspective, visibility will be critical for many other higher level
strategic actions and business capabilities that often presuppose
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visibility into manufacturing operations. Best-in-Class manufacturers

are 24% more likely than underperforming organizations to have
role-based manufacturing visibility as a top strategic action.
· Leverage ERP as the backbone of financial and operational
control. Eighty percent (80%) of the Best-in-Class already have
deployed ERP, which puts any competing organization with out such
a deployment at a severe disadvantage. Just as with the previous
recommendation around visibility, ERP forms the basis of a
technology investment and is often a necessary requirement for
extending the use of technology into other critical areas of the
business like design, manufacturing, and the supply chain.
Best-in-Class Steps to Success

· Include energy efficiency as a top strategic action. Only 35%
of Best-in-Class manufacturers are focusing on energy efficiency as a
top strategic action - but this is almost twice the share of Industry
Average and Laggard manufacturers. This allows Best-in-Class
organizations to stay a step ahead of the competition in both cost
and social responsibility. It is also effective if these energy efficiency
initiatives are incorporated to already existing operational
excellence initiatives, often giving a needed jolt of excitement.
· Extend technology investments beyond ERP to PLM, MOM,
EAM, and SCM. With an enterprise-wide ERP system in place,
begin to complement legacy investments and fill critical gaps in
functionality. Focus on establishing which business processes are
most critical for the organizations, plan, make, maintain, or deliver,
and start there. All of these extensions are more than twice as likely
to be deployed by the Best-in-Class as Laggard companies.
· Include energy costs and consumption while optimizing
production. To reduce total production costs, Best-in-Class
companies need to continuously monitor energy costs and
consumption to utilize this data in production optimization. This will
ensure that production is truly optimized. The Best-in-Class are
almost twice as likely as the Industry Average to have already
deployed this capability.
Aberdeen Insights — Summary
Improve market facing deliverables. Of course focus on internal costs and

operational excellence - but the ultimate goal has to always be improving
market facing performance like profitability, perfect orders, and new product
introductions. By achieving Best-in-Class performance in operational
excellence, organizations are much more likely to achieve a competitive
advantage in these regards. Best-in-Class manufacturers enjoy perfect order
levels that outperform Laggards by 30% and operating margins that are 7
points above plan as compared to Laggards that missed by 1%.

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Appendix A:
Research Methodology
Between July and August 2009, Aberdeen examined the use, the Study Focus
experiences, and the intentions of 110 enterprises in the process industries Responding manufacturing
regarding how they achieve operational excellence. executives completed an online
survey that included questions
Aberdeen supplemented this online survey effort with interviews with select designed to determine the
survey respondents, gathering additional information on strategies, following:
experiences, and performance results.
Ö The pressures faced in
Responding enterprises included the following: running efficient operations
· Job title / function: The research sample included respondents with Ö The strategic actions taken
the following job titles: Manager (33%); Senior Management (CxO, to address these pressures
President, Vice President) (19%); Director (18%); Staff (13%);
Ö Top technology enablers
Consultant (16%), and other (1%) used to improve operational
· Industry: The research sample included respondents exclusively from performance for both
the process industries representing the following segments: continuous operations and
chemicals (30%), oil and gas (20%), pharmaceutical and batch operations
biotechnology (19%), metals, mining and minerals (13%), food and Ö The benefits that have been
beverage (12%), paper, lumber and timber (5%), and other energy derived from technology
(4%). adoption and integration
· Geography: Fifty-eight percent (58%) of respondents were from The study aimed to identify
North America. Remaining respondents were from the Asia-Pacific emerging best practices for
region (19%); Europe (15%); and other (8%). process manufacturing
operations and to provide a
· Company size: Thirty-six percent (36%) of respondents were from framework by which readers
large enterprises (annual revenues above US $1 billion); 31% were could assess their own
from midsize enterprises (annual revenues between $50 million and capabilities.
$1 billion); and 33% of respondents were from small businesses
(annual revenues of $50 million or less).
· Headcount: Forty-eight percent (48%) of respondents were from
large enterprises (headcount greater than 1,000 employees); 30%
were from midsize enterprises (headcount between 100 and 999
employees); and 22% of respondents were from small businesses
(headcount between 1 and 99 employees).

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Table 4: The PACE Framework Key

Overview
Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities,
and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as
follows:
Pressures — external forces that impact an organization’s market position, competitiveness, or business
operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive)
Actions — the strategic approaches that an organization takes in response to industry pressures (e.g., align the
corporate business model to leverage industry opportunities, such as product / service strategy, target markets,
financial strategy, go-to-market, and sales strategy)
Capabilities — the business process competencies required to execute corporate strategy (e.g., skilled people,
brand, market positioning, viable products / services, ecosystem partners, financing)
Enablers — the key functionality of technology solutions required to support the organization’s enabling business
practices (e.g., development platform, applications, network connectivity, user interface, training and support,
partner interfaces, data cleansing, and management)
Table 5: The Competitive Framework Key

Overview
The Aberdeen Competitive Framework defines enterprises In the following categories:

as falling into one of the following three levels of practices Process — What is the scope of process
and performance: standardization? What is the efficiency and
Best-in-Class (20%) — Practices that are the best effectiveness of this process?
currently being employed and are significantly superior to Organization — How is your company currently
the Industry Average, and result in the top industry organized to manage and optimize this particular
performance. process?
Industry Average (50%) — Practices that represent the Knowledge — What visibility do you have into key
average or norm, and result in average industry data and intelligence required to manage this process?
performance. Technology — What level of automation have you
Laggards (30%) — Practices that are significantly behind used to support this process? How is this automation
the average of the industry, and result in below average integrated and aligned?
performance. Performance — What do you measure? How
frequently? What’s your actual performance?
Table 6: The Relationship Between PACE and the Competitive Framework

PACE and the Competitive Framework – How They Interact
Aberdeen research indicates that companies that identify the most influential pressures and take the most
transformational and effective actions are most likely to achieve superior performance. The level of competitive
performance that a company achieves is strongly determined by the PACE choices that they make and how well they
execute those decisions.

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Appendix B:
Related Aberdeen Research
Related Aberdeen research that forms a companion or reference to this
report includes:
· Operational Excellence in the Process Industries September, 2008
· Energy Management: Driving Value in Industrial Environments April,
2009
· ERP Plus in Process Industries March, 2008
· Manufacturing Operations Management: The Next Generation of
Manufacturing System; January, 2008
Information on these and any other Aberdeen publications can be found at
www.aberdeen.com.
Authors: Matthew Littlefield, Sr. Research Analyst, Manufacturing Operations

and Industrial Automation (matthew.littlefield@aberdeen.com); Mehul Shah,
Research Analyst, Manufacturing Operations and Industrial Automation
(mehul.shah@aberdeen.com)
Since 1988, Aberdeen's research has been helping corporations worldwide become BestinClass. Having
benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide
organizations with the facts that matter — the facts that enable companies to get ahead and drive results. That's why
our research is relied on by more than 2.2 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of
the Technology 500.
As a HarteHanks Company, Aberdeen plays a key role of putting content in context for the global direct and targeted
marketing company. Aberdeen's analytical and independent view of the "customer optimization" process of Harte
Hanks (Information – Opportunity – Insight – Engagement – Interaction) extends the client value and accentuates the
strategic role HarteHanks brings to the market. For additional information, visit Aberdeen http://www.aberdeen.com
or call (617) 7237890, or to learn more about HarteHanks, call (800) 4569748 or go to http://www.hartehanks.com.
This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies
provide for objective factbased research and represent the best analysis available at the time of publication. Unless
otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be
reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by
Aberdeen Group, Inc. (071309b)


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Operational Excellence in the

Competitive Maturity Assessment

© 2009 Aberdeen Group. Telephone: 617 854 5200

© 2009 Aberdeen Group. Telephone: 617 854 5200

Pressures Affecting Manufacturers in the Process Industries

Figure 1: Market Pressures in the Process Industries

0% 20% 40% 60% 80%

The Maturity Class Framework

Table 1: Top Performers Earn Best-in-Class Status

The Best-in-Class PACE Model

Table 2: The Best-in-Class PACE Framework

Source: Aberdeen Group, August 2009

Figure 2: Strategic Actions for Responding to Market Pressures

0% 10% 20% 30% 40% 50% 60% 70%

Source: Aberdeen Group, August 2009

© 2009 Aberdeen Group. Telephone: 617 854 5200

this flexibility, strategies around visibility, synchronization or energy

Aberdeen Insights — Strategy

Reducing the energy intensity of the process industries is an untapped

© 2009 Aberdeen Group. Telephone: 617 854 5200

© 2009 Aberdeen Group. Telephone: 617 854 5200

Capabilities and Enablers

Table 3: The Competitive Framework

© 2009 Aberdeen Group. Telephone: 617 854 5200

Best-in-Class Average Laggards

wide emergency shutdowns to protect plant equipment and ensure

Knowledge and Performance Management

© 2009 Aberdeen Group. Telephone: 617 854 5200

Tightly coupled with how Best-in-Class organizations manage knowledge is

© 2009 Aberdeen Group. Telephone: 617 854 5200

© 2009 Aberdeen Group. Telephone: 617 854 5200

Figure 3: Technology Functionality for Process Manufacturers

0% 20% 40% 60% 80% 100%

Source: Aberdeen Group, August 2009

Aberdeen Insights — Recipe Management

In addition to the technology functionalities that were highlighted in the

Figure 4: Recipe Management Drill Down

0% 20% 40% 60% 80% 100%

Source: Aberdeen Group, August 2009

© 2009 Aberdeen Group. Telephone: 617 854 5200

Industry Average Steps to Success

visibility into manufacturing operations. Best-in-Class manufacturers

Best-in-Class Steps to Success

Improve market facing deliverables. Of course focus on internal costs and

© 2009 Aberdeen Group. Telephone: 617 854 5200

© 2009 Aberdeen Group. Telephone: 617 854 5200

Table 4: The PACE Framework Key

Table 5: The Competitive Framework Key

The Aberdeen Competitive Framework defines enterprises In the following categories:

Table 6: The Relationship Between PACE and the Competitive Framework

© 2009 Aberdeen Group. Telephone: 617 854 5200

Authors: Matthew Littlefield, Sr. Research Analyst, Manufacturing Operations

© 2009 Aberdeen Group. Telephone: 617 854 5200

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