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Justifying MES/MOM Investment:

A Practical Approach

MESA International’s Guidebook for ROI and Justification for MES

Kevin Totherow, US Business Development Manager Schneider Electric and MESA International Board of Directors Member

[email protected]

The power of knowing what MESA KNOWS Copyright 2013, MESA International

Meet the Speaker

Kevin Totherow, MESA International Board of Directors Member Chairman Membership Committee


From optimizing…

Machines/ Processes

Plants/ Business


MESA from an ISA View


Introduction to MESA International

MESA is…

…building bridges-of-understanding from the Plant to the Enterprise

…to drive clarity on the role and value of modern Information Technologies in production operations


How MESA Delivers

Speaking with the Voice of Industry’s Practitioners

Peer -to- Peer

Global Education Program

Points -of-

View

MESA International: Building Bridges-of-Understanding from the Plant to the Enterprise


MESA’s Working Groups

ROI Guidebook Working Group

• Founded in 2010

• Focused on documenting the business case for MES/MOM initiatives, from project identification to benefits and costs identification and analysis

• Open for new members (must join MESA to participate)

• Published MESA ROI Guidebook in May 2014

• Chaired by Darren Riley, Solutions Consultant at Apriso, a division of Dassault DELMIA


Metrics & ROI Working Groups Research History

Need for data

Members want to

know Metrics that

Matter: Metrics, quality matter

Metrics Framework and Guidebook: Core practices

Members form WGs

Metrics for Major Initiatives: Lean, RTE, Quality

Holistic Metrics: Supply chain

Correlating Plant to Business

Performance

Harnessing the Power of Metrics

to Diagnose & Solve WP#35

Liaison to ISO #22400

Plant KPI Standards

begins

Metrics Framework

and Guidebook: 2nd Edition

Metrics Makeover

Contest

Pursuit of Performance

Excellence

ROI WG Formed

MESA Metrics Research Timeline

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

ROI Guidebook

Metrics Maturity Model

WG forms

Members drive new ROI &

Performance Metrics WGs


Mesa Metrics Guidebook: ROI and Justification for MES

• PROJECT DEFINITION – Definition and Assessment

Process – Stakeholder Identification

• BENEFITS IDENTIFICATION &

ANALYSIS – Introduction

• Critical Manufacturing Issues • Estimated Business Impact

– Identifying Business Impact • Increased Revenues • Reduced Costs • Cost Avoidance • Reduced Risk • Qualitative (non-quantified)

Benefits

– Quantifying Benefits • Benefit Timing

– Summary

• Cost Components – Total Life Cycle Costs of Projects – Planning Cycle with TCO – Costs Outside of MES/MOM – Planning, Preparation and

Feasibility Phase • Internal • Services

– Project Development Phase • Hardware – Infrastructure and

Application • Software • Internal Costs


Mesa Metrics Guidebook: ROI and Justification for MES (cont)

• Services and Consulting • Risk Management

– Support Phase • Hardware • Software • Internal Costs • Services and Consulting • Risk Management

– Other Methods of Cost Definition

– Soft Costs for Benefits

• Cost Benefit Analysis – Return on Investment – Payback

– Time-Value of Money • Future Value • Present Value

– Capital Structure • Debt Equity • Owners Equity • Weighted Average Cost of

Capital (WACC)

– Net Present Value – Internal Rate of Return – Modified IRR – Project Go/No Go Criteria – Mutually Exclusive Projects

Analysis – Real Option Method – Capital Budgeting Process


The Illusion “When we finish the project we’re done”

© 2011 Atos Origin. All Rights Reserved.

Need for Project Definition Are we meeting the needs of the plant and the Business?


The Reality: “Progressive Insights” Drive Needed Scope Changes

© 2011 Atos Origin. All Rights Reserved.

Transformation Strategy: Set the Tone for agility and responsiveness


Strategy is: A Starting Point

13

Business Goals

As Is

To Be

Road Map

Gaps


Quick Survey

People Business

Technology


The need for ROI is compelling… But we need to focus on the business and people

People

Business

Technology

……. Governance, not Technology, Drives Measurable Value from MES © 2012 Gartner, Inc.


Improve Time to Value

Governance, not Technology, Drives Measurable Value from MES © 2012 Gartner, Inc.


..to help achieve the business case.

We are struggling

Governance, not Technology, Drives Measurable Value from MES © 2012 Gartner, Inc.


Is it all bad?


Mode Most Used Operational metrics Most Used Business and Financial metrics

Batch

Reportable Health and Safety Incidents

Reportable Environmental Incidents

Throughput

Schedule or production attainment

Capacity utilization

Net operating profit

EBITDA

Manufacturing cost as a % of revenue

Average unit contribution margin

Return on assets / Return on net assets

Continuous


Reportable Environmental Incidents

Number of non-compliance events/year

Percentage planned vs. emergency maintenance work orders

Capacity utilization



Total manufacturing cost per unit excluding materials

EBITDA

Energy cost per unit

Packaged Goods Mixed Mode


OEE

Time to make changeovers

Downtime in proportion to operating time

Throughput



Total manufacturing cost per unit excluding materials

EBITDA

Customer fill rate/ On-time delivery/ Perfect Order %

Metrics at a more granular level

Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics, © MESA International and Cambashi Inc. 2012


MES Is The Path to Better Performance

Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © MESA International and Cambashi Inc. 2012

0% 5% 10% 15% 20%

Manufacturing cost as %of revenue

EBITDA

Higher portion of MES Users achieved at least a 10%improvement

on key financial metrics

MES/MOMUsers

Others


MES delivers value and benefit

Pursuit of Performance Excellence: Business Success through Effective Plant Operations Metrics © MESA International and Cambashi Inc. 2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manufacturingproduction cycle

time

Batch/lot/unit rightfirst time

OEE Reportableenvironmentalincidents/year

Cost of losttime/stoppages

Respondents who improved at least 1% per year on commonly used operational metrics

MES/MOM Users Others


Design and Costs


Importance of Good Design

Requirements1x

Design3-6x

Coding10x

Development Testing15-40x

Acceptance Testing30-70x

Operation40-1000x

SupportR

isk

Acc

um

ula

ted C

ost

System life cycle

High

Low


Costs at each phase of an MES project

Planning Preparation

Feasibility

Development and Deployment

Support and Continuous

Improvement

Software Hardware Services

Internal Risk

Internal and

External

Opportunity Exposure

Resources SMEs

Management

Applications Infrastructure

3Rd party

Servers Clients

Peripherals Network

Infrastructure

Deployment, Consulting

Project, Test

SMEs Training

Operations IT

Help Desk Consulting

SMEs

Training Operations

IT

Opportunity

Opportunity

Accumulated Cost

Risk


Some regularly missed costs!

• Training

• Energy

• Opportunity (cost) of other uses of resources

• Risk (call it future exposure)

• Costs of no action (status quo)

• Soft costs (did we miss the soft benefits)

• Can you think of others?


Defining ROI

• ROI

• Payback


Some others to consider

• Net Present Value (NPV) using your Weighted Average Cost of Capital (WACC)

• Internal Rate of Return (IRR)

• Modified IRR

• Mutual Exclusive Project Determination

• Real Option Method


Key - Organizational Alignment

• Understand corporate objectives and how your project fits supports them

• Ensure you are directly supported by owner/executive of one of these areas/objectives

• Ensure post deployment work process utilization is coordinated outside your department.

• MOM systems touch many departments, work processes, and final metrics.

• Facilitate communication (don’t hide) and bring visibility to your project. If you identified benefits, clear metrics, and have executed, you should be delivering those and visibility is positive. If no one knows your project exists, it will fail.


Summary

• Handle costs outside MES Scope appropriately – ERP, Automation, Process…..

• Establish a framework and baseline for comparison of ROI – Before and After

• Spend time to identify the metrics for benefit – Excess Capacity

• Don’t underestimate the supports costs – Continuous improvement will exceed first use cost

• Speak in terms that finance team understands • Attempt to quantify soft costs and benefits

– They may be what is strategic to your business


• Talk to me during this conference

• Go to MESA.org – Global Education

Program

– Resource Library

– Committees & WGs

• Social Media

MES Best Practices through MESA


More MESA Resources

• MESA Metrics that Matter Research Studies

• MESA Guidebook: ROI and Justification for MES

• B2MML and BatchML XML instantiations of ISA-95

• Other presentations or webcasts

• Global Education Program modules

100s of materials available to Premium members

at no additional charge


Join the discussion. Join MESA.

As MESA sets off on its journey for

the next 20 years, the only thing

missing is YOU!

Contact MESA Headquarters or

visit mesa.org to join today.

John Jackiw

[email protected]

Mike Yost President

[email protected]

mailto:[email protected]



Manufacturer/Producer

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$295 JOIN

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$2,500 JOIN

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$5,000 JOIN

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$10,000 JOIN

https://services.mesa.org/Registration/Start





Solution Provider


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$295 JOIN

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$995 JOIN

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$5,500 JOIN





Keystone Sponsors


Gold and Platinum levels available Contact MESA

Keystone Sponsorship of MESA is a great promotional opportunity for solution

providers to the manufacturing and production industries. This level of sponsorship

is available only to a limited number of MESA member companies.


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