“You can’t manage what you can’t measure.”
This quote is often attributed to Dr. W. Edwards Deming, an American engineer and quality control expert behind Total Quality Management (TQM). Regrettably, such advice was deemed one of the seven deadly diseases of management that Dr. Deming warned against during his career. While he believed in the value of using data to help improve business management, he also advised that measuring things and looking at data wasn’t enough.
That measure-to-manage disease thrives in the packaging manufacturing industry today. Many continue to follow Overall Equipment Effectiveness (OEE) — considered to be the gold standard of KPIs — to measure operational productivity and efficiency. The issue, however, is that OEE usually targets high-value capital equipment when it should be applied to every company department.
Packaging manufacturers need to move beyond the measurement myth to adapt and survive the mounting pressures of high customization, SKU proliferation, customer demands and compliance changes. Traditional metrics like OEE distract from true EBITDA gains while eroding working capital, straining employees and shrinking margins for packaging manufacturers.
Reframing the “E” in OEE
One way forward is to transition from just keeping equipment efficient and maintained to elevating the effectiveness of the overall manufacturing enterprise. This new Overall Enterprise Effectiveness concept focuses on step-change business improvements and EBITDA growth.
A packaging manufacturer can bridge the gap between the old and new OEE concepts by migrating to a collaborative system that benchmarks the entire business. This new approach creates a harmonized, connected enterprise where every team can access real-time data, then share it enterprise-wide for timely, proactive business decisions.
An adaptive manufacturing enterprise will have the ability to quickly respond to increasing disruptions and fast business transformations which are today’s norm. It will have greater visibility and abundance of data to predict and make decisions before a problem arises in any area of the business, like the supply chain, and maintenance and quality departments.
Moving to an inherently collaborative approach enables cost-saving efforts rather than waste resources on time-absorbing activities and inadequate systems.
Moving from Siloed KPIs to Overall Enterprise KPIs
Traditional OEE metrics have each department measuring its own performance with individual KPIs. For example, production lines don’t necessarily need to run at 90% efficiency if the company reaches its targeted profitability levels. Or sales might be doing a “great” job selling in great volumes, but with the wrong portfolio leading to low profitability levels or not leveraging the true strengths of the whole company. The entire enterprise has lower effectiveness than what was planned/expected by leadership/shareholders instead of one individual team.
KPIs will continue to exist with an Overall Enterprise Effectiveness approach, but now they will be established and maintained as a whole enterprise rather than isolated team KPIs. Moving away from siloed KPIs to new overall enterprise KPIs will make the efficiency and profitability of the entire business paramount and lead to a more profitable, agile and resilient business.
Some examples of how successful enterprise KPIs could work are as follows:
Finance: The entire team — sales, finance, supply chain, quality, plant operations and maintenance — strikes a good balance between inventory levels, operational stability and working capital constraints to help manage quality levels, costs and compliance.
Quality: The steps to maintain the required quality and performance levels at optimal cost are updated or communicated across the enterprise, making it every team’s responsibility to better manage customer expectations while reducing costs.
Maintenance: An enterprise approach increases awareness of proper equipment care and preventative maintenance. Embedded analytics data helps maintenance do a better job in reducing the number of failures from the beginning and creating a path to predictive maintenance, which then integrates with other areas of the business.
Supply Chain Management: Teams understand their impact on each other with an enterprise approach and create a better balance between cost, lead time, payment terms, inventory levels operational reliability and quality that helps reduce costs, maximize operational efficiencies and minimize working capital needs.
Operations: The integration of all production processes and achieving quality and continuous improvement processes are updated and communicated within the production teams and the entire enterprise creating optimal efficiencies.
Adjusting the KPIs from individual departments to maximize the overall enterprise effectiveness will be an ongoing process requiring a great deal of teamwork to make the necessary fine adjustments.
Flexible Enterprise Platforms
Too often, legacy processes and systems that are in place don’t allow end-to-end integration and visibility for every stakeholder, which can lead to a compartmentalized approach and focus on operational equipment effectiveness only. As time goes on, more changes are necessary, new employees are hired and modifications are not tracked or are lost, leading to knowledge erosion. Out-of-sync technology prevents integration with other systems, which means more workarounds and customizations — and the cycle continues. None of this supports the overall enterprise strategy and could lead to stagnation, and customer dissatisfaction.
The shift from these disconnected, siloed operations to the new OEE concept requires a flexible enterprise-wide business platform.
Equipment, machines, and technology systems need to communicate with each other throughout the production process. They must also share quality data with every stakeholder of the value chain — such as suppliers and customers outside of the plant walls — to make quick, smart decisions. As an adaptive manufacturing enterprise, a packaging manufacturer will better manage every single machine parameter, production time, productivity and even planned costs across the business.
If a certain disruptive event happens in the supply chain and shipments are delayed, visibility can help mitigate the risks of shortages or stoppages at the plant level. An adaptive manufacturing enterprise with embedded analytics offers teams the ability to quickly analyze and quantify an eventual sudden change in orders up or down the chain. The teams can then better react by adjusting production plans, supply chain demands and even personnel necessary to cope with the sudden change.
Rethinking Your OEE Approach
Packaging manufacturers have a window of opportunity to revamp their approach and strategic focus for value preservation and growth. The future packaging manufacturer winners are those who rethink operational efficiency and embrace an automated, adaptive business system that enables scale and continuous improvement. These will be the keys for packaging manufacturers to survive the disruptions and changes of today and thrive tomorrow.
To learn more about shifting from the traditional OEE approach to better developing the effectiveness of the overall enterprise, view our Reframing OEE in Packaging Manufacturing white paper.
