Information Solutions: Improve Profitability with Investment in MES

An analysis of Industry Week Best Plant winners and finalist data over a four-year period (1998–
2002) shows that manufacturing execution system (MES) implementation provides considerable performance advantages. Plants using MES have improved profitability by four times as much as those not using MES. The analysis shows that plants using MES outperform those that don’t – and improve plant performance faster – in all of three performance areas:

  • Productivity. Plants using MES have higher productivity and have improved operational productivity more rapidly over the previous three years. Plants with MES were able to reduce costs – including those related to manufacturing, product, and energy – more dramatically than plants not using MES.

  • Process Improvement. Plants with MES have higher process capability and larger yield gains. Furthermore, plants using MES have a greater reduction in cycle times and are more advanced in developing a true build-to-order model to meet just-in-time demands.

  • Personnel Performance. New employees require less training in plants that use MES. Plants using ERP, Six Sigma, Lean Quality and demand flow scheduling techniques all show benefits from using MES.

The Manufacturing Enterprise Systems Association, MESA International, defines MES as “a dynamic information system that drives effective execution of manufacturing operations. Using current and accurate data, MES guides, triggers and reports on plant activities as events occur. The MES set of functions manages production operations from point of order release into manufacturing to point of product delivery into finished goods. MES provides mission-critical information about production activities to others across the organization and supply chain via bi-directional communication.”

While an enterprise resource planning (ERP) system is sold as a comprehensive manufacturing system, very few plants have found it to be effective in assisting plant personnel. Among Best Plants using ERP, the 59 percent with MES as well have improved profitability 4.3 times as much over 3 years – 413.3 percent vs. 96.2 percent. ERP helps plan and oversee manufacturing, but improving production execution requires detailed functionality that only MES provides.
Plants using MES have higher productivity than those not using MES by all three measures included in the Industry Week Best Plants survey: sales per square foot, sales per employee and value-add per employee.

Naturally, productivity growth is a key driver of growth in profitability. Here again, plants using MES showed a clear advantage over those not using MES. Productivity growth over the prior three years ranges from 70 percent higher to over six times higher for plants using MES. Those using ERP found MES an even greater boost to productivity. 

One of the keys to improvement, as many companies implementing Six Sigma and other programs have discovered, is having accurate, detailed data to identify the root cause of problems. MES helps provide that type of production data.

Further, MES helps reduce errors that waste materials as well as employee and production equipment time. Over 58 percent of those with Six Sigma initiatives use MES as well.

Measure (Plant using MES)
Profit Improvement: 400% + higher gains — 3 years

  • 84% higher revenue / square foot

  • 32% higher value-add / employee

  • 10% higher sales / employee

Productivity Improvement:

  • 630% greater improvement in revenue/sq.ft.

  • 70% greater improvement in value-add/employee

  • 200% greater improvement in sales/employee

  • Cost Reduction Over 3 years 34% greater cost reduction

Energy Consumption Reduction: 57% greater energy reduction
Process Capability: 11% better Cpk (2 vs. 1.8)
Yield Improvements: 15% greater improvement
Cycle Time Reductions: 37% greater mfg. cycle time cuts; 22%+ order-to-ship
Employee Effectiveness: 78% as much training needed

MES Cost-Cuts

Nearly every manufacturing company has faced price pressures over the past few years. To maintain healthy profits, costs must be cut. Again, those using MES have managed to outperform those not using MES. While their customer prices dropped more, their cost reductions were also greater. This data suggests that companies in industries that need to make regular improvements in costs and productivity to compete effectively — such as food and beverage — should consider MES.
Another aspect of productivity where MES appears to provide a significant boost is in a plant’s ability to reduce energy consumption per unit of production. All of the best plants managed to cut energy consumption, but there is a 57 percent difference. Plants not using MES achieved a 12.3 percent reduction compared to a 19.3 percent reduction for those using MES. In process and mixed mode industries, where energy consumption is often a larger cost, the reduction is even greater. 
This reduction can most likely be attributed to MES core capabilities such as a unified plant-wide view of production that leads to greater overall efficiencies, operator support to reduce errors and waste, and detailed data to track down root causes when a problem arises.
In an era where return on assets (ROA) and operating costs are critical metrics of company financial health, top executives will be looking for ways to enhance productivity. This study of best plants shows that MES enhances the rate of performance improvements that production facilities can achieve.

- Mukund