Improving Manufacturing SMEs' Competitiveness ...

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ScienceDirect Procedia CIRP 12 (2013) 408 – 413

8th CIRP Conference on Intelligent Computation in Manufacturing Engineering

ompetitiveness through systematic IT efficiency evaluation and advancement P. Dürr*a, A. Brauna, E. Westkämpera, T. Bauernhansla, M. Haagb, J. Heilalab, F. Grossmannc a

Fraunhofer Institute for Manufacturing Engineering and Automation, Nobelstrasse 12, 70569 Stuttgart, Germany b VTT Technical Research Centre of Finland, Metallimiehenkuja 6, 02150 Espoo, Finland c Grossmann IT GmbH, Vogelsangstraße 23, 70176 Stuttgart * Corresponding author. Tel.: +49-711-970-1075; fax: +49-711-970-1927.E-mail address: [email protected].

Abstract Efficiently exploiting the opportunities opened up by modern IT to support the order fulfillment process is one of the most significant enablers of productivity growth in manufacturing SMEs. However, too often it is not clear how efficiently the installed IT systems are used and how well they actually perform or at least it is rarely evaluated and developed in a systematic way. The reasons are numerous but probably most important is the lack of methodology and tools for regularly and systematically measuring, analyzing, benchmarking, and improving the IT efficiency in SMEs, while keeping effort and cost down. This paper proposes a methodology implemented in a software tool for modeling, analyzing, measuring, and improving the IT efficiency of manufacturing SMEs. access under CC BY-NC-ND license. © © 2013 2012 The The Authors. Authors. Published Publishedby byElsevier ElsevierB.V. B.V.Open Selection and/or peer-review under responsibility of Professor Roberto Teti Selection and peer review under responsibility of Professor Roberto Teti

Keywords: Methodology; Performance; Analysis.

1. Introduction Improving competitiveness is a big challenge for manufacturing SMEs and requires tremendous efforts in many ways. Much potential remains untapped because small- and mid-sized companies (SMEs) use information technology (IT) in an inefficient way [1]. While IT was formerly regarded as a cost factor, it now ranks as companies [1, 2, 3, 4]. In Factories of the Future beyond their strategic pape 2013. Which Role for ICT? , leading European scientists call for the full exploitation of IT to strengthen the competence and innovation of manufacturing companies as a driver of European growth. The inefficient use of IT in the manufacturing environment is considered a serious challenge. [1] So far, the question cannot be answered whether companies use information technology efficiently, or, to put it differently, what benefit is derived from the use of IT as compared to the required effort [5]. The aim of the

presented approach is to provide a standardized methodology for SMEs to analyze, evaluate and improve the performance of the applied IT in structured steps. The two main questions to be answered by this approach are measuring can be done. In the proposed methodology, the approach to IT efficiency measurement and advancement covers three structured phases: a) efficiency analysis, b) efficiency improvement, and c) efficiency simulation. In the first phase of efficiency analysis , a structured method is applied to model and analyze the corporate order fulfillment process, proposing an extensive set of novel key performance indicators (KPI) for efficiency measurement and for identifying potential weaknesses. These KPIs are used to form an innovative IT performance measurement system which analyzes how efficient the IT and the related processes are. The KPIs are arranged in several categories, each measuring the IT efficiency of a particular strategic target area in an SME.

2212-8271 © 2013 The Authors. Published by Elsevier B.V. Open access under CC BY-NC-ND license. Selection and peer review under responsibility of Professor Roberto Teti doi:10.1016/j.procir.2013.09.070

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Potential weaknesses are identified based on the values of the KPIs. In the second phase of efficiency improvement , a new and structured method is applied to derive concrete improvement actions for the identified potential weaknesses. The method uses so-called levers, representing predefined solution approaches for improvement actions, which are triggered after analyzing the KPIs as single or combined values. If applied correctly, a leverage effect is created, improving or even eliminating the existing weaknesses. efficiency simulation The third phase of concentrates on visualizing the structure of the IT system in connection with the order fulfillment process, offering behavior as well as the impact of improvement actions. The proposed IT efficiency evaluation and improvement methodology and software tool are developed from the IT user s perspective. This gives the evaluators real insight into everyday practices. The methodology is based on a combination of structured questions for different IT user groups, a learning database, and analytical calculations. The proposed software tool and methodology is specifically designed for use in manufacturing SMEs and aims at maximum benefit with minimum effort and cost. The functionality and the impact of the proposed methodology are validated by three manufacturing SMEs in the mechanical engineering industry. 2. State of the art There is broad agreement that an increase in IT efficiency is not achieved, as usually practiced, by reducing IT costs but rather by exploiting the potential benefit, cf. [6; 7]. In practice, IT control focuses almost entirely on costs [3]. Accordingly, a wide variety of IT cost assessment approaches can be found in theory and practice, e.g. IT cost accounting, cf. [7; 8]. Another wellTotal Cost of known model is Ownership (TCO) for assessing the cost of IT investment [9]. To provide an overall picture of IT efficiency, it is necessary to balance the benefit of IT use or IT performance against IT costs [3]. Admittedly, the benefit of IT use is very difficult to determine [10; 11; 12]. Existing methods for evaluating IT efficiency in terms of IT costs and benefits often concentrate on individual IT investments. The benefit of specific IT investments is mainly documented by expressing effort and benefit in terms of money (cf. [12]). Examples are the ROI-based

Need for Research Focus: IT Benefits

Objects to be evaluated: Benefits of single IT Invests

Objects to be evaluated: Benefits of corporate IT structure

Focus: IT Costs

Objects to be evaluated: Costs of single IT Invests

Objects to be evaluated: Costs of corporate IT structure

Single IT Invests

Corporate IT Structure

IT Efficiency

Scope of IT evaluation

Figure 1: Objects to be evaluated regarding IT efficiency

approach of Total Economic Impact (TEI) of Gliedmann; Rapid Economic Justification (REJ); and (TVO). These three approaches can be used for an overall evaluation of IT investments, especially in terms of cost and benefit; in some instances they even allow determining the associated risks and opportunities. They take both material and immaterial assets into account and convert them into key financial indicators. IT costs are usually evaluated by the TCO approach. In research, the question of corporate IT efficiency is discussed from a similar viewpoint [6; 13; 14]. Some methods involved in this topic explore the corporate IT structure instead of individual IT investments and concentrate on the of IT performance. For example, in the German AIF research project 16105 N costs of business processes that are lower than in other comp However, most part of IT performance cannot be evaluated in financial terms [16]. Non-financial factors Figure 1 shows where the need for research becomes evident. Modern IT performance measurement systems form part of IT controlling activities and are based on the Balanced Scorecard (BSC) approach. Key tasks of IT controlling are to create transparency by means of IT cost accounting, IT KPIs, documentation, etc. [17]. Performance measurement (PM) in general is defined by Horváth as the "design and use of several quantifiable measures of different dimensions (e.g. cost, time, quality, to assess the effectiveness and efficiency of the performance and potential performance of many different objects in a company (organizational units, staff, processes)" [18]. Applied to the assessment of IT, this means that if measures of different dimensions are used (e.g. data

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quality, user satisfaction), the evaluation of the IT benefit and IT efficiency in terms of money alone is not necessary. Therefore, the methodology presented in this paper has to meet the following requirements: Evaluation and advancement of IT efficiency focusing on IT benefit in addition to IT costs Consideration of multi-dimensional indicators, including non-monetary factors, quantitative as much as qualitative, approach Consideration of corporate IT structure instead of focusing on individual IT investments The developed methodology, which covers the abovedescribed features, IT Efficiency App It makes a decisive contribution to solving the presented problem by answering the following questions: What factors, i.e. measurable indicators, can be used to measure IT efficiency, especially IT benefit, as a basis for increasing efficiency? What systematic and structured ways exist to measure and improve the efficiency of IT used in manufacturing SMEs? 3. The IT Efficiency Approach The main objective of this work is to develop a methodology for modeling, analyzing, measuring and improving the IT efficiency of manufacturing SMEs. The IT Efficiency Approach will, moreover, address the above requirements and questions. In this paper, the focus lies on the first phase of efficiency analysis, with an outlook on efficiency improvement and simulation. The first question about the key factors in assessing IT efficiency is answered by the development of an IT performance measurement system. To measure performance, this system uses multi-dimensional criteria and so ensures that the main effects of corporate IT can be evaluated.

Figure 2 shows how the IT Performance Measurement System (IT PMS) is derived from the strategic goal system of a typical manufacturing SME. It can be assumed that SMEs strive to increase productivity and that it certainly is a top business goal pursued by many departments with many different means. This top goal is broken down into various subgoals, among them (in light color) the well-known business goals of manufacturing f systems for increasing productivity. The previously neglected increase of IT efficiency also helps to achieve the top goal. The goal to the left is divided into the sub-goals increase of IT performance and reduction of IT costs . Well-founded indicators are necessary to assess the achievement of these operational goals. First, a group of indicators relevant for the chosen area needs to be identified from the multitude of existing IT performance measures. The categories developed for the presented IT PMS are each made up of several IT indicators derived from existing approaches and preliminary practical validations: Increase of Information and IT Quality Increase of IT Performance and Velocity Increase of IT Reliability Increase of IT Adaptability and Flexibility Reduction of IT Complexity Reduction of IT Costs. The systematic and structured measurement of IT efficiency is what the second question is about. It is answered by the development of a standardized procedural model to be used for the newly developed IT Performance Measurement System (see Figure 3). The IT performance measurement is started by a team of experts with a detailed analysis of the corporate IT structure and order fulfillment process, documenting them in an IT process chart. The order fulfillment process is divided into logical process sections, which provide the basis for further action. The resulting overview enables the next performance measurement step.

Increasing Productivity (by x %) Top Goals

Increasing Production Efficiency Effic iency y

Increasing IT Efficiency Operational (subordinate) Goals Success Factors / Categories of Indicators

Increasing Information & IT Quality

Reducing costs of IT support (by x %)

Increasing production output p ((by y x %))

Increasing Capacity Utilization

Reducing IT Complexity

1. Process Analysis Reducing production cost (by y x %)

Reducing Order Lead Time

Indicator z

Indicator x

Indicator y

Indicator 3

Indicator 2

Indicator 1

Indicators

Increasing performance of IT support (by x %)

Steps of the IT Efficiency Approach

Figure 2: Derivation of the IT Performance Measurement System for IT efficiency

Other goals

Reducing Waste

2. IT Structure Analysis

3. Information Flow Analysis

Steps 1-3: Process and IT Analysis 7. Analysis of IT Potentials

8. Consideration of SME Restrictions s

Questionnaire

4. Data Acquisition

IT indicators

5. Evaluation of Results

6. Derivation off IT Potentials

Steps 4-6: IT Performance Analysis Improvement actions

9. IIdentification of Levers

10. Definition of Improvement Actions

11. Generation of To-Be Scenarios s

Steps 7-12: IT Efficiency Advancement Software tool implementation + expert data base

Figure 3: Steps of the IT Efficiency Approach

12. Presentation of Results


The data is gathered in the following ways: 1. General survey of senior management 2. General questions to the IT users of each process section 3. Monitoring 4. Expert analysis based on observations First, senior management is asked about top priority matters, for instance business goals. Then, at least one IT user for each process section is interviewed regarding IT support during day-to-day business. An in-depth questionnaire guides the user in a structured way through the performance analysis. Figure 4 points out the procedure in this phase for exemplary process sections and contents. contribution to the analysis by providing their day-today business experience. What IT users primarily expect from corporate IT is to get excellent support in their daily work. This goal matches Further insight is gained from monitoring and expert analysis. After collecting the data, a standardized procedure calculates the indicator values for the IT PMS. The more than 50 evaluated indicators highlight the company weaknesses, both from an IT and process point of view. Various graphical and numerical views on different aggregation levels give a quick overview of the company down to the separate process sections. Thus, poorly rated indicators and weaknesses can be quickly identified. This standardized and clear procedure in determining the efficiency indicators provides the basis for benchmarking businesses. The IT Efficiency Approach also supports the creation of improvement measures. To this end, the identified weaknesses from the IT performance measurement process are analyzed together with the company and checked for company-specific restrictions and goals. Based on the established weaknesses, potential improvements are identified for the investigated areas, i.e. individual process sections or the entire company. Algorithms are defined for both the selection and prioritization of improvement measures.

If necessary, it is possible to resort to the practical knowledge gained in previous projects, which is available in a knowledge base. Each project aimed at optimizing IT support goes back to individual or combined indicators with poor ratings. As-is and to-be scenarios allow for the assessment of the benefit of the optimization measures before they are implemented. The monitoring step of data gathering provides quantitative data such as processing times, load of operators and throughput times for different sections of the order fulfillment process. In the proposed IT Efficiency Approach, this data can be used to build a discrete, event-based simulation model that allows studying the dynamic behavior of the entire IT structure of a company under varying load conditions. Simulation runs will make it possible to find out, for example, the maximum capacity of the entire IT structure, locating the bottlenecks in the process and thereby underlining the improvement measures as well as showing the balance between different process phases. 4. Implementation of the IT Efficiency Approach in a Software Tool The development of a software tool that maps the methodical procedure of the IT Efficiency Approach accompanies the project. The sets of rules and algorithms included in the tool help to ensure the standardized procedure in determining the IT performance. The main advantage of the support tool is that it includes the different functions and elements of the methodology. The database integrated in the tool covers not only the function of data storage but also of data provision for the different steps of the methodology. The database is connected to the questionnaire and the IT PMS in the same way as to the visualization of the process steps and the IT structure.

Step 4-1: General / global indicators and information about the company (e.g. turnover, number of IT workplaces, IT costs, IT licences

Step 4-2: Process section specific questions and indicators Sales Production Planning

Purchasing

Process sections with IT users Standardized questionnaire Specific questions

Production

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Standardised Data acquisition with following exemplary contents: Number and quality of media discontinuities Transparency of needed information Ability to act in case of IT System failure IT user satisfaction with IT System Functionality Reliability of order feedback

Figure 4: Data acquisition in each process section Figure 5: Screenshot of the Tool User Interface

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P. Dürr et al. / Procedia CIRP 12 (2013) 408 – 413 Module 1: Efficiency Analysis s n g

P P u r c h a ts ie o n P lS a a n n l ie

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Action plan: 1: Use existing ERP system

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Actions Catalogue: 1: Install ERP 2 P P u r c h a s t e io n P lS a a n n l ie s n g

P P u rc h a ts e io n P lS a a n ln ie s n g

Definition of integrated ICT and process efficiency measuring criteria & indicators

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P a l la e n s n i n g P r P o d u u r c h a i o s n e

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Figure 7: Three modules of tool support for the IT Efficiency Approach

Figure 6: The developed monitoring tool

Moreover, the methodology is based on a combination of structured questions for different IT user groups and on analytical calculations. The IT users are directly involved in the IT performance analysis by a toolsupported interview method shown in Figure 5. Using a standardized calculation procedure, the IT PMS stored in the tool is automatically filled with the results of the data acquisition process, which covers interview and additional techniques. After the IT performance analysis, the tool automatically analyzes the identified weaknesses, using an algorithm included in the software. Individual improvement actions are created for each company, based on a database filled with improvement actions addressing the unexploited IT potential in SMEs. Actions can either be generic or based on data from real projects. In order to get efficient and reliable quantitative data about IT system utilization for the simulation model, a monitoring tool (Figure 6) was developed. The monitoring tool reads the message stack between the operating systems and applications and analyses which applications were used to perform different tasks in the order fulfillment process. It also calculates how many different mouse clicks and window switches were needed to perform different tasks, and most importantly, records total processing times. Figure 7 gives an overview of all three modules of the tool implementing the IT Efficiency Approach. 5. Research Results and Ongoing Projects That the scientific objectives of the introduced approach can be achieved is outlined by a number of successful project results.

As part of the eurostars research project ICT Efficiency Tool , vast parts of the IT Efficiency Approach have been validated by project partners, thus providing valuable experience and insight. The approach proved to provide both greater structure and IT support for the order fulfillment process. The detailed visualization of the information flow between IT applications and process steps in the individual sections of the order fulfillment process is a perfect basis for the IT indicator evaluation of the IT Efficiency Approach. Radar charts covering different perspectives provide detailed information about the quality of IT support. Potential IT and process weaknesses can easily be derived from the lowly rated IT indicators. An example of a severe media discontinuity detected in one company is that the bill of material in the CAD system was printed on paper and then again entered into the ERP system. The project team uncovered this time-consuming and error-prone procedure during the efficiency analysis. Different improvement actions were easily derived, suggesting for example an interface between the involved IT applications or a change of the order fulfillment process. The separate analysis of each process section leads to specific results so that the full potential of each area can be exploited. The standard evaluation scale is easy to understand and ensures comparability, e.g. for the benchmarking of different companies. Benefits also arise from integrating IT users in the IT performance and on ways to improve corporate IT is used to uncover and address weaknesses, leading to an increased evaluation quality. The integration of staff increases motivation and satisfaction and gives a push to thinking about the status quo and potential improvements. Apart from this, insights into IT user satisfaction are very instructive for the corporate management.


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6. Conclusion

References

First research results from ongoing projects show that some of the goals of the approach have already been achieved, while other goals have not yet been fully accomplished. The main objective of the IT Efficiency Approach is to provide a methodology for modeling, analyzing, measuring, and improving the IT efficiency of manufacturing SMEs. The developed approach provides a good overview of relevant IT categories as described in chapter 3. The modeling tools and the methods for data acquisition are suitable for building reasonable indicators. The chosen indicators gave a deep insight into efficiency, especially regarding the benefit of a Expectations are also met in the field of user-friendliness and applicability for the target group. The implementation as a software tool helps a lot in standardizing the methodology and facilitates its application. The comprehensive look into the efficiency of the structure is unrivaled when it comes to evaluating the IT benefit. The next steps are to verify and specify the efficiency improvements and to simulate to-be scenarios before completing the development of the software tool. Furthermore, the vision of the project consortium is to commercialize the proposed approach and the related software tool and thereby (de-facto) standardize the analysis of IT efficiency in manufacturing SMEs. Therefore, it is of major importance that the method will be applied in as many manufacturing SMEs as possible in order to firstly validate and further fine-tune the method and the tool and secondly, to build up a comprehensive database to derive experience-based improvement actions and enable IT efficiency benchmarking. By delivering this experience-based information, the proposed methodology will become a cornerstone for enhancing the competitiveness of manufacturing SMEs with regard to IT efficiency. It will answer the three most important questions concerning IT efficiency: 1) Is the IT efficiency of a company on a competitive level and if not, 2) what should be done to improve IT efficiency and 3) what impact will the improvement actions have?

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Acknowledgements This paper presents results of the eurostars project ICT Efficiency Tool . The authors wish to acknowledge Miksch GmbH, Colombo Filippetti Spa and Steelcomp Oy for providing valuable input as well as a testing and validation platform for the development of the IT Efficiency Approach.