Extended lean toolkit

for total productivity

Matt Gentzel, Carl March, Alan Osan, and Ken Somers

Technology is on manufacturers’ side, but their next challenge is

to create tools, infrastructure, and processes that turn rich data
into real performance improvement.
Matt Gentzel is an associate Lean continues to help manufacturing their overall resource productivity and the
partner in McKinsey’s and service companies the world over lifetime value of manufacturing assets.
Pittsburgh office, of which
Alan Osan is an alumnus; improve their performance. Yet at the
Carl March is an expert same time, “optimal” production-system Today’s lean practitioners also need to
in the Stamford office; and
Ken Somers is a partner in
performance is becoming ever harder think far beyond the factory walls or even
the Antwerp office. to define, let alone achieve. The next the boundaries of their own organizations.
step in productivity and performance Volatile demand, fluctuating input
improvement will therefore require prices, and complicated, extended supply
companies to take lean beyond the chains require production systems that
traditional focus on maximizing efficiency. can respond appropriately to support
changing commercial needs. Companies
New challenges will constantly need to reevaluate the
bigger picture, too, from make-versus-buy
In the future, companies are likely to face decisions for components (or complete
constraints on many different resources, products) to choices about whether to repair
including energy and clean water as well as or replace aging equipment.
raw-material inputs and the environment’s
capacity to absorb waste products. They’ll Meanwhile, manufacturing technologies
need to design new types of equipment and are changing rapidly. Rising labor costs,
production systems that can do more with along with cheaper robots and other
less and that can move seamlessly between automation technologies, are driving a
different types of products. And they’ll dramatic increase in automation. And
need to make complex trade-offs to operate the nature of that automation is evolving:
those systems in a way that maximizes smart, flexible machines can increasingly

118 The great re-make: Manufacturing for modern times

take on complex, highly variable, or low-volume experts to troubleshoot critical equipment
tasks. Intelligent machines can diagnose their own remotely, providing instantaneous, specialized
maintenance needs. And in hybrid manufacturing support. One industrial-supply company operates
approaches, humans work alongside robots or its production plants entirely from a distance,
share tasks with them. sending maintenance teams into sites only
when required.
New resources
Fast, high-bandwidth communication
Companies won’t have to navigate these challenges technologies are complemented by exploding
blindly. Technological change has brought with data-storage capabilities. The “digital universe” of
it a host of new resources that companies can stored data is doubling every two years. By 2020,
draw upon to inform and support continuous it is expected to reach 44 zettabytes.2 That’s the
improvement and transformation efforts. equivalent of 1.5 billion years of HD video content,
or enough space to store an audio recording
First, there is data. Products, and the machines of all the human speech ever spoken. Smarter
that make them, are studded with sensors organization, search, and retrieval technologies
collecting reams of data on everything from the make that data increasingly accessible—allowing
temperatures and pressures inside production companies to compare today’s production
processes to the habits of customers in the field. conditions with similar events across the
Companies today are scratching at the surface lifetime of the asset, for example, or to look at
of potential uses for the data: on a modern oil- manufacturing process data for the root cause of
production platform, for example, only 1 percent product failures in service.
of the data generated by the 30,000 sensors is
ever examined.1 Finally, there is intelligence. Fast computers
and smart analytical technologies can spot
And companies aren’t limited to their own data trends and patterns in huge data sets. Digital
to inform process improvement. They also models can test thousands of different scenarios
have the potential to access vast external data to find an optimal solution. Decades of human
resources from a wide variety of public and experience can be embedded in knowledge bases,
proprietary sources. Social-media streams give allowing process-control systems to
unprecedented, near-real-time insight into make decisions faster and more accurately
levels of customer satisfaction with products and than human operators. Artificial-intelligence
services. Government agencies provide data on technologies allow computers to learn from
everything from atmospheric conditions to traffic experience, improving their performance
flows on highways. over time.

Second, there is communication. Network Using new tools for improved

technologies allow companies to share and decision making
combine data across great distances in real time.
Manufacturers can see exactly how well their A crucial task facing manufacturing companies
equipment and processes are performing. And today is to adapt and extend their existing
companies don’t just monitor their remote assets; improvement capabilities to make the best
they can control them, too. Many companies possible use of these new resources in solving the
now use central groups of reliability and process challenges they now face. Examples from some

1 “Unlocking the potential of the Internet of Things,” McKinsey Global Institute, June 2015, McKinsey.com.
2 The digital universe of opportunities: Rich data and the increasing value of the Internet of Things, executive summary, IDC,
April 2014, available at emc.com.

Modern practices 119

 of today’s best companies give a glimpse of the Scenario modeling
potential of this extended lean toolkit.
Modern manufacturing systems and their related
Optimizing systems with complex inputs supply chains are highly complex. Materials and
components are sourced from multiple suppliers
Some conventional approaches to production at varying prices and quality levels. These inputs
optimization can have undesirable side effects. may flow through different production routes and
For example, focusing on maximum yield when through different equipment within individual
running a process plant can lead to excessive energy plants, or through processes that take place at
consumption, needless wastewater-processing different plants or with different subcontractors.
costs, or greater downtime and maintenance They may be transformed into different products,
costs. As companies gain access to more data on subproducts, by-products, and waste products, with
historical performance, and use that data to build associated interactions and restrictions. Different
comprehensive models of plant behavior, they can customers in different markets may buy those
take a much more holistic approach to their process various products, at prices that change frequently.
management and control efforts. All that complexity makes it hard for manufacturers
to be sure they are making the best decisions about
A particularly powerful way to do this is by what they buy, make, or sell at any given time.
expressing plant performance in terms of profit
per hour.3 One mining company used this Historically, the models manufacturers use to
approach when declining ore quality caused output support these decisions have relied heavily on lots
to fall at a major site. The company structured its of assumptions and simplifications, such as the use
historical data to express processing performance of approximate “transfer pricing” to determine
in terms of profit per hour and then used a neural- which raw material to buy, which individual product
network model (a type of artificial-intelligence to make, and even which manufacturing unit
technology that emulates the way biological brains or location should produce each product. These
learn) to explore the relationship between certain assumptions and simplifications can lead to poor
process variables, such as the concentrations of decisions. Artificially high transfer prices may
reagents used, and material recovery. generate suboptimal use of network assets or make
high-potential opportunities appear unprofitable.
This analysis revealed that optimizing a handful of
variables had the potential to boost the quantity of Today’s powerful computer systems allow
materials extracted from a given grade of ore by more companies to build detailed models of their entire
than 7.5 percent—with a slightly greater increase value chain, from procurement all the way to
in profit per hour, since the optimized process also customer demand and final delivery. Advanced
reduced the consumption of other inputs. That optimization packages, using detailed data, can
surprising finding ran counter to the engineering rapidly test hundreds or even thousands of different
department’s previous beliefs about how best to combinations of products, manufacturing facilities,
optimize processes. Reducing the material wasted and processes, with the aim of maximizing the
in processing not only helped the mine meet its margin for the organization within defined
production targets, but also cut costs significantly constraints. Critically, while the behind-the-
because the mine extracted and processed less scenes analysis in such systems is highly advanced,
material and could run in a less demanding manner. the latest tools are simple to operate, with
Consequently, profit per hour increased by 9 percent. straightforward spreadsheet-like interfaces.

3 Markus Hammer and Ken Somers, “More from less: Making resources more productive,” McKinsey Quarterly, August 2015,
McKinsey.com.

120 The great re-make: Manufacturing for modern times

One European manufacturing company used Advanced-analytics techniques are also becoming
such an approach to identify immediate tactical much better at dealing with the kinds of fuzzy
changes that delivered cost savings of several issues whose solutions once required deep
million euros per year. The company started operator experience or trial and error. A change
manufacturing a key intermediate product on in the output of a manufacturing process might
an underutilized line instead of buying it from have numerous root causes—from tool or part wear
a third party. It also shifted the production of to upstream materials contamination. Armed
another key intermediate to different equipment with data on the characteristics of the system,
that offered higher yields, reducing raw-material fault-detection-and-classification (FDC) systems
costs. The company then identified several short- can use statistical models to interpret the most
term strategic opportunities to increase capacity likely causes and then either automatically adjust
through the application of an operational- and process parameters to compensate or recommend
reliability-excellence program for key production to operators the best corrective actions.
assets. Incremental sales volumes resulted,
thanks to increased production capacity across Integrating across activities/functions
several high-margin product categories. Together,
these changes allowed the organization to boost Companies can now integrate data on the production
its earnings before interest and taxes (EBIT) by system’s activities with data on the system’s outputs,
more than 50 percent in a commodity industry revealing correlations between the activities and the
historically used to low returns on sales. outputs. These correlations help to ensure that the
lean system is operating effectively so that issues can
Using real-time data be quickly identified and fixed.

Fast data collection and analysis allow companies An example is overall equipment effectiveness
to fine-tune process parameters in real time or (OEE), a familiar measure of operating productivity.
“near” real time. One chemical company used such By combining historical OEE levels with
an approach to optimize yields in a continuous- information from other organizational functions,
reaction process. The company applied a neural- such as supply-chain and sales data, companies can
network model to adjust the operating point assess and understand the true business impact
of the reaction based on feedstock quality and of process and equipment losses stemming from
catalyst life. The new approach boosted yields problems such as unplanned downtime, slow-
by 0.5 percent, a significant jump in a highly running equipment, and slow changeovers.
optimized process that was already more than
90 percent efficient. Leading lean companies use benchmarking
to set stretch targets for their higher-level
Automated learning and decision making asset-productivity measures (such as machine
utilization) and operational-efficiency ones
The availability of more data and the processing (including cost per unit, per plant, and per product).
power to deal with huge data sets are changing By linking business-performance metrics with
the way manufacturing systems are controlled. OEE data on individual lines, companies see
Sites can use historical process data to adjust the likely impact of missed targets on financial
their control systems automatically, resulting performance, helping them prioritize the
in systems that recognize and react instantly to implementation of countermeasures to avoid loss.
disturbances, such as a change in the quality of
the material entering a process. Machines can When parts of a production system do
also use such data to continuously improve their underperform, data analysis can aid root-cause
performance over time. identification—for example, by correlating OEE

Modern practices 121

 measures with adherence to operating standards displays, 3D graphics, and motion-sensing
for measures such as staffing levels or the use of technologies promise to bring a similar revolution
standard operating procedures in changeovers. in manufacturing.
The same approach can help prove the value of
lean activities, such as leader standard work, in Augmented-reality systems add digital information
boosting performance and productivity, which has directly to an operator’s field of view, using
until now been difficult to do. wearable devices including smart glasses. In
trials, these advances helped warehouse staff find
Cross-functional data can also directly improve and pick products faster and more accurately,
manufacturing planning. Rather than adjusting boosting productivity by 25 percent. One industrial
their standards for batch sizes, production manufacturer is developing an augmented-
sequences, and product changeovers on an reality system that can lead technicians through
ad-hoc or periodic basis, companies can combine maintenance activities—guiding them through
historical data and forecast trends to create the steps for inspection and parts replacement,
schedules and production plans almost in tandem and even locating the necessary parts. Certain
with changes in demand. airlines are testing video-camera-equipped glasses
that allow maintenance personnel to review live
Capturing and sharing knowledge images of faults and engage in problem solving with
colleagues thousands of miles away.
Advanced software tools are also revolutionizing
the way organizations store and communicate Capturing the benefits
their know-how across the enterprise. Leading
companies have always made efforts to capture and As with so many promising new approaches,
codify best practices, from waste reduction ideas companies are challenged to move from
to techniques for fine-tuning equipment-operating experiments, pilot projects, and isolated success
parameters and maintenance activities. The stories to a sustainable, organization-wide
latest generations of these software systems have approach to total productivity improvement as
become more powerful (thanks in part to built-in part of their production system. To do that, they
calculation engines) and better integrated, with will need three enabling components: a strong
links to an organization’s planning, maintenance, technical infrastructure, the right skills and
and manufacturing-control systems. capabilities, and new thinking about organization
and management methods.
This combination of power and integration helps
companies use their knowledge to the fullest Technical infrastructure
extent. If an energy-saving idea is implemented
successfully in one plant, for example, such The technical foundations of the new approach
systems can identify other facilities in a company’s will start with data. And the first challenge for
worldwide network that could use the same many organizations will be ensuring they have
approach. They can even calculate the likely sufficient access to data, either their own or
savings, so staff can prioritize the change in their what is available from outside resources. The
ongoing improvement plans. makers of manufacturing machinery are likely
to be every bit as interested in the data generated
Presenting information in new ways by their equipment as their customers are, for
example. OEMs are already making access to
In consumer sectors, increased processing power their customers’ use and performance data part
and advances in display technology have produced of their ongoing service-and-support agreements.
a user-interface revolution. High-resolution Likewise, manufacturers weighing the short-term

122 The great re-make: Manufacturing for modern times

convenience of outsourcing will need to ensure must be taken, however, to ensure that decisions
they do not sacrifice access to valuable data and the are made at the proper level in the organization. A
improvements it can bring. data-rich future will make it even easier for senior-
level people to get lost in the weeds.
The next challenge will be having the right systems
and tools for storing, cleaning, organizing, and Organization and management
visualizing the data companies have. Today, data
assets are typically widely distributed in different Manufacturing organizations will need to change
systems and formats. A total productivity approach in order to accommodate a larger, more tightly
requires greater integration so that all parts of the integrated IT function, together with more
organization are operating on a single version of specialized data handling and analysis in support of
the truth. Creating a suitable architecture and the production roles. But they will also need to redefine
systems to handle it in large organizations will be a every role in the organization, from the operational
formidable challenge. front line to the CEO. Targets and key performance
indicators will have to evolve, for example, to avoid
The development of a production infrastructure creating incentives for suboptimal performance.
that supports this level of integration will call
for new partnerships, too. Today, different (and Companies will also need new ways to monitor
sometimes proprietary) standards make it hard progress, such as by measuring the rate at which
for companies to pull together inputs from all staff are trained in new techniques, and their
their equipment. Efforts to change this are under level of acceptance of new improvement tools
way. An example is the draft API (application and approaches. Technology will have a role to
programming interface) standard for onboard play here, too. Software tools can collect data on
technology in mobile mining machinery, published how and where they are used, for example, giving
by the Global Mining Standards and Guidelines managers insight into the maturity of application
Group, a consortium of operators, equipment use across the organization.
manufacturers, and third parties.
 
Capabilities
The engineers and managers running
Total productivity improvement will require new tomorrow’s manufacturing plants will face
capabilities, too. The approach will demand all the increasingly relentless pressure to improve
traditional lean and process-improvement skills performance. Their targets won’t just be more
that manufacturing companies have worked so stringent, they’ll be more complex, too, with
hard to develop over the years. It will also need new the need to balance a host of factors including
skills, especially in the areas of data management quality, yield, energy consumption, and cost-
and advanced analytics. effective asset life, all set against a background
of rapidly changing demand from customers and
Companies will need to create new roles for data the wider business. To meet these challenges,
scientists and IT specialists to work alongside their companies will need to systematically embrace,
existing operations teams. But they will also have create, and evolve new technologies, methods,
to invest in the development of cross-functional and analytical methods. We’ve described some
skills, with specific training in data-driven decision of those in this article; others surely are yet to
making for operations personnel. Managers be invented.
will require new capabilities, too, as the ability
to understand, interpret, and act upon data will
become increasingly important to their roles. Care Copyright © 2017 McKinsey & Company. All rights reserved.

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