Dream Numbers

by Roger A.P. Fielding, BENCHMARKS

Addressing the AEC Management Conference in 2002, Thomas J. Noon, speaking on the subject “Efficiency in Operations,” posed the question: “How do you stack up?”(1)

Focusing on the aluminum extruders’ financial performance, Noon set out to show why “benchmarking” is important; how to use benchmark measures to better control an extrusion business and, how to use the AEC “Operating Ratio Survey” to better understand one’s own extrusion business. He referred to historical, and then to recent performance data to emphasize the advantages enjoyed by what he referred to as the “Industry Winners.”

Taken from the above presentation, the following data refers to the average performance of the survey’s “High Profit Firms:”

Scrap percentage (inclusive of returns): 24%
Receivables (average receivables/sales per day): 50.4 days
Net Operating Income as a % of Total Revenues: 8.6%
Manufacturing Costs (including billet) as a % of Total Revenues: 78.9%
Net Operating Income (as a % of Total Assets): 7.3% c.f. 18.1%

Other numbers quoted in the above presentation of AEC data—while being of general interest—were, because they varied little between the AEC average and the “High Profit Firms,” of little comparative use. For example, when expressed as a % of Total Revenue. High Profit Firms first, AEC average second:

Delivery Costs: 1.7% c.f. 1.8%
Selling Expense: 3.6% c.f. 3.2%
General and Administration Costs: 6.2% c.f. 6.9%
Bad Debts: (same) 0.1%

At the 1996 AEC Management Conference, Jim Sharpe, again speaking on the subject of “benchmarking,” emphasized that benchmarking is not to be compared with stealing—or for that matter, what is known as “Competitive Intelligence.”(2) Stealing business information or data from competitors is just that—stealing. However, Competitive Intelligence—using data which is in the public domain to construct a “picture” of a competitor’s business, or a critical aspect of that business— is a widely practiced and perfectly legitimate activity. In this case, suppliers’ brochures, general and specific industrial surveys, articles in technical periodicals and local newspapers, annual reports, government statistics, and credit information legitimately obtained, all combine to enable the analysis of the capabilities of a competitor’s new or existing production facility. On the other hand, benchmarking, which relates to the compilation and comparison of data on specific aspects of a business operation, employs data which is usually obtained from willing collaborators within an industry, from Industry Associations, or through contacts with appropriate non-related businesses. Sharpe cited the following subjects and the possible sources for such data:

ISO 9002 information, from a sheet metal fabricator
24-hour working, from a circuit board manufacturer
“Pull systems,” from an assembler of wire cable

And, he implied that:

Health and safety data and related information is (usually) shared without restriction. For example: The Aluminum Association report on explosions in aluminum casting operations.

Using published (and what some might refer to as “old” data) it is possible to compile benchmark numbers for extrusion operations such as those which are summarized below(3):

Safety—no accidents—the plant is intrinsically safe
Productivity (all employees)—AA6xxx alloys—over 800 thousand pounds (400 metric tonnes) per man-year (AA7xxx alloy productivity might be lower.)
Recovery on common AA6063/6060 alloys—approaching 90% (Medium strength AA6xxx and AA7xxx alloys will be lower.)
No die trials
Die changes—up to 10 die changes per hour
No returns

But, even if “old,” when these numbers appeared in Light Metal Age magazine, one reader wrote in, calling them “Dream Numbers.” However, as was pointed out, not only were they actual numbers when they first appeared in print, they are undoubtedly being exceeded—somewhere—today.

It is the responsibility of every operating company to know where they stand vis-à-vis the competition. General Electric’s Jack Welch established the following criteria for success: “If you’re not number one or number two you’re history.”

The series of five “World Wide” articles entitled “Improving Plant Performance,” which appeared in 2005, sets out the steps to achieve benchmark performance in extrusion operations: Measure, Understand, Control, Improve, Optimize then Automate!

References

1) Noon, Thomas J., “Efficiency in Operations: How do you stack up?” AEC Management Conference, Chicago, 2002

2) Sharpe, Jim, “Benchmarking,” AEC Management Conference, Chicago, 1996

3) Fielding, Roger A. P., V. I. Johannes and P. Howard Fielding, “Extrusion Productivity,” Light Metal Age, May/June 2005, Volume 63, No.3, pp 6-19