Case Example: Supply Industry Benchmarking Aerospace Sub-contract Machining

1. Case Example: Supply Industry Benchmarking Aerospace Sub-contract Machining

2. Supply Industry Benchmarking Case Example Part 1: Aerospace sub-contract machining: pareto cost (45% of sales) = labour Benchmarks Before Benchmark Sales/Employee ~£ 32,000 £ 45,000 Operators/Total Employees 64% 80% • Labour Reduction following benchmarking: 10% • 4 weeks elapsed time • ~ 5% reduction in total cost

3. Aerospace Sub-contract Machining. Case Example Part 2.Pareto cost = labour (on average 45% of turnover)

4. Benchmarking Metrics Secondary Metrics investigate drivers behind Primary Metrics. For example: • Primary Metric = Sales* x 100% • Employee Presuming organisation design/leanness drives down labour costs… • Secondary Metric = Operators x 100% • Total Number of Employees * In most industries Added Value/Employee would be a better primary metric than Sales/Employee because the sales per employee is substantially affected by the degree of vertical integration / outsourcing between businesses being compared; whereas added value per employee isn’t. However in the case of aerospace sub-contract machining suppliers, since the materials are free issued by the customer it makes little difference.

5. Sales/Employee is a fair Primary Efficiency Metric for aerospace industry sub-contract machining… Number of Suppliers in Range Large Prismatic Small Prismatic Large Turned Small Turned 20 30 40 50 60 70 80 Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining Industry Source: Industry Analysis – Survey of 200 Suppliers

6. Case Example: two suppliers of largeprismatic aerospace machinings… Company B Company A

7. With very different Primary Metrics… B Large Prismatic A Small Prismatic Large Turned Small Turned 20 30 40 50 60 70 80 Sales/Employee (£,000s) for Low Volume Segments of the UK Sub-Contract Machining Industry Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry

8. `…very different Secondary Metrics… Co. A Co. B • = Operators x 100% • Total Number of Employees Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry: Team Questionnaires and Infocheck Reports.

9. Comparing Org. Designs/Leanness… Co. A Co. B Co. A Co. B Planning Clerk 0 1 Production Controllers 1 1 Chasers 0 3 Other 1 0 Bonus Clerks 0 2 Senior Foremen 0 6 Chargehands 0 3 Production Workers 69 67 Labourers 0 2 Maintenance 0 4 Apprentices 0 6 Cleaning Staff 0 2 Canteen 0 2 Special Tooling 0 7 Small Machines 0 7 TOTAL 86 147 MD 1 1 Ops Dir. 1 1 Sales Dir. 1 1 Contracts Mgr. 0 1 QA Mgr 0 1 Chief Inspector 0 1 Dep. Chief Inspector 0 1 Inspection 3 8 NDT 0 1 Despatch & GI 0 1 Accountant 1 1 Office 3 5 Procurement 0 1 Ind. Eng. 1 1 Snr. Programmer 1 1 Programmers 2 5 Planners 0 2 Source: Team Analysis

10. Organisation Design/Leanness Labour45% i.e. Largest Cost (Labour)/Sales CompanyA Company B Industry Average 60% 30%

11. The impact on their businesses ? £4.6m 170 £ 27k £ 14k 60% 50% -9% - • Sales £7.3m • Employees 97 • Sales/Employee: £ 75k • Labour Costs/Employee: £ 20k • Largest Cost (Labour)/Sales 30% • Operators/Total Employees: 80% • Profit Margin 14% • ROCE 66% Source: Industry Analysis – Survey of 200 Suppliers - Consultancy Assignment – Aerospace Industry: Team Questionnaires and Infocheck Reports. * before Tax # Previous year’s figures