Paul Brackett, ABB Quality Week, Lima Peru, Oct 2011

Evolution of Operational Excellence an ABB Perspective

ABB Group October 12, 2011 | Slide 1

A Brief History of Operational Excellence

Henry Ford created the assembly line in early 1900s

Toyota Production System developed 1948-1975 - from which came:

Lean Manufacturing JIT Just In Time TPM Total Productive Maintenance

TOC Theory of Constraints Eli Goldratt 1984 Six Sigma 1986 Motorola

Followed by waves of other tools & methodologies, mostly applied to the manufacturing shop floor & supply chain

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 2

History continued
By the 1980s competition required that so-called High Cost Countries in North America & Europe had to become efficient enough to compete globally.

Toyota Production System Institutionalized

JIT & other methodologies become popular

Now what do we do?

Coincidence between Opex Improvements & trade balance? Perhaps, perhaps not

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 3

U-CELL

COMPUTER-INTEGRATED-MANUFACTURING

WHERE DO WE START ?
ROBOTICS

TQM

A.M.T.

Where does Opex start?

Factory Shop Floors are a very obvious place to start

Everything is visible, the layout, the flow, the inventory, the work ethic, the work procedures

Companies making multiples of the same product had extreme advantages in streamlining operations

Improvements are obvious, low hanging fruit, relatively simple to make improvements

But what about companies that make products that are ETO or Engineered to Order?

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 5

How Operational Excellence affects Cost Savings

Cost structure

Profit

Overhead

Operating Expense& material

20% savings in this area through OpX projects

Sales

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 6

Throughput

Basic laws of competitiveness

T I OE = EBIT

Throughput (Cash generated) minus Inventory minus Operating Expenses = EBIT (profit)

How does one company gain competitive advantage over another when selling similar products/services? Must assume that Inventory is nearly identical Therefore, one must either increase Throughput (sales) or reduce OE (operating expenses) So, while our salesmen are selling snowballs to Eskimos We begin to focus on Opex

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 7

The basics of increasing profit with existing sales

Manufacturing Cycle Time

Material Delivery
Value Added

Value Added Work in Process

Value Added Finished Goods

Product Delivery

Raw Material

Time

Manufacturing Cycle Time

Material Delivery

Value Added

Value Added

Value Added

Product Delivery

Work in Process

Time

A Brief History of ABB

ASEA - Allmnna Svenska Elektriska Aktiebolaget 1883 (Sweden) BBC Brown, Boveri & Cie 1891 (Switzerland) Both companies were instrumental in producing AC and DC motors, generators, steam turbines and transformers, and generating electricity to their respective regions. Both were in countries that were neutral in WWII. Merged in 1987 becoming Asea Brown Boveri ABB Significant acquisitions in following years.

Now 5 divisions of Low Voltage Products, Power Products, Power Systems, Process Automation, Discrete Motion (including Robotics)

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 9

ABB and its various Product Portfolio

How do the principles of Operational Excellence apply across all these disciplines? And how does it apply to Commercial Projects?

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 10

Customers: The Life Blood of any Company

A sale is not something you pursue, it is something that happens to you while you are immersed in serving your customer.

Business is not just doing deals; business is having great products, doing great engineering, and providing tremendous service to customers. -Ross Perot

Know what your customers want most and what your company does best. Focus on where those two meet.

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 11

Technology: Keeping the Edge

ABB is recognized as an industry leader in technology, design & engineering, industry knowledge This is affirmed by positive customer feedback

But with new designs and Engineering to Order comes risk of being able to deliver on-time & on-quality. Strict Quality & Opex standards help alleviate the problem

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 12

Operational Excellence: The need to Succeed

Success can be found in many ways, but is measured in the eyes of the customer. ABB has adopted a customer-centric focus that incorporates rigorous Opex standards. The standards go beyond what can be seen on the Shop Floor and get to the root of the problem, usually found on the Top Floor

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 13

ABB Quality Policy The Motivation for OPEX

To ensure that we meet our responsibilities and obligations to our customers, our people, our partners, our suppliers and to our shareholders we are committed to the following Quality Objectives:

1.

Deliver on-time & on-quality products, systems and services that meet or exceed our customer's expectations. Identify and understand our customer's expectations, measure customer perceptions, and implement improvements to increase customer satisfaction. Enable and engage our people at all levels in a relentless drive to improve operational performance along the value chain from suppliers to customers. Increase the motivation and skills of our people to add value to our customers and our businesses, through continual training and development. Leverage our partners & suppliers strengths to improve our products and our businesses from product design through production, installation and operation. Embed social responsibility & company ethics policies in our business practices. Continually improve environmental, health and safety performance through all products, operations, systems and services.

2.

3.

4.

5.

6.

7.

ABB Group 100510_QO_ODG Cary_1.ppt ABB Group 090914_QO_Quality & OPEX Vision 2012_1_1 October 12, 12, 2011 2011 || Slide Slide 14 14 October

Why does Operational Excellence matter?

It is demanded of us by our customers

It is visible when customers visit the businesses

It is critical to the execution of projects It is what keeps us in business

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 15

Actions driven by Quality & Opex

Driving Excellence in Operations
Drive Customer Feedback action follow-up (eg. NPS & CCRP outputs)

Support OPEX Projects in Divisions & BUs

Lead Cross-Divisional Group Key projects (eg. Streamline Intra-Group Trading) Drive OPEX Projects with Partners/Suppliers (eg. Supplier Qualification Process, Flop 10)

Supporting Flawless Project & Risk Management

Lead Project Mgt Council (eg. publish ABB Project Mgt Framework) Strengthen ABB Project Review processes Assess & Certify Project Mgrs & BUs Drive Project & Risk Mgt Training

Building an ABB Continual Improvement culture

Implement ABB 4Q methodology Drive ABB 4Q training & coaching Gain GEF level awareness & support Launch CEO Excellence Awards

ABB Group 100510_QO_ODG Cary_1.ppt October 12, 2011 | Slide 16

Competitive Drivers to Operational Excellence

VoC The Voice of the Customer

CoGS Cost of Goods Sold

Health & Safety

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 17

Voice of the Customer

Customer satisfaction is worth the price of the last sale.

Customer loyalty is priceless.

Opex is the proactive way of avoiding customer issues Customer Complaint Resolution is the reactive way of dealing with the issues If the customer aint happy, nobody is happy! A very high percentage of ABBs improvement projects are centered directly on finding and eliminating root causes of customer issues

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 18

Cost of Goods Sold or Cost of Poor Quality (COPQ)

Cost of Poor Quality is like a cancer to an organization

An excellent company has 5-10% COPQ costs

An average company has 10-20% COPQ The easiest way to reduce COPQ is to stop reporting it. At ABB, COPQ is treated differently. Make it transparent, measure it, report it. Then create improvement projects to get measurable results, and eliminate the root causes of COPQ.

The 2nd greatest number of improvement projects at ABB are focused on measurable COPQ elimination.

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 19

Health & Safety

The Safety & Health of employees, customers, suppliers and contractors is ABBs primary concern. A measurably growing number of improvement projects and H&S initiatives have played a major role in achieving this goal over the last few years

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 20

International Aspects of Operational Excellence

Opex varies greatly from country to country, region to region, culture to culture High Cost countries MUST have robust Opex programs in order to continue to compete on the world stage Stringent safety regulations have forced many companies into compliance among the Industrialized Nations and most of the Developing Nations. The so-called emerging economies have less stringent regulations for Health & Safety, and generally have much lower wages.

Examples of project execution, safety violations, people standing around for 15-30 minutes an hour, safety glasses, etc.

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 21

So how is Opex evolving in the 21st Century?

Opex is no longer simply for Manufacturing Shop Floors

Our manufacturing folks have saved many a General Managers job over the years.
But the root causes of the problems are rarely found on the Shop Floor, they usually originate on the Top Floor

The most common cause comes back to communication in the hand-offs between departments

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 22

Global KPI Monitoring SMT & Opex Analyzer

Improvement Projects are monitored at a Global Level in a large database called SMT (Strategic Monitoring Tool) Every improvement project has a cost reduction element, with few exceptions (Safety) Cost reductions are reviewed by the CEO on a monthly basis. Strategic KPIs such as OTD, OQD, Inventory, Revenues per employee, etc. are updated monthly by each business unit, and reviewed by a Division Responsible person using the Opex Analyzer

Anomalies are flagged and discussed within days

Repeats of the anomalies trigger actions ranging from local to regional to global support

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 23

Benchmarking: Internally, Externally & Internationally

Group Directives govern how ABB factories should be in terms of appearance, safety, customer comfort, cleanliness and so forth. Teams within product groups are encouraged to regularly visit and network to determine how one business solves a given common problem At every opportunity, ABB visits friendly businesses to determine how well we are doing compared to other businesses in similar industries

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 24

Guidelines & Awards that Promote Excellence

#1 Quality Award various divisions includes pictures and write ups in the internal news letter CEO award quarterly in various regions includes internal write-ups and a picture with the CEO! Other regional and divisional awards include winning an iPad for having the best improvement project

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 25

Net Promoter Score Our Customer Feedback

Extremely likely to recommend

9-10

Promoter

Form long & profitable relationships, are more interested in new technology and are less price sensitive. They will recommend ABB to others

7-8

Passive

These customers do not care about ABB. Neither loyal or disloyal, they are waiting for the next best opportunity

0-6
Extremely unlikely to recommend

Detractor

Feel as if they have been badly treated and are more likely to defect to the competition. They demand higher discounts, complain more and will deter others from using ABB

% Promoters subtract % Detractors = Net Promoter Score (NPS)

ABB Group 100510_QO_ODG Cary_1.ppt October 12, 2011 | Slide 26

Customer Action process (NPS link to CCRP as execution arm)

ABB Group October 12, 2011 | Slide 27

The Internal Customers: Kissing your Sister

In a company with many different centers each responsible for P&L it sometimes becomes easier to reach out to external customers than internal customers ABB has a strong, successful and growing program to fix this problem

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 28

One Simple ABB: Streamlining Internal Trade

Through a focused group of dedicated resources, a team with representatives from each division are now meeting on a regular basis to discuss how best to serve the customer by working together. Standardization of Terms & Conditions Rules placed on where profit will be taken A single ABB contact point for all issues regarding a project or systems sale

Has now resulted in nearly $1 BUSD in additional business in 3 years.

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 29

ABB OPEX The 4Q methodology for problem solving

How it Works;

People Leadership Resources, Involvement, Motivation, Recognition Input Triggers

CCRP, NPS, cust. feedback COPQ data Daily workplace rounds Plant Assessment Guideline Supplier Qualification Process KPI tracking systems Audits and Assessments

4Q Process Q1 - Measure
Define opportunity Investigate to understand the current state in detail.

Q2 - Analyze
Identify and confirm root causes of the problem.

Results
Customer satisfaction Improved quality Higher ROCE Safer workplaces Benefit tracking in SMT

Q4 - Sustain
Maintain the improvements by standardizing the work methods or processes.

Q3 - Improve
Develop, pilot, and implement solutions that eliminate root causes.

Continual Improvement of ABB OPEX

February 16, 2010

ABB Group 100510_QO_ODG Cary_1.ppt October 12, 2011 | Slide 30

| Slide 30

Skills in applying ABB OPEX Tools and Techniques

GF-QO (Ambassadors of Quality & Operational Excellence)

Division Division Division Head Division Head Head Head Countries

ABB CEO
Joe Hogan

Division Division Division Head Division Head Head Head Divisions

GF - QO
Bill Black
Americas OpEx
NAM Don Allen BR Alfredo Pini

DM OpEx Detlef Steck

Supply Chain Mgt

Daniel Helmig

Project Mgt Council

Operations Devt
Adam Nowarski PA OpEx Narendra Gupta

Central OpEx
CEU Georg Kohnen DE Karl Auer ES Josep Olive HU Laszlo Mocsy BE H. de Baerdemaker Joost Kuijpers IT Alberto Bracaglia SE Maria Beijbom NO Arne Klette DK Peter Nielsen EE Christian Puust PL A. Sosnowski IN CH Prahallad UAE Liis Metusala ZA Arther Tucker Motimedi Ndala SA Khizar Usmani EG Amr Farouk

Customer & Supplier Quality

Louis Ladouceur Polk Burleson

ODG Cary N.C. (6)

PP OpEx Goethe Wallin

ODG Vaasa

(12)

ODG Bangalore (12)

Project Mgt
Sai Kanuparthi Jo-Ann Albano
ODG Beijing (12)

PS OpEx Bill Black

OPEX 4Q Training (3)

LP OpEx Jon Telleria

Global Footprint
Stefan Bergerham

Eastern OpEx
tbd
ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 31

Opex: From the Shop Floor to the Top Floor

Improvement projects are now happening in:

Sales, Bid & Proposal

Engineering Supply Chain Management Manufacturing Test Finance & Accounting Human Resources

Projects & Systems Business

Service And more

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 32

Opex in Large Commercial Projects & Systems

A project manager typically has more to do than any human being should ever have to do Quality and Opex personnel are increasing being assigned to larger projects The results are showing much improved execution, resulting in happier customers and less margin erosion

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 33

Opex Success in Engineering

Engineering is now embarking on a significant improvement projects in almost every business KPIs indicate that the number of engineering errors are way down compared to before the improvements

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 34

Opex in Supply Chain Management

Supply Chain Management has embarked on a journey of fixing our Flop 10 worst suppliers 3rd party consulting companies are now working with these suppliers at the suppliers expense when the OTD or quality reaches an unacceptable level

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 35

Opex Success in Shared Accounting Services

Accounting services has now begun keeping KPIs on their success in Invoice Processing, Payables and Recievables The number of errors has dropped drastically, reducing the amount of rework, and ultimately the cost of processing

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 36

Opex thru the Value Chain: Suppliers Customers

The Opex Ambassadors are now becoming involved with improvement projects, working directly with customers

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 37

Continuous Improvement is a Journey, not a Destination

Are we there yet?

There is always some improvement that can still be made, but the culture is changing toward one of Continuous Improvement
As Opex continues to evolve new places will be found where it is applicable

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 38

The Value to the Customer: The Ultimate Value

Ultimately, the customer receives:

A better product
A well executed project, on time and under budget Better service Higher value

Continue to reach for the stars!

ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 39

 ABB Group CD-QO Operations Development Group October 12, 2011 | Slide 40