1. PERFORMANCE MANAGEMENT  Performance Measurement Participative goal setting Benchmarking Balanced scorecard Basis for continuous improvements  Structure and Deployment The process review Metrics philosophy Metrics Selection and Design Commitment and reward 3-2

2. WHY PERFORMANCE MEASUREMENT FManagement By Facts SELECT PROBLEM ANALIZE PROBLEM ID ROOT CAUSE PLAN & X ACTIONS CONFIRM RESULTS FINE TUNE PARETO DIAGRAM HISTORGRAM SCRAP REWORK C & E DIAGRAM DATA COLLECTION GRAPH CONTROL CHARTS CHECK SHEET SCATTER DIAGRAM “Without data, you're just another opinion.” TIME AFTERBEFORE ACTION 1ACTION 2 3-3

3. WHY PERFORMANCE MEASUREMENT FEstablish Foundation for Continuous Improvement –Identify and size critical customer complaints –Research and track world class performance –Establish world class benchmarks –Create relevant performance measurements –Establish performance tracking and reporting –Equate customer perception to reality FEquate Customer Perception to Reality –Always use historical data when meeting with customers 3-4

4. WHY PERFORMANCE MEASUREMENT FA Basis for Achievement Recognition and Reward Annual Personal Performance Recognition Quarterly Team Achievement Award Monthly Individual Achievement Award Weekly Individual Achievement Award Best-to-Date Celebration 3- 5

5. F The Where and What of the Balanced Scorecard Timely Product Development Timely Materials Availability On-Time Prod’n and Shipments Inventory Effectiveness Engineering Documentation Review Forecast and Master Schedule Review Linearity and Resource Review Receiving and Stock/Issue Review Total Customer Satisfaction Excellent Internal Quality Valid Material Costs Timely Direct Labor Availability Feedback and Corrective Action Review Cost of Quality Review Cost Accounting Review Resource and Capacity Review Yes No 3-6 PERORMANCE MANAGEMENT

6. PERFORMANCE MANAGEMENT FThe “Balanced Scorecard” Sales/Service Engineering 1. Build Release Timing 1. ECN Accuracy 2. S.O. Accuracy 2. Engrg Quality 3. SER Response 3. SER Execution 4. Customer Samples 4. Warranty Expense 5. On-site Startup 5. Equip. Reliability OperationsFinance 1. Production Linearity 1. Accounts Receivable 2. On-time Delivery 2. Accounts Payable 3. Product Quality 3. CODs and Checks 4. Supplier Performance 4 Information Integrity 5. ECN Execution 5. Inventory Utilization 3-7 Cascading measurements with aggregate performance roll-up

7. THE BALANCED SCORECARD FThe Ten Period Rolling Method Annual Personal Performance Recognition Quarterly Team Achievement Rewards Weekly Performance Incentives Best-to-date Celebrations 3-8

8. THE BALANCED SCORECARD FSix Critical “Must Dos” 1. KISS! Simplicity is important - complete understanding is necessary - start slow and let it grow 2. Negotiations are required and agreements are crucial 3. The number isn’t important, direction is the best focus 4. Tenacity is everything - good measurements should never die and never fade away 5. Timing is paramount - for example: financial data is too aggregate and way too late 6. Target selections - cascading structure is good, but performance analysis is best 3-9

9. YOU’RE EITHER WINNING OR YOU’RE LOSING” MAINTAINING SYSTEM CREDIBILITY FEstablishing a Measurement Mindset “THERE IS NO STATUS QUO! There is no effective control without measurements! 3-10

10. MAINTAINING SYSTEM CREDIBILITY FDatabases, Ownership and Maintenance 1. Simple Department Processes- Sales Order Input - User: process owner - Database: chalk board, tick chart and hand plot graphs - Maintenance: process customer 2. Complicated Department Processes - On-time Delivery - Users: process owner or team - Database: Excel spreadsheet and computer graphs - Maintenance: assigned team member 3. Intradepartmental Processes - Cost of Quality - User: functional manager or self-directed process team - Databases: computerized business systems down loaded to Access for additional input forms and graphs - Maintenance: MIS and/or team data specialist Remember, “Without data, you're just another opinion.” 3-11

11. MAINTAINING SYSTEM CREDIBILITY FSome Requisites for Success –Management acceptance and support –A few good champions –Trust and understanding –Valid, timely and consistent measurements –Need to review and adjust range of metrics –Demonstrated benefits from use of system –A “want to succeed” business culture –A true sense of accomplishment 3-12

12. BENCHMARKING FInternal - A Good Starting Place –Define critical company success factors –Identify relevant work processes and prioritize by importance –Identify process owners and internal customers –Agree on current performance levels and establish data measurements –Negotiate improvement goals - celebrate the goal achievements and reset the marks 3-13

13. BENCHMARKING FExternal - Some of the Options –Customers –Non-Competitive Businesses –Competitors –American Electronics Association –American Production & Inventory Society –Society of Manufacturing Engineers –Purchasing Management Association –American Management Association –Institute of Quality and Productivity -SDSU –Your Best Option: Industry Week - Benchmarking Tool Kit - www.industryweek.com 3-14

14. Engines on the Floor 100 BENCHMARKING FInternal - The Line on the Wall Story 3-15

15. Engines on the Floor 100 BENCHMARKING FInternal - The Line on the Wall Story 3-16

16. INFORMATION INTEGRITY  Objectives Accuracy Timely availability Ready accessibility Ease of understanding  Targets Engineering Documentation Systems Data Work Instructions Work Standards 1-2

17. INFOTEGRITY 1-3

18. SALES FORECAST Up/Down Cycle, Product Management PURGING THE DEADBEATS Target GPM 1-4

19. SALES FORECAST Field Sales Data - Credibility Reviews Field Sales Management Review Inside Sales Review Production Planning Team Review The Annual Forecast - SWAG The Quarterly Forecast SBs and WTs Funnel Report Build Plan 1-5

20. Forecast-Master Schedule Decision Process SALES FORECAST 1-6

21. ENGINEERING DOCUMENTATION Cost and Speed of Product Development 1-7

22. ENGINEERING DOCUMENTATION Timely Availability % Availability TIME DETAILED PARTS DRAWINGS DESIGNPROD’NPROTO TIME ASSY DRAWINGS% Availability PROD’N PROTO DESIGN WORK INSTRUCTIONSTEST SPECIFICATIONS 1-8

23. ENGINEERING DOCUMENTATION  Release and Change Control Process –Engineering has design ownership –Manufacturing has implementation ownership –Block change concept –The obsolete ECR-CCB-ECO process –The “World Class Design Team” *Concurrent engineering concept *Conceptual design buy-off gate *Project management and design reviews *Design focus - do it right the first time *Prototype and Beta design buy-off gates *Up front design for manufacturing 1-9

24. SYSTEMS EFFECTIVENESS Infotegrity Controls 1-10

25. SYSTEMS EFFECTIVENESS 1-11

26. SYSTEMS EFFECTIVENESS  Visual Management –Sequential production –Point of use logistics –Everything has a place and is in its place –The “constraints” board –Trouble lights –Kanbans –Time phased schedules –Cycle time and GPM displays –The daily walk around 1-12

27. INFOTEGRITY CONTROLS The Effectiveness Curve 1-13

28. INFOTEGRITY CONTROLS Audits, Tracking and Corrective Actions INVENTORY RECORD ACCURACY 1. TOP 20 2. Negative Balances 3. 100%ers 4. Average Count 5. Average Net $ 6. Average Absolute $ 7. Location INVENTORY PROBLEMS AND CORRECTIVE ACTIONS PROBLEMCORRECTIVE ACTIONS Who REOCCURRENCES WK56WK55WK54WK53 No. WK “Four blanks and you’re Off” 1-14

29. INFOTEGRITY CONTROLS The “Where, What, and Why of Controls Timely Product Development Timely Materials Availability On-Time Prod’n and Shipments Inventory Effectiveness Engineering Documentation Controls Forecast and Master Schedule Controls Linearity and Resource Controls Receiving and Stock/Issue Controls Total Customer Satisfaction Excellent Internal Quality Valid Material Costs Timely Direct Labor Availability Feedback and Corrective Action Controls Cost of Quality Controls Cost Accounting Controls Resource and Capacity Controls Yes No 1-15

30. Sales Forecasts –Up/down cycle, product management –Field sales data - input credibility reviews –Forecast-Master Schedule decision process Engineering Documentation –Cost and speed of product development –Timely availability –Release and change control process Systems Effectiveness –KISS –Management controls –Visual management Infotegrity Controls –The effectiveness curve –Audits, tracking and corrective actions –The where, what and why of controls ACCURACY AND TIMING 1-16

31. The Methodology The process review Metrics philosophy Metrics Selection and Design Commitment and reward Benefits A focus on critical success targets Establishes process ownership Relevant innovation and learning Bottom Line Results STRUCTURE AND DEPLOYMENT 6 -2

32. The Business Survey Credible Sales Forecasting On-Time Prod’n and Shipments As Received Quality Engineering Documentation Process Review Forecast and Master Schedule Process Review Materials and Scheduling Process Review Mini-ISO-9000 Quality Process Review Strategic Planning Total Customer Satisfaction Inventory Effectiveness Profit Margins Strategic Plan Review Feedback and Proactive Process Review Days of Supply Process Review Cost of Quality and Kaizen Process Review Yes No Timely Product Development THE PROCESS REVIEW 6 -3

33. Credible Sales Forecasting No FIn Search of Constraints/Opportunities Sales Forecast & Master Schedule Process Review THE PROCESS REVIEW 6 -4 Constraints/Opportunities 1. Untimely forecast updating 2. Sandbagging and SWAGing 3. Lack of credibility analysis 4. No formal forecasting process

34. Timely Product Development No Engineering Documentation Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -5 Constraints/Opportunities 1. Bill of material errors 2. Late drawing releases 3. Excessive engineering changes 4. Ineffective product design process

35. On-Time Production and Shipments No Materials and Scheduling Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -6 Constraints/Opportunities 1. Poor supply chain performance 2. Ineffective MRP system 3. Excessive inside-of-lead-time orders 4. Worker inflexibility

36. As Received Quality No Mini-ISO-9000 Quality Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -7 Constraints/Opportunities 1. Lack of worker training 2. Poor supply chain performance 3. Inadequate work instructions 4. Poor general quality attitude

37. Product Profit Margins No Financial and Cost of Quality Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -8 Constraints/Opportunities 1. Excessive scrap and rework 2. Poor supply chain performance 3. No continuous improvement program 4. Too much overtime

38. Inventory Effectiveness No Days of Supply Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -9 Constraints/Opportunities 1. Little line item accountability 2. Excessive work-in-process 3. No inventory parameter maintenance 4. Poor record accuracy

39. Total Customer Satisfaction No Feedback and Proactive Process Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -10 Constraints/Opportunities 1. Lack of sales/service feedback 2. Limited customer communication 3. Untimely inquiry response times 4. No corrective action logs/history

40. Strategic Planning No Company Performance Review In Search of Constraints/Opportunities THE PROCESS REVIEW 6 -11 Constraints/Opportunities 1. Too little down the chain communication 2. Little low level commitment 3. Ineffective benchmarking 4. No relevant tactical plan or execution

41. Selection of a Few Relevant Metrics Company 1. Gross profit margin 2. Customer satisfaction index 3. Sales revenue 4 New product introduction cycle 5. Productivity (Sales per employee) THE PROCESS REVIEW 6 -12 Top Level measurements

42. Selection of a Few Relevant Metrics Sales 1. Missed sales opportunities 2. Inside of lead-time bookings 3. Sales order entry errors 4. Open customer complaints 5. Customer order cycle time Cascading measurements with aggregate performance roll-up THE PROCESS REVIEW 6 -13

43. Selection of a Few Relevant Metrics Customer Service 1. Past due delivery dates 2. Open corrective action items 3. On-site equipment MTBF 4. Open “Request for Quotations” 5. Warrantee Expenses Cascading measurements with aggregate performance roll-up THE PROCESS REVIEW 6 -14

44. Selection of a Few Relevant Metrics Engineering 1. Bill of material errors 2. Late engineering releases 3. Routing and planning errors 4 Product design cycle times 5. Sales information cycle times Cascading measurements with aggregate performance roll-up THE PROCESS REVIEW 6 -15

45. Selection of a Few Relevant Metrics Operations 1. Non-Linear carry-overs 2. Build cycle times 3. As delivered quality problems 4. Supplier line rejects 5. Product cost-of-sales Cascading measurements with aggregate performance roll-up THE PROCESS REVIEW 6 -16

46. METRIC PHILOSOPHY A Focus on Improvement Example #1: 6 -17

47. METRIC PHILOSOPHY A Focus on Accomplishment Example #2: 6 -18

48. Keep It Simple Stupid (KISS) l Easily understood l Controllable by team actions l Reliable and true l Traceable to a source Make Sure it Provides l A number that you can quantify and graph l Useful feedback l An aggressive target l A team’s ability to influence the outcome l A relationship to critical success targets METRICS PHILOSOPHY 6 -19

49. Scorecard Template Design METRICS RECORDING 6 -20

50. Ten Periods Cascading METRICS RECORDING 6 -21

51. Ten Periods Cascading METRICS RECORDING 6 -22

52. Ten Periods Cascading METRICS RECORDING 6 -23

53. Ten Periods Cascading METRICS RECORDING 6 -24

54. Ten Periods Cascading METRICS RECORDING 6 -25

55. Ten Periods Cascading METRICS RECORDING 6 -26

56. Ten Periods Cascading METRICS RECORDING 6 -27

57. Ten Periods Cascading METRICS RECORDING 6 -28

58. Establishing Historical Performance METRICS RECORDING 6 -29

59. SCPM Cycle (Survey-Constraint-Plan-Metric) INSIDE OF LEAD-TIME CHANGES 6 -30 METRICS RECORDING TACTICAL CORRECTIVE PLAN Sales Forecast & Master Schedule Process Review Example #1

60. SCPM Cycle (Survey-Constraint-Plan-Metric) BILL OF MATERIAL ERRORS 6 -31 METRICS RECORDING TACTICAL CORRECTIVE PLAN Engineering Documentation Process Review Example #2

61. SCPM Cycle (Survey- Constraint -Plan-Metric) LATE ORDERS AND SHIPMENTS 6 -32 METRICS RECORDING TACTICAL CORRECTIVE PLAN Materials and Scheduling Process Review Example #3

62. SCPM Cycle (Survey-Constraint-Plan-Metric) INSTALLER AND CUSTOMER COMPLAINTS 6 -33 METRICS RECORDING TACTICAL CORRECTIVE PLAN Mini-ISO-9000 Quality Process Review Example #4

63. SCPM Cycle (Survey-Constraint-Plan-Metric) HIGH COST OF SALES 6 -34 METRICS RECORDING TACTICAL CORRECTIVE PLAN Cost of Quality and Kaizen Process Review Example #5

64. SCPM Cycle (Survey-Constraint-Plan-Metric) EXCESSIVE DAYS OF SUPPLY 6 -35 METRICS RECORDING TACTICAL CORRECTIVE PLAN Inventory Days of Supply Process Review Example #6

65. SCPM Cycle (Survey-Constraint-Plan-Metric) TOO MANY OPEN PROBLEM ISSUES 6 -36 METRICS RECORDING TACTICAL CORRECTIVE PLAN Customer Feedback and Proactive Process Review Example #7

66. SCPM Cycle (Survey-Constraint-Plan-Metric) NEGATIVE METRIC TRENDS 6 -37 METRICS RECORDING TACTICAL CORRECTIVE PLAN Strategic Planning Example #8

67. THE METHODOLOGY 6 -38 Aggregate Performance Index 88 14 6076 4322697886 6225121 1243233326 12292 Top Level = Company 2nd Level = Divisions 3rd Level = Departments 4th Level = Teams 5th Level = Metrics

68. ________ ________ ________ ________ ________ 80 64 48 32 16 10 20 30 40 50 25050 125 100 40 200 30 75 150 20 50 100 10 50 25 HUMAN RESOURCES SERVICE ENGINEERINGOPERATIONS SALES IN PURSUIT OF THE BOTTOM LINE METRICS RECORDING THE PERFORMANCE DIAMOND 6 -39

69. Performance Recognition Annual Personal Performance Recognition Quarterly Team Achievement Rewards Weekly Performance Incentives Best-to-date Celebrations COMMITMENT AND REWARD 6 -40

70. The “Make-it-Happen” Forum COMMITMENT AND REWARD The Machinists’ Story 6 -41

71. A Time For Change COMMITMENT AND REWARD CHANGE RESULT Understanding the CEO’s vision Increased self-worth Employee empowermentIncreased morale Tactical plans alignmentNo finger pointing Focused effortsImproved performance Improved communicationsBetter decision-making Optimized business processes- only value added activities - reduced operating costs - reduced inventory Performance recognitionEmployee job satisfaction and retention 6 -42

72. THE METHODOLOGY The Process Review –The business survey –Critical success metrics –Typical business metrics Metrics Philosophy –A focus on improvement –A focus on accomplishment –KISS Metrics Monitoring –Scorecard template design –Ten periods rolling forward –Establishing historical performance Commitment and Reward –Performance Recognition –The “Make-it-Happen” Forum –A time for change 6 -43