January/February 2010

Thriving during the economic downturn by building a real-time enterprise

By Peter G. Martin

Part 1 of a two-part series

Industrial companies commonly respond to a difficult economy by hunkering down and waiting for the market to swing back up. Although this is often a safe approach, it sometimes results in lost opportunities to increase production, improve efficiencies, and better the overall operations of the plant. As the economy weakens, capital spending is naturally cut, which is a very reasonable reaction. But when capital projects stop, new opportunities arise to use existing technology and talent to drive performance improvements. By seizing these opportunities, not only will the company cope with the impact of a weak economy, it will also be in a strong position to capitalize on new efficiencies when the economy recovers.

Industrial plants are actually a collection of assets working together to create or generate products. These assets include process assets, such as equipment and piping; automation and information assets, such as instrumentation and systems; supply assets, such as energy and feedstock; and human assets, such as operators, maintenance personnel, engineers, and management. To optimize the overall business performance of the enterprise, each of these asset groups must operate collaboratively at peak levels. Because existing human assets are not busily applied to new capital projects during an economic slowdown, this might be the ideal time to divert human asset capabilities to fundamentally enhance the performance of all the other assets. 

While this might be obvious to industrial management, what might not be as obvious is determining an effective strategy the plant's human assets can employ to drive performance improvement. Identifying the appropriate strategy is most readily accomplished by evaluating the business dynamics that have changed over the past few years. To determine what might be new and different in the industry, it might be useful to start at the business basics of the plant.

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At their core, industrial plants exist to maximize production value by generating variable products at the lowest possible cost. Traditionally, process automation has primarily been used to reduce the fixed cost of industrial operations-typically in the form of headcount reductions. After decades of headcount reductions, there are so few people left in most industrial operations that there is just no room left for reductions. Since fixed cost reductions are no longer viable, industrial companies must now start to focus on reductions in the variable costs of the operations. In the process industries, the majority of these variable costs come from energy and materials.

When evaluating the three primary business variables for dynamic changes that have occurred over the past few years, we find important shifts have occurred. For example, only a few years ago, industrial companies could negotiate energy contracts with their suppliers over a period of six months or even one year, effectively making the price of energy a constant value. Today, long-term contracts are no longer available in most markets and, not only that, the price of energy might change many times every day. This has had a domino effect on the other key business variables to the point which today all three key business variables of industrial operations are starting to move toward real-time variability. This shift has completely altered the business dynamic and created the need for an effective business management system. Since their inception, manufacturing processes have had to operate in real time. Now, the business of manufacturing has to be conducted in real time too.

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As a result of these dynamic shifts, traditional strategies for managing manufacturing operations fall short. Most of the business management infrastructure in industrial operations has been designed and implemented to provide monthly snapshots of businesses that today are changing minute by minute. This is unacceptable. It is tantamount to driving a car while only looking through the windshield once a month, hoping you arrive to your desired destination without an accident. It is just not going to happen.

Exacerbating this situation is the freedom to drive improved business value is limited by mandatory safety programs that focus on protecting the people, the process, and the environment. In many cases, these safety standards impose constraints on business variables and often work at odds with business objectives.  

Many of variables that measure safety fluctuate in real time as the plant dynamics vary. For example, the process and equipment measurements that foreshadow an impending accident or event, such as equipment vibration or temperature, change in real time with equipment operation. Even environmental issues, such as emissions, can change in real time. These safety variables must be managed in real time while simultaneously driving real-time business improvements even as the other key business variables are also varying in real time. It is obvious the most effective strategy to improve performance in such a real-time atmosphere is to develop a real-time business operations management infrastructure that is built to match the dynamics of emerging real-time enterprises.

It is important to note, many industrial business executives are under great internal, public, and regulatory pressure to make their operations environmentally sustainable, which is part of the overall safety variable. Environmental sustainability encompasses emissions, energy, effluent, water, and other key variables that can be impacted by an industrial operation.

The good news is most industrial operations already have the tools to move to a real-time business operations management strategy. They just might not be the tools most business managers look to when addressing other business issues. The second part of this article, coming in March/April InTech, will show how to measure the business in real time, provide empowerment for plant operations employees, and delineate the relationship between real-time operations business management and real-time profit optimization.

ABOUT THE AUTHOR

Peter G. Martin Ph.D. is vice president for business value generation at Invensys Operations Management. Martin has spent three decades in the automation industry, culminating with the development of commercially-applied dynamic performance measurement technologies and methodologies. An established author and industry speaker, he received the ISA Life Achievement Award in 2009 for his work in performance measurement.