Digitalization delivers value

Creating a sustained competitive advantage
Factory Auto May/June Main img

By Duncan Micklem

It seems that every software initiative in the energy and chemical industry is now tagged with the name "digitalization." Yet similar initiatives a few years ago were called Six Sigma or lean manufacturing projects. In essence, they are all focused on operational excellence, but digitalization has risen to the top of the C-suite agenda due to the rapid penetration of new technologies disrupting the way consumers are buying and using everyday products and services.

Music and movies are provided as services that learn about your preferences and those of your peers; they used to be sold as a hardware product that you bought and owned. More and more, people are buying products of all kinds from unknown vendors in far-off locations through trusted online marketplaces. They are delivered to your doorstep, so you no longer have to find and visit a local vendor and hope it has stock on hand. Newspapers and magazines are failing as we consume news and entertainment in real-time through our phones, and often for free. Our cars are mobile information centers with the intelligence to save us from our own bad driving habits. And we can control our homes and maintain their security remotely. The process industries saw this and feared they would be left behind.

In the consumer world, entrepreneurship caused the digital revolution. Consumers benefited from improved efficiency and convenience, greater social connectivity and personal security, and even elevated status. Minor improvements in a consumer's experiences have changed suppliers' business models massively and forever-newcomers have entered from nowhere, and some household names that failed to respond are gone forever (think Blockbuster, Sears, and Toys"R"Us). Some of our kids are growing up knowing nothing different.

The response of the energy and chemical industry is digitalization. In this world, the gains to be had are much more valuable-greater profitability, improved asset performance, and better competitiveness. We can expect much more drastic consequences-hundreds of millions of dollars are at stake, and those who embrace digitalization will prosper. Those who do not respond will indeed be left behind: either consumed by those who do or fatally destroyed in the marketplace.

So digitalization is more than just another Six Sigma or lean manufacturing project. It is an imperative that is not going away. Digitalization is the scalable application of the digital technologies and alignment of the organizational capabilities that we believe an energy or chemical process operation should have and master with digital information at the core in order to achieve excellence. All the emphasized words matter.

Applied correctly, digitalization allows a process plant operator to not just manage day-to-day performance of the plant safely and reliably, but also to anticipate and respond to swings in market dynamics. Plant personnel become implementors and supervisors of strategy, rather than number-crunchers or tacticians. Digitalization ensures that the plant will operate at its true optimum, squeezing down on the gap between potential and realized margin. Better and faster decisions will be made, outmaneuvering competition.

For many beginning their digitalization journey, there is a strong pressure to deliver something big using one of the latest buzzwords-Industrial Internet of Things, Industry 4.0, cloud, edge, big data, or analytics. Proponents of this input-oriented approach risk applying technology for the sake of technology, without realizing its true value. Here, we look at outcomes; we explore how digitalization can deliver and sustain true value to the energy and chemical industry.



Factory Auto May/June Fig 1
Digitalization journey: All digitalization initiatives go through this series of five steps.



Sticking to the map

All digitalization initiatives lie somewhere on the journey shown in the map image on the next page. For any initiative to be successful, no matter where it lies on the journey, the earlier stages must already have been accomplished. For example, most analytics projects ("situational awareness" ambition) fail due to poor data quality (lack of "readiness"); most advanced controls ("operational execution" ambition) are turned off (a sure sign of failure) because their strategy or constraints are not up to date (poor "situational awareness"), so the operator can do better. Let's explore each part of the journey.

Factory Auto May/June Fig 2

Frost & Sullivan estimated that process industries use less than 5 percent of the data that is collected-95 percent of the data is either siloed (used selectively), dark (unused), or not consistently in use. Problems of assigning context to data and poor quality have also been identified.

To be ready for digitalization, the impediments to data utilization must be addressed: (a) data readiness (data sufficiency, data trust, data propagation, and data governance), (b) infrastructure readiness (physical infrastructure; security, privacy, and confidentiality; software infrastructure and cloud infrastructure), (c) consumption readiness, and (d) people readiness. A wise approach is to perform a readiness assessment and to tackle any readiness issues before starting (or perhaps in parallel with) a digitalization initiative.

Factory Auto May/June Fig 3

To take the right actions to improve a plant's operation, it is important to understand the potential for improvement. Situational awareness is therefore a crucial step-knowing how the plant is and has been performing in absolute terms ("hindsight"), understanding where it has capacity for improvement versus its constraints and optimal capability ("insight"), predicting responses to changes ("foresight"), and assessing the success and value of such changes ("oversight").

Tools associated with hindsight and insight are largely visual-dashboards, BI tools, spreadsheets. These gain significant value when they align with goals, targets, and constraints. Therefore, to present decision makers with valid information in dashboards, for example, the right tools must be applied to each situation being analyzed.

Analytics are necessary for foresight and oversight, and we also consider them beneficial for hindsight and insight. We are strong believers in using first principles-based analytics tools in conjunction with emerging correlation-based analytics (also known as statistical or stochastic analytics) for situational awareness-a so-called "ensemble approach." First principles tools bring rigor due to their built-in understanding of physics, chemistry, and dynamics, but at the cost of complexity and relatively high computation time. Correlation-based analytics suffer from lower fidelity without any guarantee of feasibility, but with the advantage of simplicity and speed of solution.

Factory Auto May/June Fig 4

In the same way that we recommend an ensemble approach to situational awareness, we also believe that decision making should be grounded on first principles in conjunction with correlation-based tools as necessary. Decision making is about looking for answers. In an operating plant seeking to improve performance, there are three main kinds of answer that can be sought: (a) forecasting ("what next?")-a judgment of what is likely to happen in the future based on knowledge of the past; (b) prediction ("what if?")-an estimate of what will happen in the future based on changes that could be made in the present; and (c) optimization ("what is best?")-an approach that answers the question, "Of all possible changes that can be made, which has the best economic outcome?"

In the energy and chemical industry, there are many complex decisions to be made due to the vast number of variables that can be controlled and the large quantity of disturbances and constraints. Correlation-based decision tools are useful when accuracy is not as important as feasibility and when the answer lies within an already-experienced operating window. However, sloppiness in accuracy comes at a cost-the actual optimal solution is likely worth a lot more than a simply feasible solution. Rigorous models will always find the best answer. Always.

Factory Auto May/June Fig 5

Being ready, situationally aware, and making the right decisions only guarantee success with efficient and effective operational execution. Digitalization compresses time horizons, which means not only doing the same thing faster, but becoming liberated to do completely new things.

The more encompassing the decision, the longer it takes to make and the more economically and organizationally impactful it is, and for a longer time. A wise business decision may reap rewards for years, whereas a poor business decision may have long-term costly consequences.

Automation, on the other hand, by its inherent nature, makes decisions very quickly based on very recent limited data. The scope is typically much more contained, and the automation actions can be suspended or terminated quickly. So, the more informed and timelier the decision process becomes, the more likely the decision will be good, the quicker it will be to execute, and the easier it will be to course correct.

Factory Auto May/June Fig 6

Digitalization accelerates information flow, increases the power of analytics, and automates much of the execution, which greatly condenses the decision/execution time horizons, allowing strategic business decisions to be made in real time, and the results to be visible and available almost immediately.

The tools of operational execution (advice-based open-loop actions, closed-loop control, procedural automation, and closed-loop optimization) start with best practices. Replicating poor or average business processes in a digital environment does not ensure delivery of superior results. The focus should be on acquiring best practices to execute the organization's work, and thereafter on finding the digital means to institutionalize automation of as much of each of these processes as possible.

Digitalization is typically not a one-time hit, where the benefits are achieved and stay forever. Unless proactive steps are taken, benefits will almost always decline over time, and the opportunity to capture incremental benefits will diminish too. This happens for a number of reasons:

  • the economic basis for the solution changes
  • goals change
  • plant performance changes
  • business priorities change
  • focus by people (management, engineers, operators) changes
  • technology changes.

Our approach to sustaining digitalization value entails going above and beyond compliance with how new digital applications are implemented. It is an approach where there is a clear sense of ownership by the organization, especially the front-line operators, through recognition of the added value of the applications.

Achieving this involves goal monitoring and economic stewardship, knowledge management, management of change, and a value-versus-cost mindset around technology and capability refresh.

No doubt this will have a significant cost. However, the value that it unlocks will be orders of magnitude greater, enabling sustainment actions to pay for themselves many times over.

Our organization recently worked with a major multinational oil company that was looking for a flexible, lightweight, and cloud-based solution to manage operating goals and constraints at its western Canada plants. It wanted to ensure its assets were always operated according to best practice, something it had struggled with due to a retiring skilled workforce being replaced by younger, less experienced staff.

Embracing the digitalization concept, the oil company worked with our organization to adopt Operating Goals Manager™ (OGM) as a standard application delivered through a software-as-a-service model. The application allowed users to define measured variables and tasks as indicators. Each of these indicators contained company knowledge, such as reasons for the specific operating envelope; consequences for not addressing an excursion in a timely fashion; recommended actions to address an excursion; and stored company procedures and documents.

As a result, OGM is being used in four gas plants in western Canada as a cloud service, tracking thousands of live indicators in real time and supporting hundreds of users. This is just one example of many where a digitalization strategy has helped improve overall operational excellence.

Do not get left behind

Digitalization creates and sustains competitive advantage and is one of the key strategies a plant can adopt in pursuit of operational excellence. Despite this, many in the industry still remain confused or irritated by digitalization. Some feel it is merely an information technology issue and do not understand its relevance for operations; some are frustrated by the plethora of buzzwords; some see it as hype and fail to see the value proposition.

Digitalization leaders, however, see it as a holistic business issue and are already making huge strides forward in productivity, efficiency, flexibility, and agility. Those who do not realize the value digitalization has to offer risk being left behind. Failure to adapt and transform means that the magnitude of value being lost will continue to increase-the digitally wise will consume the laggards in the market.

 
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Fast Forward

  • Every software initiative in the energy and chemical industry is now tagged with the name “digitalization.”
  • The goal is operational excellence, leveraging new technology.
  • Digitalization gives process plant operators the opportunity to anticipate and respond to swings in market dynamics to outmaneuver competition.
 

About the Author

Duncan Micklem is the executive vice president, strategy and marketing at KBC, a Yokogawa company. Based in Houston, Texas, Micklem’s responsibilities include business planning, M&A/alliances, investment prioritization/capital allocation, and marketing. Micklem has a degree in biology and geography from the University of Exeter, U.K., and an MBA from Cass Business School, U.K.

 
 

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