Energizing the enterprise

By Walt Boyes, Editor in Chief

 

The old instrument engineer leaned back in his chair and opened The Big Golden Book of Manufacturing and began to read. “Believe it or not, children, once upon a time, and not so very long ago, there were people who lived on the C-level of corporations who didn’t think that they needed to know what was happening on the plant floors of their enterprises. There were vendors like SAP who had told them that all they needed to do was to count the goesintas, know their prices, count the goesoutas, and they could run their enterprises swiftly, efficiently and entirely based on monthly reports that were at least 60 days removed from real time.” (See Figure 1 below.)

The old instrument engineer paused and looked up at his listeners. “Nowadays we call those people bankrupts. They got run over by the tide of leaner, nimbler companies that understood that you need to see the information from the plant in near-real time in order to make effective decisions.”

That”s not exactly what’s happened, but it is close. Nor is the tide at flood. The vast majority, probably 80%, of manufacturing plants—and not just in North America or Western Europe, either—still operate entirely based on cost-accounting principles developed in the first half of the twentieth century. Decisions are made based upon cost roll-ups generated from manufacturing and sales reports that take sometimes as much as 60 days to produce. Any problem in the supply chain or in the manufacturing process, therefore, doesn’t get seen at all by top management until it is far too late to do anything about it.

As automation professionals, we know all about control loops. It’s an axiom of loop theory that a loop with too much physical lag time simply cannot be controlled.

 

	FIGURE 1: THE MANUFACTURING CONTROL LOOP
	The loop lag time is as much as 60 days, sometimes more, so the loop is essentially uncontrollable.

So manufacturing enterprises continually over-control their processes based on the control loop variables they use in the cost-accounting reports that management sees; variables such as cost, scrap, maintenance cost and machine availability. Each of those variables is seen as a roll-up in a report. So often it happens that a production lot may have to be scrapped because the quality of the entire lot is bad, but the fact wasn’t noticed until after the fact.

 

“By putting on-demand KPI (key performance indicator) data in the hands of employees, we’re enabling more efficient and smarter decision-making,” says John Ragone, automation manager, electric production for KeySpan Energy, the largest electrical utility in the northeastern U.S. “That translates to reduced risk and, ultimately, to a significant competitive edge.”

Spry and Nimble—That’s the Ticket
So what happened to get people to think like Keyspan’s John Ragone? According to Fred Fishman, manager of strategic purchasing programs at Techsolve, Inc., a manufacturing assistance organization in Cincinnati, companies “are all feeling the pressure of relentless increases in the prices of what they buy, and the equally unyielding pressure of their customers’ resistance to price increases in what they sell.”

“Profitability is the name of the new game,” Fishman continues.”While selling more is important, profitability is the critical element. To regain lost levels of profitability, manufacturers need to reinvent themselves into faster, more efficient and more agile entities that focus on efficiently converting the voice of the customer into must-have products that their customers wait in line to buy.”

This has been coming for a long time. Companies that saw it coming first broke their unions and moved from the Northeastern “rust belt” to the New South, and then fled to low-cost producer countries like China and the Pacific Rim nations.

Consultants who saw it coming have produced a long line of optimization strategies, such as Total Quality (TQM), worker empowerment, Six Sigma, Kaizen, Value Engineering and other candidates for buzzword bingo.

Yet, as Keith Larson reported in last month’s Control ("Best-practices Gulf is Poised to Widen"), the Aberdeen Group study, “Global Manufacturing: MES and Beyond” indicates that only 20% or less of manufacturing companies are putting in place and operating any of these optimization strategies. As Larson points out, “This best-practices gulf is poised to widen.”

Now why would companies not implement these policies and these strategies, if, as Ragone notes, it gives them a significant competitive edge in an increasingly competitive global market?

Partly, it’s that old booger, cost accounting, again. Costs are rolled up from the bottom, while profit targets and internal hurdle rates are set at the Wall Street analyst level.

Think that’s not true? Rockwell Automation announced in July that third quarter fiscal year profits rose above expectations. The earnings the company reported exceeded analyst expectations by $0.02 per share. Sales grew by 13%. And what happened? The stock lost 10% in overnight trading on the New York Stock Exchange. Analysts didn’t like the internal hurdle rates that were weakened by Rockwell’s investment in new technology and its move into the process industries. If you invest in yourself, it dilutes the stockholders’ gains. CEOs and boards have to be able to visualize gains that don’t appear on the balance sheet, and then sell those concepts to the analysts who determine stock prices.