Dr. Martin tells a story about an interview he conducted with a CFO. The CFO burst out complaining, "If one more engineer comes in my office trying to tell me all about his KPIs, and how much money he's made for my company, I'm going to fire his ass!"
This challenge is perhaps going to be harder than simply surviving the technical, economic and political changes we're being whipsawed with every day.
We know how to make our enterprises far more flexible, far more nimble than they have ever been. WE know how to make our enterprises far more profitable than they've ever been. We know how to make our enterprises inherently safe and secure. WE have the data, and the tools to use it.
But the managements we report to at the enterprise level have no idea that buried within their plants is the knowledge that will help them and their entire companies not only survive but grow and prosper, as far into the future as I can see.
For a hundred years, we've been applying control principles to manufacturing processes, whether continuous, batch, hybrid, or discrete. What has NOT been done, is to apply those principles systematically across the entire enterprise.
Enterprises continue to be operated and reported on the basis of cost accounting principles set up when an enterprise had widely scattered cottage industries with difficult and slow communications between organizations. It is possible to make a process optimization change that saves a plant $10 million a year, and the CEO and CFO may not even notice in the financial rollups they actually see.
It is also possible to make a plant more efficient, and damage the enterprise at the same time, if the production from the plant is now far greater than the next plant downstream in the supply chain cannot absorb the increase.
It isn't about process control and engineering anymore. We MUST develop systems that communicate in real time with the financial managers– and who's going to do it, if not us? We have the data, and we understand how to use it.
Dr. Martin often shows a slide in presentations, and I've borrowed the concepts with permission. The CEO oversees two things: measurement and operations of the business. He has a CFO for measurement, and a COO for operating the business. But if we look at Dr. Martin's model, we can see that it is unbalanced, indeed it is broken. On the operational side, we have good metrics, in fact, we have such good metrics that we've been turning out those KPIs the CFO hates for over a dozen years now, in real time.
But on the financial side, the metrics between the manufacturing resource base and the enterprise are missing.
This is our challenge. As you can see, this is a measurement problem. What do we know how to do, have been doing for over a hundred years? We are really good at measuring things, collecting and analyzing the data, and using that data to provide operational control. We have to figure out how to provide financial management control, and, frankly, we are the only people who can do it– because we are the keepers of the processes, the measurements and the data.
The problem with expanding the economic calculus to include operating inherently safely is that there is no way in any cost accounting system of accounting for preventing costs that have not happened. The costs of prevention, the costs of changing to inherently safe operation are accounted as unsupported costs, and they reduce the profit of the enterprise in the near term, and even sometimes in the medium term. Yet there are always millions of dollars or Euros available to fix systems after disasters occur, because now there is a metric– actual costs of lost revenue and fines and lawsuit settlements.
We must show that operating inherently safely saves money from the start, and improves profitability from Day One. We can only do that with real time performance metrics—which the CFO refuses to see because they aren't expressed in cost accounting terms.
Our challenge,then, is to determine means and methodologies to generate Real Time performance measures in terms that can be rolled up into standard financial reports. Our challenge is to produce production cycle reports that can take that real time performance data and feed a real time accounting system, which in turn can feed a financial reporting system. We've been complaining about the cost accounting system, and its bastard cousin, activity based costing or activity based measurements forever because they can't operate in real time, and they can't take real time data and operate on it, either. But the entire financial structure of the world runs on this kind of accounting and reporting, and we can complain forever, with less than no result.
Our challenge is to develop the metrics to feed that system data that is timely and accurate, so that better decisions can be made. It is axiomatic that if you can make better decisions, you can improve flexibility, productivity, and profitability of the enterprise..and show that operating inherently safely is more profitable, just as Levi Leathers believed….and the data and all the tools are ours.
And while we're doing that, we still have to make the plant run. An instrumentation engineer at a LyondellBasell plant once told me that he is expecting his standard technicians to know much more than they used to have to know, and pay scales and job descriptions are lagging behind what they need to know to just do their jobs.
Ian Nimmo, President of User Centered Design Services, says, "In a properly run plant, the operator should not have to intervene in the plant operation except in the case of an upset, and any time the operator has to do anything, it is an upset."
System Integrators, vendors and end users alike are asking their people to do more with less, and that means smarter people, with smarter tools, and a clear grasp of the way the process works.