Peter Martin, VP of Strategic Thinking (if he's not, he should be) of Invensys, talked about his expanded view of what engineers need to know...teeing up perfectly for the talk I'm giving tomorrow.
He called his talk, "Extracting Measurable Business Value from Manufacturing Assets," but he said he'd come at this from a slightly different angle.
He talked about today's business environment.
- Globalization happened, and is here to stay
- Resource Availability and Cost can change your business forever
- raw materials
- human
- energy
- Aging equipment AND workforce
- Increased pressure on profit margins
- Improved returns on Assets
- Speed of Business is now at the speed of light
- Death by Initiative: SQC, MES SPC Six Sigma...
CIM: "One year I was the VP of CIM at Foxboro, and I didn't really know what CIM was, but I was the Vice President of it. We were CIMming. What it meant was that if you connected all the equipment and systems in the plant, something good is bound to happen."
What all of this initiative stuff means is that there is a lack of comfort. A lack of understanding of how to get the most out of a plant you can get. And now you had to go out and get a green belt, a black belt, and so on, while you do your job. This is an indication that there is turmoil in the industry.
"There is no easy way to measure economic benefit. We can measure asset cost, most of the time. We know what the cost of capital is, even over the lifecycle."
"In all 83 sites we surveyed, the economic benefit is NOT MEASURED!"
"Think about this: the group within industrial manufacturing that has been downsized the most over the past 15 years is engineering. Why? Because engineering is perceived to be doing things that have a cost, but not a benefit."
"Laying off all those engineers was a mistake. Now it is also our opportunity."
"When you actually measure what you do, engineering is driving more benefit, more value to the bottom line than any other part of the industrial operation. This is where Real Time Finance comes in."
So, Martin went on, we went out and did focus groups on operations financials.
How do you get executives to show up for a focus group? You offer golf. We got five different focus groups by sponsoring PGA pro-ams and the Ryder Cup.
Martin showed a very fancy chart produced by Gartner, and one of the executives grabbed it and threw it away.
He drew a simple box. "I'm the CEO. I run the business. Any questions? I do two things and two things only. I run the business and for that I have a COO. I measure the business and I have a CFO to do that."
One of the CFOs stood up and said, "My job is not to measure the business, my job is financial reporting."
The CEO said, "I know you think that's your business, but I don't think so."
Martin noted that the group that is responsible for measuring the business doesn't realize that's their job.
The CEO focused his energy on the Operations side. Monthly: Enterprise Management; Daily: Production Management; Real-Time: Plant Asset Management-- of the Manufacturing Asset Base. Note that what he called plant asset management isn't exactly what we think of as asset management.
"We spent enough money, these things all ought to be connected together," the CEOs all said.
But what about the CFO? Monthly: Financial Reporting from the Enterprise Management level.
So anything that happens at the Daily or Real-Time level is invisible to the financial management systems.
A COO said, "We know that the financial guys aren't doing their job, so we developed our own measures: KPIs"
A finance guy retorted, "If one more engineer comes into my office and tells me about KPIs I'm going to fire his ass."
What the plant accounting model lacks is resolution and timeliness.
Over 60% of the cost of doing business is outside the control of a plant manager, because it is G&A allocation.
We have a brick wall, Martin said, between Base and Product Measures and KPIs and the Business Performance Measures that the Accounting system measures.
"We have a measurement disconnect here," Martin said.
So we developed a Real Time Accounting system running in the manufacturing asset base. "This is blasphemy! So we changed the name to realtime performance management so the engineers didn't get scared off."
By using data historians in the control system, we were able to produce activity/velocity based management data bases.
"So you say, 'I've been in this industry 30 something years and I've never been measured...this is scary."
But we should be measuring everything we do on a positive cash flow basis.
The people who really make and lose money are not the managers, Martin went on, but the operations and maintenance people.
This means we have to start teaching realtime strategic alignment.
Using a Vollman Triangle (Strategy, Action, Measurement cycle) you can decompose strategic performance measures. Each strategy should produce some direct strategic objectives, which decompose into an action plan, which can be measured, and back to strategy.
There is a strategy/operations gap. So we need to perform a strategic alignment and decomposition for manufacturing facilities. This makes us build very boring dashboards. They have to be boring because you don't need pretty, you need a lot of information. We never go beyond four measures. The military determined that all people can do in a realtime environment is look at four visual fields. Look at your car. It has four visual fields.
So how do you use this information to economically optimize your plant? Operations and maintenance are groups that don't get along that well. There's usually a brick wall there, too. Operations and maintenance are working on the same plant assets, so if they were to collaborate and cooperate it ought to work better, yes?
We went down to Hendricks Motorsports and talked to Jimmy Johnson and Jeff Gordon about how NASCAR drivers cooperate with their pit crews. The way they mediate the potential conflict is to come up with a common measure: winning the race. So we have to develop a common goal for manufacturing operations like Hendricks has for a race.
Availability and Utilization are inverse functions, Martin noted. True Economic Optimization requires an asset economic value vector. This is a third measure that both Operations and Maintenance can use. This vector is what tells you how to control to business objectives. Asset Utilization we used to refer to as Process Optimization, and Asset Availability is Asset Management. Now we have two variables with the same name. So we now call the economic vector value Asset Performance Management.
We use the technology sets we already have!
And there's the measure that takes what we do, and uses it to run the enterprise. It makes us visible.
Some strategic goals.
Once you make those business measures, once you establish those strategies, you can control the business.
Martin related what Sudipta Battacharya, VP of SAP told him, "I'm jealous of you guys (Invensys) because we do measurement, but you do control."
"We've actually applied for a patent on closed loop business control," Martin said. "The reason we applied for the patent was so engineers would realize that all the experience and wisdom can be applied to the business systems."
NOW, Martin said, we can really experience continuous improvement-- this time on economic asset value.
So, think more broadly, Martin said. How do you apply the techologies you learn to driving business value.
