By Julie Fraser, President, Principal Industry Analyst, Cambashi
Control engineers know the value of instrumenting production processes. It's about time the executives understood that, too. In the newly released MESA-Cambashi research study, "Correlating Plant Performance to Business Performance," it's clear that good business performance in the plant is a common characteristic of companies that improved their business or financial performance significantly. Looking behind the data and listening to the respondents we interviewed by telephone, it's also clear that instrumentation is at the core of a producer's ability to increase profitability.
To validate the concept of the research in "Correlating Plant Performance to Business Performance," we split the respondents into two groups based on how much they improved against key financial metrics. The group we call "Business Movers" includes just over one-third of respondents who improved either earnings (EBITDA) or profits (net operating profit) by 10% or respondents that improved performance on 10 of the 14 business metrics in the survey.
These business movers certainly improved plant operations performance as well. Figure 1 shows the Phase 1 findings for just a few of the operational metrics. This chart compares the portion of these business movers that have improved significantly (10% or more) and the portion of "others" making the same 10% level of improvement. Since we can see that more of the business movers are improving quality, timeliness and cost of production, everyone else is in danger of losing the ability to compete. The business movers' increased financial performance suggests just that.
Figure 1. "Business Movers" either improved their earnings or profits by 10% or are respondents that improved performance on 10 of the 14 business metrics.
So what does that have to do with instrumentation? Without instrumentation, measuring operations performance is a gigantic tradeoff. In fact, one of the respondents said, "I can automate data collection, but then I must look at the cost-benefit. Where is the line? The tradeoff is between how much unproductive time employees need to capture the data and the expense of capturing the data automatically. Instrumenting the process may be faster and more efficient—but how much does the infrastructure cost?"
Clearly the cost of infrastructure is always a hurdle for investing in automation. How most companies do this today, particularly in the West, is problematic.
- Timeframe: The first problem is that most companies look at it from a short-term investment perspective, and not in the context of long-term ability to improve business and financial performance. From the short-term view, investing in instrumentation may be a tricky justification exercise. However, from a longer-term view, it's nearly certain to be a winning proposition. In fact, taking the short-term hit to margin during the investment phase can be the beginning of a longer-term, year-on-year improvement capability that the company can't envision before the investment is in place.
- Productivity perspective: Most companies do not have a handle on the lost productivity and other costs that result when employees can't see their performance. This could be either not having visibility to how well they're performing—or not seeing performance outcomes quickly enough to take action to prevent problems or improve performance. Another interviewee said, "What I've learned is that the faster I deal with a quality or productivity issue, the less it costs to correct it. Faster means less costly countermeasures."
The cost-benefit question in the quote above illustrates both of those issues. The common approach to justifying an investment in instrumentation is a view of labor hours spent collecting data vs. the cost of the automated data collection capability. That is simply faulty logic.
One of the other interviewees pointed out that the most valuable metric for his company is the cost of lost production time. And what contributes to lost time? All of the things we typically measure. There's a good bet that the quality, throughput, asset utilization, compliance and anything that relies on timeliness (such as cycle times and schedule attainment that enable good customer service) will benefit from better instrumented processes.
We would broaden that to include any lost time in the company and any non-value-adding time. Value stream mapping may contribute a clearer view by considering the entire set of operations metrics that contribute to the company's success. Automated controls enable process reliability and consistency that Six Sigma and other continuous provement methodologies recognize as the core goal. Furthermore, the information available from instrumentation allows people to make better decisions, and can feed other automated systems, such as software applications, to make them more valuable. The justification should work toward quantifying all of those issues.
In fact, business movers are nearly twice as likely to use fully automated data collection to feed their metrics processes as others, as Figure 2 shows. The concept of partially automated data collection involves things such as employees using barcode scanning guns. It should be noted that more than three in five respondents in the "other" group are heavily reliant on people to gather the data required to gauge performance. We doubt this is either efficient or effective.
Figure 2. Business movers are nearly twice as likely to use fully automated data collection to feed their metrics processes as others.
In fact, the respondents to this study report that they are more likely to have a one-year or less return on investment horizon in automation and controls than for operating equipment. This is old-school thinking. For one, most equipment these days has some instrumentation built in.
How can the controls community help break this pattern of under-valuing instrumentation? By leveraging the results of the data collected from any processes instrumented today. Those with a continuous improvement group—particularly Six Sigma teams that conduct statistical analysis—will have a rich data source for this effort. Others may need to recommend that their accounting team learn about resource consumption accounting or get involved in building out costed models of production. Controls engineers must also ensure they are partners in specifying equipment, so that the instrumentation required for such measurement is available and appropriate for their environment.
Helping plant employees see the financial impact of their activity can truly drive improvements. That requires speedy ways to measure operations, among other things. Control magazine readers know that the way to collect data for metrics that is fast and accurate is instrumentation. Invest in or leverage instrumentation for performance metrics to help your company get on the path to profits!
Please note: As I write this, the final study is not yet released. Thus this data represents public data from Phase 1, which is a subset of the data. To see the final study and data set from the full response base, please go to www.MESA.org. A public summary report is available for all; the comprehensive study is for MESA Premium Members and study sponsors only.