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The Failure of Nerve?

March 17, 2004

Process control improvements have driven increasing levels of productivity and plant profitability. There has been so much productivity improvement out there that many of us have driven ourselves out of jobs. This shouldn't have happened.

I recently attended the ARC Forum in Orlando Fla., and after listening to consultants, vendors and end-users talk about real-time process management and real- time business process improvement, it became clear that these process enhancements work.

It also became clear from a study that ARC did last summer, that more than 80% of manufacturing companies continue to use traditional accounting practices to understand plant economics. The study concluded that beyond a certain point, quantifying the true value of performance improvement projects is stymied by less than optimal cost accounting practices.

The study shows that while each process or manufacturing user points to significant savings by moving to a version of real-time management, they also point out that if these initiatives are to have long-term success, each requires a profound change in the way companies are managed and accounted.

Those of us who are interested in organizational development have been banging on this drum for a generation now, but very few, it seems, have been marching to the beat. There are isolated success stories, but there aren't many companies in the manufacturing industries that have moved far enough past this horizon to produce the order-of-magnitude results that the consultants and vendors have predicted. One small producer of corrugated paperboard presenting at the ARC Forum said it had made real-time process management work, as did a few other companies. However, it remains apparent that most mainline process and manufacturing companies have taken only baby steps in this direction.

So, instead of getting their act together here, manufacturers and processors have instead, chosen to vote with their feet and move production offshore to take advantage of lower operating and labor costs in order to boost profit margins and revenues. The theory of real-time management says that companies should be able to leverage changes in management and production performance improvement, along with basic changes in accounting practices such as forecasting, to produce similar savings and increases in revenues and ROI from existing plants, without moving offshore.

So why are companies still jumping ship?

Partly to blame are the top-down financial management practices forced by stock market analysts and traditional cost-accounting systems. But while it is safe to sling blame on analysts and bean counters, it isn't the real answer.

The real answer appears to be a failure of nerve throughout manufacturing. Managing real-time processes requires a completely different skill set based on the ability to learn to manage continuous change in a forward-looking and positive way. For too many managers, change is bad. We pay lip service to the "consultant of the week" and nothing ever really changes.

There is a disconnect occurring within the enterprise, and many blame it on turf wars between enterprise IT and process automation IT. What may really be to blame is the disconnect between 21st Century manufacturing practices and out-of-touch management and accounting practices developed in the 1920s.

Our plants and jobs continue to move offshore because it is easier to account for the value of lower labor and operating costs than it is to account for the gains derived from efficient process management. We are cannibalizing the most productive workforce in the history of the world because we don't have the courage to implement the accounting and management systems that proper use of our process control systems require.

There is something very wrong with this picture.

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