ARC Advisory Group’s 23rd annual Industry Forum in Orlando, Florida included a session that addressed the need to align a company’s digital transformation plans with its larger business improvement goals.
Mark Sen Gupta led the session with a presentation prepared by Dick Hill (author of this report), who was unable to attend the Forum this year. Mark observed that perhaps today, your plants may be operating well and have reached a level of performance where you are satisfied. Your plants are manufacturing products and your customers are satisfied. But are you satisfied that your plant is generating maximum business benefit for your company? Reducing costs is only one factor here.
Using Modern Technology for Competitive Advantage
Industrial organizations are beginning to recognize that a new set of technologies and business practices are poised to disrupt their own operations and the competitive landscape. This will lead to increased competitive challenges from new and existing competitors and require new and different business models and solutions. How can these companies position themselves best to take advantage of emerging opportunities and counter competitive threats?
Today, information must be available from wherever and whenever it is needed. Digitization can make this possible. However, the digital transformation of operations must compete with other business investment opportunities.
Use Assessments to Understand the Business Value of Digital Transformation Plans
To determine the potential opportunity for value creation versus the associated risks, the performance of a plant or site must first be assessed. These assessments need to be applied in line with the corporate governance discipline, so the investment choice will optimize the value of the project portfolio over the horizon of the project or projects.
Using corporate governance-approved plant performance metrics based on maximum asset capability, an organization can view and evaluate the available options for improving the bottom line by improving the overall value created. Investment and return period issues, such as reducing costs and shortening time to payback and being able to sell more product earlier and longer, are typical value creation metrics.
Automation, of course, is one of the main manufacturing systems. In major projects, the CapEx associated with the automation purchase is typically in the 2 to 4 percent range. However, ARC’s research shows that a well-implemented automation project can have a much larger impact on the operations – in the 15 to 30 percent range. While automation is often taken for granted, it can increase value and reduce risk over the life of the plant. In addition, selecting a modern automation system can provide opportunities to improve the operations over time, as new business requirements emerge.
But before you make the selection, or even before you decide to spend capital, you first need to thoroughly assess the impact that such an investment will have in moving from your current plant performance to the plant or site’s “maximum asset performance.”
Project Planning and Justification Is a Team Effort
The project must be set up with the key stakeholders from the various management teams that will be impacted. Once the project has been approved by the corporate governance process, the team must decide what must be done and how to do it.
Once the plant assessments are completed, it will be relatively straight forward to compare opportunities directly based on their net present value (NPV) or projected return on investment (ROA).
Project justification will come through these quantified improvements:
- Improving operability by increasing asset utilization
- Reducing health, safety, and environment (HSE) risks
- Improve reliability to produce real savings by reducing forced outages, trips, and unscheduled maintenance
- Increasing maintainability through improved parts availability, factory service and technical support, and training
- Creating data transparency and improving internal analytics capabilities through integration with new technologies
Technology can be helpful to adhere to new standards, close performance gaps, and solve tough problems. To achieve success here, it’s important to balance organization, technical, and operating needs.
Air Liquide: Smarter, More Innovative Operations
Arnold “Marty” Martin is Director, Process Control Technology at Air Liquide USA. As we learned during his Forum presentation, his company has been hard at work moving with its customer-centric, “NEOS 2016–2020” initiative. The company is looking for greater than 10 percent return after five to six years. Internally, it has coined the term “SIO,” which stands for Smarter, more Innovative Operations. Fundamentally, it is a digital transformation/Industry 4.0 initiative.
According to Mr. Martin, control modernization is “the hardest thing in the universe to cost justify,” but is essential to enable the company’s plants to meet the needs of its customers. To succeed in control modernization, the company not only needs solid support from its suppliers, but also reusable standards to help create a platform from which to leverage modern technology for its Center of Excellence (COE).
Mr. Martin mentioned several suppliers that have been helpful here. He cited Yokogawa’s PACE Advanced Process Control product in particular. Part of Air Liquide’s program included an essential sub-program called “SURE,” which stands for Software Utility for Real-time Efficiency. Prior to standardizing on this product, the company was using what he called a “garage shop” multivariable process control (MVPC) technology and found this product far superior.
Mr. Martin also emphasized the importance of enabling and empowering personnel. Using machine learning and other artificial intelligence and analytics technologies, the company’s goal is to lessen the burden on its internal experts while providing operating personnel with the information they need to make good decisions. “If you know something is happening, you can do something about it before a failure occurs,” according to Mr. Martin.
Air Liquide has had excellent results so far and is averaging about one-year ROI on over $8 million in investments to date. This would not be possible without the transformational change in attitude that is permeating the company. People are critical, and they need modern tools to do their work. With the reality of workers changing more rapidly than in the past, it is essential to have a training and transition plan in place, and to “stick to it,” according to Mr. Martin.
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Keywords: Digital Transformation, CapEx, Return on Assets (ROA), Plant Assessment, ARC Advisory Group.