The Business Case for Technology Investment

March 7, 2017
A highly common operational challenge is the lost production and excessive maintenance costs due to unscheduled equipment downtime or outages. Often this is due to limited visibility into actual equipment health, combined with outmoded maintenance practices. Production equipment failures cost industrial manufacturers an estimated $50 billion annually.

Profitable industrial companies extract the greatest value from their assets with maximum uptime, the near elimination of recordable safety incidents, dramatically lower energy use, and cost-efficient production operation. Sounds obvious, right?

Unfortunately, not all industrial firms have achieved high levels of uptime and cost efficiency with the lowest possible safety incidents. In fact, manufacturers around the world have performance issues that cost an estimated $1 trillion in operational losses.

A highly common operational challenge is the lost production and excessive maintenance costs due to unscheduled equipment downtime or outages. Often this is due to limited visibility into actual equipment health, combined with outmoded maintenance practices. Production equipment failures cost industrial manufacturers an estimated $50 billion annually. In addition, unnecessary and expensive energy losses contribute significantly to industrial inefficiency.

During boom times, when profits are up, these losses can be masked by a favorable market simply as a cost of doing business. But as Warren Buffett once put it, “You don’t know who’s swimming naked until the tide goes out.” Nonetheless, this strategic oversight is a problem the savvy executive or sharp CFO should not only be aware of, but also determined to fix.

When Tradition Blocks Progress

One big challenge is the inability to quantify the impact of technology investment. Most often, technology evaluation and selection is based on performance criteria, corporate technology standards, supplier relationships and of course, cost. But sometimes, the biggest consideration of all is missed:  How will this impact my bottom line?

 “In some cases, it’s a company’s cultural norms and legacy that hold them back,” says Mike Train, Executive President of Emerson Automation Solutions. “They have been committed to company standards and operational excellence programs for years, trying to eke out efficiencies wherever possible. But you can’t ‘efficiency’ your way to top-tier performance, especially when you are optimizing decades-old technology infrastructure and work processes. As a consequence, there’s a trillion dollars of unlocked value due to unplanned maintenance.”

Overcoming outdated cultural norms in organizations starts at the top.  It requires a sense of permission extended by senior management, backed by clear management commitment to change.  In its absence, even the most dedicated change agent will be consumed by traditional mindset and resistance.

Making the Business Case

While there are no guarantees, there are dependable strategies for achieving measurable returns on investment. Obviously, you need to begin with a good baseline understanding of current performance. In whatever area you measure-- output, yield, cost of production, downtime, energy consumption-- you need a clear sense of current performance levels, along with some historical trending.

It’s equally important to have an understanding of disruptions to operations, such as equipment failure and maintenance intervals. Often production downtime is caused by unforeseen issues with equipment which, in many instances, could have been detected prior to failure by having the right automation technologies.

Unfortunately, many executives remain unaware of the financial impact that equipment reliability-- or lack thereof-- can have on operations. Whether you are making tennis shoes, kilowatts, or refined oil products, operational reliability means your operating assets are available to produce product when the market demands that it be available. But a failure to properly maintain plant and equipment in top physical shape and health can lead to higher maintenance costs, unplanned downtime, and late shipment of products.

For example, at most companies, 40% to 50% of their maintenance cost is reactive, the result of equipment failure. By contrast, at companies that have proactively maintained their plants, 90% of their maintenance cost goes to planned service work. In other words, maintaining and upgrading operating assets ensures that maintenance costs are lower, energy usage goes down, and plants operate efficiently with fewer accidents.

The Human Factor

Complicating matters from a plant operations perspective, many industries today are confronting a pair of additional problems:  a lack of preparation to deal with knowledge transfer, and a shortage of skilled maintenance engineers. Baby Boomers are retiring in large numbers, taking with them their knowledge and experience of how plant equipment and processes function, and how they can be fixed with minimal disruption. When these experienced maintenance people retire, their knowledge often isn’t captured anywhere.

In addition, our nation isn’t minting new industrial engineers the way it once did. Apprenticeship programs are disappearing. Although there is a big push today to expand Science, Technology, Engineering and Math (STEM) careers, it’s clear that industrial companies will need a strong operations performance program to help cope with the shortage of trained operators and technicians.   

The industry also must make a deeper commitment to education-- to future-proofing the careers of its workers by helping them adapt to changing technologies. The nature of work is changing as data and technologies play an increasingly critical role. Nonetheless, workers often are left behind. According to the U.S. Bureau of Labor Statistics, an estimated 350,000 manufacturing jobs go unfilled each month due to a skills gap.

So what’s the solution? What strategic steps can industrial companies take to make their operations run more efficiently? How can they recover much of the cost that otherwise goes up in steam, unscheduled downtime, and lost productivity due to industrial accidents?

For one thing, industrial companies need to shed the outdated mindset that views reliability and maintenance as purely the domain of operations. Finance, in particular the CFO, can play a big role in supporting ongoing programs that ensure plants are healthy and well-maintained, and achieve an above-average return on assets.

A Common Technology Platform

One way to improve asset efficiency is to apply common technology platforms across all plants. Most large industrial companies operate more than one, and often multiple, plants in various locations. In many cases, each plant will have operated with a lot of autonomy in the past, which resulted in a mixed bag of plant operating systems and a variety of automation technologies.

These disparate systems tend to inhibit efforts by companies to instill best practices throughout their operations and achieve Top Quartile performance among their industry peers.

How Emerson Can Help

Emerson’s Operational Certainty program helps industrial companies achieve Top Quartile operating performance. This is a technology and engineering-based program designed to help industrial companies achieve top performance in their operations and recover some of the hidden losses that many firms unknowingly incur due to inefficiencies and waste.

Emerson has conducted extensive research to determine and measure exactly what constitutes Top Quartile asset performance in key industries. For instance, Top Quartile performers had one-third the number of safety incidents compared to their average industry peers. Similarly, they spent half as much on maintenance compared to average performers, while operating with an additional 15 production days per year.

“We can leverage data from processes and look at their asset performance through condition-based monitoring,” Train explains. “There’s no textbook answer on how to achieve Top Quartile operational performance other than applying good strategy based on a company’s particular environment.”

Rather than reacting to the problem of the day, Emerson’s tack is more holistic. Companies are asked to define their business objectives instead of outlining a list of their perceived operational problems. Taking a strategic view enables Emerson’s team of experienced consultants to design solutions aimed at achieving the company’s objectives in a more comprehensive manner.

“Once we have alignment on objectives, our subject-matter experts will optimize the approach,” Train says. “Our job is to guide our customers on which investment option will move the needle on financial performance in their operations.”

Companies are routinely evaluating their technology infrastructure, considering new and varied approaches to automation.  But their decision should start with defining the business problem they are trying to solve, and then collaborating with a partner who has solved those problems already, delivering real and measurable business improvement.

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