2009/09/11
Just what does “sustainability” mean to the average business leader? An open question like this will inevitably result in “it depends”, because business is so multidimensional and complex. When seen from the perspective of financial performance, sustainability may be interpreted as the long-term financial health of the organisation. When seen from an operations perspective, sustainability may relate to the impact of the production facilities on the environment. From a human resources perspective sustainability may relate to the retention, health and wellbeing of employees over the full period of their contribution to the company. For some it pertains to ethics, for others it relates to social impact.
Technology vendors are moving to include sustainability functionality in traditional business applications. Is this the next “IT in manufacturing” bandwagon or are there some significant underlying reasons to include a technology solution?
The problem with sustainability is the broad definition – it means too many different things to different people. The concept is therefore not particularly useful unless it is unpacked for the specific industry, business or situation. But inherent in its weakness is also a strength; by applying sustainability criteria to any activity it is often possible to see the impact of the activity in a new light; with a different perspective. I would like to argue that by introducing questions relating to sustainability to all business operations, decisions will be improved and business performance will benefit. And if technology can facilitate this visibility and clarity, then this is a good thing.
Business short-term
The problem with the way business works in the context of the economy is that it is very short-term in nature. Very much like a natural ecosystem, businesses are usually free to operate how they want (within a regulatory environment). Certain businesses will thrive in the short term and then die, others will endure for a lot longer; ultimately the entire ecosystem will adapt to the changing needs of the market. The first challenge therefore when assessing the relevance of sustainability is to be honest about how long the business should survive.
A capital-intensive chemicals processing plant is intended to operate for 20 years or more, whereas certain companies are established around clearly finite and short-term events; for example a ticketing company for the World Cup. So it is hardly surprising that the challenges relating to sustainability are found in certain industries at a far more strategic level than others. Examples of these industries where sustainability matters are mining, chemicals, natural resources, energy and utilities. And because in these industries the largest impacts are related to issues such as environmental performance, carbon footprint and energy efficiency, it is not surprising therefore that sustainability in these industries focus largely on EHS (environment, health and safety). Whereas for the small company developing services primarily around the World Cup, long-term sustainability may relate to business agility and the capacity to transform after the event into something else, or close down effectively. It is unlikely that EHS will be high on the list of strategic priorities for this ticketing company.
My interest is with the larger industries where the EHS impact of operations can be significant, and the role of technology in supporting a sustainability strategy. The argument is that a clear focus on sustainability in these industries will result in better business decisions, more profitable companies and more value creation. It is therefore with some dismay that I observe that sustainability, and issues relating to environment, health and safety are somehow divorced from strategic business leadership – managers in this role are seen as a support function rather than a core function.
The broad definition of sustainability provides a means to measure every single aspect of a business operation; and therefore needs to be owned by the CEO and the board. A clear vision around sustainability will result in more sustainable business – it is that simple. It is at the CEO (and board) level that the difficult decisions are taken whereby short-term profits are put aside in favour of long-term viability. This is far more fundamental than measuring safety statistics for the annual report; or dutifully reporting CSI investments and ensuring that the glossy brochures are widely circulated to stakeholders. Sustainability in these industries is a result of the conviction of business leaders that it is not enough to do things right; but to do the right things, and to accept that to strike this balance requires great wisdom. EHS is not an isolated role; it integrates fully into the business processes, technology and operational performance of a company. It should be concerned with energy, renewable resources, human resources and financial resources. And it is made possible through comprehensive IT systems that process data to enable decision making.
Lean, agile and green
Recently I attended a series of lectures on operations management and was struck at how similar the concepts of lean manufacturing and agile manufacturing were. Moreover, I was struck at the overlap with the green supply chain. At the heart of these manufacturing philosophies are common truths that apply to all business. The balance between short-term operational efficiencies and longer term viability is one that is strongly at play in each of these environments. I concluded that it almost did not matter whether you measured inventory levels (lean) or energy usage (green); when the longer term sustainability perspective is taken into account, the resulting operational decisions are often the same.
Despite its obvious flaws, sustainability is no fad; it is intrinsic to all business and has to be taken seriously. The triple bottom line does not simply add two new dimensions to the financial metrics of a business; these dimensions were always there and successful businesses were previously paying them attention. It is worthwhile reflecting whether your company’s sustainability strategy is supported at the right levels in the business; or whether it resides as a back-office function - for example, collating mandatory safety statistics. In heavy industries EHS is certainly a strategic function; and because of its significant impact it is arguably as important as any other strategic function (technology, finance, operations). It cannot be separated from the core of the business, nor should it. A wise leader will recognise this interdependence and take action immediately to rectify this if it is not the situation in their company.
Technology-based systems do have an important role to play here. What cannot be measured cannot be managed. It is perhaps time to take another look at what the software industry is proposing in this regard. Most software vendors are enhancing their applications to now measure and report key sustainability metrics. The technology is moving forward; it is time that business embraces and organises this technology in order to reap the benefits of these new perspectives.
2009/07/23
We have all the computer technology we need to run global supply chains, the problem is no longer limited to software functionality or vendor capability. The real constraint has now moved to the people in business who’s decisions and actions most impact on the supply chain. These people need to invest in developing a deep understanding and specific skills to allow their existing technology investments to be unlocked to exploit enormous potential and business agility, particularly in times of recession!
In July 2009 ApplyIT were proud to exhibit for the third time at SAPICS, the largest supply chain and logistics event in Africa, held at Sun City. This event attracted 850 delegates from manufacturing, several public sector organisations, logistics providers and IT companies. Our objectives were twofold: To build on our reputation and brand as a quality provider of niche solutions to manufacturing; and secondly to benefit from the high quality training and networking opportunities provided by attending an event of this caliber.
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The ApplyIT stand – designed |
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The finished product at SAPICS |
SAPICS is the South African association for Operations Management in Southern Africa. The organisation promotes ongoing professional qualification in supply chain and operations management. The highly regarded CSP (Certified Supply Chain Professional) and CPIM (Certified in Production and Inventory Management) both recognise in depth understanding of technology in business and manufacturing.
The time at SAPICS 2009 was a good opportunity to reflect on the fundamentals of IT in manufacturing. There were several important learning points for me relating to operations management which are of direct relevance to our company and products:
(1) The recognition that lean and agile manufacturing are closely related to each other; and that what ApplyIT has been specializing in over the past 10 years is totally aligned with these two philosophies. We do however need to learn how to better explain how the elements fit together to our clients and prospects.
(2) The excellent fit of the ApplyIT Operations suite modules into the overall concept of the green supply chain, with real business sustainability being the underlying goal.
(3) The ability to model our clients business processes using the SCOR (Supply Chain Operations Reference) model which breaks down processes into individual source, manufacture and distribution components; and then to fit ApplyIT’s own products into these frameworks. This conceptual framework will help us more easily demonstrate the strategic value of our technology products.
(4) The natural way in which ApplyIT’s OpSuite complements those of other best in class vendors (such as Infor’s planning and scheduling solutions). This is the real benefit of having client driven development as our guiding principle over years of product development.
While 2009 may be remembered as a very challenging period for the manufacturing sector; it is true that adversity creates new opportunity; and that focusing on the current recession is not the end game. The global supply chain may be volatile and unpredictable; however this is only a threat to companies that are inwardly focused – those who look outwards, participate in collaboration and best Operations Management practices will find themselves continuing to grow market share and sustain their profitability through the worst of times. 2009/06/08 Times are tough in mining and manufacturing. Some companies are having to take unprecedented steps to protect their businesses and to ride out what is the greatest economic downturn this generation has ever experienced. These steps include preserving scarce cash, reducing fixed costs, delaying capital projects, seeking government protection and downsizing their workforce. Yet a few companies (some would say the lucky ones) are accelerating their growth. Because of their products they can thrive in a downturn. They are able to benefit because they might have large cash reserves or their raw material prices plummet or they can benefit from Government investment or even because their markets suddenly grow as consumers and businesses switch to their products. Today the CIO in a struggling manufacturing company simply has to do more with less as their companies face a very uncertain future. So where should the IT priorities lie during a recession? For the last 9 years since Y2K, CIO’s have been faced with the challenge to do more with less. CIO’s worth their salt have been in this situation before and know what to do already, they understand the value of running lean operations and focussing on what matters. This uncertainty is not new to the IT sector, after all fundamental shifts in technology have previously occurred every 3 years or so. The good news is that those IT companies that have survived and prospered through the technology turmoil post Y2K are well positioned for these tough times. And these companies will certainly be diversifying themselves to service the sectors that are thriving in the current economic environment. The bad news is that scarce IT resources in manufacturing become even scarcer as IT companies seek new more potentially lucrative lines of business that are less impacted by the manufacturing downturn. Manufacturing CIO’s that now find themselves faced with the task of radical cost reductions in their ailing business may be tempted to cut down IT to an absolute minimum. Perhaps they should consider the following three realities carefully before overreacting: Relationships matter. When cutting costs be careful not to damage the IT relationships that truly create value in your company. These relationships may have evolved over years. Changing vendors as a result of contract termination or radical downsizing can take a long time, and cost far more than may at first be evident. Rather negotiate with your IT partner a sustainable reduction in IT costs and scope of services. Be sure you understand the underlying health of your IT partner’s business. If you cut the revenue stream too radically you may just end up forcing the partner to go elsewhere leaving you with the substantial costs of initiating a new relationship at the worst possible time. Cut costs in the IT commodity areas, keep investing in the IT differentiators. It should be self evident that so called “commodity services” can be substituted relatively easily, these are the areas that should be cut back first. Bandwidth and connectivity, cheaper hardware etc are all areas where cost savings can be achieved, often with improved quality and service levels. Sweat those assets some more. One “box dropping” company can be substituted for another quite easily. However be very careful when planning cut backs on application support, system development and line of business applications such as ERP and CRM which are fundamental to successful manufacturing. If you cut back these areas too far it may result in you breaking the delicate, complex and integrated software application ecosystem that your business relies on. And rebuilding these systems may be more than you can afford for a long time. Have a long term perspective. The economy will turn again. Companies that make widgets and who survive the recession will be well positioned to prosper when demand picks up again. Don’t break your fragile IT systems that will harm your prospects of recovering quickly. It is a consequence of a connected and informed global economy that things will change quickly. If anything a recovery will be quicker than predicted. For the successful CIO, the downturn can be managed through applying the same care and strategy that has seen you survive the post Y2K fallout. You already know the recipe for success. Costs remain important. Your value proposition to the business needs to be clearly understood and communicated. Fundamental structural economic adjustment is not something to be feared as you have seen it before, just be sensible and enjoy the ride! 2009/03/24
The recent events on world markets have led to business leaders everywhere seriously questioning the sustainability of their operations. While many factors are outside the direct control of management, such as raw material prices, demand for product and availability of capital, there are nevertheless many areas that are within managements control. These areas, if addressed holistically will lead to more sustainable and profitable operations.
Business leaders in the process manufacturing industry have concluded that sustainability needs to be a combination of initiatives in three key areas: financial, environmental and social. When all three are addressed simultaneously, new value can be created. This of course makes good business sense, companies that address these areas are likely to show greater returns to both shareholders and stakeholders.
A production manager can make a significant difference in the way plants are operated. Previously it was sufficient for them to concern themselves mainly with production targets, such as production rate, conversion efficiency, cost of production (per ton), inventory and supply chain management. However there are other significant KPI’s such as incident rates, emission management, health and wellbeing of employees and community empowerment which need to be superimposed in order for a plant and business to operate responsibly and of course more sustainably.
The IT industry has recognised this and software vendors have started recognising that sustainability is a key driver in successful manufacturing operations. The philosophy is that Health, Safety, Environment and Quality (HSEQ) needs to be embedded into all production processes and made intrinsic in the overall measurement and reporting of all activities. No longer is production cost the only factor. Unfortunately, it is unsatisfactory to try and “bolt on” SHEQ systems on top of business systems. It is far better when designing and selecting software based systems that HSEQ is seen to be embedded in each and every step in the software and when selecting systems the practical integration of these with each other and the business systems needs to be evident.
A simple example of how a holistic systems approach can be achieved is through the integration of production, maintenance and SHE in a typical operating company. It is often that these three areas report to a common production manager, but this is the only point where there is joint accountability. Production, maintenance and SHE teams often operate in separate “islands of information”, citing every reason as to why they are different and need separate systems. A typical production environment therefore has separate maintenance, SHEQ and operational software with absolutely no thought given to the process integration between these areas, and the consistency between these systems. An fragmented approach definitely leads to wasted opportunities to drive improved sustainability through a common integrated approach.
The overall production processes includes several activities including determining rules for safe work; enforcing these through the maintenance function when executing work orders, getting authorisation from operations through the permit to work process, integrating this into the SHEQ management system through incident management and non conformance handling; while always retaining a strong focus on the process operations in the control room. Additional areas include measurement of production efficiencies, energy efficiencies, emissions and environmental spills.
IT systems are evolving (some quicker than others) to embrace this holistic approach. The business drivers are there; and several vendors have been adopting the holistic vision for many years. It behoves business and plant management to take a new look at these IT systems and understand how they are evolving to a more comprehensive solution. These new generation systems can act as a vital tool for production managers who need to contribute to improved sustainability within their production environments. This will improve the chances of weathering the Global economic storm and allow your business to emerge stronger to take advantage of the inevitable upturn in a world that will be much more aware of sustainability as a key business success factor. 2008/11/09
Within typical process supply chains proper forecasting, planning and scheduling optimisation is essential to reduce costs, enhance operational service levels and minimise inventory. In the real world this may at first glance appear to be a highly complex optimisation problem, impossible to solve and full of potential pitfalls. However advanced forecasting, planning and scheduling software exists that can reliably deliver optimised plans, and this software can easily be understood without a mathematics degree if the problem is broken down into the relevant “layers” and the basic principles of planning understood.
Several examples of complex planning and scheduling problems abound in many plants including breweries, food processing, chemicals, biochemical, pharmaceutical plants, oil and lubricant blending plants etc. These plants are characterised by the need to manufacture multiple products in batch or semi batch processes with multiple production lines. The products need to be scheduled optimally to meet an anticipated demand pattern by the end consumers. The problem is often made even more complex by a distribution network between the producing plant and the customer. Several physical constraints also apply such as the need to blend liquids into tanks, or take account of shelf life constraints etc. Alternative recipes and utility constraints such as the availability of steam and cleaning utilities further can compound the complexity of the optimisation problem.
Mathematically it is possible to define the planning problem quite precisely, and you can apply any number of computer based mathematical techniques to obtain a production plan. However selecting the right method, understanding and focusing on the factors that really matter and correctly interpreting the results of an optimisation is like playing chess. The rules of chess can be described precisely, yet owing to the almost infinite number of alternatives; it takes a grand master to predictably make the right strategic decisions, and play the right moves. In these situations experience does matter, and planners with a good understanding of the business are a vital element. However business people also have an obligation to understand the planning process properly.
Supply chain planning and scheduling is easily understood by decomposing the problem and looking separately at the different “layers” of planning. Remember that planning takes place before execution, otherwise it is no longer planning.
1. At the highest planning level, “demand forecasting” seeks to predict overall demand for a particular product. This forecasting takes place with a long time horizon, often many seasons or years.
2. At the second intermediate planning level, “network optimisation” seeks to balance the demand with production and distribution capacity across multiple plants and multiple stock points. The time horizon in this instance is typically months, or weeks.
3. At the third most detailed planning level, “production scheduling” seeks to interpret production requirements and make it applicable to a single plant by producing an optimised schedule that takes into account availability of physical equipment such as pumps, tanks, packaging lines etc. Here the time horizon is hours, shifts or batches.
Finally, the results of the resulting schedule are fed to the execution system, where production is actually executed on physical plant. This is typically referred to as the MES or “manufacturing execution system” layer.
It is important to recognise that there is a fundamental difference between forecasting and optimisation, both in concept and in the mathematical tools and techniques used.
Forecasting takes into account historical information and other information to produce a realistic demand forecast for a family of products. The statistical methods used are usually highly advanced and finely tuned. The user of such tools does not need to be concerned with the actual statistical engine – her focus is on accurately predicting the future and accounting for abnormal events in the future (marketing campaigns, the impact of major events such as the World Cup etc). The statistical engine will take historical patterns of demand, identify and ignore outliers (data that does not conform statistically to the pattern) and project this forward. In practice the software’s ability to interact with the user in a graphical and intuitive way is important.
Optimisation, on the other hand is concerned with optimising a result where there are several constraints on the variables. The variable being optimised is typically referred to as the “objective function”. Examples of an objective function could be “total cost”, made up of production costs, warehousing costs, transport costs, etc. The constraints used in the optimisation are typically physical in nature, such as plant configuration, or maximum production rate etc. However constraints can also be “soft” – for example it is “undesirable” to increase the volume of road transport because of long term impact on infrastructure and roads maintenance. Soft constraints can be violated from time to time, whereas the physical constraints cannot be violated.
The goal of supply chain optimisation is to derive first a “feasible” plan from the forecast, and then to refine this to an “optimum” plan. The word “feasible” in this context means that all constraints have been satisfied and the plan could be executed in the physical world. “Optimised” means that in addition to being feasible, the plan is the result of evaluating many alternative plans to derive one where the objective function has been optimised.
A typical planning process starts with demand forecasting which determines the likely consumption patterns for specific products. This demand plan is then cascaded to the planning system, which prepares a feasible and hopefully also optimised plan relating to overall production targets, logistics and warehousing / stock parameters. Finally the optimised plan is cascaded to detail scheduling systems to produce batch or shift production plans at the detailed level. The three systems described are distinct, unique and each addresses a different aspect of the supply chain optimisation.
Finally, it should be mentioned that no planning system would work without a feedback mechanism that compares actual performance against plan, and a process of refining and improving the plan on an ongoing basis.
Business decision makers need to just understand the basics of the multi-layer approach to planning and scheduling. Whilst the detailed plans themselves are still prepared by the experts (the chess grand masters in your company), with a fundamental understanding of the above principles better business decisions can be taken, leading to reduced costs, improved service and less inventory. “Management by exception” is a well known business philosophy adopted by managers who wish to empower their subordinates to take full ownership of operations within their responsible areas. The underlying assumption is that if there are no exceptions, all is well and senior management can focus on other areas. However, unless the frequency and severity of the exceptions are directly linked to the underlying health of the business, this assumption can be fundamentally flawed. When considering process safety, the severity of a safety incident can be such a rare event, yet occur with such seriousness, that by the time the “exceptions” have occurred and brought to the attention of management, the business is in trouble. As I write this, a leading South African mining company is forecasting a 29% drop in profit as a result of safety related stoppages. The “exception” in this situation was the unfortunate death of a miner.  While “management by exception” may have its place in some areas of the business; it would be extremely reckless to apply the same philosophy to the safety of complex, hazardous operations such as a petrochemical plant or a mining operation. Yet our corporate technique of measuring and reporting safety performance is based on the assumption that you can measure and report indicators that will accurately predict severe incidents. This metrics based approach is reinforced by self congratulatory comments in annual reports where the frequency of classified or disabling injuries is seen to be reduce year on year to target levels set by industry experts and peer companies.
It is clear that in our modern plants and on mines, severe accidents occur at a frequency that is too low to predict using most of the traditional statistical indicators such as disabling injury and fatality rates. Much more needs to be considered and a holistic view of safety should be adopted that covers the design and engineering of the plants throughout the life cycle of the plant, including human behavioural aspects. A complete systems and life-cycle approach is therefore necessary. Plants and processes are extremely complex systems that have distinct stages from design, commissioning, operations and eventual closure. During the early design stages, risk assessment techniques may include hazard and operability studies (HAZOP), or defining design Safety Integrity Levels (SIL) based on the inherent process risks. In these scenarios a team of experts work through systematic methodology to determine risk, and to ensure that appropriate safety standards are applied in the design. During commissioning, the design meets the real world. It is possible that with a high level of discipline engineering changes are managed during this time. This is because many of the design engineers are still available for commissioning; and the project disciplines are still enforced. So a process change that has a safety impact is very likely to be properly assessed and the necessary standards applied to the implementation. As the plant moves out of the commissioning phase and is handed over to routine operations, risk assessment practices change fundamentally in nature. It is during this phase in the plant lifecycle that all the engineered systems are in place; and people take over. Behavioural aspects are now significant. Hence the focus during this phase is on safety culture, and behaviour. Safety management systems are now implemented. Management systems are however based on exception or deviation processes (incident management) to direct corrective and preventative actions. This phase is also characterised by auditing and change management disciplines. During a plant lifecycle; both the techniques of risk assessment and management of safety undergo a fundamental change. HAZOP and SIL assessments are rigorously applied in the standards applied during the design of new plant; but to what extent are these practices enforced during routine operations? Is management satisfied, that just because there have no severe incidents to report (“500 000 injury free hours”) that all is well? This was certainly not the case for the unfortunate mining company. A balanced and holistic approach is called for if companies are going to get out of the “management of safety by accident”. It is necessary to incorporate the original engineering and design disciplines in all change processes that take place on an operating plant. So when a maintenance team installs a new line to drain a vessel for example; the same engineering rigor must be applied to this change as was the case in the original design stage. It’s rather like retrofitting a non standard power steering system to a car; unless the new system integrates to the wheels properly and in accordance with the same “safety integrity level”, the safety integrity of the vehicle can be severely compromised. Best practice is to implement several formal systems once the plant reaches routine operations. These systems include change control (for example modification proposals and minor projects), versioned documentation systems (for engineering documentation), operational systems (plant maintenance and safety permit to work), safety management systems (incident management, tasks and reporting). These systems need to support the underlying risk assessment methodologies: For example Hazop and Safety Integrity Level (SIL) design techniques, operational risk assessments during permit issue, etc. The same systems also need to be designed around people that design and operate plants; and fully consider behavioural aspects. Accidents can be avoided and companies can remain profitable through a comprehensive and holistic approach to safety that incorporates design and operations of plants throughout their lifecycle. Senior management who manage safety by exception can avoid surprises by recognizing that this philosophy is not adequate when managing safety in complex environments. The frequency of serious incidents is often too low to be predicted by indicators such as disabling injury or fatality rates. And the consequences can be extremely severe. Business leaders must ensure that the same engineering standards that were implemented during the design stages are carried through into plant operations for the full lifecycle of the plant. Business leaders must recognize the human element in this complex system; and lead the culture and approach towards safety. This is not just about providing rubber gloves and respirators; it goes to the heart of the philosophy of safety integrity and the sustained profitability of our manufacturing and mining plants. 2008/09/21 A respected industry commentator recently made the observation that the IT industry, as opposed to engineering lacks a certain credibility due to over hyped marketing, exaggerated promises and unreliable products. Hapless consumers of IT products have become used to rebooting, upgrading, patching and the never ending quest for finding "the latest version" in the hope that this will somehow solve their specific problem. If engineers designed and built aircraft, industrial machinery, buildings, cars etc with the same reliability as a first version software product the world would become a very unpredictable and unsafe place indeed. Engineers are proud of their profession and form organisations which promote the concept of professionalism and guard against charlatans and pretenders. The IT industry also has such professional bodies, but somehow these seem to be less effective. Why is this? Why is it that the average business leader perceives IT as a bunch of computer geek's who have no discipline, produce sub standard products and who are rarely able to get something right the first time? Is it perhaps because it is actually a fair comment on the industry? I recall the words of a process control engineer many years ago who reminded me that the world's most successful IT companies were actually very similar to the best engineering businesses. They were characterised by formal processes and showed a high level of maturity in areas such as project management, change control, documentation, skills development and retention, quality control and many other areas. He was a strong advocate of ISO standards in software engineering. The problem with IT is that the barriers to entry are so low. "I started my company from my garage" is both a source of pride and inspiration to entrepreneurs. It's a pity though that many IT companies fail to shrug off the "born in a garage" mind-set; and when challenged with strong growth, new technology, competitors or just more demanding consumers they simply fall in a heap. It is good to report that many companies have recognised this and have identified the lack of engineering practices in their company as being a serious business risk. Therefore initiatives such as CMMI, ISO, ITIL etc are becoming more prevalent. When contemplating the services of an IT company it is important to know the philosophy and approach of the business to sustainability and quality. While CMMI is in itself not a silver bullet, it's implementation is nevertheless a sign off commitment by management to improving the underlying quality of the products and services provided. Yet, many IT companies in South Africa don't know the first thing about CMMI. Smaller software companies (and even the bigger ones) should always be asked what QA and management systems they have before purchasing products and services. The little garage businesses may make a lot of noise, may even be successful for a while; but their inevitable fate is obscurity unless their growth is accompanies by a serious commitment to the same best practices adopted by the more established engineering profession. And the problem is not isolated to smaller companies - don't be fooled by size - the biggest companies can fall into the same trap. The credibility gap in the IT sector is real and in many instances deserved. It is up to the consumer of products and services to become educated and more demanding before this will change significantly. 2008/09/11 Introduction (This article was published in the April edition of Chemical Technology). Can the effective use of IT (information technology) add significant value to a chemicals business and if so how should IT be managed as a strategic resource? Is practice, is IT really regarded as an important enabler of the business strategy; and is it given as much attention at executive level as other elements such as raw materials, production processes and supply chain? In appears from experience that this appears to not be the case. Why is this? This lack of business and IT alignment is partly due to the lack of skills within the IT community to effectively bridge the gap between business and the plant/engineering disciplines. For example we still see IT and the plant systems managed separately in many chemicals companies, and on closer inspection in most companies there is also no evidence of a deliberate strategy to manage and bring business and plant systems together in order to exploit the full potential of an integrated approach. IT Professionals battling to maintain their own skills in a fast changing technology environment are now finding that to include an understanding of manufacturing, engineering and plant operations is indeed a difficult challenge. On the other hand Engineers and plant personnel frequently fail to understand the world of IT, which appears at first glance to be a complex, undisciplined environment; worlds apart from the capabilities required to design, build and run a complex chemical plant. This article touches on a few of the specific competence's that should be high on the list of priorities of the IT manager who is responsible for systems in a chemicals company. For IT professionals to be effective in the chemicals sector there are three primary areas where specialization and in-depth knowledge is required: an understanding of the business environment; a good understanding of ERP systems and their limitations in process industry, and finally a good understanding of MES and process control systems. 
The business environment Over the past 10 years, the chemicals sector in South Africa has undergone several fundamental changes. Following a period of high profile mergers and acquisitions in the late 1990’s, there have been a number of less publicized disposals of companies, with full or partial transfer of ownership from global companies to local management and shareholders. During this time the chemicals service industry, characterised by many smaller niche players has grown. Whereas the chemicals sector was dominated by a few “stable” companies 10 years ago, the situation is now far more complex and remains in a state of flux. The changes being experienced in the South African chemicals business are not unique, and are a direct consequence of the opening of markets to global producers; and other factors such as the cost of raw materials and the commoditisation of products. Looking ahead, it is very likely that this restructuring of the industry will continue. For example, raw material and other input costs such as electricity continue to be determined by factors that lie outside of the direct influence and control of our local industry. Local companies are also impacted by global events, new markets and in some cases radical restructuring of the industry in response to shifting market demand and competition. Information Technology professionals engaged with the chemicals sector must base their technology and operational decisions on a solid understanding of the business context. Where a chemicals company is striving to be the lowest cost producer into a bulk commodity market, it makes little sense for the IT Director to be putting all of the IT focus on a CRM system to enhance sales. And the business environment today is changing rapidly and companies are subject to frequent restructuring in the form of disposals, mergers and acquisitions. If a disposal is envisaged – an all encompassing ERP solution for all subsidiaries may not be a good idea because a tightly integrated system can constrain or hamper agility and the ability to restructure quickly. On the other hand when making an acquisition is it better to replace all the inherited systems with your own (usually at significant cost); or should you simply federate the new systems using middleware to build limited integration or consolidation where it makes sense? A comprehensive understanding of context is therefore a prerequisite to aligning IT systems and technologies with the business strategy. To be effective in this role, the IT professional requires a strategic understanding of the industry and this is obtained by participation at management level with the business decision makers on an ongoing basis. Without understanding the business context, IT decisions will invariably end up inhibiting the growth and agility of the business. So the first acid test of the effectiveness of IT in a chemicals company is simply; does the IT manager have a regular meeting with his colleagues at Executive level?
Business Systems Ironically the chemicals industry was largely to blame for the early adoption and growth of overly complex enterprise resource planning systems (ERP). Initially designed to integrate financial information to physical materials movements in a manufacturing environment, ERP was intended to centrally manage and plan all resources in order to optimise the financial objectives of the business. The early ERP systems were however designed around the financial transactions and data – and the main users and champions of ERP were financial managers and accountants. It is hardly surprising then that given the financial roots of ERP systems; and the complexity of the business reality; many ERP installations in the chemicals sector have fallen short of the original project goals and are still in practice still no more than glorified and very expensive accounting systems. The real benefits of modern ERP such as effective collaborative supply chain management, human resource management, production planning, process modeling and optimisation etc. are generally not fully realized. In Chemicals, many millions have been invested in ERP with little or no tangible benefit, not because the systems are fundamentally bad, but rather because of poor implementations frequently crippled by rapidly changing business circumstances. From a business perspective the under utilised ERP “asset” provides many opportunities to enable a company reduce costs, increase sales, improve plant efficiencies, equipment utilization etc. Why then are so few companies succeeding in unlocking this value? The answer relates to an important limitation of ERP when deployed in a process company: Standard ERP is designed for discrete or repetitive manufacturing and is unsuitable for continuous chemicals processes. Why is this? Engineers understand that chemicals processes introduce several significant complexities. These include continuous flows of material (tons per hour); concentrations (kg / m3), impurities (ppm), shelf life (hours), blending processes and quality / grades etc. In addition there are chemical reactions which rely on physical parameters (pressure, temperature, concentration, catalyst age etc). Standard ERP does not model any of these parameters. The skills to effectively configure standard ERP to meet these industry specific challenges are frequently unavailable, and techniques that work in discrete manufacturing are applied inappropriately to process plants. It is important to realize that there are several specialised software packages including a number of process centric ERP systems which have been designed for the process industry and which overcome these fundamental problems, however these niche solutions (rightly or wrongly) are sometimes perceived as a risky option when measured against big brand software vendors. Some of these process ERP systems include an integrated ledger; others are simply modelling tools which still have to be integrated to your standard financial and accounting system. Another complexity when introducing standard ERP into a process plant is that the units of time differ significantly between the business and plant systems. At the one extreme the process control systems execute transactions in milliseconds; and on the other extreme accounting systems use months as their time period, or supply chain planning system where planning horizons could be quarters and even years. Feeding data from one system to the other is meaningless unless the time dimension is properly handled and the appropriate adjustments to the data made. For example; feeding a gas consumption figure from a flowmeter (kg/hr) into an accounting system could present several challenges – do you use an average hourly flowrate multiplied by the number of hours in the month? If you use average flow, how many sample readings do you use for calculating averages (hourly readings, or a reading every second)? Do you fit a trend line of flowrate against time and integrate the area under the line to calculate the total? What about last Tuesday when the maintenance technicians isolated the flow meter for calibration and for 4 hours the readings went haywire? All of these factors introduce uncertainty into the calculation. To input historic gas consumption into the ERP system for costing you need an opening and closing figure for each period. You would probably expect that this coincides with the accounting period. However, on closer inspection you will encounter several new difficulties. Is the accounting period the period for which you are invoiced for the gas by the upstream supplier? Does it correspond exactly to a calendar month, and if so is it midnight to midnight? Or is the costing based on the batch processing time? Does the period correspond to another financial period such as 21st of the month to the 20th of the next month? If the total flows do not correspond to the actual invoices received, how are supplier invoices matched and authorised in the accounting system for payment? And if matching invoices is still not possible, why bother integrating the systems in the first place? The best kept secret in the process industry is that in most plants, spreadsheet models are used by engineers to calculate key variables such as cost of production, or raw material consumption which are then captured in the form of journal transactions into the financial ledgers. In the world of MES (manufacturing execution systems), ERP and process modelling systems; it is quite revealing to see how pervasive and important the spreadsheet model has become. The spreadsheet breaks the rules of most corporate IT architectures and spreadsheets are a risky proposition from a IT governance perspective. Yet they persist and are to be found everywhere. The reason is that the flexibility and modelling capability of spreadsheets are absent in the ERP or accounting system. If the ERP system can actually do the modelling, then we often find that the specialised skills to configure the clever calculations have long since moved out of the organisation onto the next project. The IT professional needs to control the instinct to integrate business systems with plant systems by weighing these decisions against a good understanding of the fundamental differences in purpose between process modelling systems and ERP / accounting systems. The perceived benefits of integration are sometimes misguided–remember that a consequence of integration is that bad data can propagate through the systems undetected and unchecked for years. There are several embarrassing examples of companies who discover fundamental calculation errors in their business data years later when replacing or upgrading their integrated ERP system. MES and Plant Level IT Process engineers like to believe that the real complexity in chemicals plants is where the action is at the plant; where the world of process control and manufacturing execution systems (MES) come together. IT professionals in the chemicals industry therefore have to understand this area in some detail. This is even more important when common networks and operating systems such as Microsoft Windows are adopted in both plant and the business systems. These common networks and operating systems introduce shared security architecture, a common workflow and communications platform, common backup and disaster recovery plans, etc. No longer can plant Engineers have the luxury of having “their” isolated from IT; activities such as service pack deployment, antivirus scans and software patches now affect both the business systems and the plants simultaneously. Web browsers can now access mail systems, ERP data and process control parameters through a common network, and can introduce several security risks to process control integrity.
Standards such as ANSI / ISA-95 (S-95) and IEC 62264 are evolving to describe the interfaces between business and plant systems. S-95 is a good description of what used to be called MES (Manufacturing execution systems). It has to be emphasized however that the S-95 standard is still evolving, and many of the key integration points are still undefined. To understand the world of the process engineer, it is important that IT professionals maintain an awareness of IEC 62264 and a good understanding of the S95 standard and its uses / limitations. IT and Plant Safety Systems For the hapless IT professional in the chemicals industry, just understanding S-95 is still not sufficient to cover all aspects of manufacturing. For example S-95 does not currently cover safety systems in detail. Process safety systems such as alarms and trips are usually embedded in the instrumentation and control systems, and are typically designed in accordance with a specific standard. Other safety management systems are less regulated for example management systems (incident reporting and investigation), permits to work or access control systems. IT professionals should be familiar with the formal standards such as IEC61508 and IEC61511 which are internationally adopted standards for any electrical, electronic and computer devices deployed in combination with a safety system in a manufacturing environment. Connecting plant networks and business networks should not be done in a haphazard way and close attention has to be paid to the impact that any integration has on the inherent safety design of the plant. Conclusions Chemicals companies can certainly derive value from their IT systems, provided there is good alignment of the IT systems to the complex and often unique requirements of process manufacturing. The converse is also true, poor system implementation can destroy value. In order to be effective, IT needs to be recognized as a strategic resource and involved at senior executive management level in the business. However, the specific IT skills required to effectively align IT with a chemicals business is far higher than the “generic” IT skill that applies in other industries. IT professionals in chemicals must understand the fundamentals of ERP, MES, process modelling, S95, manufacturing safety standards, and many areas. New technology now makes it possible to integrate IT and plant systems intimately; at the operating system level, right through to applications. No longer can IT and plant engineering act independently, the platforms and technologies will continue to bring these disciplines together. Any chemicals company understands the unique aspects of their own business. Before making an IT investment decision, managers should ensure that the proposed solutions (and the vendors that supply these) are familiar with the characteristics of a typical chemicals production plant, and have a sound understanding of process control, MES and business systems. The S95 standard provides a good basis for evaluating the capabilities of vendors and solutions. By recognizing the nuances of the chemicals industry and the skills necessary to support the IT systems, business leaders can certainly achieve real and sustainable value from their IT investments. References S-95: http://www.isa-95.com IEC 62264: http://www.iec.ch IEC61508 and IEC61511: http://www.iec.ch 2008/03/24 An advert caught my eye the other day regarding supply chain management solution – it read “Achieve a More Responsive Supply Chain”. The vendor was promoting the concept that manufacturing agility and responsiveness is something to be pursued; and implied that companies that can respond quickly are far more likely to balance supply and demand within their supply chain. Intuitively this does makes sense - increased manufacturing responsiveness can certainly lead to a number of benefits to the end customer, such as improved service levels, fewer stock outages and improved profitability. But is agility and responsiveness necessarily a good thing? In a complex system where multi company supply chains rely on many interlinked factors, speed and agility in one part of the supply chain may in fact be a destabilizing factor in other parts, and eventually lead to the total opposite of the intended results – stock outages, excess inventory and dissatisfied customers. The well known author Peter Senge in his book “The Fifth Discipline” describes a simulation game developed at MIT’s Sloan School of Management in the 1960’s. This simulation called “The Beer Game” simulates the distribution of beer, from a brewery, through the wholesaler, to the retailer and finally to the consumer. This network is characteristic of many production/distribution supply chains, and the Beer Game illustrates several characteristics of a typical distribution network. The Beer Game simulation starts with a steady state – where the brewery output is matched to customer demand. In this stable situation the orders placed by the retailer on the wholesaler, and by the wholesaler on the brewery are in balance – production meets demand exactly. Then (in the game) consumer demand for a particular brand is ramped up over a few months (as a result of a promotion) and is then ramped down as consumers switch back to their preferred brands. What is the impact of this on the overall supply chain? In the simulation the retailer notices an increase in demand, and as his stock runs out he increases the size of his orders placed on the wholesaler. It takes time for the wholesaler to notice that increased orders from many retailers are resulting in stock outages in the distribution warehouses; and in turn to compensate for possible stock outages the wholesaler increases the size of orders on the brewery. However, owing to the lags in the system; as customers continue to buy more of that particular brand further stock outages occur at the retailer; and in compensation the retailer again increases the size of his orders to the wholesaler to ensure that he has sufficient stock. These increased orders reinforce the wholesalers’ perception that he needs to place an even increased order on the brewery. The brewery, noticing the trend of dramatically increasing orders makes plans to switch production to the brand that is clearly selling so well. Again, lags in the system mean that it is some time before production is switched and a massive production run of the particular brand is initiated to catch up the backlog. Of course, in the simulation; by the time the production is increased; the demand has dropped off as the effect of the promotion end and consumers switch to another brand. The upstream brewery continues to pump more beer into the network to fulfil backlogged orders; until all of a sudden everyone (except the end customer) is sitting with surplus stock. The beer game simulation demonstrates that supply chains are systems with many interlinked components; and that the individual actions and the decisions taken by the retailer, wholesaler and the brewery, while perfectly rational when viewed in isolation can in fact cause a destabilizing effect on the upstream (and downstream) supply chain. Engineers are used to modelling natural systems and accommodating time lags. For example the speed control in a car can increase the throttle gradually until the actual speed reaches the desired speed (set point). Such control systems are finely tuned to account for the time lags in measurement and the dynamic response of the system itself. The throttle is therefore gradually increased to present overshoot. In chemical plants, process controllers utilize PID (proportional, integral and derivative) algorithms to account for lags in the system. For example the pressure control on a distillation column can adjust column pressure by opening and closing a valve in the gas vent. An engineer will confirm that incorrectly changing the tuning parameters can rapidly result in instabilities and pressure swings in a distillation column can be extremely difficult to control once the system is unstable. With typical supply chains we have a system that is even more complex and unpredictable than the average PID control loop on a chemical plant. In a distribution supply chain measurements are not easy – the units of measure can be batches, shifts, days or even months with significant time delays. In a distribution supply chain the human factor also introduces new uncertainty – the manager of the retailer, wholesaler and brewery each thought that they had made the right decision to increase orders or production – but they all over compensated. The result is that the distribution supply chain went unstable, and stock outages rapidly turned into a surplus. Had the individuals understood the impact of their actions on the rest of the supply chain they may have moderated their response, and the overall system would have been more stable. Supply chain solutions that increase the responsiveness and dynamics of one part of a supply chain without understanding the impact of this response on the rest of the supply chain can actually make things worse. If we understand a more “responsive” supply chain to be the orchestrated response of all elements of the supply chain to any change in the system then we are on the right path. If however we interpret “responsiveness” in isolation (for example increasing production without taking account of distribution), or increasing stock radically in response to increased customer orders; we may in fact be destabilizing a system that was possibly working close to optimally before. The solution is to consider every supply chain initiative within the context of the whole system. With the “balanced orchestrated” approach it may be more prudent to slow down change and accept short term imperfections – while giving the whole supply chain a reasonable chance to adapt incrementally to the change in demand or supply. Supply chain modelling needs to be done at many levels; at the lowest level it involves production scheduling. At the highest level demand planning and forecasting is important – and it is at this level that the most collaboration between participants in the system is required. An orchestrated approach demands that all levels in the supply chain are considered, both within your company and in the other companies that participate in the same distribution network. While the supply chain solution advert may have been promising a faster, more rapid response; a better approach is surely a more measured response through improved insight into the dynamics of a specific supply chain? The tools and techniques and experience are available to achieve this and every company in a manufacturing / distribution network should be considering how they can achieve this enhanced understanding and insight into the dynamics of their own supply network. | Edit in Browser | /_layouts/images/icxddoc.gif | /Manufacturing/IT_manufacturing/_layouts/formserver.aspx?XsnLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | FileType | xsn | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /Manufacturing/IT_manufacturing/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /Manufacturing/IT_manufacturing/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.2 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /Manufacturing/IT_manufacturing/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.3 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /Manufacturing/IT_manufacturing/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.4 | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /Manufacturing/IT_manufacturing/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsx | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /Manufacturing/IT_manufacturing/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsb | 255 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /Manufacturing/IT_manufacturing/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsx | 256 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /Manufacturing/IT_manufacturing/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsb | 256 |
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Gavin Halse
Managing Director |
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Scott Bredin
Product Manager |
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