Resurrect Operational Excellence to Survive Changing Market

OEMs might want to dust off their operational excellence teams to get a better look at optimizing operations and improving profitability.

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Many industrial equipment companies, like other manufacturers, benefited from the recent market upturn. But a softening global market is reversing that upswing, forcing OEMs to reexamine their operating costs and capabilities in response to shrinking demand.

During the upturn, capacity constraints made it difficult for OEMs to keep pace with surging demand. As a consequence, they faced the dilemma of investing in new, cost-intensive facilities or squeezing more out of their existing assets to remain competitive. According to Accenture research, many planned on pursuing the latter.

In today’s weakening industrial equipment market, adopting the same approach of getting more out of current operations makes more sense than ever. OEMs that decide to extract more from their existing assets to prevail in the current business environment have a number of options before them. One option is to resurrect operational excellence teams that explicitly focus on optimizing operations and improving profitability.

Integral to making operations more proficient, particularly at times of market decline, is managing costs. During the last downturn, our research found that leading industrial companies did not arbitrarily cut costs for short-term gain. Instead, they strategically reduced them to allow the organization to reinvest in product innovation and market expansion to remain competitive in the changing market. It is an approach that is still valid today, and should be part of an operational excellence team’s focus.

As companies rebuild their operational excellence teams, they should do so by charging them with a focus on specific areas where lean production principles can be applied. These key areas include:

Cost. When demand was high, OEMs faced the challenge of keeping their cost-per-unit basis steady. Continuing that practice will be more important than ever. Transparency also should be maintained in managing costs to identify hidden opportunities to reduce them and channel cost savings into driving growth.

Capacity. Whether the market is strong or not, operational excellence teams should continuously evaluate the status of their organization’s capacity to be prepared for any significant market shift. This includes identifying major constraints in the manufacturing process, and devising solutions to eliminate or minimize them to adjust or increase capacity where needed, in a way that will be profitable.

Automation. Increasing the use of automation also can improve efficiency and productivity. For example, completely automating production lines can provide manufacturers with a wide range of information not available from a non-automated process to increase efficiency and output. This includes having information about production starts and stops, slowdowns, downtime and quality issues. Applying digital and other technology solutions to operations and assets can further aid efficiency and productivity.

Asset reliability. Operational excellence teams also should focus on ensuring the reliability of assets to minimize downtime and keep assets running as efficiently as possible. Applying analytics—particularly predictive analytics—can help, enabling OEMs to continuously monitor and predict the reliability of their assets. With this intelligence, they can structure and schedule maintenance activities to have the least impact on production, and proactively identify and avoid potentially costly breakdowns.

Profitability. To aid profitability, teams will need to concentrate on the most critical points in the value stream, where their efforts can generate the biggest bottom-line returns. Achieving this will require that companies provide them with specific profitability and value targets to meet.

The recent shift in the industrial equipment market has reinforced the fact that change is constant and is becoming a normal working environment. OEMs that can apply strategies such as operational excellence to prevail no matter the market conditions will continue to succeed.

>> Andy Howard, richard.a.howard@accenture.com, is managing director of the Automotive and Industrial Equipment Group at Accenture.

 

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