Industry Experts Speak Out

July 1, 2005
Analysts and leaders from AMR, Microsoft, SAP and Wonderware discuss how manufacturers are accelerating their business performance through demand-driven production and performance management.

Today’s global marketplace is driving manufacturers to reevaluate their business practices. Continued survival depends on how well a company integrates its people, technologies and processes, and provides the critical visibility that will lead to better decision-making and enhanced performance.

In this virtual roundtable, industry leaders Alison Smith, Senior Research Analyst, AMR Research, Boston, Charles Johnson, Worldwide Managing Director, Manufacturing Industry Unit, Microsoft Corp., Redmond, Wash., Sudipta Bhattacharya, Vice President, Manufacturing, SAP Labs, LLC, Irving, Tex., and Michael Bradley, President, Wonderware & ArchestrA Business Unit of Invensys, Lake Forest, Calif., speak out on the important issues manufacturers must address. Here’s their advice on how to manage life-cycle costs, exploit market opportunities, mitigate risk and choose partners to achieve long-term success.

How important is the integration of people, technology and business processes to the success of accelerating manufacturing performance?

Alison J. Smith, AMR Research: There is no doubt that the integration of people, technology and business processes is important, but rational discourse about the role of technology is impossible until an organization has straightened out its business processes, which are in turn shaped by the goals and culture of the organization. Of the companies we routinely work with, those who are most successful have well engineered business processes that support the “now,” as well as provide a path for the future. Technology for these users is an enabler—a set of tools that can be leveraged to execute sound core processes faster and at less expense.

Michael Bradley, Wonderware & ArchestrA, Invensys: The communications and software technology certainly exists today for integrating automation, information technology (IT) and business systems. This integration can ensure that best practices are enforceable and repeatable. However, the most critical performance edge most often comes from empowering all of the people involved. This visibility needs to be available in real-time, such that the collaborative efforts of the right people can be harnessed to quickly react to inevitable variations and changes to customer orders, supplies, and plant asset availability.

How do production and performance management capabilities enable companies to not only get better visibility of their manufacturing performance, but also to proactively manage production costs and exploit market opportunities?

Sudipta Bhattacharya, SAP: Production and performance management capabilities depend on two key elements: the granularity of information and the latency of information. Identifying and running accurate analyses on cost levers is improved when a company has granular visibility into manufacturing operations. In addition, more access to real-time information enhances the ability to identify and manage deviations. For instance, understanding material variances individually across a four-stage manufacturing process will help identify which specific process and material to focus on. This is the degree of granularity needed. However, this granularity by itself is not enough. Manufacturers also need to lower the degree of latency between process occurrence and analysis of the variability.

Charles Johnson, Microsoft: Metrics and performance management are key to efficiently executing against goals and facilitating course correction at all levels of the enterprise. Focusing on the customer through visibility into demand trends and product preferences—with clear linkages to manufacturing—ensures alignment between demand and manufacturing operations, thereby reducing excess inventory and operational costs while minimizing stock-outs.

Bradley: Digital dashboards and scorecards are easy to create. What’s more difficult is the design and accuracy of what is behind them. The chief financial officer, plant manager, operations supervisor, plant engineer, maintenance manager, quality manager and plant-floor operator all require different views of information and different actions they can take that are relevant to their roles. Modern software systems can facilitate the rapid deployment of flexible information models and views that can serve all of these different constituents in a secure and reliable fashion.

Based on your best customers’ experiences, how are companies addressing life-cycle costs associated with production and performance management capabilities, and what, in your opinion, are some of the key considerations for managing these costs?

Smith: Production and performance management are two separate issues. Production management is mission-critical—work orders, product specifications and routings must be dispatched to the production environment if products are to be manufactured at all. Performance management is more about measuring and analyzing aspects of those critical processes against a “goodness” criteria defined by the business. We see many companies retrofitting performance management capabilities to existing production management systems, simply because the cost of ripping out and replacing core production management capability is both disruptive and costly. In contrast, the addition of instrumentation, enhanced data acquisition, analysis and visualization tools can be accomplished non-invasively, i.e., without perturbing core processes, and we’ve seen cases in which such tools pay for themselves in a matter of weeks, if not days.

Johnson: Clear identification of business and IT challenges go a long way in understanding where to best make investments over time. For example, the automotive industry is facing high costs in warranty reserves, so traceability coupled with early warning systems are important areas of investment that promise solid returns. The oil and gas industry faces challenges in terms of declining reserves, and is investing in technologies for better recoverability, as well as looking for alternate sources. In general, aligning capabilities with clearly identified competitive and industry challenges provides a way to make targeted investments with tangible returns.

Bradley: Our leading customers are starting with their most critical business and operations practices and incrementally standardizing and evolving these practices using new software approaches, thereby saving on the up-front investments, as well as the ongoing application generation, maintenance time and costs. They are benefiting from up to 70 percent reductions in the typical time to create, re-use and re-deploy proven applications.

Bhattacharya: Leading edge companies that SAP works with are addressing life-cycle costs by focusing on scalable, integrated, standards-based technologies. Unfortunately, disconnects across manufacturing automation, execution, and business departments and systems have led most companies to seek point solutions to address these layers. While the layers may each have best-in-class applications, integrating these layers has proved to be a challenge. Maintaining multiple solutions with multiple adaptors leads to spiraling life-cycle costs.

How can manufacturers lower their risk while integrating new production & performance management capabilities into their existing automation and information systems?

Bradley: Proof-of-concept piloting and the design and testing of core customer application standards are typical activities we use with our customers to reduce risk. Today’s leading production and performance management implementations involve not only the integration of the existing plant systems, but also tying these systems directly into customers’ business and enterprise resource planning (ERP) systems. Industry-wide software vendor support of standards such as eXtensible Mark-up Language (XML), Web Services and the ISA-95 integration standard from the Instrumentation, Systems and Automation Society, are providing a sustainable framework for achieving real-time, business-to-plant and plant-to-business interactions.

Smith: Performance management tools—and I’m talking specifically about applications that leverage data already being generated in some form by the environment—represent those rare low-risk, high-value investments that are available to manufacturers today. The existing processes needn’t be altered, because what you’re really doing is creating a separate analytical framework that can be overlaid on existing data stores, whether those are historians, operational data stores, relational database management systems, plant accounting systems or, more likely, some combination of all of those sources and more.

Bhattacharya: Manufacturers can lower their risk while integrating new production and performance management capabilities by dealing with both internal and external factors. From an internal process management standpoint, it is essential to be able to identify a few key change agents, supported by senior management, that share a common vision for the integration of the new capabilities into the existing infrastructure. From an external perspective, it is equally important to identify a solution provider who understands the business and can be trusted to continually invest in enhancing applications and technology that enable the integration of existing and new systems.

Johnson: Problems frequently arise when too many changes are attempted all at once, increasing the risk of getting all the moving parts aligned and coordinated in time. Projects to enhance and migrate capabilities work well with a clear understanding of the existing automation and IT systems, mapping out the data and process flows, and assessing impact on the people involved. Good preparation in terms of training, education and evangelization for the organization to adapt to the changes is important for success.

How have IT systems, globalization, scarce engineering resources and life-cycle costs for production and performance management systems affected vendor and partner choices for manufacturers?

Bhattacharya: Maintaining status quo will fail in today’s competitive environment. The ability to continually innovate and adapt quickly is a key element in success. IT systems, globalization and scarce engineering resources have led companies to move from spending the bulk of their IT dollars on maintaining existing systems to investing in rapid innovation across business processes. Leading manufacturers realize that working in a passive “maintenance” mode is a short-term strategy set to fail, especially in the current environment of hyper innovation.

Johnson: Manufacturers have typically responded to many of these dynamics by simplifying their systems and standardizing on fewer vendors and forging closer relationships with them. Pressure to reduce costs and resource scarcity has sometimes led to outsourcing of functions. Manufacturers are increasingly pressuring vendors to adopt standards as a way of reducing integration costs and extracting more functionality from existing investments. Simplicity, ease-of-use, manageability and a greater emphasis on demonstrable business value are increasingly used in vendor qualification.

Smith: We’ve seen a couple of different dynamics emerge as a result of these trends. On the technology side, there’s a definite preference for products that can be maintained by the manufacturing organizations without requiring a large stable of consultants. In terms of partners and vendors, our ongoing research into manufacturing IT spending shows a preference to purchase manufacturing IT from a single large provider, like an automation or ERP vendor. On the other hand, growth we’re seeing for the best-of-breed quality, manufacturing execution system (MES) and enterprise manufacturing intelligence (EMI) vendors clearly indicates that size is not a deterrent. This changes as you start talking about global standardization and roll-outs. In these cases, the size and stability of the integration partner—not the technology vendor—becomes paramount.

What would you consider a low-risk approach for manufacturers to begin to develop demand-driven production and performance capabilities?

Bradley: First, companies should identify the most critical manufacturing business issues by collecting inputs from all levels of the organization. From there, the company should pilot a modular solution to prove that they can really address the top-level problems. The company should have clear visibility to valid performance metrics, as well as the ability to control, adjust and adapt to events and alerts. Companies should choose partners who take a structured and standardized approach to achieving business objectives in a fashion that leverages the existing investments in systems and people. The best partners are those who are committed to innovate and evolve along with their customers in this change process.

Johnson: Manufacturers will do well to first gain a clear understanding of the linkages between their manufacturing processes and the overall business goals and objectives. Moving to a demand-driven model will reveal the focus areas for process changes and the interrelationships across the end-to-end value delivery chain. Rather than attempting wholesale changes, identifying a few strategic changes at a time along a roadmap will demonstrate returns, build support and generate confidence. Ultimately, it is not so much a choice but a necessity for manufacturers to eventually move to a customer-focused demand-driven model.

Bhattacharya: The first step to developing demand-driven production and performance capabilities is to identify the weakest link in the value chain, whether that’s visibility into real customer demand, manufacturing responsiveness or something else. From there, manufacturers and their partners determine which applications and technology can be used to improve and accelerate the process. Those who conduct pure process improvements must carefully examine the implications of the process and ensure that they are repeatable, automated, faster and scalable in order to eliminate risk. The next step is to identify which performance indicators will allow the manufacturer to continuously track progress and adapt where necessary.

Smith: There is no one-size-fits-all approach to becoming demand-driven in production because of inherent differences in business models and vertical industries served. The kind of demand signal a business can shape or receive depends largely on where that business is situated in the supply network. Production capabilities, therefore, become the ultimate shock absorbers for demand signal variability, and need to be tuned for rapid response. Without ongoing visibility, it is impossible to understand which production commitments you are capable of making, should make, and where to execute on those commitments most profitably.