The Last to Commit, the First to Deliver
By Joe Morray
Today’s marketplace for products ranging from intermediate chemicals and pharmaceutical drugs to finished products for the automotive and consumer markets is highly volatile. The ability to delay investments in manufacturing assets until the last moment, while at the same time delivering at the targeted moment of a market demand, is an elusive objective of every company in our industry.
I’d like to discuss the challenge in this article and then follow in future Insight editions with how technology can help us. Consider the following implications that must be considered to address this challenge: The dynamic market: While well understood, we frequently do not account for the dynamic nature of the market’s demands when we are building capacity. For example, we should approach the design of a power facility (an asset with a relatively stable demand pattern) quite differently than a pharmaceutical plant, with volatile demand characteristics and limited commercial life. Lack of reconciliation of this issue produces the classic conflict between the business area personnel, who are trying to pick a spot at a moment in time to define capacity requirements (knowing that it will be different tomorrow) and the engineering organizations, who are chartered to deliver first-class assets, which, in turn, often require substantial periods of time to design, build and commission.
The lack of recognition of market dynamics and the corresponding failure to appropriately adjust the work processes for asset planning and design generally results in a plant that:
Is too costly (product price dropped)
Misses the optimal market window (market is peaking sooner than the proposed delivery of the asset)
Is not fit for the business’s purpose (product compositions, quality, volume, etc. have changed and do not match initial specifications)
The front-end planning process (a work process that Trinity advocates and establishes in companies) frequently does not specifically address the dynamic demand nature of the targeted product. Fundamentally, we must develop asset creation strategies that specifically account for market dynamics. Consequently, the process of designing and optimizing manufacturing assets should consider demand volatility and other business parameters in addition to the typical engineering considerations of chemistry, flow, energy use, etc.
The value of options: The use of options in the financial world is a well-established practice, and represents an important instrument for financial gain when properly applied. As we consider a company’s ability to hold options against a particular manufacturing capacity, the strategies for allowing a "last-to-commit" approach come into focus.Success is measured by the ability to withhold a commitment on investing in a manufacturing facility until the last possible moment, and in doing so, having the most recent and predictable information regarding the market demand characteristics.
As a business work process, we have used the process of "optioneering" to evaluate various alternative plant configurations or technologies in response to a very specific market demand. The “last-to-commit” approach suggests that we should be looking at a variety of options to address a range of market demands, since maximum response flexibility is of paramount benefit.
For capital project work, this generally means some preinvestment to create reusable configurations for a range of product output capacities. This reuse approach establishes a set of standard configurations, which to some degree have already been pre-engineered and can significantly reduce the design and construction time once the target capacities are set. For many manufacturing technologies, realistic ranges can be established with three to five reusable configurations.
Increments of investment: Another successful strategy for increasing manufacturing flexibility, while reducing capital commitment, is to pre-engineer increments of investment of manufacturing capacity. With this strategy, for example, a company can establish an overall footprint for multiple reactor bays, possibly build some of the mechanical tie-ins, but only install one or two of the reactor systems (or whatever process equipment is required). This objective can provide critical flexibility because the businesses know that if capacity requirements go up, the plant’s design can quickly and efficiently be expanded without having to make wholesale changes to the original design.
Engineered Technologies of Providence, Rhode Island USA (www.engineeredtechnologies.com) has carried this approach to its logical next level. Pharmaceutical and chemical companies are buying Engineered Technologies’ modular laboratories and plants, which can be delivered in increments of capacity, already fully designed, built, and pretested/qualified (with a fixed price and delivery time). The power of this approach emerges as you understand that a customer can now buy manufacturing capacity before the actual site is acquired, providing the ultimate in “last to commit, first to deliver.”
One of the fundamental enablers of the strategies described above is information technology. Without a coherent and reusable set of information, none of these strategies are available to either engineering or business groups. In my next article, I will describe the requirements for effectively managing your Information AssetsŪ in a way that provides your company with the ability to implement these strategies.
Joseph Morray Jr. is president of Trinity Technologies Corp., a process industries consulting firm that helps owner/operators and EPC firms succeed in the use of information systems. The company specializes in driving companies to align work processes, technology and organizational change requirements for the plant environment.
