Competition between suppliers of advanced manufacturing technologies has driven improvements in delivery and quality while driving down costs. Though most new technology investments meet buyers’ specifications, too many fail to deliver the business impact that originally justified the investment. Worse, the cost of delayed impact can be hard to measure. Which means that most business leaders just feel frustration at the performance gap and don’t know where to turn.
Business leaders rarely care about the technology in which they invest. They measure success on the bottom line. They want invested capital to increase profits. And they want those financial gains to happen in a timeframe that supports the business’s financial goals.
When an investment fails to fully deliver on financial goals, the cause usually has to do with factors adjacent to the installed technology, not the technology itself. Automation-enabled capital equipment can require tight integration of capabilities across the organization. Higher-precision processes that produce higher-performing products (at lower cost) place demands on a broad spectrum of operational and support activities within the business. Left unaddressed, these demands cause problems.
Some examples:
- Manual processes that can be adjusted by trained operators to handle variations in incoming material become more sensitive to variations when automated. Procurement specifications that don’t incorporate tighter control of material properties, dimensions and/or surface condition can result in higher rework or scrap rates.
- Traditional manufacturing tends to rely on quality control as a way of preventing release of bad product to downstream operations or to customers. With advanced technologies, sensor data can be monitored to control quality within the process, eliminating the need for many inspections. If these redundant inspections are not eliminated due to reticence on the part of quality or design engineers, expected labor reductions might not materialize.
- The promise of advanced manufacturing technology is the elimination of highly skilled workers, to be replaced with lower-cost, lower-skilled labor—as the automation manages these difficult tasks. This is not always the case. Higher-tech equipment can require augmentation of maintenance and operator staff to handle troubleshooting of controls, setup of tooling or calibration of sensors. The first instinct of most businesses, when faced with issues in their automation, is to add highly skilled technicians. Labor savings can evaporate quickly when this happens.
- Advanced systems designed for single piece flow force changes in scheduling, tracking and inventory management workflows designed to manage batches. The effort and cost to change workflows can significantly delay the realization of benefits and require costly, unplanned IT projects.
- The amount of data collected in advanced systems can impact network configuration, storage options/size and cybersecurity procedures. These new costs might not be evident until after new systems are installed and operational. The burden digital technologies place on the shop floor can force new costs in IT support that were not originally projected.
The problem with all of these examples is twofold: (1) They address issues that typically are not part of procurement specifications and (2) suppliers of advanced technology tend to be experts in the technology, not in manufacturing operations. As a result, these kinds of issues don’t arise until investments are placed into service.
A new way of thinking
To better align the capabilities of advanced technologies with financial goals, engineers, operations leaders, sourcing professionals and equipment suppliers need to think more like investors. Investment professionals do not part with cash until they have both an investment rationale and due diligence on the target investment.
The investment rationale establishes tangible benefits expected of the investment. It outlines how much payback is expected, when the payback should be realized and how much risk is worth taking. Applied to equipment, it might be a statement of business need, like: “We need to increase throughput by 50 percent so we can take on new engine orders next year.”
Due diligence is the process of understanding the potential value of an investment. This is where the investor would look at a business’s operations, financial performance, legal and tax compliance, customer contracts, intellectual property, assets and organization. If applied to a manufacturing technology investment, the kind of operational due diligence questions to be answered might be:
- How much throughput is expected?
- What is the required first pass and ultimate yield?
- How much labor is required to operate the system and what is the skill level needed?
- How might the technology impact inventory levels and how much working capital impact (higher or lower) is expected?
- What kind of product performance gain might be achieved as a result of new capabilities?
- What new products might the business be able to produce in the future?
The answers to these questions have a profound impact on technology design. Throughput is tied to uptime assumptions. Uptime assumptions impact selection of components (e.g., high MBTF motors or quick-replace tooling). Quality and product performance goals could impact sensor selection and positioning, material selection and human-machine interface. The fact that these kinds of questions rarely make it into procurement specifications leads to less robust designs and delays in achieving full investment returns.
All of this suggests that industry needs a change in how it engages technology suppliers in delivering benefits to manufacturing operations. Arm’s length supplier relationships might give sourcing teams leverage on cost and delivery, but at the expense of rapid and full realization of financial gains. A new mindset is needed.
In our next blog entry, we’ll discuss changes in the value chain for advanced technologies that yield improved results—as measured by business leadership.
Pete Kalish is director of business development at O’Brien & Gere, a certified member of the Control System Integrators Association (CSIA). For more information about O’Brien & Gere, visit its profile on the Industrial Automation Exchange.
