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The financial payback associated with appropriately applied automation solutions can be substantial. In fact, there is almost no other investment an industrial company can make that can provide greater returns. Once again, that is not to say that implemented automation solutions cannot result in no incremental value – they can. However, if a primary objective of an industrial company is to use automation technologies in a manner that yields economic benefits, the benefit potential definitely exists.
ROI is the financial measurement most often used to evaluate capital investments. ROI (and other variations on the ROI approach such as NPV, net present value and IRR, internal rate of return) is based on the concept that once the initial investment is covered, there is no need to consider the additional payback the investment is providing. This means that investments that provide ongoing value to the operation tend to be undervalued due to the ROI mindset. Automation solutions are investments that can provide high levels of value to industrial operations long after the initial investment is covered.
Industrialization was extremely labor intensive for the first few decades after its inception. New industrial machinery was complex, difficult to operate, and difficult to maintain. People were abundant and inexpensive. The obvious solution was to dedicate each person in the labor force to specific tasks, train them on those tasks, and coordinate all the people across the operation in a manner that would enable the operation to perform. The management approach used was Scientific Management, developed by Frederick Taylor, and it worked quite well. Since the early years, the trend has been to reduce headcount to as great a degree as possible.
As the labor force organized, often forming trade unions, and as governments in the industrialized world started regulating labor practices, the cost of labor trended up at a significant rate. Automatic controls were developed to replace headcount to perform the basic process control functions previously done by plant operators. The number of operators required declined significantly. Likewise, computerized maintenance management systems reduced the number of maintenance personnel required. In recent years, economic recessions coupled with sophisticated and easy to configure and use automation technology have led to a reduction in the number of plant engineers.
As this reduction in force was occurring across industry, a point of view developed that seemed to devalue the human resources of industrial operations. Perhaps the extreme example of this was the popular initiative of the 1980s and 1990s called “Lights Out Manufacturing”, which was based on the idea that if no people were required there would be no need to turn on the lights in a plant or factory. The promise of “lights out” was clearly not fulfilled.
Perhaps as a consequence of extreme programs such as Lights Out Manufacturing, in recent years industrial managers have started to come to the realization that their human resources are much more valuable than previously believed. Today the trend is to empower the previously neglected employees in industrial organizations to maximize the value they can deliver. As a result, there has been an increased focus on real-time performance measurement and management systems to enable real-time decision support across industrial operations. The most visible aspect of these systems is performance dashboards that provide real-time performance feedback on the impact of any actions or activities undertaken by operations, maintenance and engineering. Unfortunately, software dashboards are easy to build and are therefore springing up throughout industry, often without incorporating well-considered or even appropriate performance measures. The key to success is to develop the correct real-time performance measurement system first, then to use these measures to populate the performance dashboards or other performance feedback mechanisms. When this is done appropriately, the human resources in industrial operations can drive huge improvements across the operations, leading to significant bottom line results. For the most part, people want to do a good job. If they only knew what “good” consisted of – they would do it!
Engineers, operators and maintenance professionals are among the most valuable resources in industry. It is time to provide this talent base with the tools they need to improve in their jobs and to improve plant performance. This must be done in a manner that directly measures the impact of what they accomplish. The tools that empower them should be the same tools that measure their performance impact. They are real-time performance measurement and management systems. It is time for industrial human resources to claim the value they create!
The optimal approach to realizing the most value from automation systems is taking a Value Creation approach to both the effective use of installed automation technology and the deployment of new automation technology through an enterprise wide Value Creation Plan. Such a plan should be based on three fundamental components. First is measuring the business of industry in real time through the previously discussed dynamic performance measures. Second is empowering all personnel throughout industrial operations with the contextualized, real-time operational and business information each person requires to execute their duties in the most value generating manner possible through real-time decision support. Third is to use the wide range of automation solutions and technologies available to industry to drive even more business value improvements, with each improvement’s business impact made both measurable and visible.
It is truly as simple as “one, two, three!” Unfortunately, simple is not necessarily easy. Industrial executives must get involved in adjusting traditional processes and constructs that get in the way of driving value. This cannot be accomplished at lower organizational levels, yet if this path is followed and industrial executives lead the way to automation-based value generation, the results will be awe-inspiring in terms of improved operational efficiency, improved safety, improved environmental integrity, and of course – the bottom line – improved profitability.
Financial managers in industrial companies continuously search for investments that will improve financial performance. Over the past decade many of these investments have been made in various instruments outside of the company because they promised higher yields. This is unfortunate. If the same money had been invested in their own companies on value-based automation solutions, they could have realized better results than they received from the outside investments. It is time to start reinvesting in our industrial operations. There is no better investment than performance-based automation!