Operations Innovation & Transformation – the 4 Types Part 1 of a 5 Part Series

by Stan Devries, Senior Director Solutions Architecture, Invensys|Schneider Electric

Operations innovation and transformation: there has been much marketing on the innovations in supply chain and customer relationship management during the last 7+ years.  During this time, manufacturing and industrial operations has begun a less publicized transformation on their own.  This transformation goes beyond lean and total quality management principles.  In the 1980’s, we saw the impact of Japanese quality strategies; in the 1990’s, the consumer globalization fundamentally changed where facilities are built, how frequently new products are introduced, and in the 21^st century, industrial operations focus on how they create value for their customers, often focused on reliability.  These strategies might seem to be dreams without understanding the innovations that make these sustainable and the new risks can be practically managed.

These innovations are focused on unlocking the value of groups of physical and human assets:

• 1.       Physical Assets: the move to unifying the industrial enterprise over multiple sites (in groups or as a whole), with a more holistic view in terms of operating strategy and performance management.
• 2.       Human Assets: the shift to operational teams that spread across the multiple sites (in groups or as a whole), central, and Subject Matter Experts (SME’s) to make a rapid and dynamic decision support system in a dynamic operational world.

The following table published by ARC Advisory Group describes a spectrum of coordination or collaboration across assets, both physical and human:

The innovations are essential and prominent in the Integrated and Optimized portions of the above table.  So physical or human (people) assets become 2 parts of one of the dimensions:

So far, no innovation is immediately apparent.  The other attribute of creating value of these groups is improving consistency or efficiency, either by seeking and maintaining a constant “sweet spot” or by enabling profitable agility.

One way that value can be unlocked from a group of people or physical assets is by improving the consistency of the group’s output.  This is very different from the hope of “the best worker on their best day, every day” or the physical asset’s equivalent.  Instead, the innovation achieves a “new normal” which understands and manages to a repeatable performance or “the new average worker on their average day, every day.” This focuses on reducing the range of performance in output, whether measured as sales value of production, yield, efficiency, throughput, etc.

Another way that value can be unlocked from a group of people or physical assets is by improving the effectiveness of the group’s output – the “synergy.” This focus might seem to be a cliché, but it has produced significant and sustainable improvements.

So consistency and effectiveness become 2 parts of the second dimension, and we have 4 quadrants:

Now we have some hints of innovation – how is it possible and practical to achieve significant and sustainable improvement from a group of physical and human assets instead of the “sweat the assets” focus which has been in place for 100 years?  The changes come from using physical and human assets differently when they are required to perform to a group objective.  The 4 quadrants are summarized as follows:

In the lower left quadrant, a group of similar industrial operations (2 or more) adapt their performance objectives, business processes and accompanying hiring and information strategies to optimize the “fleet.” This innovation can be limited by the distribution flexibility among the locations, but several corporations have achieved success with this.  One example is keeping most of the locations operating at a constant or “base” portion of the combined market demand, and using the more agile locations to deliver the “swing” or variable portion of the demand.  Other examples and methods are described in a following article which focuses on this quadrant.

In the upper left quadrant, a group of complementary industrial operations (2 or more) adapt their performance objectives, business processes and accompanying hiring and information strategies to optimize the “chain”.  This innovation can be limited by the dynamic and range flexibility of some of the operations, but several corporations have also achieved success with this.  One example is seasonal competitiveness, where the “chain” collaborates to achieve maximum throughput during the high demand season and maximum efficiency during the low demand season (efficiency and throughput interact differently across different groups of industries).  Other examples and methods are described in a following article which focuses on this quadrant.

In the lower right quadrant, teams of specialists are grouped to provide value improvement to a group of physical assets, and the group of physical assets can be used as a “fleet” or as a “chain.” This is much more than a passive “help desk.”  One example is where specialists use real-time benchmarking and other tools, working with new business processes with the physical assets and the dedicated workers, to unlock value of themselves and the physical assets.  Other examples and methods are described in the following set of articles which focuses on this quadrant.

In the upper right hand quadrant, managers and supervisors use consistent measures and business processes to adjust targets for specialists and other workers, using the industrial automation concept of a “control loop.”  One example is where managers negotiate the next day’s production targets each day using the same business process for all specialists and industrial locations.  Other examples and methods are described in a following article which focuses on this quadrant.

The results have been spectacular, including double-digit improvements in efficiency, first-quartile industry performance, and more.