Thursday, September 25, 2014

Two Links You Need to Justify Investment in Manufacturing Systems

By John Dyck, Chairman of the Board at MESA International

Few people doubt that investing in manufacturing systems will lead to significant, necessary transformation and benefits, but for a variety of reasons, manufacturers – for the past decade - have chosen to invest more heavily in their IT, business and logistics systems instead of in their plants.

But that’s changing, and as we emerge from several years of post-recession doldrums, it’s become clear that an economy based on service industries alone can’t survive in the long run. Manufacturers are returning back to their manufacturing roots, putting a renewed premium on production knowledge, and moving from being a ‘neglected’ industry to once again being the engine of a wealthy economy.

However, with their ERP investment still top-of-mind, and a more realistic understanding of what they actually have (vs. what they were promised), manufacturing leadership is understandably much more educated and, in many cases, much more skeptical of large, capital projects that promise significant value (which has proven to be elusive).

As they turn to their plants, which after all are the source of value creation for their organization, they’re faced with the challenge of determining where to invest, and how to ensure that the investments they’re making are aligned with their strategic initiatives. Where can they go in their organizations to properly characterize the challenges, the opportunities, the risks and rewards for their manufacturing investments?

Increasingly, leading manufacturers have been integrating key I.T. functions with key manufacturing operations domain experts, creating a hybrid Manufacturing I.T. organization to help drive corporate initiatives in manufacturing. The extent to which they’re successful is largely determined by whether they have the appropriate executive (CEO & CIO) sponsorship, their ability to pick the right battles, and whether they’re able to find the appropriate balance/compromise between the unique strengths of their respective domains and those attributes that need to be ceded.

Each side brings tremendous value, but also needs to relinquish aspects of their modus operandi that stood them in good stead in their previous functional role. There’s enough fodder here for another treatise altogether, but let me touch briefly on how this important dynamic impacts your ability to justify and develop an ROI strategy for manufacturing systems investment.

I.T. organizations have built core competencies in identifying, prioritizing and most importantly, justifying large capital projects that have served their business well for many years. This has been notably absent in most manufacturing operations domains, largely because the plants – for most of their history – have done what they needed to, when they needed to, with a shoestring budget and without the luxury of a standards-based, long-term view of their TCO.

Some organizations with a more centralized engineering function have tried to drive standards and a common approach to manufacturing systems, but in the realm of Level 3 manufacturing systems, have met with only moderate success, as each plant maintains the right to sustain their own manufacturing workflows and processes. ERP implementations – while standardizing other business processes – have not and will not be the place where this transpires. The missing links – and by far the biggest challenges – in successfully justifying and garnering executive sponsorship for a strategic investment in manufacturing systems, has been and remains:

1.      Holistically understanding, identifying and articulating ALL OF the value of these systems. This may require significant collaboration with the IT & Process Transformation organizations that have, in most cases, devoted substantial resources to finding & documenting ROI for their ERP investments, and know the gaps between what was expected and what was actually delivered. This is important for several reasons, including the prospect of augmenting and/or realizing ROI that was anticipated for the ERP investment, but also to ensure that you don’t inadvertently plan for ROI where it’s already been claimed. The MESA Metrics Guidebook: ROI and Justification for MES will provide significant help in this area, helping you understand all of the potential avenues that you can realistically pursue.

2.      Establishing and communicating the entire manufacturing systems project & ROI strategy in a manner that’s consistent with how traditional business investment strategies have been developed and presented to the executive team. This is where the experience and expertise of your I.T. organization can be of tremendous benefit – again, in the context of striking that fine balance between what will work for the plants on one hand, and what the project needs to ensure the appropriate level of rigor, project oversight and long term system sustainability on the other.

MESA’s intent in amassing and presenting this vitally important collection of expertise is to bring together well over 200 man-years of experience in successfully justifying and implementing these systems, and in trying to document the appropriate combination of art and science necessary for this critical step in bringing about the necessary transformation of our manufacturing capability globally. 

We believe that if we can facilitate a higher degree of collaboration between manufacturing and I.T. – and further educate all of the stakeholders in this value chain – we’ll significantly improve our ability to effectively develop and communicate real ROI strategies. This is the only way you will garner support from the very executives that are charged with transforming your organizations and building thriving manufacturing enterprises globally.

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John Dyck has spent his entire career in manufacturing, working with leading global hardware and software suppliers to solve manufacturing problems. Mr. Dyck was appointed Director, Software Business Development at Rockwell Automation in June 2007, where his role includes setting the strategy for Software Business Mergers and Acquisitions and overseeing Strategic Alliances. Dyck previously served as the Director of GE Fanuc’s Production Management software business and prior to that as Vice President, Marketing and Business Development for Activplant. John currently serves as the Chairman of MESA International’s (Manufacturing Enterprise Solutions Association) Board of Directors and as Chair of the MESA Executive Committee. Mr. Dyck holds a degree in Electronics Engineering from Conestoga College.

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