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© BC 2001 CHEMICAL INDUSTRY BENCHMARKING George S. Birchfield December 6, 2001.

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Presentation on theme: "© BC 2001 CHEMICAL INDUSTRY BENCHMARKING George S. Birchfield December 6, 2001."— Presentation transcript:

1 © BC 2001 CHEMICAL INDUSTRY BENCHMARKING George S. Birchfield December 6, 2001

2 © BC 2001 BENCHMARKING “The Search for Industry Best Practices that Lead to Superior Performance” “Establishing Competitive Standards for Valid Measurement of Performance”

3 © BC 2001 KPIs help pinpoint problems & opportunities, guide decisions, and measure the results

4 © BC 2001 Focus KPIs on Value Revenue Growth……………Capacity Utilization, Output Growth Feedstock & Yields…………Yields vs. State of the Art Operating Cost Reduction…...Energy Efficiency, Reliability Capital Efficiency……………ROCE, RORV, Days of Supply

5 © BC 2001 Align & Balance KPIs Internal vs. External Planning vs. Doing People vs. Organization Control vs. Flexibility Production vs. Sales Plan vs. Actual Efficiency vs. Efficiency APC Index vs. Feed/Product Switches

6 © BC 2001 Hard to Measure “Better” Variability Under-control vs. Over-control Risks Trends vs. Fads Total Cost of Ownership Trade-Offs Rate of Performance Improvement Business Relativity Constraints to Improvement True Potential Value

7 © BC 2001 “Better” means Improved: Data Information Accuracy Consistency Completeness Content Timeliness Speed Quality Knowledge Forecasting Modeling Optimization Analysis Control Monitoring Communications Collaboration Decision-Making Profitability Sustainability Growth

8 © BC 2001 No Perfect Performance Benchmark

9 © BC 2001 Multiple benchmarks add perspective & insight

10 © BC 2001 Productivity Metrics Inputs Investment Raw materials Energy People Chemicals/Catalysts Knowledge Innovation Risk-Taking Outputs Products Quality Revenue Value added Profits Emissions New knowledge Lessons learned Productivity = Output Inputs

11 © BC 2001 Typical Competitiveness Profile Performance Metric Questionable long-term viability Approaching end of life cycle Major new investment risky Many favorable factors May not be sustainable Incentives to debottleneck 1Q2Q3Q4Q Median Small improvement gives greatest change in competitive position 1  (68.3%) 2  (95.5%) 3  (99.7%) BetterWorse

12 © BC 2001 Sustainability is what counts in performance

13 © BC 2001 “SUSTAINABILITY” Repeatable performance over several years No abnormal, non-reoccurring events Competitive performance in related areas No borrowing from tomorrow Not damaging the environment Knowledge of causal factors Supported by durable values & doable goals

14 © BC 2001 Knowing how much performance varies is interesting. Knowing why is important.

15 © BC 2001 Causes of Performance Differences Organizational Effectiveness Market Price Incentives Technical Design Economies-of-Scale Capacity Utilization Optimization/Flexibility Predictive/Preventative Actions Automation Resource Sharing Customer Relationships Decision Making & Accountability

16 © BC 2001 ASPEN IT ENABLES SUCCESS FACTORS Organizational Effectiveness…Business Processes, Best Practices Market Incentives………….…Strategic Planning, Supply/Demand Optimization Technical Design……………..Collaborative Engineering, Process Innovation Economies-of-Scale…………..Strategic Planning, Supply/Demand Optimization Capacity Utilization………..…Plant Optimization, Production Control Optimization………………….Supply/Demand Optimization, Feedstock Selection Predictive Actions…………….Production Control, Plant Maintenance Automation……………………Production Control, E-Sales Resource Sharing……………...Collaborative Replenishment & Demand Planning Customer Relationships……….Order Management & Commitment, E-Sales Decision Making………………Production Management, Order Management & Commitment

17 © BC 2001 “SMART” METRICS “Best Demonstrated” “Best Sustainable” “State-of-the-Art” “True Potential” “Economic Optimum”

18 © BC 2001 TO UNDERSTAND A PERFORMANCE AREA KNOW THE: GLOBAL PERFORMANCE RANGE SMART METRICS CAUSAL SUCCESS FACTORS TRADE-OFFS LESSONS LEARNED IT ENABLERS

19 © BC 2001 CAPACITY UTILIZATION METRICS – (1) Production versus rated capacity (2) production versus maximum sustainable production PERFORMANCE RANGE – 40% TRADE-OFFS – higher utilization improves most performance metrics LESSONS LEARNED – corporate optimization reduces utilization of poorest swing plants IT ENABLERS – Supply/Demand Optimization, Plant Optimization, Production Control

20 © BC 2001 PLANT RELIABILITY METRICS – (1)Production loss due to downtimes, slowdowns, turnarounds and flaring (2) off-spec production PERFORMANCE RANGE – 800% TRADE-OFFS – synergy with capacity utilization & maintenance LESSONS LEARNED – correlation with APC IT ENABLERS – Production Control

21 © BC 2001 MAINTENANCE METRICS – (1) cost versus replacement value, (2) cost versus standards (3) reliability losses + maintenance cost PERFORMANCE RANGE – 400% TRADE-OFFS – energy efficiency requires higher maintenance, better reliability reduces total maintenance but not all components LESSONS LEARNED – study equipment families-fixed, rotating, instrument, electrical IT ENABLERS – Production Management, Plant Maintenance

22 © BC 2001 ENERGY METRICS – (1) energy consumption per unit of product production (2) energy consumption versus processing standards PERFORMANCE RANGE – 300% TRADE-OFFS – higher prices generate greater efficiency, personnel lower at high efficiency LESSONS LEARNED – importance of heat recovery and cogeneration IT ENABLERS – Collaborative Engineering, Production Control

23 © BC 2001 PERSONNEL METRICS – (1) equivalent personnel per unit of production (2) equivalent personnel versus processing standards or equipment count PERFORMANCE RANGE – 800% TRADE-OFFS – inverse relationship with wage levels, economy-of-scale, companies with efficient personnel also efficiency in other areas LESSONS LEARNED – importance of process operator post positions IT ENABLERS – Production Control

24 © BC 2001 PRODUCT YIELDS METRICS – (1) yields versus state-of-the-art (2) yields versus standards (3) total equivalent yield at indexed prices PERFORMANCE RANGE – 30% TRADE-OFFS – lower yields may allow more throughput LESSONS LEARNED – model needed for feedstock quality and operating conditions adjustments IT ENABLERS – Process Simulation Models

25 © BC 2001 TOTAL OPERATING COSTS METRICS – (1) total and cash cost divided by high value co-products (2) cost divided by prime product with other production as by-products PERFORMANCE RANGE – 400% TRADE-OFFS – higher cost may be offset by value added or lower investment LESSONS LEARNED – cost breakdowns by line items required for meaningful analysis IT ENABLERS – Production Management

26 © BC 2001 INVENTORY METRICS – (1) total inventory in days of production (2) inventory turnover rates (3) inventory cost versus production cost PERFORMANCE RANGE –400% TRADE-OFFS – higher inventory may allow longer product runs and greater protection against stock run out IT ENABLERS – Collaborative Forecasting & Replenishment, Inventory Management

27 © BC 2001 PROFITABILITY METRICS – (1) net margin versus replacement investment (2) net margin versus actual capital employed (3) calculated profitability at standard prices PERFORMANCE RANGE – 400% TRADE-OFFS – strategic growth objectives may entail lower short term profitability LESSONS LEARNED – large single-train plants, at high capacity, and right feedstocks do well IT ENABLERS – Strategic Planning

28 © BC 2001 ACTUAL VERSUS PLAN METRICS – (1) percent deviation (2) economic value of deviations (3) statistical variability TRADE-OFFS – plans may range from “easy” to “reasonable” to “hard stretch”, or to just “wishful thinking” LESSONS LEARNED – know where plan stands relative to “true potential” IT ENABLERS- Supply/Demand Optimization, Plant Optimization

29 © BC 2001 The biggest room in the world ? THE ROOM FOR IMPROVEMENT

30 © BC 2001 IT Opens New Sources of Value Internet: e-business, e-collaboration, e-commerce Unify & synchronize plant & ERP domains Unified total enterprise planning & optimization Real-time total supply chain management For Investment Decisions: Know the value Know the total cost of ownership Know the KPIs

31 © BC 2001 MANY POSSIBLE TRADEOFFS Personnel levels by salaries & benefits rates Energy prices by energy efficiency Feedstock quality by feedstock prices Turnaround intervals by turnaround costs Throughput for yields Severity for selectivity Catalysts cost for longer life or yields Investment for labor Pass through of lower or higher costs to customers

32 © BC 2001 The name of the game: OPTIMIZATION of feedstocks, throughputs, yields, operating costs, inventory, distribution, and spot transactions within the context of a long range BUSINESS STRATEGY

33 © BC 2001 OPTIMIZATION ISSUES Not just maximizing production of high value products But how much low netback products to utilize spare capacity Influence of added supply or inventory in market on marginal revenues versus selling price Location of optimization decisions

34 © BC 2001 The current emphasis: SUPPLY CHAIN MANAGEMENT better IT B2B unification & integration optimization customer relationships global competition

35 © BC 2001 Business Strategy Products Quality Markets Competitiveness Pricing Profitability Market Share Growth Investments Divestitures Alliances Customers P l a n n i n g & S c h e d u l i n g Fulfillment Sales Billings Credit Collection Product Distribution Wholesale Industrial & Commercial Reseller and Jobber Retail O p t i m i z a t i o n Outbound Logistics to Primary Terminals Pipeline Tanker Barges Rail Truck Operating Plan Forecast Plan Buy Make Ship Store Exchange Distribute Sell Deliver Invoice Collect Service Collaborate Customer Satisfaction Supply Chain Management-Chemicals Feedstock Procurement Selection and Strategy Inbound Gathering, Terminaling and Transportation Plant Process Operations Product Certification & Shipping Marketing Position & Strategy

36 © BC 2001 SUPPLY CHAIN COMPETITIVENESS COMPONENTS Raw Materials Capacity Utilization Hydrocarbon Losses Product Yields Product Quality Waivers Product Quality Give-Away Energy Consumption Reliability Maintenance Personnel Levels Salary, Wages & Benefits Contractor Utilization Chemicals & Catalysts Insurance & Taxes Demurrage Inventory Carrying Costs Exchanges & Swaps Processing Agreements Bulk Transportation Costs Terminalling Costs Trucking Costs Environmental Compliance Product Run-out Penalties Late Deliveries Inventory Turnovers Total Profitability Decision-Making Time Actual vs. Plans

37 © BC 2001 THE VALUE OF INFORMATION TECHNOLOGY highly depends on the use for DECISION MAKING

38 Performance Improvement Better Decision-Making Processes Better Decisions Better Use of Information Better Information Functionality to Transform Data Into Better Information Computerization of Data for Timely, Accurate, Easy Access Raw Data MASTER PLAN WORKFLOW MODEL

39 © BC 2001 INFORMATION (IT) OF THE FUTURE MADE-TO-ORDER UNIFIED & INTEGRATED DEEP KNOWLEDGE ENHANCED

40 © BC 2001 “ALIGNMENT” The Big IT Management Issue Alignment to corporate goals Alignment to KPI’s & performance metrics Alignment to performance causal success factors Alignment to client organizational structure Alignment of products into solution suites Alignment of business processes & best practices Alignment by unification and integration

41 © BC 2001 THANK YOU! BIRCHFIELD CONSULTING, LLC


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