Investing in Manufacturing Processes
The global business environment has manufacturing facing some of its greatest
challenges in history. Recent global events resulted in dramatic shifts in
the business strategies and investment philosophies of most worldwide manufacturers.
Economic downturn has caused businesses to rethink all reinvestment practices.
All investments within business units must fit into the strategy of a long-term
business plan. Unfortunately, some manufacturing systems require more immediate
resolution to operational problems.
In the late 1990s, there was a new shift in focus from capital investments
in individual manufacturing equipment to coordinated process. To garner quality
information, manufacturing needed to integrate into the enterprise. To do
that, a great deal of investment needed to go into the enterprise information
infrastructure. However, existing process and production received inadequate
expenditures. This shift in capital allocation created corporatewide shortfalls
in funds invested in equipment and process upgrades. Additionally, this change
resulted in a high percentage of legacy manufacturing equipment, which is
currently exceeding its expected life cycle.
Legacy Risk
Older equipment and processes are less efficient, harder to maintain, less
flexible, and more labor intensive. The outdated equipment puts these facilities
at risk. Hence, a process of continuous improvement is required.
Manufacturers face an increased risk of impacting production schedules and
losing market share because of equipment failure, excessive maintenance costs
(attributed to the age of existing equipment), and the inability to maintain
and advance technology. The accelerated rate of technology change, opposed
with rapidly changing business drivers, has required manufacturers to balance
limited funding between investing in manufacturing capability and "keeping
an eye" on the balance sheet. With the uncertainty of merger and acquisition
activity being at an all time high, developing a strategic plan to reinvest
becomes a complicated decision.
To justify project investments in this new era, manufacturers need to address
certain criteria. These areas include:
- maximizing reuse of legacy equipment and controls;
- meeting present and future safety and environmental regulations;
- adding manufacturing flexibility;
- accomplishing projects within financial limitations and market windows
of opportunity;
- addressing enterprise information and resource sharing needs;
- improving quality and productivity.
Traditionally projects were cost justified with only quality and/or production
improvements as reasons to invest. The new trend indicates that to determine
asset replacement and utilization justification under uncertain future market
demand, a manufacturer must meet all current business criteria.
To accomplish manufacturing reinvestment under the present economic and technical
environment, you must attempt to utilize all means possible. Due to the recent
downsizing of technical staffs, manufacturers lack the internal infrastructure
to attempt many upgrade projects. An alternative, which is becoming increasingly
popular, is a joint project implementation method utilizing consultants and
integrators. By partnering or "in-sourcing" with niche companies,
manufacturers have an opportunity to meet short-term goals by bridging the
resource gap. These specialized companies bring with them the skills displaced
in industry by the current economic pressures.
New or Used
Special steps should be taken when partnering on reinvestment projects. You
must understand clear business drivers to develop realistic expectations that
meet short- and long-term requirements. Cost containment strategies must be
continuously developed together. Risk assessment and reduction becomes a joint
effort of the manufacturer and the partner. The performance criterion is a
shared effort between the parties.
Economic conditions and forecasts point to the return of a strong manufacturing
future. Reinvestment is an ongoing process and not a singular goal. However,
manufacturers do not have the liquid assets to reinvest unless given a compelling
reason. They require a high return on investment and one that pays dividends
in the short term.
To meet these new demands, an investment must meet an ever growing list of
requirements, such as:
- reducing the initial investment cost;
- covering the cost of the investment as quickly as possible;
- yielding an advantage over competitors;
- reusing as much legacy technology as possible;
- using external resources to address limited staff issues;
- partnering to minimize risk and enhance performance results.
The trend of focused reinvestment is a common method to maximize and expedite
the return on production investments.
1 November 2003
By Rich Weiner
Rich Weiner is president of Applied Industrial Automation, Inc., a Charleston,
S.C.–based manufacturing systems integrator and a registered member
of the Control and Information System Integrators Association.
