NOVA Chemicals Quest for Manufacturing Excellence Aided with Predictive Analytics

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1 INSIGHT# MPH JUNE 22, 2006 NOVA Chemicals Quest for Manufacturing Excellence Aided with Predictive Analytics By Tom Fiske Keywords Analytics, Industry Value Network (IVN), Model Predictive Intelligence (MPI), Predictive Analytics, Real-Time Performance Management (RPM) Summary NOVA Chemicals is on a journey to achieve manufacturing excellence. To help accomplish this goal and improve operational decision making, the company set out to integrate real-time plant floor data with ERP data and enable real-time data visualization and predictive NOVA Chemicals implemented a RPM analysis throughout the company. The solution decision support system to drive its delivers a production rate metric based on realtime data to predict optimal capacity utilization manufacturing excellence program. The system integrates plant floor and ERP and compare it to actual plant performance. The data and uses predictive analytics to calculate theoretical optimal capacity system provides insight into the primary constraints that inhibit the plant from achieving utilization, identify sources of variability, determine effects of constraints, optimal performance. Operators are using the system to drive performance toward the theoretical perform what if analysis, and improve profitability. The system has allowed for optimal capacity. The system is also being used to improved decision making to influence merge NOVA s proprietary margin model with plant capacity utilization. real-time spot market pricing to track real-time contribution margin by product to understand the profit opportunity or loss instantly. An additional use of the system is to help identify capital investment opportunities that reduce bottlenecks and increase capacity. Analysis NOVA Chemicals is a global manufacturer of plastics and chemicals with revenues of about $5.6 billion. The company produces several billion pounds of ethylene, polyethylene, styrene, and polystyrene each year. The market in which they compete is cyclical in nature, with profits inextricably linked to the delicate balance of supply and demand. Companies typically THOUGHT LEADERS FOR MANUFACTURING & SUPPLY CHAIN

2 ARC Insights, Page 2 compete on price and leverage high-volume asset intensive operations to compensate for low margins. Manufacturing efficiency and effectiveness often determines the winners and losers in this market. Path to Manufacturing Excellence NOVA Chemicals understands its markets well and understands what it takes to be successful. Part of the company s strategy is to be the low cost provider, build upon their sustainable competitive advantage, and invest only for high returns. The company has a history of implementing manufacturing excellence initiatives around focus areas that encompass process automation, maintenance and reliability, engineering, quality, process control, and operations. Its manufacturing excellence program has the goal to maximize total margin contribution of each product while ensuring that they operate in a safe and environmentally responsible manner. To accomplish this goal, the company set out to create and maintain an infrastructure as well as business processes that supports excellence in all aspects of its manufacturing facilities. NOVA Chemicals Allies with Suppliers to Develop RPM Solution In its effort toward driving manufacturing excellence, NOVA Chemicals sought to enable real-time data visualization throughout the company to improve operational decision making. The company worked with two of its technology providers, SAP and Pavilion Technologies, to develop a pilot application at its Joffre site in Alberta, Canada. The selection of SAP and Pavilion was not serendipitous, as both Pavilion and NOVA Chemicals are members of SAP s recently created Chemical Industry Value Network (IVN). The creation of IVN is an acknowledgement by SAP that suppliers and customers must work together to provide innovative solutions to end-users. IVN for chemicals is an industry-focused collaborative effort among leading chemical companies, independent software suppliers, and system integrators with SAP to deliver integrated solutions specifically addressing the business requirements of the chemical industry. NOVA Chemicals Gets Real with the Production Rate Metric Leveraging information to achieve manufacturing excellence at the polyethylene plant located in Joffre was not always easy. Collecting and analyzing the data from different information sources took an inordinate

3 ARC Insights, Page 3 amount of time and only provided a historic perspective of what happened. Although not ideal, this information was used as a basis for troubleshooting and improving capacity utilization. As a result, NOVA Chemicals initiated a pilot project to deliver real-time performance information to operators, engineers, plant management and executives to drive operational decisionmaking by providing a window into what is currently happening on the plant floor and by providing insight as to what could happen on the plant floor. The pilot project uses Pavilion s Model Predictive Once the operators got acquainted with Intelligence (MPI) technology to provide real-time the new system and had enough visibility, predictive analytics for what-if scenario evaluation and theoretical versus plant confidence to trust the results, they began to push the plant closer to the theoretical limits and keep it there, thus capability performance insight. MPI technology generating significant value and benefit. complements the NOVA Chemicals implementation of Advanced Process Control (APC) by allowing the same models used in advanced process control to be leveraged for real-time performance management. Integration with financial data in their ERP system via SAP xmii application and the NetWeaver integration platform provides additional visualization and functional capability, including the ability to see contribution margin by product. Operations Crank up Plant Utilization The pilot application provides NOVA Chemicals operators, engineers, management, and executive team with a production rate capability metric that uses real-time data to predict the optimal utilization for the plant and compare it to the current performance. To augment the production rate metric, the system provides insight into the primary constraints that are inhibiting the plant from achieving optimal performance utilization. The combination of accurate performance data and an ability to identify and push constraints, provides operators with the information necessary to make better, faster, and more informed decisions to continuously maximize production. Once the operators became acclimated to the metric and had confidence to trust the results, they began to leverage the tool to push the actual plant performance closer to the theoretical limits. To support the decisionmaking process, the system allows users to drill down into the causes of variability to determine which factors are contributing to bottlenecks and

4 ARC Insights, Page 4 other problems. The system also provides the ability to create simulations to determine the implications of potential operating changes intended to generate incremental capacity. A Strategic Tool for Better Business Decisions Through the use of SAP xmii, NOVA Chemicals is able to disseminate information through SAP s Enterprise Portal to anyone in its organization that needs its. More importantly, the integration of real-time plant floor data with financial information from the ERP systems provides a powerful tool for both tactical and strategic decision-making. Typical Screenshot of Gross Margin Loss by Production Constraint NOVA Chemicals uses this information in a number of ways. The company continuously tracks the revenue contribution margin for each and every product, order, and customer. This information is put in the context of lost capacity utilization and delivered via the manufacturing portal to give management to support important business and financial decisions concerning its products and customers. The ability of the system to examine the effects of constraints and bottlenecks also provides plant management with valuable insight and guidance into plant capital investment decisions that reduce lost capacity utilization.

5 ARC Insights, Page 5 Significant Benefits Encourages Enterprise-wide Adoption Although NOVA has not explicitly published or stated ROI for the project, they do claim they have achieved benefits. For instance, the insight provided by MPI allows NOVA Chemicals to make operational adjustments that increase capacity. The benefits of expanding capacity in a capacity constrained plant without any capital investments are important. With the success of the initial project and benefits realized, NOVA Chemicals plans to roll-out the solution across its enterprise. In addition, the company will bolster its capability to facilitate decision-making with other metrics that include transition management, quality management, and production run consistency to name a few. Recommendations Determine how RPM can improve production efficiencies as NOVA Chemicals has proved, the potential benefits can be significant. Like NOVA Chemicals, work closely with your technology suppliers to develop solutions that maximize your unique values and business processes. Carefully define the metrics that are important for your companies success. Creating real-time data visibility provides significant benefits, but companies should look to augment this capability with predictive analytics that provide invaluable insight into achieving higher levels of performance and profitability. Use integrated real-time plant floor and ERP data with spot market information to secure higher-value incremental unplanned opportunities. For further information or to provide feedback on this Insight, please contact your account manager or the author at [email protected]. ARC Insights are published and copyrighted by ARC Advisory Group. The information is proprietary to ARC and no part of it may be reproduced without prior permission from ARC.