Boost ROA with Proactive Asset Performance Maximization Strategy Executive Brief Third Quarter 2005 Industry Directions Inc. www.industrydirections.com Industrial enterprises must squeeze the most out of their assets in today s challenging business environment. The price of entry into many markets is operational efficiency plus effective, real-time reaction to changes in internal or external market conditions. Clearly, unexpected equipment breakdowns or sub-par performance presents a major risk to competitive organizations. Companies financial results (and the predictability of these results) also rest firmly on the availability of production assets to produce and achieve high throughput. Achieving the high return on assets (ROA) that shareholders expect is a challenge for asset-intensive enterprises. To increase both ROA and competitive agility, progressive companies are adopting proactive enterprise asset management (EAM) as a business strategy. To maximize asset performance, this strategy must cover the entire lifecycle of assets - beyond maintenance, to encompass design and commissioning, cost accounting, procurement and ongoing improvement of all assets. Success in being proactive requires an end-to-end view of assets across the enterprise, effective processes, appropriate organizational incentives, and IT infrastructure to support those processes and make them repeatable. Reactive Preventive Key Requirements for Proactive Asset Management Proactive asset management is quite a different approach from traditional reactive asset maintenance. It s also broader than preventive maintenance or even total productive maintenance (TPM), which empowers operators to own assets. (Figure 1) A proactive EAM strategy demands collaboration across the enterprise to ensure all operations work in concert to keep assets working at their optimal level of performance. Operations Collaboration Predictive Proactive EAM Strategy Enterprise-wide Collaboration Total Productive Maintenance Return on Assets Figure 1: Asset-intensive companies are growing in sophistication regarding asset management, moving from pure maintenance to collaboration and a proactive enterprise-wide strategy. An EAM software application alone cannot achieve this state. Rather, companies need to establish new multi-department business processes, as well as new roles for key employees, and a better connected IT infrastructure. Core requirements for achieving the goals of a proactive asset maximization strategy are (Figure 2): Asset visibility across the enterprise
Coherent information about assets Performance analysis before issues arise and after action has been taken Real-time collaborative processes. Proactive Asset Maximization Strategy Asset Visibility Coherent Info Performance Analysis Process Speed Asset visibility is a foundation for both strategic and tactical aspects of an EAM strategy. Full visibility helps in designing processes and procuring equipment to meet Figure 2: The key requirements for a successful proactive worldwide needs, as well as in ensuring rapid EAM strategy asset visibility, information coherence, and synchronized day-to-day operations performance analysis and process speed should also be across departments. This all relies on people design goals for processes, organizational structures and IT. having all the information they need, with the correct reading of the situation. To continually improve asset management capabilities, companies must be able to measure and analyze the results of these processes and manage change on an ongoing basis. Challenges to Proactive EAM The concept of proactively managing plant assets is hardly new, and yet asset downtime is common. Even before Hurricane Katrina in August 2005, more than a dozen petroleum refineries experienced concurrent outages, and that s not unusual, as reported in the Wall Street Journal August 9 & 12, 2005. The price and profit impact of these incidents may be particularly severe, since U.S. refiners were running at 95.8% capacity, with crude oil priced well over $60 a barrel and composite refining margin over $11 per barrel. Companies must overcome significant challenges to reliably pursue an enterprise asset management strategy. Therefore, while the core requirements can clearly drive success with an EAM strategy, many companies will struggle to incorporate them successfully. Departmental collaboration is challenging for most companies. Departments often use different systems with sometimes inconsistent views of the assets. Since plant applications are specific to a department, workers waste time and effort looking at one facet of the problem, and then asking others to gain a full picture of the situation. The interdependencies between assets and their characteristics are too complex for any one person to fully take into consideration. Applications were designed to support a given set of tasks, but the full set of data to support a specific job function and an individual s scope of control often goes beyond what an application can provide. Few companies have role-based access to all the data various decision-makers need, presented in context of their decisions. Multiple plant applications require maintenance of separate asset records or equipment trees within one plant, making it difficult to maintain an accurate picture of assets. This challenge increases significantly when there are multiple plants, mergers or acquisitions and remote equipment. Industry Directions Inc., 2005 2
Equipment Supplier Specs & Practices Process & Product History MRO Procurement System Data Asset Data Management Asset Data: BOMs, materials, Equipment etc. Financial & Accounting Asset Standards Figure 3: Today, many companies do not have a central asset data management capability, which leaves them with separate sources of data in incompatible formats, difficult to use proactively. The maintenance process is mostly disconnected from the spare parts supply chain because complete equipment bill of material records are rarely entered into the EAM system in many companies, it is unclear who has final responsibility for the upkeep of this information. Technical documents for assets are stored in many places: file servers, applications, spreadsheets, document repositories, all with inconsistent file structures. This means information is often manually integrated into work management processes. A variety of applications create and maintain information about assets and their performance outside the maintenance department procurement, operations, finance, and ERP may all have useful information for decision making. (Figure 3) Most maintenance and operations personnel lack easy access to comprehensive, real-time calculated views of asset performance and the resulting overall operational performance so they cannot effectively pre-empt problems. Few companies have a single version of the truth about their assets that combines status, technical information, and current and historical performance of assets with outside information such as prices and market trends, operating conditions and marketing and sales activity. These interdependent issues have stymied many companies in their efforts to become more proactive in their EAM practices. Process and organizational changes can improve collaboration; however, most companies must also improve information delivery across roles and processes for a proactive EAM strategy to thrive. Creating EAM Information Flows A comprehensive strategy for EAM requires comprehensive information flows that support reliable processes, informed decisions and collaboration between departments. Delivering the right information at the right time means people don t waste time searching for data. In fact, information flows enable visibility, process speed, information coherence and performance analysis. Part of these capabilities can come from the applications themselves. In addition to work management and maintenance planning functions, leading-edge EAM solutions incorporate asset data management, calibration, monitoring and links to finance, HR and payroll. Plant performance management systems provide real-time information, equipment condition indicators, alerts, and production statistics directly from the assets. ERP backbones are increasingly operations-aware and may link into these. Industry Directions Inc., 2005 3
Sample EAM Problems Poor visibility to mobile & remote distribution assets Maintenance not alerted to trends in production early to prevent issue Work packages take so long to build technicians miss opportunities to prevent breakdowns or poor quality Aging workforce means potential loss of undocumented processes Unsure if asset management action or policy change is effective Traders & dispatchers struggle to make sound business decisions Information System Support All assets monitored & data instantly available for current view & analysis Real-time production data & analysis available as alerts & in portal Equipment, BOM, material, procedure info in repository ready to combine with production trend analysis Bring employees knowledge into automated system to preserve it Real-time feedback from production monitoring fed into maintenance view Current and historical data from inside & beyond the operation analyzed & available in portal view Figure 4: Smooth information flows support the four keys to proactive EAM strategy, and help eliminate problems that lower asset performance. With so many sources of data involved, the IT infrastructure must be able to bring all this data together effectively into one version of the truth and must be capable of delivering just the right data to each user in the context of his or her workflow. Fortunately, newer IT systems integration platforms, service oriented architectures (SOA) and portals can speed integrated information flows. In fact, composite applications accessing functionality from several different systems in an SOA can leverage existing applications and boost capability to support best practice processes. For example, operators, technicians and managers might need to know the current, historical and future condition, status, location and cost profile of a variety of assets to keep the operation at target production levels. A composite application could use data from CMMS or EAM, data historians, process control, procurement, accounting and ERP systems for a coherent view of asset information that helps focus attention on trouble spots. A role-based portal can often provide operators and technicians with real-time access to all the information they need to make sound decisions, as well as tailored views for employees in facilities engineering, procurement and payroll. Managers can also gain enterprise-wide asset visibility through portal dashboards. Companies that create a seamless information flow across their enterprises can overcome the challenges to a proactive EAM strategy. (Figure 4) Information flow supports each of the core requirements, allowing companies to: Gain visibility into distributed, remote and mobile assets. Leverage coherent data for a full picture of assets. Confidently act on accurate analysis to continuously improve asset performance. Streamline collaborative processes for speed and effectiveness. Learn from a broader set of performance data. Disseminate best practices. Transfer knowledge from older retiring employees to younger workers. Creating an IT infrastructure capable of readily adapting to changing business needs is no small challenge for an industrial company. It requires quite a bit of integration and Industry Directions Inc., 2005 4
business logic to support effective practices. Savvy industrial companies have been pushing their business solution providers to assist. For example, SAP s NetWeaver, combined with its Powered by NetWeaver program delivers an integration-oriented business process platform plus a large ecosystem of application partners that have agreed to adopt it. This removes much of the integration burden from the customers. For example, SAP Powered by NetWeaver partners OSIsoft and NRX have been working together to ensure their solutions integrate smoothly. Here, NetWeaver integrates OSIsoft s RtPM operational analysis platform and NRX s VIP composite EAM application using the NetWeaver platform. The combination delivers prepackaged support for end-to-end asset visibility in an SAP environment. The OSIsoft-NRX solution weaves key real-time operational and asset data with alerts directly into SAP workflow in role-based context for a variety of user groups. Maintenance, production, engineering, managers, traders and marketing all gain the comprehensive view they need, with minimal IT headache. Customers and shareholders should see the results of this improved information flow. Strategic Financial Decisions Tactical, Operational Real-time Design/Procure Install/Deploy End-to-End, Real-time Asset Maximization Due to the competitive business environment and shareholder expectations, companies must strive not only to manage, but also to maximize the performance of their assets. This requires end-to-end asset management throughout the enterprise. There are three main dimensions to this: End-to-End Proactive EAM Strategy Traditional EAM Practices Asset Lifecycle Operate Calibrate Maintain Scope Unit/BOM Plant/Site Decommission Dispose/Replace Enterprise-wide Remote/Mobile Figure 5: Proactive EAM requires end-to-end visibility and management of assets. This scope has several dimensions: unit level to enterprise, strategic to tactical, and asset lifecycle. From a single unit or plant, to multiple production, generation and transmission or distribution facilities, as well as mobile assets. Not only tactical moment-to-moment decisions to prevent downtime, but also strategic decisions made by managers and engineers. The full lifecycle of an asset, from purchase and installation, to upgrade or retirement. (Figure 5) Industry leaders are proactively managing every asset, whether in-plant, remote or mobile. Integrated information systems deliver full access to asset information from every source. All personnel who need it have complete, analyzed information in a context and form they can use. Industry Directions Inc., 2005 5
One example is power generation company Conectiv Energy, a subsidiary of Pepco Holdings Inc. Conectiv Energy operates a portfolio of highly flexible power plants within the PJM Interconnection power pool serving the Middle Atlantic states and uses a wholesale merchant unit to optimize the value of its energy portfolio. In that commodity business, efficiency clearly drives profit. While building a new plant in Bethlehem, Pennsylvania, Conectiv turned to NRX to help create a single workspace for EAM including an electronic library of technical documentation for the new plant equipment. Conectiv had also been using OSIsoft in its other plants as a real-time performance platform not only for their operations, but also for their traders and generation dispatchers. Combining OSIsoft and NRX capabilities in their SAP environment has increased the ROI on their maintenance system, improved planner and technician productivity, increased the proportion of proactive or planned maintenance time, improved management reporting. Employees at leading companies, like Conectiv, that have adopted a proactive EAM strategy with good information flow can avoid problems and take action confidently. Sustaining progress toward the strategic goals requires an information infrastructure that supports reliable, repeatable, rapid decisions and execution. When departments are collaborating and have end-to-end visibility of their entire asset base, they gain in both asset and financial performance. Success with a proactive asset performance maximization strategy increases return on assets which is precisely the result shareholders want to see. Industry Directions Inc., 2005 6
About Industry Directions Industry Directions is an independent market research firm that delivers expertise on business processes and IT solutions. Its expertise enables companies to optimize their participation in manufacturing-supported value networks and gain strategic advantage. To learn more, visit: www.industrydirections.com. About NRX NRX is a leading provider of collaboration and data management solutions for Enterprise Asset Management in asset-intensive industries. The NRX solution enables the optimization of plant maintenance and materials management business processes across the multi-plant asset-intensive enterprise by delivering high-integrity, actionable asset information into a role-based collaborative environment. By leveraging existing investments in technology infrastructure, the NRX solution enables asset owners to reduce costs, improve plant reliability and availability, and maximize Return on Assets (ROA). About OSIsoft OSIsoft delivers performance management software to the world s leading process manufacturing, life sciences, and utility companies anywhere real-time operational metrics fuel performance. With more than 10,000 installations worldwide, OSIsoft s real-time data platform crosses IT and process boundaries to incorporate and display operational information. Providing comprehensive visibility into operations, the OSIsoft platform unlocks the potential for timely analysis and the ability to make critical, informed and profitable decisions. Founded in 1980, OSIsoft Inc. is headquartered in San Leandro, Calif., with operations worldwide, and is privately held. Copyright & Legal Disclaimer: This publication is protected by United States copyright laws and international treaties, and is copyrighted by Industry Directions Inc. This document may not be reproduced or posted on another web site beyond the sponsors, OSIsoft and NRX, without prior written consent of Industry Directions Inc. Unauthorized reproduction of this publication or any portion of it may result in severe civil and criminal penalties, and will be prosecuted to the maximum extent necessary to protect the rights of the publisher. All information contained in this document is current as of publication date. Opinions reflect judgment at the time of publication and are subject to change without notice. All information is from sources Industry Directions considers reliable, but is not warranted by the publisher. Industry Directions Inc., 2005 7