CHEMICAL INDUSTRY BENCHMARKING

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

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CHEMICAL INDUSTRY BENCHMARKING. George S. Birchfield December 6, 2001. BENCHMARKING. “The Search for Industry Best Practices that Lead to Superior Performance” “Establishing Competitive Standards for Valid Measurement of Performance”. - PowerPoint PPT Presentation

Transcript of CHEMICAL INDUSTRY BENCHMARKING

Page 1: CHEMICAL INDUSTRY BENCHMARKING

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CHEMICAL CHEMICAL INDUSTRYINDUSTRY

BENCHMARKINGBENCHMARKING

George S. Birchfield

December 6, 2001

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BENCHMARKINGBENCHMARKING

“The Search for Industry Best Practicesthat Lead to Superior Performance”

“Establishing Competitive Standards for Valid Measurement of Performance”

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KPIshelp pinpoint problems & opportunities,

guide decisions, and measure the results

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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

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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

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Hard to Measure“Better”

VariabilityUnder-control vs. Over-control

RisksTrends vs. Fads

Total Cost of OwnershipTrade-Offs

Rate of Performance ImprovementBusiness Relativity

Constraints to ImprovementTrue Potential

Value

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“Better” means Improved:• Data

• Information

• Accuracy

• Consistency

• Completeness

• Content

• Timeliness

• Speed

• Quality

• Knowledge

• Forecasting

• Modeling

• Optimization

• Analysis

• Control

• Monitoring

• Communications

• Collaboration

Decision-MakingProfitability

SustainabilityGrowth

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No PerfectPerformanceBenchmark

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Multiple benchmarksadd

perspective & insight

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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 = OutputInputs

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Typical Competitiveness ProfileP

erfo

rman

ce M

etric

Per

form

ance

Met

ric

Questionable long-term viabilityQuestionable long-term viabilityApproaching end of life cycleApproaching end of life cycleMajor new investment riskyMajor new investment risky

Many favorable factorsMany favorable factorsMay not be sustainableMay not be sustainable

Incentives to debottleneckIncentives to debottleneck

1Q1Q 2Q2Q 3Q3Q 4Q4Q

MedianMedian

Small improvementSmall improvementgives greatest changegives greatest changein competitive positionin competitive position

11(68.3%)(68.3%)

22(95.5%)(95.5%)

33(99.7%)(99.7%)

Bet

ter

Bet

ter

Wor

seW

orse

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Sustainability is what counts in performance

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““SUSTAINABILITY”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

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Knowing how much performance varies is

interesting.

Knowing why is important.

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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

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ASPEN IT ENABLES SUCCESS FACTORSASPEN 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

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““SMART” METRICSSMART” METRICS

“Best Demonstrated”

“Best Sustainable”

“State-of-the-Art”

“True Potential”

“Economic Optimum”

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TO UNDERSTAND A PERFORMANCE AREA

KNOW THE:

• GLOBAL PERFORMANCE RANGE

• SMART METRICS

• CAUSAL SUCCESS FACTORS

• TRADE-OFFS

• LESSONS LEARNED

• IT ENABLERS

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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The biggest room in the world ?

THE ROOM

FOR IMPROVEMENT

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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 ownershipKnow the KPIs

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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

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The name of the game:

OPTIMIZATIONof feedstocks, throughputs, yields,

operating costs, inventory, distribution,

and spot transactions

within the context of a long range

BUSINESS STRATEGY

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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

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The current emphasis:SUPPLY CHAINMANAGEMENT

better IT B2B

unification & integration optimization

customer relationshipsglobal competition

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Business Strategy Products Quality Markets Competitiveness Pricing Profitability Market Share Growth Investments Divestitures Alliances Customers

Planning & Scheduling Fulfillment• Sales • Billings • Credit • Collection

Product Distribution• Wholesale • Industrial & Commercial• Reseller and Jobber • Retail

Optimization

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 ProcurementSelection and Strategy

Inbound Gathering, Terminalingand Transportation

Plant Process Operations

Product Certification & Shipping

Marketing Position & Strategy

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SUPPLY CHAIN COMPETITIVENESS COMPONENTS

Raw MaterialsCapacity UtilizationHydrocarbon Losses

Product YieldsProduct Quality Waivers

Product Quality Give-AwayEnergy Consumption

ReliabilityMaintenance

Personnel LevelsSalary, Wages & Benefits

Contractor UtilizationChemicals & Catalysts

Insurance & Taxes

Demurrage Inventory Carrying Costs

Exchanges & SwapsProcessing Agreements

Bulk Transportation CostsTerminalling Costs

Trucking CostsEnvironmental ComplianceProduct Run-out Penalties

Late DeliveriesInventory Turnovers

Total ProfitabilityDecision-Making Time

Actual vs. Plans

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THE VALUE OF INFORMATION TECHNOLOGY

highly depends on the use for

DECISION MAKING

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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

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INFORMATION (IT)INFORMATION (IT)OF THE FUTUREOF THE FUTURE

• MADE-TO-ORDER

• UNIFIED & INTEGRATED

• DEEP KNOWLEDGE ENHANCED

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“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

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THANK YOU!

BIRCHFIELD CONSULTING, LLC