9th February 2017
This article was originally published in the LinkedIn. Read the full version here.
With Industry 4.0 advancing as a catalyst for change for today’s manufacturing industry, changes in this already dynamic and fast moving environment are expected to be more extensive and rapid than ever before.
This comes at a time when global manufacturers are already working hard to keep pace with fast changing consumer demands, due to global socioeconomic factors, such as globalization, population growth and emerging market dynamics, to name but a few.
The world is moving towards more on-demand processes, enabled by technologies such as additive manufacturing and real time big data processing.
This all requires ‘Smart Assets’, that not only support and drive, but also effectively improve business performance.
This has a fundamental impact on the way manufacturers design, create, operate and eventually re-purpose their built asset portfolios, whether it be the manufacturing plant or the infrastructure that supports it.
Reaching out to over 70 leading industry experts in manufacturing across the world, the Arcadis Industrial Capital Expenditure Survey provides insight into the latest trends in built asset capital project and program delivery across the industrial manufacturing sectors. Highlighting which sectors are adopting best practice, the report reveals seven key themes and trends, which best-in-class manufacturers must navigate to meet the affordability challenge and maximize the value of built assets delivered, in the midst of a transforming supply chain.
Overall, manufacturing executives were cautiously optimistic about their sector, with nearly nine out of ten (87%) stating that the outlook for their industry would either improve or stay the same over the next 12 months. Our research presented a generally positive picture for industrial capital expenditure, also. The industrial sectors are evidencing a relatively mature approach, taking a future-focused and integrated view of their built asset investments, in the context of delivering their products to market.
However, with constraints on available funds ranking as the top challenge to capital projects, it is crucial that companies learn from peers and take best practice from other sectors. The seven key research trends and themes highlight clear areas for improvement in capital planning and delivery in the industrial sectors. As industrial change and innovations come in quicker, companies must ensure they are in the leading percentiles of their sector to remain competitive, lest lose out on sales or end-user loyalty.
Our Arcadis report outlines a 7-step route to success for manufacturers to improve their capital delivery and gain a competitive advantage.
STEP 1: Monitor and improve performance through industry benchmarking and performance management
As companies embrace a more centralized approach to capital delivery, access to accurate, consistent performance data becomes ever more important. Putting the right lead and lag performance indicators in place, and tracking and reporting these correctly is the basis of a more responsive, proactive capital delivery function. Utilizing industry benchmarking, construction analytics and cost profiling tools help to create performance culture and drive down costs. Additionally, Capital Delivery Leaders must be wary of optimism bias which many Project Managers inherently hold. Implementing a more evidence-based approach to risk management and business cases, and choosing management styles with risk management at the core can help reduce project time and cost overruns, and ensure companies are prepared for emerging risks across their portfolios.
STEP 2: Consider the whole asset lifecycle and put design at the center to improve flexibility and agility
When planning built asset capital programs, companies need to consider the whole asset lifecycle – from conception to repurposing, right through to decommissioning. Embedding flexibility at the heart of built asset design can lengthen asset life-cycles and reduce costs when the inevitable re-purposing occurs. Companies that map out the future, making use of probability-based decision support tools, can greatly improve decision making, mitigate risks to obsolesce or abortive costs. Technologies like BIM support this approach by providing information on the lifecycle of the assets. Working backwards during the design process, BIM allows asset owners to start optimizing their assets from the very beginning, while securing the availability and reliability of the asset information during the lifecycle for further optimization during operations. Additionally, using total cost of ownership tools can best demonstrate long term risks and liabilities.
STEP 3: Utilize a sustainable approach to capital investments
Sustainability of capital investments not only speaks to the built assets themselves but to the impact they pose to the environment and community in which they reside. Manufacturers will face continued regulatory and societal pressures as they advance further into new geographies, following their supply chain, labor force, and markets. When investing, companies should conduct robust Environmental and Social Impacts Assessments (ESIA) of their investments, to enhance stakeholder engagement and secure an overall ‘social license to operate’. By incorporating energy and environmental design standards with a focus on material selection, performance-based approach to indoor environmental quality, smart grid thinking and water efficiency, when designing, constructing, maintaining, operating and planning for a facility’s eventual decommissioning, manufacturers can responsibly address and mitigate regulatory and societal pressures while also lowering costs. Companies can go a step further in achieving a sustainable approach to capital programs. Taking the time up front to strategically assess long-term impacts of their CapEx decisions, including when selecting single or multiple sites, can maximize the benefit, social acceptance and ROI in the long-run.
STEP 4: Prioritize a partnership approach with suppliers
Integrating suppliers into the core business value chain and aligning them to delivering product to a market does not happen by chance. The real value of enhancing the supply chain means replacing ad hoc approaches with a partnership focus, helping suppliers gain a deep understanding of business needs and objectives. Shifting focus to incentivize on outcomes, rather than outputs is a start, and we find that key performance indicators for the supply chain are more successful for suppliers wholly aligned to the capital delivery program team. New technologies also require a partnership approach. Commitment from both capital delivery program team and suppliers is needed to secure seamless information exchanges and optimize usage of new technologies. However, companies must invest in continually improving supplier engagement, innovation and communication to align them to business goals. This critical client role requires dedicated attention and investment without which capital delivery performance falls short of expectation.
STEP 5: Communicate up front to better engage internal stakeholders
Internal stakeholder management can make or break a capital program, so early and sustained engagement is crucial. Effective stakeholder engagement requires involvement of the capital function at the earliest stages of business planning for new facilities. The ability to support optioneering and financial planning with expert support from the supply chain is key to this early engagement. This is likely to involve risk based “should cost” and “should take” benchmarking and access to new technologies, like Virtual and Augmented reality, which allow non-experts to understand the planned facility and contribute with their knowledge about production processes to optimize performance during operations. Organizations that work out how to introduce such expert advice early in the process will benefit through increased certainty in delivery and beyond. Building customer relationship management is a core competency for capital delivery organizations and this culture of engagement needs to begin during recruitment and then be encouraged and developed through out peoples’ careers.
STEP 6: Increase central visibility and knowledge of capital programs
Where companies have taken a centralized approach to decision making, it is necessary that they have the right visibility and knowledge of their capital project and built asset portfolios. In this way, they can ensure that their centralized capital programs take into account every part of their business, and that it properly translates to their real estate teams. Companies looking to achieve this promote a culture of visibility through successful monitoring and registering of their assets and capital programs – supported by real-time digital platforms. This transparency includes the attributes for prioritizing investments, whether regulatory and safety, improving business performance, or other facets. This can be supported by leveraging internal and supplier CapEx data and analytics.
STEP 7: Attract the best talent – and achieve more with what you have!
When delivering capital programs, the right talent is crucial, and can inevitably be costly. Attracting top talent is made easier by having a reputation as a progressive and continuously improving capital delivery organization. Being thoughtful with the design of roles, and contracts, is also important when seeking to attract the best. It can also be the case that the best experience is found in supplier organizations where career development and learning curves can be faster, further supporting the move to outsource delivery roles. Once you have the team in place it is about leveraging technology to simplify processes and maximize the effectiveness and efficiency of the talent available, ultimately enabling capable people to do more. Organizations that invest in career paths, capability development and capability assurance programs, both with suppliers as well as their own staff, will benefit greatly over the long term. The digitization agenda itself will require new skills and knowledge. Capital delivery functions can look to external providers to access these fast evolving skills, rather than focusing on scaling up with an increased internal headcount, which takes internal capacity away from core business.
Download the full report: https://www.arcadis.com/en/global/our-perspectives/investing-and-building-in-changing-manufacturing-markets/
