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 The outdated equipment puts these facilities at risk.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.

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