Operational Excellence: Journey to Creating Sustainable Value

CHAPTER 6THE ESSENTIAL EVOLUTION TO REAL-TIME BUSINESS OPERATIONAL EXCELLENCE

PETER G. MARTIN

Vice President Invensys

Through the mid-1980s, the primary business variables governing industrial operations were essentially constant for months at a time. Financial accounting systems, designed to fulfill monthly business and financial reporting requirements, categorized and totaled all the expenses accrued during the month, including raw materials, electricity, salaries, and wages. This total was subtracted from production revenue over the same period. The result: a month end snapshot of business performance expressed as Operating Profit (technically includes depreciation). Under essentially static conditions of cost and price, a separation between business/financial and operational automation systems worked reasonably well. Most operational decision-making and optimizing the operation for business drivers could be based on the monthly business report combined with a forecast of requirements for the next month.

Over the past decade, the idea of a reasonably static business environment has changed dramatically. Change in the business and competitive environments must be accommodated in near real time. The concept of profitability must be extended from a monthly report to real-time requirements at the operating level so that operations can be continually adjusted to maximize business/mission value.

BACKGROUND

Basing operating decisions on a monthly static financial report started ...