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CHEMICAL INDUSTRY BENCHMARKING

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”.

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CHEMICAL INDUSTRY BENCHMARKING

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  1. CHEMICAL INDUSTRYBENCHMARKING George S. Birchfield December 6, 2001

  2. BENCHMARKING “The Search for Industry Best Practices that Lead to Superior Performance” “Establishing Competitive Standards for Valid Measurement of Performance”

  3. KPIshelp pinpoint problems & opportunities,guide decisions, and measure the results

  4. 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

  5. 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 Align & Balance KPIs

  6. Hard to Measure “Better” Variability Under-control vs. Over-control Risks Trends vs. Fads Total Cost of Ownership Trade-Offs Rate of Performance Improvement Business Relativity Constraints to Improvement True Potential Value

  7. Data Information Accuracy Consistency Completeness Content Timeliness Speed Quality Knowledge Forecasting Modeling Optimization Analysis Control Monitoring Communications Collaboration “Better” means Improved: Decision-Making Profitability Sustainability Growth

  8. No PerfectPerformanceBenchmark

  9. Multiple benchmarksaddperspective & insight

  10. 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 Metrics Productivity = Output Inputs

  11. Typical Competitiveness Profile Questionable long-term viability Approaching end of life cycle Major new investment risky Small improvement gives greatest change in competitive position Better Worse Performance Metric Median Many favorable factors May not be sustainable Incentives to debottleneck 1Q 2Q 3Q 4Q 1s (68.3%) 2s (95.5%) 3s (99.7%)

  12. Sustainability is what counts in performance

  13. “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

  14. Knowing how much performance varies is interesting.Knowing whyis important.

  15. 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

  16. ASPEN 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

  17. “SMART” METRICS “Best Demonstrated” “Best Sustainable” “State-of-the-Art” “True Potential” “Economic Optimum”

  18. TO UNDERSTAND A PERFORMANCE AREAKNOW THE: • GLOBAL PERFORMANCE RANGE • SMART METRICS • CAUSAL SUCCESS FACTORS • TRADE-OFFS • LESSONS LEARNED • IT ENABLERS

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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

  29. The biggest room in the world ? THE ROOM FOR IMPROVEMENT

  30. 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 ownership Know the KPIs

  31. 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

  32. The name of the game: OPTIMIZATION of feedstocks, throughputs, yields, operating costs, inventory, distribution, and spot transactions within the context of a long range BUSINESS STRATEGY

  33. 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

  34. The current emphasis: SUPPLY CHAIN MANAGEMENT better IT B2B unification & integration optimization customer relationships global competition

  35. Outbound Logistics to Primary Terminals • Pipeline • Tanker • Barges • Rail • Truck Product Distribution • Wholesale • Industrial & Commercial • Reseller and Jobber • Retail Fulfillment • Sales • Billings • Credit • Collection Supply Chain Management-Chemicals Business Strategy Products Quality Markets Competitiveness Pricing Profitability Market Share Growth Investments Divestitures Alliances Customers Feedstock Procurement Selection and Strategy Inbound Gathering, Terminaling and Transportation O p t i m i z a t i o Plant Process Operations n Product Certification & Shipping Operating Plan Forecast Plan Buy Make Ship Store Exchange Distribute Sell Deliver Invoice Collect Service Collaborate Customer Satisfaction P l a n n i n g & S c h e d u l i n g Marketing Position & Strategy

  36. Raw Materials Capacity Utilization Hydrocarbon Losses Product Yields Product Quality Waivers Product Quality Give-Away Energy Consumption Reliability Maintenance Personnel Levels Salary, Wages & Benefits Contractor Utilization Chemicals & Catalysts Insurance & Taxes Demurrage Inventory Carrying Costs Exchanges & Swaps Processing Agreements Bulk Transportation Costs Terminalling Costs Trucking Costs Environmental Compliance Product Run-out Penalties Late Deliveries Inventory Turnovers Total Profitability Decision-Making Time Actual vs. Plans SUPPLY CHAIN COMPETITIVENESS COMPONENTS

  37. THE VALUE OF INFORMATION TECHNOLOGYhighly depends on the use for DECISION MAKING

  38. MASTER PLAN WORKFLOW MODEL Better Decisions Performance Improvement Better Decision-Making Processes Better Use of Information Better Information Functionality to Transform Data Into Better Information Computerization of Data for Timely, Accurate, Easy Access Raw Data

  39. INFORMATION (IT)OF THE FUTURE • MADE-TO-ORDER • UNIFIED & INTEGRATED • DEEP KNOWLEDGE ENHANCED

  40. “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

  41. THANK YOU! BIRCHFIELD CONSULTING, LLC

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