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ABB
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Nordic Service Science Summit 28.2.2007
How does Industrial Services Improve
Customer’sCompetitiveness?
Ilkka TykkyläinenABB Oy Service
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Contents
ABBHow Maintenance Can Improve Competitiveness
Productivity challenges
OEE as a measure for production effectivenessMaintenance and productivityReferences
Pulp & Paper Industry – New Zealand
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-Introduction
of ABBABB – An Industry LeaderProducts, Systems & Services
Serving the full range of process industries
Oil & Gas
Pulp & Paper
Chemicals & Pharma
Marine
Turbocharging
Process Industries Products
Performance Services
Metals
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-ABB
Service ABB Global - Local Service
ABB Service Competencies Globally Projected with Local Resources:
Global revenues of $3,9 BUSD (2006)ABB develops advanced tools, training and methods for Maintenance ExcellenceOver 20,000 direct service employees worldwideStrong local organizations in more than 40 countries
Local service organizations provide speed in responding to problems, language and cultural alignmentThey are backed up by a global service infrastructure of product and solutions experts, advanced software tools, and a global communications infrastructureTogether we can deliver specific expertise anywhere and anytime it is needed
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Performance Services Portfolio
Customer’s Maintenance
Strategy
Outsourced MaintenanceOutsourced Maintenance
Self MaintainSelf Maintain
ABBService
Technology know-how + Service know-how + Energy efficiency
= Performance Based Solution !
Technology know-how + Service know-how + Energy efficiency
= Performance Based Solution !
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Contents
ABBHow Maintenance Can Improve Competitiveness
Productivity challenges
OEE as a measure for production effectivenessMaintenance and productivityReferences
Pulp & Paper Industry – New Zealand
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Need to Improve Return on Revenues (%)
Source: 2005 Fortune Top 500
What is needed to improve Your Industry
bottom-line?
ProductivityChallenge
Mining, Crude-Oil Production 29.9Pharmaceuticals 15.7Diversified Financials 12.4Publishing, Printing 11.8Household and Personal Products 11.1Insurance: P & C (stock) 9.0Food Consumer Products 8.4Electronics, Electrical Equipment 8.2Computers, Office Equipment 7.5Health Care: Insurance & Managed Care 7.1Industrial & Farm Equipment 6.6Petroleum Refining 6.1Utilities: Gas & Electric 6.0Chemicals 5.8Metals 5.6Beverages 5.3Aerospace and Defense 4.9Telecommunications 4.2General Merchandisers 4.1Specialty Retailers 4.0Semiconductors & Other Electronic Components 3.9Energy 3.0Food Production 2.8Health Care: Pharmacy and Other Services 2.8Wholesalers: Food and Grocery 2.1Food & Drug Stores 1.6Wholesalers: Electronics and Office Equipment 1.3Motor Vehicles & Parts 1.1
Most Profitable Industries: 2005 profits as % of Revenues
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Customer Demand Going Forward
Source: ARC Advisory Group
8 T h o u g h t L e a d e r s f o r M a n u f a c t u r i n g & S u p p l y C h a i n
Copyright ARC Advisory Group
The Way we look at delivering Value Must Change
1990s 2000s
Val
ue
Cost and Efficiency Focus
Incremental value leveling off
Operational Excellence is the Next Wave
Manufacturing and Supply Chain Optimization
Next wave of Improvement driven by Operational Excellence
Courtesy of DuPont - used with Permission
ProductivityChallenge
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Companies Shifting Focus on Value Creation
ValueCreation
Operating Margin
Capital Efficiency
Credibility/Consistency
Growth
ValueCreation
Operating Margin
Capital Efficiency
Growth
Focus 1990s:Superior growth through acquisitionsOperating profit propped up by non-operational itemsVery high debt leverage to drive ROEExtreme decentralization as corporate architecture
Focus 2005-2009:Drive operating margin, ProfitabilityMaintain organic growth momentum, UtilizationImprove capital efficiency via operating excellence and maintenance, OEE Focus corporate architecture on execution, Strategy and Consistency
ProductivityChallenge
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Why do an Alliance?To focus on core and outsource non-core activities
ProductivityChallenge
Is Maintenance recognized as your core competence?
To move away from capex and toward opexHave you identified your OEE improvement potential and possible gain?
To ensure continuous improvement in this specific areaDo you know your position against world-class maintenance?
5%17%
78%
One core withleadership
Multiple coreswith leadership
Other
Sustained value creators
focus on their core business
Source: Bain & Company
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Contents
ABBHow Maintenance Can Improve Competitiveness
Productivity challenges
OEE as a measure for production effectivenessMaintenance and productivityReferences
Pulp & Paper Industry – New Zealand
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Evaluation of Potential Production Losses
The losses are not easily The losses are not easily visible, despite their size visible, despite their size
• Costs• Breakdowns• Unavailable Equipment
• Direct and indirect losses due to technical shutdowns • Speed or flow rate reduction• Product changes• Off-spec production• Waste of Electric Energy • Waste of Fuels• Waste of Utilities• Expenses with waste treatment• Fines paid to Environmental Agencies• Fines paid to customers• Expenses due to product delivery delays• Losses of personnel working time and overtime• Waste of materials, spare parts, chemicals, catalysts
OEE
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Introduction to OEETo meet business objectives and remain competitive, companiesstrive to optimize plant productivity
Companies invest in manufacturing planning and control systems.
Manufacturing ExecutionSystems (MES)
Enterprise Resource Planning(ERP)
Supply Chain Execution (SCE)
Anyhow, it is estimated that manyplants can still waste up to 50% of production capacity
OEE
Overall Equipment Effectiveness - OEE
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ValuableOperating Time
Net Operating Time
Gross Operating Time
ABB Deliverables: Overall Equipment Effectiveness -OEE
Theoretical Production Time
Planned Production Time PlannedDown Time
UnplannedDownTime
SpeedLosses
QualityLosses
Equipment Failure
Reduced Speed
Defects in Process
Setup & Adjustment
Idling & Minor Stops
Startup Losses
Quality (Q)
Availability(A)
Performance(P)
OEE
PlanningFactor
(Pf)
Availability(A)
Performance(P)
Quality(Q)
Valuable Operating TimePlanned Production Time
OEE% = X X =
Total Productivity = OEE%
Planning factor(Pf)
XValueable Operating Time
Theoretical Production Time=
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Availability
Performance
Quality
A
P
Q
x
x
Maintenance Operation
= OEE
<<< >>>
<<< >>>
OEE-improvements require:
Best Payers at the Plant
Partnerships & Network
Advanced Technology
Management Attention
Common OEE Targets
Shop-floor partnershipOEE
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Contents
ABBHow Maintenance Can Improve Competitiveness
Productivity challenges
OEE as a measure for production effectivenessMaintenance and productivityReferences
Pulp & Paper Industry – New Zealand
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Return on Return on InvestmentInvestment
MaximizeAssets UseMaximize
Assets Use
• Life Cycle Extension -> Replacement Postponment• Reliability Improvement
PerformanceImprovementPerformanceImprovement
• Minimize shutdowns• Maximize production rate• Minimize product losses
and reprocessing
High Performance Maintenance
Maintenance Influence on Productivity
CostsOptimization
CostsOptimization
• Personnel cost • Materials cost• External Services cost
Maintenance and
Productivity
Reason to Improve Maintenance!Reason to Improve Maintenance!Reason to Improve Maintenance!
“Sustaining a competent, in-house maintenance capability will require increased level of training and larger, more expensive parts inventories… The costs for those steps are large and ever-lingering threats…” – ARC Insights –2006.
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Maintenance and
Productivity Alliance Models are Developing
ServiceProvider
PerformancePartnership
Transactional
Cost KPIs BusinessOutcomes
Measurement
Dur
atio
n
3-10Years
1-12Months
1-3Years
Commodity Value RiskSharing
Bus
ines
s Im
pact
Value Proposition
None
Tactical
Strategic
Scaleable levels of sophistication to meet client demands
“Performance guarantees represents a different challenge and are one of the preferred methods for all.” – ARC Insights – 2006.
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Behaviors are Model DependentMaintenance
andProductivity
PerformancePartnership
Co-Sourcing
Collaborative
RelationshipGovernance
ServiceProvider
Users
Resources
Proactive
FrameAgreement
Purchasing
Sales
Transactional
Users
Resources
Purchasing
Sales
Reactive
Relationships must evolve with model“The whole outsourcing process is “heavily driven by change managementand really implementing new business processes around maintenance””. –Chemical Processing – 2006.
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Maintenance – Global World-class ProcessComprehensive benchmark maintenance assessmentMaintenance plans to enhance the business strategiesRelevant maintenance and production Key Performance Indicators(KPIs)
Competent leadership and resourcesContinuous competence developmentSelected maintenance tools and approaches such as OEE and Reliability Centered MaintenanceImprove production effectiveness by utilizing world-class maintenance know-how
Maintenance and
Productivity
Partnership Fulfillment
Maintenance Operations
Reliability Maintenance
Plant Performance Improvement
Leadership Leadership Strategy
HSE Quality
Finance and Cost
Supply Chain InformationPeopleManagement
HSE Quality
HSE Quality
Finance and Cost
Finance and Cost
Supply ChainSupply Chain InformationInformationPeopleManagement
PeopleManagement
Results
ClientValue
ABBValue
People Value
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ABB - Contractual Commitment
We also commit to total maintenance cost optimization!
Maintenance and
Productivity
OEE %83,5%
OEE baseline
Bonus 35% of gained benefit
Bonus(Eur)
Contribution margin: e.g. 72 Eur/unit (2005)
The actual figure of the contribution
margin will be used83,5%
Benefit Sharing
35 %
65 %
ABB share Client share
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Contents
ABBHow Maintenance Can Improve Competitiveness
Productivity challenges
OEE as a measure for production effectivenessMaintenance and productivityReferences
Pulp & Paper Industry – New Zealand
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References
Total Current Performance Service Contracts 150+ Total Current Performance Service Contracts 150+
Examples of Full Service® References
ABB Industry (6)ABB Motors & ABB DrivesAlcan Amcor (2)Api RaffineriaAracruz CeluloseBandag (2)BlueScope SteelBobingen Industry Park
Invista, Teijin, Trevira, J. Manville
Botany Industry ParkOrica, Qenos, Huntsman
Braskem (2)Camacari Industry Park
Ford (1)Tier One’s (14)
Canexus - NexenCarter Holt Harvey (2)
Codelco (6)CognisCompania MegaCooper TiresCorensoDMSDowDraka CablesFosfertilGruppo CordenonsGeorgia Pacific
Harjavalta Industry Park
OMG Hariavalta Nickel
Boliden Harjavalta
Pori Energia, etc
Hydro Aluminium
Icolub - Shell
International Paper
Kunda Nordic Cement
Manganese Metal Co.
Monckton Coke & Chemical Co
Mondo Minerals (2)
Nokia (2+1)
Orica
Outokumpu Pori Tube
Otokumpo Stainless
Outokumpu Stainless Tubular Products
Petroflex
Puhos Board
Solvay (2)
Stora Enso Finland (5)
Stora Enso Netherlands
Stora Enso Packaging Latvia
Voisey Bay Nickel Co.
Situation on July, 2006
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Full Service Success Story – CHH Kinleith
The achievements and development of the company
OEE increased by 9%Production (t) increased by ~10%Maintenance cost reduced ~20%Maintenance hours reduced from 700.000 to 400.000Engagement Level of employees increased substantiallyShut (one fiber line) duration reduced from 12 to 10 daysAbsentee level halvedHealth & Safety certificate ISO 18001
ABB signed a Full Service partnership agreement with a pulp & paper company in New Zealand in January 2003.
References
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