Expansions: $80,000,000 at Risk Because of “Tunnel Vision” by Kay Sever

Kay Sever
Kay Sever

By Kay Sever, Mining Improvement Specialist and Change Leader, CMC

One of management’s greatest challenges is maximizing the potential of an organization WITHOUT the data that quantifies that potential.

For decades companies have been seeking to be “the best” without having data that tells them what “the best” looks like. They believe they have the right information to achieve that goal, but, in fact, they have NO DATA that tells them how far they are from that goal. The financial system and the budget CANNOT PROVIDE this data because those systems were not designed for that purpose. When executives and decision makers lack data about their profit potential, they have “tunnel vision” (narrow or limited perspectives) about what is possible to achieve with the assets and people in place today.

Making a decision to expand production capacity is a huge deal… months of analysis, multiple presentations by suppliers, and millions of dollars of equipment and systems are usually required. Having the right data sets available for analyzing/approving this decision is critical to making the BEST decision with the highest ROI. Without that data, management lacks the criteria they need to confirm that an expansion is required and where in the value stream to put it. It also means that the opportunity to reveal and access “existing excess capacity” with FREE solutions is often missed. If money is spent that could have been saved OR if money is spent in the wrong place, ROI will never be maximized and the loss of management credibility is difficult to recover from.

$80,000,000 CASE STUDY:
Several years ago, I helped a very large US mining operation understand their equipment capacity so they could maximize the ROI for existing equipment and place expansion capital where the “real but hidden” bottleneck existed. The data I used for this analysis was not the same as budget and may not have agreed with manufacturer design specs provided by suppliers (supplier data does not take the “receiving” value stream demands or limits). Culture change was part of that work because actions by people can artificially reduce what is possible to achieve with equipment.

Whenever I examine value stream capacity, I ask three questions:

1.
2.
3.
Is delay data separated into two sets: controllable and non-controllable?
Are numbers currently used for equipment capacity sourced from suppliers?
Are people open to talking about recurring problems? (a culture link)

The answers to these questions determine how much data modification is required and how much culture change work is necessary before we can measure hidden capacity. At this site, we had already made a lot of progress on culture change and I had helped operations, maintenance and engineers use their delay data in new ways to discover opportunities for run time. Gathering the capacity numbers and asking the right questions about them was the last step. I completed my analysis and met with the CEO to review the results.

I did not know about an earlier proposal for a major expansion at one of their plants. This plant (let’s call it Plant #1) had “favored status” and had gotten much of the capital it wanted for decades. Plant #1 presented a case showing it was the bottleneck and needed $80,000,000 in upgrades to increase production. That proposal was under review at the time my analysis was completed.

My value stream analysis showed that Plant #1 had a lot of excess capacity that was hidden by a) poor delay management and b) a lack of capacity data for major productive units. An upstream plant (Plant #2) was the real bottleneck. As the result of my analysis, engineers performed an independent study and agreed that Plant #2 was the bottleneck. $80,000,000 in capital was shifted to a Plant #2 expansion and Plant #1 efforts were refocused to delay management (a FREE solution) so it could handle the increased output from Plant #2 without additional expenditures.

This site was very close to making a huge financial mistake and did not know it because executives and decision makers DID NOT HAVE the right dataset to evaluate their current capacity status.

What is your site’s risk for approving unneeded expansion capital or putting it in the wrong place?

If you have watched expansion capital being put in the wrong place, you know the aftermath is ugly…





More money needed upstream or downstream later to compensate for the error
Higher costs and lower revenues because product must be stockpiled instead of processed
Expanded feed rates must be cut back to compensate for the real bottleneck downstream.
Embarrassment and lost management credibility when production does not go up after so many promises were made and money was spent
Earnings and an ROI that never materialize… especially bad if projections were made public.

You won’t know your expansion capital risk until you know more about the existing capacity that your current datasets hide from your executives and management team.

Thought for the month: Expansion capital approved but not needed or needed but placed in the wrong spot creates years/decades of unmeasured losses. Having data that reveals your hidden asset potential BEFORE approving expansions gives you the best possible ROI over the long term.

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Kay Sever is an industry leader in performance optimization, culture transformation and change acceleration. She helps companies experience “break-through change” by removing the organizational barriers that prevent greater profits and collaboration in day to day activities, problem solving and project management, as well as post-merger culture transformation. Kay created the world’s first management training and tactics program about the impact of perspectives on profit, culture and change. Management teams gain a new awareness about their power to shape the culture they desire, remove the invisible barriers that hold them back, and create a culture capable of maximizing profit without compromising safety or regulatory compliance. See MiningOpportunity.com for details on her contact information.

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Kay Sever
Kay Sever Author
P.O. Box 337 Gilbert, AZ USA 85299-0337

Kay has worked side by side with corporate and production sites in a management/leadership/consulting role for 35+ years. She helps management teams improve performance, profit, culture and change, but does it in a way that connects people and the corporate culture to their hidden potential. Kay helps companies move “beyond improvement” to a state of “sustained optimization”. With her guidance and the MiningOpportunity system, management teams can measure the losses caused by weaknesses in their current culture, shift to a Loss Reduction Culture to reduce the losses, and “manage” the gains from the new culture as a second income stream.