The price of commodities is down. Almost all (if not all) commodities. Way down. One of the more interesting ones is oil, which (when the price bottomed) has had its price drop to the same price as it was in 2002.
Commodities are unusual because they do not follow “normal” economic models (like inflation). Past performance can give us a reasonable prediction of (for example) labour costs in 2018, or engineering costs in 2017, or maintenance costs in 2019. But if we want to buy something … it depends on what portion of the price is based on commodities prices – and it can be pot luck.
It makes one wonder … how do we optimise?
Generally, to optimise:
- When product prices are high, we tend to look to maximise production, and expect the optimum to be near maximum (this assumes excess production can be sold without distorting the local market)
- When product prices are low, we tend to look at minimising the cost of production. Things like efficiency, waste minimisation, energy management, etc can become key issues
Right now, there are very strong market forces helping to keep product prices of many things down. And … because of the “gap” between raw materials and finished goods and products, for some companies profits are quite high.
So with commodity prices down, energy prices down, and very strong market forces in place to make many product prices low, how does one optimise? I would expect the fundamentals of optimisation are still in place, but the key is probably to look for efficiencies in as many different forms as possible. For example:
- Does the safety instrumented system experience spurious trips? Times like these tend to change these trips from annoying to economically an issue. Reducing spurious trips is an economic optimisation (along with a safety optimisation)
- Does the steam trap leak? While the answer is usually “yes”, a leaking steam trap means fuel is consumed to make steam that is ultimately vented for no useful purpose. So reducing steam trap leaks is an economic optimisation (along with the environmental optimisation)
- Should we paint now, or delay and paint next year on next year’s budget? Maintenance is always an interesting one, as a short delay is often perceived as only an inconvenience. And since optimisation often requires numerical values, we can probably manipulate the data to get the result we want. Hmm …
Are we looking in the right place? Where else can we look?
While Darwin is credited with saying “survival of the fittest” he also said that the species that survive are most able to adapt to change. He based this partially on his observations of the finches in the Galapagos Islands, and subsequent studies show they evolve each season (based on rain, and the subsequent availability of different types of food). But how can companies / organisations adapt?
And … change is hard. Ever put your watch on the other wrist? It functions perfectly well on the other wrist, but … we always move it back because it feels comfortable. Change is often uncomfortable.
What can I suggest? Well … first of all, anything I suggest could be considered a conflict of interest (please give me credit for being honest) but … I would suggest some open slather brainstorming. Involving everyone. Some of the more interesting changes I have heard include:
- Shutting down the supervisory control system on Friday night shift to give the operators a chance to run the plant in manual or basic control. I know of one organisation that is doing this – I am not fully aware of any risk management issues to make this happen
- Search for extra capacity for quality. Not extra capacity for volume, but extra capacity for more purity. A higher purity may allow a higher selling price. One organisation is using a higher purity product to create “space” to accept waste. The new product still meets all contractual and product specifications, but they have converted a waste stream (a pure expense) into revenue, and the extra operating cost is lower than the extra revenue
- Make sure your SIS testing is up to date
- Find ways to incorporate text based meeting minutes into big data
- Find ways to incorporate text based meeting minutes into other meetings seamlessly
- <and possibly the most intersting one – mentioned by a friend and former work-colleague before our careers went very different ways> Using threaded connections on hydrocarbon piping up to 6-inch / DN150 to reduce assembly cost. Many company standards forbid this, but my friend’s company has decided to re-write the company standards
I am sure there are others. And while the open slather list of ideas may or may not eventuate, you must admit … brainstorming can be fun. Some companies can manage the expected and unexpected cycles extremely well, and others cannot. Every type of business is effected by cycles, be it a manufacturing company, a consultancy, a vendor, even a government regulator. The ability to manage cycles will impact staff morale, which will ultimately impact the bottom line (maybe not immediately, but long term). Let us know some of your ideas.