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MOPSD: A framework linking business decision-making to product and process design
Process Systems Engineering 2003
B. Chen and A.W. Westerberg (editors) 9 2003 Published by Elsevier Science B.V.
63
MOPSD" A Framework Linking Business Decision-Making to Product and Process Design Ka M. Ng Department of Chemical Engineering, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong SAR Multiscale objective-oriented process synthesis and development, MOPSD, relates business decision-making to the design and development of products and processes. Business decisions are made in a hierarchical manner, from corporate goals, marketing decisions, product design, to plant design and development. To implement such a framework, the RATIO concept is introduced. The objective, information, tools, time needed, activities, and human and monetary resources for completing each step of the business project are identified. Keywords: Business Process, Decision-Making, Product Design, Process Design, Process Development 1. INTRODUCTION The chemical processing industry (CPI) is the largest global industrial sector with a total shipment of US$1.59 trillion in 1999 [1]. This is higher than the 2001 China GNP of US$1.16 trillion [2]. The CPI, similar to other industries, has been striving to innovate in response to new technological developments and changes in the world economy. During the 70s, improvement of equipment and process performance was the focus of much research and development, building on a better understanding of transport phenomena, and improved simulation and optimization techniques. In the 80s, the CPI made a significant amount of effort using the pinch technology to minimize energy consumption and advanced control to maximize productivity. These efforts have led to notable results. For example, between 1982 and 2001, the operating cost for downstream petroleum processing in the US has declined from US$10 per barrel to approximately US$4 per barrel in constant year 2000 dollars [3]. However, due to competition, the gross margin has also decreased by the same magnitude, resulting in no gain in net margin. It became clear in the 90s that one should look at the entire supply chain for additional savings. To meet this need, companies such as Aspentech [4], i2 [5], SAS [6] and PricewaterhouseCoopers [7] offer a wide range of tools for enterprise resource planning, demand, production and distribution planning, etc. In the past several years, much attention has turned to the design and manufacturing of differentiated products [8-12]. In hindsight, this is hardly surprising in view of the profit margin in different industrial sectors of the CPI. Most chemical companies have their profit margin hovering around 8%, whereas it is 12% and 20% for specialty chemical and pharmaceutical companies, respectively. This of course does not
64 imply that drug firms which tend to have a higher price-earning ratio are a better investment. The rationale for the numerous reorganizations, spin-offs, mergers and acquisitions of the CPI in the past decade was varied. Some such as ICI attempted to shift from commodity chemicals to specialty chemicals, thus placing more weight on productcentered processing rather than process-centered processing (Figure 1). Some mergers such as those between BP and Amoco, and Exxon and Mobil enhanced economy of scale. Spin-offs such as DuPont and Conoco, Kodak and Eastman Chemical, and Monsanto and Solutia resulted in an improved corporate focus. All of these M&A activities, particular the mega ones such as that of Pfizer, Pharmacia and Searle have significantly changed the landscape of the global CPI.
Corporate Strategy
Process-Centered Processing
Product-Centered Processing
Business Process Model
Figure l. The corporate strategy decides on the mix of high-volume or high-value-added products. This in turn affects the business process as well as corporate R&D. All of these changes, either technical or financial, are the results of deliberate decision making. Indeed, thousands of decisions are made every day in a corporation. Corporate-wide strategic decisions can have a life span of tens of years and affect stakeholders around the globe. Decisions made in business units, such as a pigment division or a monomer division, tend to have a shorter duration in time. For example, they tend to focus on seasonal, monthly, weekly, and daily demand and production planning. To meet these production targets, engineers and technicians have to make decisions on equipment operations. Business decision-making is not limited to management and manufacturing. The R&D effort has to be aligned with the corporate-wide strategies, business unit directions, plant operations and product requirements. Decisions in R&D also span a wide range of length and time scales. The researcher may have to consider the entire process, each equipment unit, the transport phenomena within each unit, and the molecular nature of the product [ 13-16]. Indeed, this multiple length and time scale approach is expected to play a key role in process systems engineering [ 17]. This article proposes a framework for viewing a chemical enterprise from a multiple length and time scale perspective. Similar to Douglas' procedure for conceptual design [ 18], this framework is hierarchical in nature, with decision-making divided into a number of levels. By making decisions more or less in the order of decreasing length and
65 time scales, iterations among the various levels are minimized. Thus, corporate goals guide marketing strategies, customer desires determine product attributes, which in turn dictate materials selection and process flowsheet. The objective, information, tools, time, activities, and resources in terms of personnel and money involved at each scale are also identified [ 19]. 2. M U L T I S C A L E O B J E C T I V E - O R I E N T E D PROCESS DESIGN AND DEVELOPMENT 2.1.
L e n g t h a n d T i m e S c a l e s in CPI Let us begin with a review of the length and time scales considered in this framework (Figure 2) [ 16]. The length scale spans from the size of a molecule to that of an enterprise. Here, 108m is roughly the circumference of the earth, suggesting a global company, whereas 109s is roughly 32 years, signifying a long-term corporate strategy. Following the enterprise, we have production plants, equipment inside the plant, transport phenomena within the equipment, and the molecules involved in the reactions. Multiple
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Figure 2. The length and time scales covered in MOPSD. Note that the different scales overlap to various extents. The more the overlap, the more the interactions among them. For example, there is an overlap between enterprise and plant. Corporate strategy helps determine the products to be manufactured for the market, and plant design determines the appropriate manufacturing process. There is considerable overlap between equipment, transport, reaction, and particle formation, indicating the significant interplay of these factors in determining the overall performance of a piece of equipment.
66 2.2. Relating Shareholder Value Added to the Objectives in the MOPSD Framework An international chemical company may have thousands of employees working for the company. The employees at each level may have a different objective. For example, the business VP has to balance the demand and production of a particular product, whereas a plant manager focuses primarily on ensuring smooth plant operations and product qualities, and improving uptime. Despite the diversity of job functions, shareholder value added (SVA) is perhaps the singular financial metric that should be shared by all employees: SVA = After Tax Operating Income - C o s t o f Capital x Net Investment
(1)
It captures the common goal of a corporation - creation of wealth for the shareholders. (The State-Owned Enterprises in China which have to meet certain social responsibilities are an exception.) It represents the gain above the amount that their investment could earn in the financial market. To relate SVA to plant design and operations, we can express the ratio of after tax operating income to net investment in terms of retum on net assets (RONA): R ONA =
(2)
Sales Volume x Selling P r i c e - C o s t s Net permanent investment + Working capital
This can be seen more explicitly in a corporate cash flow diagram (Figure 3). The after tax operating income is derived from the sales. Construction, financed with equity, borrowing, and operating cash flow, results in permanent investment.
/'~
S A L E S $
/ / EARNINGS BEFORE INCOME TAX (EBIT)
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AFTERTAX ~ OPERATING~ INCOME (ATOI)
] $ I
I ~
-
-
DIVIDENDS ~
OPERATING J.// CASHFLOW--~ CASH (OCF) ~ CONSTRUCTION \
Figure 3. Corporate cash flow diagram showing that cash is generated with sales, shareholder investments and borrowings, and that it is used for wages, taxes, dividends and reinvestment in the form of manufacturing plants.
67 Equation (2) clearly shows that we can improve SVA by raising the price or increasing the sales volume, or alternatively by cost reduction. High-value-added products are more likely to have better selling prices. Product design methods such as Quality Function Deployment can be used to capture the customer and technical information. Commodity chemical companies tend to have capacity expansion and cost reduction as their business strategy. In addition, a company can improve the uptime to reduce the necessary permanent investment and minimize inventory to reduce working capital. For the latter, supply chain management plays an important role to achieve the desirable outcome by optimizing the entire cycle of buy, make, move, store and sell. Other financial metrics such as after tax profit margin, sales growth, controlled fixed cost productivity (CFC), etc. can also be used to relate SVA to the various technical objectives of the MOPSD framework. Consider controlled fixed cost productivity which is defined as follows: CFC =
Sa/es
(3)
C o n t r o l l e d f i x e d c o s ts
Here, the controlled fixed costs include payroll and benefits. For the performance of a batch plant, it serves as an important measure because its labor costs constitute a much larger percentage of the total cost than that in a continuous process. Thus, it provides a possible optimization objective in the design and scheduling of batch processes [20]. In general, the technical objectives in product and process design should be set with the cash flow diagram, SVA or other financial metrics in mind, if possible. 2.3. Individual Levels of MOPSD We need the participation of all organizational levels in the company to carry out the corporate strategy. The organizational levels are equivalent to the levels (or length scales) in MOPSD. The number of levels in MOPSD should be chosen according to the culture and capability of the company, business unit, plant site, research division, laboratory, etc. and thus is company specific. Nonetheless, let us illustrate this concept with a greatly simplified example (Table 1).
Table 1. Various objectives and length scales (i.e., organizational levels) in a typical chemical company are presented in column 1 and 2, respectively. The personnel involved at each level are also shown. The sub-columns of column 2 show the role of the personnel in meeting the various objectives. Organizational Level and Personnel Objectives
Corporate Goals
Corporation
Business Unit
CEO, CTO, CFO, Board members Set corporate goals and allocate resources
Business VPs, Marketing managers Identify business opportunities to meet
Manufacturing Site Plant Managers, Operating personnel Identify interbusiness operational improvements to
R&D Laboratories R&D Director, Chemists and Engineers Identify new products and processes across business units to
68 corporate goals Set business and marketing plans
Business Unit Strategy
Listen and review
Production Processes and Plans
Listen and review
Listen and review
New Products and Processes
Listen and review
Listen and review
meet corporate goals Identify interproduction site operational improvements to meet business goals Reduce downtime, safety, quality assurance, etc. Listen and review
meet corporate goals Identify new products and processes to meet business unit goals Develop new methods and tools for manufacturing Allocate resources to meet long and short term R&D objectives
The broad objectives in Table 1 have to be reduced into sub-objectives for project planning. For example, the design of a new process by the R&D laboratory requires conceptual design, determination of basic data, process simulation and optimization, control system design, etc. 2.4. RATIO for the Implementation of MOPSD
RATIO is the acronym for objective, information, tools, time, activities, and resources (Table 2). It describes the key components in the execution of each subobjective in MOPSD. The broad objective as well as the sub-objectives has to be defined first. For business decisions, some objectives such as customer satisfaction cannot be measured quantitatively. Often, one has to deal with multi-criteria decision-making and Pareto-optimality. Table 2. The components in the execution of MOPSD - RATIO [ 19]
Define objective of the task Determine the input and output information Identify appropriate tools Estimate the time needed to meet the objective Identify the activities to be performed Identify human and monetary resources to perform the activities
Next, we identify and obtain the necessary input information. While historical data may be available in company archives, one has to take advantage of the human resources. Experience shows that chemists and engineers involved in similar projects can point out the right directions and potential pitfalls, thus greatly enhancing the chance of success and reducing the time and effort. Appropriate tools should also be identified. This
69 can be software such as the wide variety of computer programs for process simulation and modeling, and supply chain management. They can also be systematic design methods for process synthesis such as those for distillation [21 ], crystallization [22-24] and reactions [25-27]. Likewise, these can be experimental setups and procedures. For example, the many high-throughput screening techniques can expedite the identification of the best catalyst for a given reaction. The use of such tools by the people involved constitute activities, which can be estimation, synthesis, modeling, simulation, experimentation, etc. Finally, we allocate human resources and capital for these activities and tools. As mentioned, an objective can be further broken down into sub-objectives. Figure 4 shows that RATIO is applied to each sub-objective to achieve the overall objective. This represents the essence of this objective-oriented approach in which tasks are purposely performed.
Figure 4. A hierarchy of objectives. An accurate estimate of the time required to complete a given task or to achieve a certain objective is important in the implementation of MOPSD. Such estimates allow the maximum number of tasks to be performed concurrently and help predict the time needed for the overall project [ 16].
70
2.5. MOPSD: An Integration of Business Process Engineering and Process Systems Engineering Much has been achieved in business process engineering as well as business process reengineering [28]. Kirchmer [29] argued that there should be a market- and product-oriented design of business processes. Smart et al. [30] pointed out the five stages of a business reengineering methodology: Stage 1 Identify or create corporate, manufacturing and information technology strategies Stage 2 Identify key processes and process objectives Stage 3 Analyze existing processes Stage 4 Redesign processes Stage 5 Implement MOPSD follows a similar strategy but has two major differences. First, we follow the natural length and time scales of the entire business and manufacturing process. Therefore, we can more easily identify both business and technical sub-objectives. Second, we use SVA as the overall objective to ensure that the development of new products and manufacturing technologies is in alignment with the corporate directions. 3. AN EXAMPLE - MOPSD AND PRODUCT-CENTERED PROCESSING Let us consider Figure 5 which shows a systematic procedure for the synthesis and development of chemical-based consumer products [9, 31]. The Head Office has identified a family of products for which our company has a competitive advantage in terms of marketing, technical know-how and IP position. For this reason, we have decided to carry out a product and process development project. At the enterprise level, market trends are used to identify the product forms, the functionalities of the product, and the projected demand. At this stage, existing and potential competitors are identified as well. With an estimated product cost, capital budgeting is performed to determine the intrinsic rate of return. Assuming that the rough estimate satisfies the corporate financial return target, the project moves forward. The quality factors are identified. These are related to technical factors which are met by properly selecting the ingredients and by synthesizing the process alternatives for the transformation of the ingredients into the final product. In Figure 5, the round-comered rectangles represent the outcomes; i.e. the output information. The vertical arrows indicate the activities. The input information and tools for each activity are given in the rectangles on the right 4. CONCLUSIONS A conventional company tends to have a business ladder and a technical ladder for their employees. Often, there is limited interaction between business personnel, and chemists and chemical engineers within the company. This problem is compounded for a global enterprise for which business and technical decisions are made with people in different parts of the world. This gap has to be narrowed to produce the right product, improve product quality, lower production cost and reduce time-to-market. To this end, MOPSD provides a framework linking business decision-making to the synthesis and development of products and processes. In a hierarchical manner, from large scale to progressively smaller scales, company strategy is executed through all the organizational levels within the company. Process design is treated in a similar manner by including more fine details as one proceeds through the hierarchy.
71 I
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_~
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(Manufacturingprocess1 Figure 5. Step-by step procedure for product-centered process synthesis and development. To implement such a framework, a product and process design project is divided into a number of tasks, each with its own objective. These tasks should be executed concurrently if possible in order to minimize development time, but whether this is feasible depends on the required input information and the availability of resources. Thus, it is important to clearly identify the objective, information, tools, time, activities and resources (RATIO) for each task in planning a project. MOPSD attempts to integrate business process engineering and process systems engineering. With a changing global environment, the demarcation between disciplines has become blurred and process systems engineering is bound to expand its scope. Biology is now widely considered to be a foundation science of chemical engineering. Will management be next for PSE?
72 ACKNOWLEGMENTS My thinking on the relationship between business decision-making and process development has been influenced by many of my industrial collaborations. In particular, I have greatly benefited from my interactions with George Stephanopoulos, Haruki Asatani, Hironori Kageyama, Takeshi Matsuoka, Toshiyuki Suzuki, and many others at Mitsubishi Chemical Corporation, and Lionel O'Young, and Christianto Wibowo of CWB Technology. I would also like to thank Bruce Vrana for his teachings on corporate finance during my stay at DuPont Central R&D. Finally, the financial support of the Research Grants Council, HKUST6018/02P, is gratefully acknowledged. REFERENCES
[11 "Facts and Figures from the Chemical Industry," C&EN, June 26 (2000) 48. [2] International Monetary Fund, World Bank [3]
[4] [5] [6] [7] [8] [9] [10] [ 1l] [12] [13] [14] [15] [16] [17] [ 18] [ 19] [20] [21 ]
C. J. Kim, "Supply Chain Management in Process Industry," keynote presentation at PSE Asia, 2002, Taipei. www.aspentech.com www.i2.com www.sas.com www.pwcglobal.com C. Wibowo, and K. M. Ng, "Product-Oriented Process Synthesis and Development: Creams and Pastes," AIChE J., 47 (200 l) 2746. C. Wibowo, and K. M. Ng, "Product-Centered Processing: Chemical-Based Consumer Product Manufacture," AIChE J., 48 (2002) 1212. K. Y. Fung, and K. M. Ng, "Product-Centered Process Synthesis and Development: Pharmaceutical Tablets and Capsules," accepted for publication in AIChE J. (2002). A. W. Westerberg, and E. Subrahmanian, "Product Design," Comp. Chem. Eng., 24 (2000) 959. E. L. Cussler, and J. D. Moggridge, Chemical Product Design, Cambridge University Press, Cambridge, UK (2001). J. Villermaux, "Future Challenges in Chemical Engineering Research," Trans. IChemE 73 (part A) (1995) 105. A. V. Sapre, and J. R. Katzer, "Core of Chemical Reaction Engineering: One Industrial View," Ind. Eng. Chem. Res. 34 (1995) 105. J.J. Lerou, and K. M. Ng, "Chemical Reaction Engineering: A Multiscale Approach to a Multiobjective Task," Chem. Eng. Sci., 51 (1996) 1595. K. M. Ng, "A Multiscale-Multifaceted Approach to Process Synthesis and Development," ESCAPE 1l, Ed. R. Gani and S. B. Jorgensen, Elsevier (200 l) 41. I.E. Grossmann, and A.W. Westerberg, "Research Challenges in Process Systems Engineering," AIChE J. 46 (2000) 1700. J.M. Douglas, Conceptual Design of Chemical Processes, McGraw-Hill, New York (1988). C. Wibowo, L. O'Young, and K. M. Ng, "Workflow Management in Chemical Process Development," paper in preparation. L.T. Biegler, I. E. Grossmann, and A.W. Westerberg, Systematic Methods of Chemical Process Design, Prentice Hall, New Jersey (1997). M.F. Malone, and M. F. Doherty, "Separation System Synthesis for Nonidela Liquid Mixtures," AICHE Symp. Series 91 (1995) 9.
73 [22] C. Wibowo, and K. M. Ng, "Unified Approach for Synthesizing Crystallization-Based Separation Processes," AIChE J., 46 (2000) 1400. [23] K.D. Samant, and K. M. Ng, "Representation of High-Dimensional Solid-Liquid Phase Diagrams for Ionic Systems," AIChE J. 47 (2001) 861. [24] C. Wibowo, K. D. Samant, and K. M. Ng, "High-Dimensional Solid-Liquid Phase Diagrams Involving Compounds and Polymorphs," AIChE J. 48 (2002) 2179. [25] K.D. Samant, and K. M. Ng, "Synthesis of Extractive Reaction Processes," AIChE J. 44 (1998) 1363. [26] K.D. Samant, and K. M. Ng, "Synthesis of Prepolymerization Stage in Polycondensation Processes," AIChE J. 45 (1999) 1808. [27] V. V. Kelkar, and K. M. Ng, "Development of Fluidized Catalytic Reactors- Screening and Scale-up," AIChE J. 48 (2002) 1486. [28] A. W. Scheer, Business Process Engineering, 2nd ed., Springer-Verlag, Berlin (1994) [29] D.J. Elzinga, T. R. Gulledge, and C. Y. Lee, ed., Business Process Engineering: Advancing the State of the Art, Chapter 6, Kluwer Academic Publishers, Norwell, MA (1999). [30] D.J. Elzinga, T. R. Gulledge, and C. Y. Lee, ed., Business Process Engineering: Advancing the State of the Art, Chapter 12, Kluwer Academic Publishers, Norwell, MA (1999). [31] K. M. Ng, "Teaching ChE to Business and Science Students," Chem. Eng. Edu., Summer (2002) 222.
B. Chen and A.W. Westerberg (editors) 9 2003 Published by Elsevier Science B.V.
63
MOPSD" A Framework Linking Business Decision-Making to Product and Process Design Ka M. Ng Department of Chemical Engineering, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong SAR Multiscale objective-oriented process synthesis and development, MOPSD, relates business decision-making to the design and development of products and processes. Business decisions are made in a hierarchical manner, from corporate goals, marketing decisions, product design, to plant design and development. To implement such a framework, the RATIO concept is introduced. The objective, information, tools, time needed, activities, and human and monetary resources for completing each step of the business project are identified. Keywords: Business Process, Decision-Making, Product Design, Process Design, Process Development 1. INTRODUCTION The chemical processing industry (CPI) is the largest global industrial sector with a total shipment of US$1.59 trillion in 1999 [1]. This is higher than the 2001 China GNP of US$1.16 trillion [2]. The CPI, similar to other industries, has been striving to innovate in response to new technological developments and changes in the world economy. During the 70s, improvement of equipment and process performance was the focus of much research and development, building on a better understanding of transport phenomena, and improved simulation and optimization techniques. In the 80s, the CPI made a significant amount of effort using the pinch technology to minimize energy consumption and advanced control to maximize productivity. These efforts have led to notable results. For example, between 1982 and 2001, the operating cost for downstream petroleum processing in the US has declined from US$10 per barrel to approximately US$4 per barrel in constant year 2000 dollars [3]. However, due to competition, the gross margin has also decreased by the same magnitude, resulting in no gain in net margin. It became clear in the 90s that one should look at the entire supply chain for additional savings. To meet this need, companies such as Aspentech [4], i2 [5], SAS [6] and PricewaterhouseCoopers [7] offer a wide range of tools for enterprise resource planning, demand, production and distribution planning, etc. In the past several years, much attention has turned to the design and manufacturing of differentiated products [8-12]. In hindsight, this is hardly surprising in view of the profit margin in different industrial sectors of the CPI. Most chemical companies have their profit margin hovering around 8%, whereas it is 12% and 20% for specialty chemical and pharmaceutical companies, respectively. This of course does not
64 imply that drug firms which tend to have a higher price-earning ratio are a better investment. The rationale for the numerous reorganizations, spin-offs, mergers and acquisitions of the CPI in the past decade was varied. Some such as ICI attempted to shift from commodity chemicals to specialty chemicals, thus placing more weight on productcentered processing rather than process-centered processing (Figure 1). Some mergers such as those between BP and Amoco, and Exxon and Mobil enhanced economy of scale. Spin-offs such as DuPont and Conoco, Kodak and Eastman Chemical, and Monsanto and Solutia resulted in an improved corporate focus. All of these M&A activities, particular the mega ones such as that of Pfizer, Pharmacia and Searle have significantly changed the landscape of the global CPI.
Corporate Strategy
Process-Centered Processing
Product-Centered Processing
Business Process Model
Figure l. The corporate strategy decides on the mix of high-volume or high-value-added products. This in turn affects the business process as well as corporate R&D. All of these changes, either technical or financial, are the results of deliberate decision making. Indeed, thousands of decisions are made every day in a corporation. Corporate-wide strategic decisions can have a life span of tens of years and affect stakeholders around the globe. Decisions made in business units, such as a pigment division or a monomer division, tend to have a shorter duration in time. For example, they tend to focus on seasonal, monthly, weekly, and daily demand and production planning. To meet these production targets, engineers and technicians have to make decisions on equipment operations. Business decision-making is not limited to management and manufacturing. The R&D effort has to be aligned with the corporate-wide strategies, business unit directions, plant operations and product requirements. Decisions in R&D also span a wide range of length and time scales. The researcher may have to consider the entire process, each equipment unit, the transport phenomena within each unit, and the molecular nature of the product [ 13-16]. Indeed, this multiple length and time scale approach is expected to play a key role in process systems engineering [ 17]. This article proposes a framework for viewing a chemical enterprise from a multiple length and time scale perspective. Similar to Douglas' procedure for conceptual design [ 18], this framework is hierarchical in nature, with decision-making divided into a number of levels. By making decisions more or less in the order of decreasing length and
65 time scales, iterations among the various levels are minimized. Thus, corporate goals guide marketing strategies, customer desires determine product attributes, which in turn dictate materials selection and process flowsheet. The objective, information, tools, time, activities, and resources in terms of personnel and money involved at each scale are also identified [ 19]. 2. M U L T I S C A L E O B J E C T I V E - O R I E N T E D PROCESS DESIGN AND DEVELOPMENT 2.1.
L e n g t h a n d T i m e S c a l e s in CPI Let us begin with a review of the length and time scales considered in this framework (Figure 2) [ 16]. The length scale spans from the size of a molecule to that of an enterprise. Here, 108m is roughly the circumference of the earth, suggesting a global company, whereas 109s is roughly 32 years, signifying a long-term corporate strategy. Following the enterprise, we have production plants, equipment inside the plant, transport phenomena within the equipment, and the molecules involved in the reactions. Multiple
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10-4
10-2
10 ~
10 2
10 4
i
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I
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.........................
1- . . . . . . . . . . .
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--
104
--
10 2
--
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_
10-2
--
10-4
...............................................
i i i
Fluid Dynamics and Transport
i ........
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Equipment
I ................................................
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Particle Nucleation .................. i and Growth t .i.._.~_~_2 ~._-~. _5_.2.~2-.-22-7.~~.;--.~.~.~_-I...........
/
] _ ~_.__ J 1 i
10-14
Molecular / Electronic 1 ,,
10-16
Figure 2. The length and time scales covered in MOPSD. Note that the different scales overlap to various extents. The more the overlap, the more the interactions among them. For example, there is an overlap between enterprise and plant. Corporate strategy helps determine the products to be manufactured for the market, and plant design determines the appropriate manufacturing process. There is considerable overlap between equipment, transport, reaction, and particle formation, indicating the significant interplay of these factors in determining the overall performance of a piece of equipment.
66 2.2. Relating Shareholder Value Added to the Objectives in the MOPSD Framework An international chemical company may have thousands of employees working for the company. The employees at each level may have a different objective. For example, the business VP has to balance the demand and production of a particular product, whereas a plant manager focuses primarily on ensuring smooth plant operations and product qualities, and improving uptime. Despite the diversity of job functions, shareholder value added (SVA) is perhaps the singular financial metric that should be shared by all employees: SVA = After Tax Operating Income - C o s t o f Capital x Net Investment
(1)
It captures the common goal of a corporation - creation of wealth for the shareholders. (The State-Owned Enterprises in China which have to meet certain social responsibilities are an exception.) It represents the gain above the amount that their investment could earn in the financial market. To relate SVA to plant design and operations, we can express the ratio of after tax operating income to net investment in terms of retum on net assets (RONA): R ONA =
(2)
Sales Volume x Selling P r i c e - C o s t s Net permanent investment + Working capital
This can be seen more explicitly in a corporate cash flow diagram (Figure 3). The after tax operating income is derived from the sales. Construction, financed with equity, borrowing, and operating cash flow, results in permanent investment.
/'~
S A L E S $
/ / EARNINGS BEFORE INCOME TAX (EBIT)
\ x~~
INVESTMENT TAX CREDIT
AFTERTAX ~ OPERATING~ INCOME (ATOI)
] $ I
I ~
-
-
DIVIDENDS ~
OPERATING J.// CASHFLOW--~ CASH (OCF) ~ CONSTRUCTION \
Figure 3. Corporate cash flow diagram showing that cash is generated with sales, shareholder investments and borrowings, and that it is used for wages, taxes, dividends and reinvestment in the form of manufacturing plants.
67 Equation (2) clearly shows that we can improve SVA by raising the price or increasing the sales volume, or alternatively by cost reduction. High-value-added products are more likely to have better selling prices. Product design methods such as Quality Function Deployment can be used to capture the customer and technical information. Commodity chemical companies tend to have capacity expansion and cost reduction as their business strategy. In addition, a company can improve the uptime to reduce the necessary permanent investment and minimize inventory to reduce working capital. For the latter, supply chain management plays an important role to achieve the desirable outcome by optimizing the entire cycle of buy, make, move, store and sell. Other financial metrics such as after tax profit margin, sales growth, controlled fixed cost productivity (CFC), etc. can also be used to relate SVA to the various technical objectives of the MOPSD framework. Consider controlled fixed cost productivity which is defined as follows: CFC =
Sa/es
(3)
C o n t r o l l e d f i x e d c o s ts
Here, the controlled fixed costs include payroll and benefits. For the performance of a batch plant, it serves as an important measure because its labor costs constitute a much larger percentage of the total cost than that in a continuous process. Thus, it provides a possible optimization objective in the design and scheduling of batch processes [20]. In general, the technical objectives in product and process design should be set with the cash flow diagram, SVA or other financial metrics in mind, if possible. 2.3. Individual Levels of MOPSD We need the participation of all organizational levels in the company to carry out the corporate strategy. The organizational levels are equivalent to the levels (or length scales) in MOPSD. The number of levels in MOPSD should be chosen according to the culture and capability of the company, business unit, plant site, research division, laboratory, etc. and thus is company specific. Nonetheless, let us illustrate this concept with a greatly simplified example (Table 1).
Table 1. Various objectives and length scales (i.e., organizational levels) in a typical chemical company are presented in column 1 and 2, respectively. The personnel involved at each level are also shown. The sub-columns of column 2 show the role of the personnel in meeting the various objectives. Organizational Level and Personnel Objectives
Corporate Goals
Corporation
Business Unit
CEO, CTO, CFO, Board members Set corporate goals and allocate resources
Business VPs, Marketing managers Identify business opportunities to meet
Manufacturing Site Plant Managers, Operating personnel Identify interbusiness operational improvements to
R&D Laboratories R&D Director, Chemists and Engineers Identify new products and processes across business units to
68 corporate goals Set business and marketing plans
Business Unit Strategy
Listen and review
Production Processes and Plans
Listen and review
Listen and review
New Products and Processes
Listen and review
Listen and review
meet corporate goals Identify interproduction site operational improvements to meet business goals Reduce downtime, safety, quality assurance, etc. Listen and review
meet corporate goals Identify new products and processes to meet business unit goals Develop new methods and tools for manufacturing Allocate resources to meet long and short term R&D objectives
The broad objectives in Table 1 have to be reduced into sub-objectives for project planning. For example, the design of a new process by the R&D laboratory requires conceptual design, determination of basic data, process simulation and optimization, control system design, etc. 2.4. RATIO for the Implementation of MOPSD
RATIO is the acronym for objective, information, tools, time, activities, and resources (Table 2). It describes the key components in the execution of each subobjective in MOPSD. The broad objective as well as the sub-objectives has to be defined first. For business decisions, some objectives such as customer satisfaction cannot be measured quantitatively. Often, one has to deal with multi-criteria decision-making and Pareto-optimality. Table 2. The components in the execution of MOPSD - RATIO [ 19]
Define objective of the task Determine the input and output information Identify appropriate tools Estimate the time needed to meet the objective Identify the activities to be performed Identify human and monetary resources to perform the activities
Next, we identify and obtain the necessary input information. While historical data may be available in company archives, one has to take advantage of the human resources. Experience shows that chemists and engineers involved in similar projects can point out the right directions and potential pitfalls, thus greatly enhancing the chance of success and reducing the time and effort. Appropriate tools should also be identified. This
69 can be software such as the wide variety of computer programs for process simulation and modeling, and supply chain management. They can also be systematic design methods for process synthesis such as those for distillation [21 ], crystallization [22-24] and reactions [25-27]. Likewise, these can be experimental setups and procedures. For example, the many high-throughput screening techniques can expedite the identification of the best catalyst for a given reaction. The use of such tools by the people involved constitute activities, which can be estimation, synthesis, modeling, simulation, experimentation, etc. Finally, we allocate human resources and capital for these activities and tools. As mentioned, an objective can be further broken down into sub-objectives. Figure 4 shows that RATIO is applied to each sub-objective to achieve the overall objective. This represents the essence of this objective-oriented approach in which tasks are purposely performed.
Figure 4. A hierarchy of objectives. An accurate estimate of the time required to complete a given task or to achieve a certain objective is important in the implementation of MOPSD. Such estimates allow the maximum number of tasks to be performed concurrently and help predict the time needed for the overall project [ 16].
70
2.5. MOPSD: An Integration of Business Process Engineering and Process Systems Engineering Much has been achieved in business process engineering as well as business process reengineering [28]. Kirchmer [29] argued that there should be a market- and product-oriented design of business processes. Smart et al. [30] pointed out the five stages of a business reengineering methodology: Stage 1 Identify or create corporate, manufacturing and information technology strategies Stage 2 Identify key processes and process objectives Stage 3 Analyze existing processes Stage 4 Redesign processes Stage 5 Implement MOPSD follows a similar strategy but has two major differences. First, we follow the natural length and time scales of the entire business and manufacturing process. Therefore, we can more easily identify both business and technical sub-objectives. Second, we use SVA as the overall objective to ensure that the development of new products and manufacturing technologies is in alignment with the corporate directions. 3. AN EXAMPLE - MOPSD AND PRODUCT-CENTERED PROCESSING Let us consider Figure 5 which shows a systematic procedure for the synthesis and development of chemical-based consumer products [9, 31]. The Head Office has identified a family of products for which our company has a competitive advantage in terms of marketing, technical know-how and IP position. For this reason, we have decided to carry out a product and process development project. At the enterprise level, market trends are used to identify the product forms, the functionalities of the product, and the projected demand. At this stage, existing and potential competitors are identified as well. With an estimated product cost, capital budgeting is performed to determine the intrinsic rate of return. Assuming that the rough estimate satisfies the corporate financial return target, the project moves forward. The quality factors are identified. These are related to technical factors which are met by properly selecting the ingredients and by synthesizing the process alternatives for the transformation of the ingredients into the final product. In Figure 5, the round-comered rectangles represent the outcomes; i.e. the output information. The vertical arrows indicate the activities. The input information and tools for each activity are given in the rectangles on the right 4. CONCLUSIONS A conventional company tends to have a business ladder and a technical ladder for their employees. Often, there is limited interaction between business personnel, and chemists and chemical engineers within the company. This problem is compounded for a global enterprise for which business and technical decisions are made with people in different parts of the world. This gap has to be narrowed to produce the right product, improve product quality, lower production cost and reduce time-to-market. To this end, MOPSD provides a framework linking business decision-making to the synthesis and development of products and processes. In a hierarchical manner, from large scale to progressively smaller scales, company strategy is executed through all the organizational levels within the company. Process design is treated in a similar manner by including more fine details as one proceeds through the hierarchy.
71 I
Market trends ~
Product conceptualization
I
Financial analysis
Identification of quality factors
(
base & know-how I
_~
Functionality and packaging ii
Knowledge
1
t Pr~176 1 Product packaging
) ] I
JL
~
Typical quality factors & performance indices
~
Performance vs material & structure High Throughput Screening techniques for material selection
Quality factors and 1 performance indices
Selection of ]~ ingredients and microstructure Ingredients & structural')
attributes
/ Generic flowsheet of |
)
Generation of process alternatives
manufactudng process I
I Process alternatives & ) operating conditions Process and product evaluation
Capitalbudgeting Financialmetrics
I
Equipmentunits Heuristics
I Structurevs Operation
[I
(Manufacturingprocess1 Figure 5. Step-by step procedure for product-centered process synthesis and development. To implement such a framework, a product and process design project is divided into a number of tasks, each with its own objective. These tasks should be executed concurrently if possible in order to minimize development time, but whether this is feasible depends on the required input information and the availability of resources. Thus, it is important to clearly identify the objective, information, tools, time, activities and resources (RATIO) for each task in planning a project. MOPSD attempts to integrate business process engineering and process systems engineering. With a changing global environment, the demarcation between disciplines has become blurred and process systems engineering is bound to expand its scope. Biology is now widely considered to be a foundation science of chemical engineering. Will management be next for PSE?
72 ACKNOWLEGMENTS My thinking on the relationship between business decision-making and process development has been influenced by many of my industrial collaborations. In particular, I have greatly benefited from my interactions with George Stephanopoulos, Haruki Asatani, Hironori Kageyama, Takeshi Matsuoka, Toshiyuki Suzuki, and many others at Mitsubishi Chemical Corporation, and Lionel O'Young, and Christianto Wibowo of CWB Technology. I would also like to thank Bruce Vrana for his teachings on corporate finance during my stay at DuPont Central R&D. Finally, the financial support of the Research Grants Council, HKUST6018/02P, is gratefully acknowledged. REFERENCES
[11 "Facts and Figures from the Chemical Industry," C&EN, June 26 (2000) 48. [2] International Monetary Fund, World Bank [3]
[4] [5] [6] [7] [8] [9] [10] [ 1l] [12] [13] [14] [15] [16] [17] [ 18] [ 19] [20] [21 ]
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73 [22] C. Wibowo, and K. M. Ng, "Unified Approach for Synthesizing Crystallization-Based Separation Processes," AIChE J., 46 (2000) 1400. [23] K.D. Samant, and K. M. Ng, "Representation of High-Dimensional Solid-Liquid Phase Diagrams for Ionic Systems," AIChE J. 47 (2001) 861. [24] C. Wibowo, K. D. Samant, and K. M. Ng, "High-Dimensional Solid-Liquid Phase Diagrams Involving Compounds and Polymorphs," AIChE J. 48 (2002) 2179. [25] K.D. Samant, and K. M. Ng, "Synthesis of Extractive Reaction Processes," AIChE J. 44 (1998) 1363. [26] K.D. Samant, and K. M. Ng, "Synthesis of Prepolymerization Stage in Polycondensation Processes," AIChE J. 45 (1999) 1808. [27] V. V. Kelkar, and K. M. Ng, "Development of Fluidized Catalytic Reactors- Screening and Scale-up," AIChE J. 48 (2002) 1486. [28] A. W. Scheer, Business Process Engineering, 2nd ed., Springer-Verlag, Berlin (1994) [29] D.J. Elzinga, T. R. Gulledge, and C. Y. Lee, ed., Business Process Engineering: Advancing the State of the Art, Chapter 6, Kluwer Academic Publishers, Norwell, MA (1999). [30] D.J. Elzinga, T. R. Gulledge, and C. Y. Lee, ed., Business Process Engineering: Advancing the State of the Art, Chapter 12, Kluwer Academic Publishers, Norwell, MA (1999). [31] K. M. Ng, "Teaching ChE to Business and Science Students," Chem. Eng. Edu., Summer (2002) 222.