NASA LEVERAGES IHS GOLDFIRE TO ACCESS CRITICAL DATA
MAY 2016
Catch the
KNOWLEDGE WAVE
REMOVE RISK FROM THE KNOWLEDGE EQUATION
IHS’s Chad Hawkinson addresses risk-related challenges
Use knowledge to turn the technical enterprise into a profit and growth center
WIN THE KNOWLEDGE RACE
Use strong internal systems and processes to combat knowledge-based risks
The Efficiency, Cost Savings & Sustainability Equation
Optimizing internal standards and leveraging industry standards helps companies gain efficiencies and increase profitability
Fresh new content daily at SDCEXEC.COM
0515IHS_01_cover_rg_cm.indd 1
4/21/16 7:32 AM
AV N AI OW LA BL E
IHS Engineering Workbench™ YOUR SINGLE POINT OF ACCESS TO THE ENGINEERING CONTENT AND TOOLS NEEDED TO MAXIMIZE PRODUCTIVITY, REDUCE RISK, AND ADVANCE INNOVATION IHS Engineering Workbench helps leading engineering organizations grow revenue and increase profitability by providing the world’s most advanced software platform for engineers. Engineering Workbench offers single-point access to all of the internal and external knowledge that engineers, researchers, and other technical workers need, combined with innovative tools for advanced discovery, problem solving, and decision support. IHS Engineering Workbench provides a complete, scalable, enterprise-wide solution for all your technical reference and research needs.
One Platform: Infinite Knowledge
AVAILABLE NOW learn more at ihs.com/EWB or contact Customer Care at 1-800-IHS-CARE
0515IHS_02-03_TOC_rg_cm.indd 2
4/20/16 3:16 PM
May 2016 | SPECIAL ISSUE
CONTENTS ON THE COVER
16
07 CATCH THE
KNOWLEDGE WAVE
Use knowledge to turn the technical enterprise into a driver of profitability and growth.
FEATURES
05 TAKE RISK
OUT OF THE INFORMATION EQUATION
Senior vice president in the Product Design business at IHS, Chad Hawkinson identifies risks to the technical enterprise and shares his thoughts on how to address those challenges.
12 MASTERING
07 19
12
TECHNICAL KNOWLEDGE DISCOVERY
Smart engineering organizations leverage their expertise into significant cost savings, time savings and maximized market opportunities.
14 NASA GOES FOR THE GOLDFIRE
NASA leverages IHS Goldfire to improve access to critical data across its many locations, departments and engineers.
16 WINNING THE KNOWLEDGE RACE
Leading organizations are using strong internal systems and processes to combat the many knowledge-based risks facing the technical enterprise today.
19 THE EFFICIENCY,
COST SAVINGS AND SUSTAINABILITY EQUATION Optimizing Internal Standards + Leveraging Industry Standards = Cost Savings, Efficiencies and Sustainability
COLUMNS
04 EXECUTIVE MEMO
SDCEXEC.COM Exclusive online features and solutions for successful supply chain operations
14
0515IHS_02-03_TOC_rg_cm.indd 3
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
3
4/20/16 3:16 PM
EXECUTIVE MEMO By Ronnie Garrett, Editor rgarrett@ACBusinessMedia.com
CRACK THE INFORMATION RISK EQUATION
Risks abound, but are you focusing on all the right risks?
R
isk is a hot topic. Protiviti recently released a report, in conjunction with North Carolina State University’s Enterprise Risk Management Initiative, on a survey of global boards of directors and corporate executives. Half of the top 10 risks highlighted in the survey have direct engineering implications: ❯❯ Regulatory changes. Do products need to be redesigned to comply? ❯❯ Poor economic conditions. How can we reduce manufacturing costs? ❯❯ Rapid speed of disruptive innovations. Are we staying ahead of the innovation curve? ❯❯ Identifying/escalating risk issues. Can our engineers find and fix problems fast enough? ❯❯ Sustaining customer loyalty. Can our products keep up with fickle customer preferences? One challenge in thinking about how to deal with these kinds of macro-risks is not losing focus on the hidden risks that can degrade performance on a daily basis, and prevent successful management of the more obvious risks associated with regulatory changes, economic turmoil, etc. This special edition explores one of those hidden hazards threatening engineering performance: information risks. In “Take Risk out of the Information Equation” (Page 5), Chad Hawkinson, senior vice president in the Product Design business, IHS, describes the information risks threatening engineering productivity and implications for the broader organization. He suggests a framework for how an enterprise 4
can mitigate these risks and increase productivity for technical professionals. “Catch the Knowledge Wave” (Page 7) ties boardroom concerns directly to the technical enterprise, and explores how data overload and other knowledge-based challenges hamper engineering leaders from meeting business goals. The article proposes a path forward for organizations looking to pull their engineers out of the data tsunami and increase growth via engineering productivity. “Mastering Technical Knowledge Discovery” (Page 12) offers perspective on how leading engineering organizations can leverage past experience to drive future gains. It tees up a fascinating case study involving NASA (Page 14), which was challenged to tap into its storehouse of know-how accumulated over decades of sending rockets into orbit and beyond. Finally, “Winning the Knowledge Race” (Page 16) highlights recent survey results that expose the looming risks associated with demographic changes occurring in the engineering workforce, and “Optimizing Internal Standards ...” (Page 19) speaks to the challenge of adapting to new economic conditions and overcoming the risk of doing things the way they were always done. Boards are looking to management to effectively identify and mitigate the leading risks looking over the enterprise. Engineering leaders should consider the impact of hidden information risks—and overcome these challenges by deploying best-in-class technical knowledge management solutions.
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_04_ExecMemo_cm_rg.indd 4
Published by AC Business Media Inc. 201 N. Main Street, Fort Atkinson, WI 53538 (800) 538-5544 • www.ACBusinessMedia.com
www.SDCExec.com PRINT AND DIGITAL STAFF GROUP PUBLISHER Jolene Gulley ASSOCIATE PUBLISHER Judy Welp EDITORIAL DIRECTOR Lara L. Sowinski EDITOR Ronnie Garrett MANAGING EDITOR Elliot Maras ASSOCIATE EDITOR Carrie Mantey WEB EDITOR Eric Sacharski AD PRODUCTION MANAGER Cindy Rusch ART DIRECTOR Kayla Brown AUDIENCE DEVELOPMENT DIRECTOR Wendy Chady AUDIENCE DEVELOPMENT MANAGER Angela Kelty ADVERTISING SALES (800) 538-5544 JOLENE GULLEY, jgulley@ACBusinessMedia.com STEPHANIE PAPP, spapp@ACBusinessMedia.com EDITORIAL ADVISORY BOARD LORA CECERE, Founder and CEO, Supply Chain Insights TIM FEEMSTER, President, Foremost Quality Logistics JOHN M. HILL, Director, St. Onge Company, and Board of Governors, Material Handling Industry of America RORY KING, Analytic and Big Data Advisor, SAS Institute KAREN MASTER, Vice President, Communications, Ariba, an SAP Company WILLIAM L. MICHELS, CEO, Aripart Consulting JULIE MURPHREE, Founding Editor, Supply & Demand Chain Executive ANDREW K. REESE, Senior Portfolio Marketing Manager, IHS, and Former Editor, Supply & Demand Chain Executive BOB RUDZKI, President, Greybeard Advisors CHRIS SAWCHUK, Global Managing Director and Procurement Advisory Practice Leader, The Hackett Group RAJ SHARMA, CEO, Censeo Consulting Group KATE VITASEK, Founder, Supply Chain Visions CIRCULATION & SUBSCRIPTIONS P.O. Box 3605, Northbrook, IL 60065-3605 (877) 201-3915, Fax: (800) 543-5055 Email: circ.sdcexec@omeda.com LIST RENTAL Elizabeth Jackson, Merit Direct LLC (847) 492-1350, ext. 18, Fax: (847) 492-0085 Email: ejackson@meritdirect.com REPRINT SERVICES JOLENE GULLEY, jgulley@ACBusinessMedia.com AC BUSINESS MEDIA INC. CHAIRMAN Anil Narang PRESIDENT AND CEO Carl Wistreich EXECUTIVE VICE PRESIDENT Kris Flitcroft CFO JoAnn Breuchel VP OF CONTENT Greg Udelhofen VP OF MARKETING Debbie George DIGITAL OPERATIONS MANAGER Nick Raether DIGITAL SALES MANAGER Monique Terrazas Published and copyrighted 2016 by AC Business Media Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage or retrieval system, without written permission from the publisher. Supply & Demand Chain Executive [USPS #024-012 and ISSN 1548-3142 (print) and ISSN 1948-5654 (online)] is published five times a year: March, May, June, September and December by AC Business Media Inc., 201 N. Main Street, Fort Atkinson, WI 53538. Periodicals postage paid at Fort Atkinson, Wisconsin and additional entry offices. POSTMASTER: Please send all changes of address to Supply & Demand Chain Executive, P.O. Box 3605, Northbrook, IL 60065-3605. Printed in the USA. SUBSCRIPTION POLICY: Individual subscriptions are available without charge in the United States, Canada and Mexico to qualified individuals. Publisher reserves right to reject nonqualified subscribers. One-year subscription to nonqualified individuals: U.S., $30; Canada and Mexico, $50; and $75 for all other countries (payable in U.S. funds, drawn from U.S. bank). Single copies available (prepaid only) for $10 each. Return undeliverable Canadian addresses to: Supply & Demand Chain Executive, P.O. Box 25542, London, ON N6C 6B2. The information presented in this edition of Supply & Demand Chain Executive is believed to be accurate. The p ublisher cannot assume responsibility for the validity of claims or performances of items appearing in editorial presentations or advertisements in the publication. May 2016 / SPECIAL EDITION
4/20/16 3:01 PM
EXECUTIVE INTERVIEW
TAKE RISK OUT OF THE INFORMATION EQUATION Senior vice president in the Product Design business at IHS, Chad Hawkinson identifies risks to the technical enterprise and shares his thoughts on how to address those challenges
Q
What are the information risks confronting engineers today? As an engineer, I believe that engineering is the greatest profession. Engineers have a profound impact on our daily lives through the things they invent, the problems they solve and the innovations they bring to market. And engineers are tough—they take great pride in being able to solve difficult problems, despite the fact that they might not have the best tools and despite the fact that they might not be able to access all the information they need. Engineers work through those challenges, they come up with solutions, and they get those solutions out to market. But what we see, working with a great number of engineering teams, is that engineering-centric companies across industries are having to deal with a convergence of information
challenges that are putting their longterm prospects at risk. For example, look at the volume of information engineers need to get their jobs done. Did you know that, for any given technical problem, an engineer needs to access an average of 13 different information sources to solve that one problem? It might be things like standards, patents, material properties or their own internal documents, like previous projects they worked on or internal corporate standards. It takes a lot of time for engineers to find that information. In fact, our studies suggest that engineers take anywhere from one-third to half of their time searching for information. Another challenge is simple demographics. We did a survey recently with Supply & Demand Chain Executive and found that half of the practicing engineers surveyed were
0515IHS_05-06_ExecInterview_cm_rg.indd 5
planning to retire in the next five to 10 years. That represents a huge amount of technical knowledge and tribal know-how that is walking out the door in the very near term. We see many organizations struggling to preserve that knowledge and, more importantly, make sure that the younger generation of engineers entering the workforce is able to access that knowledge so they don’t have to reinvent the wheel, or make the same mistakes over and over again. (See “Winning the Knowledge Race” on Page 16 for more survey results.)
Q
What can organizations do to effectively mitigate the risks you talked about? The good news is that companies are learning how to make their teams more productive and effective by embracing a technical knowledge management framework that removes the barriers preventing engineers from easily accessing the information they need to get their jobs done. The impact of this kind of framework can be dramatic. As aforementioned, engineers typically spend one-third or half of their time looking for information. With the right kind of knowledge management framework in place, companies see their engineers spending just 5 to 10 percent of their time locating information. And when they have the right answers and the right tools at their fingertips, engineers are able to solve problems faster, innovate faster and complete their projects faster.
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
5
4/20/16 4:01 PM
EXECUTIVE INTERVIEW
Q
What does a best-in-class technical knowledge management framework look like? It’s three components, really: content, analytics and tools. It all starts with the content, the library of technical information that you want to put at your engineers’ fingertips. That includes the accumulated internal knowledge built up within an organization—after all, an engineer’s most trusted source of information is other engineers. But it also includes information such as standards and specifications, handbooks and manuals, technical articles, academic journals and patents—all the essential external reference information, if you will, that engineers use in making decisions. An important point about this external information is that it should be curated to ensure that it meets the information needs of the company’s engineers, so that it aligns with their industry and with their particular engineering discipline. It also should be curated in the sense that the information sources are trusted, so your engineers are relying on up-to-date, authoritative sources when they’re making mission-critical decisions. In addition to the content, you want to have a means of finding answers in all the information. To discover the needle in this huge haystack, you need to apply the most advanced content analytics and search technology. This next-generation search technology understands the meaning of a user’s query and can match the query to the appropriate content that answers that query, regardless of whether that content is external or internal, and regardless of whether it is structured or unstructured content. Ideally, you want to have what amounts to a virtual subject matter 6
expert standing beside you, guiding you through the content, asking questions that you might not think to ask and bringing in knowledge from sources you might not think to search. Finally, you need embedded workflow tools that automate ideation and problem-solving methodologies, such as root cause analysis (RCA), value engineering and failure mode and effects analysis (FMEA), among others. These are tools that leverage the content in your curated library and let your teams work with the information
of platform, we saw engineers’ search time go from 30 to 50 percent of their time all the way down to 10 percent. When you think about that kind of gain, it’s really about giving those companies back 20 to 30 percent of their engineering workforce—doing much more with the same resources. It’s about giving your engineers more time to solve the big problems, making you more responsive and competitive in the marketplace, staying out in front of the innovation curve, and hitting your financial goals.
IT’S ABOUT GIVING YOUR ENGINEERS MORE TIME TO SOLVE THE BIG PROBLEMS,
MAKING YOU MORE RESPONSIVE AND COMPETITIVE IN THE MARKETPLACE, STAYING OUT IN FRONT OF THE INNOVATION CURVE, AND HITTING YOUR FINANCIAL GOALS. in the context of their workflows. For example, an engineer might use a patent analysis tool to identify where a competitor has a blocking patent, driving the engineer to make a crucial design decision early in the development process to avoid redesign later in the process. So, those are the three components of the technical knowledge management framework: content, analytics and tools, all brought together in a single platform on the engineer’s desktop.
Q
You mentioned that this kind of platform can reduce the time engineers spend looking for information. What are the other benefits of a platform like you described? Just to reiterate, in some of our early testing with customers using this kind
So the benefits start with enabling your engineers to be more productive—but it’s really about enabling engineering leaders to meet their business goals of driving growth, increasing profitability and mitigating threats to the business. That’s how you take risk out of the information equation. ABOUT THE AUTHOR A senior vice president in the Product Design business at IHS, CHAD HAWKINSON has more than 20 years of experience working with engineers to solve their most difficult challenges. Today, through frequent meetings with senior engineering leadership at the world’s largest manufacturing and engineering companies, Hawkinson sees close-up the risks looming over the technical enterprise and the problems keeping engineering leaders up at night. In this interview, Hawkinson shares his thoughts on the information challenges facing the engineering community— and his perspective on how leading organizations are addressing those challenges.
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_05-06_ExecInterview_cm_rg.indd 6
4/20/16 4:01 PM
By Andy Reese
FEATURE
CATCH THE KNOWLEDGE
Use knowledge to turn the technical enterprise into a driver of profitability and growth
E
ngineers, scientists, researchers and other technical professionals are squarely in their CEOs’ crosshairs today. Senior management is recognizing that these professionals’ value-added knowledge competencies have a direct impact on a company’s current and sustained performance. As a result, the technical enterprise is feeling immense top-down corporate pressure to directly contribute to growing the business, driving efficiency, controlling costs and mitigating risks. In response, companies are moving to adopt a new generation of technical content and research solutions that allow these professionals to overcome information overload and focus on delivering increasing value to the business.
CEO OPTIMISM ... AND CONCERNS The vast majority of CEOs are optimistic about the economy as a whole and also bullish on their own businesses’ prospects over the coming three years, according to an annual CEO survey from KPMG. Senior executives envision the potential for “efficient growth, and the opportunity to leverage new technologies to enhance customer relationships and streamline operations,” KPMG reports. But the picture isn’t all rosy: 72 percent of CEOs are concerned about the relevance of their companies’ products and services over the next three years, 90 percent fret about competitors taking their business, and 59 percent worry about new entrants disrupting their business models.
0515IHS_07-11_CatchWave_cm_rg.indd 7
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
7
4/20/16 3:27 PM
FEATURE Among these CEOs’ top concerns are product relevance, geographic expansion and understanding the regulatory environment. Meanwhile, risk management is not generally discussed among most companies, leaving them feeling vulnerable to a preventable failure or quality defect that jeopardizes their business. The good news is that business leaders know innovation, market knowledge and technical know-how are all critical to their survival. In fact, 72 percent of the 300 leaders surveyed in 2015 say that innovation is very important to their company’s success right now.
DROWNING IN INFORMATION So what’s holding companies back from achieving high levels of innovation? The truth is that many organizations today are struggling with the pace and complexity of engineering and other knowledge work within the technical enterprise. Consider that engineers, scientists, researchers and other technical professionals handle a huge volume of data sources, information and systems on a daily basis. They are drowning in information despite—or perhaps because of—the millions of dollars their companies invested in technical content and IT systems intended to manage and deliver information. With data growing at a rate of 40 percent annually, 66 percent of decision-makers report they now have less time to make the best possible choices for their companies. Overwhelmed by information, knowledge workers are unable to assess future technology and intellectual property (IP) needs, leverage existing IP, commercialize new ideas, or analyze regulatory, technological or market trends quickly enough to capitalize on opportunities or gain competitive advantage. As a result, their companies are: ❯❯ At risk and prone to product/process quality failures from an inability to leverage quality systems and other supplier/customer data sources. 8
❯❯ Held back by legacy designs and methods, and by traditional thinking that leaves no path forward on technical constraints, proprietary risks and subpar performance. ❯❯ Culpable for the use of outdated or erroneous public domain information instead of vetted and approved internal/external data, specifications and control documents. ❯❯ Underutilizing existing enterprise search tools and information systems that are easier to circumvent with Internet searches or by starting from scratch. ❯❯ Losing operating knowledge, practical knowhow and professional experience from top senior technical talent exiting the workforce. As a result, companies pay the ultimate price by having their technical workforces diverted from their core competencies, effectively losing millions of dollars a year in the process. After all, there are real costs associated with failing to keep pace with market trends, losing ground to the competition, being displaced by new entrants, failing to meet launch dates, and lacking the inventiveness to introduce new products or processes that drive growth and create profitability. Such opportunity costs can be hard to quantify, but they can add up to millions of dollars in lost opportunities on a daily basis for companies around the globe. For instance, if you could shave two to four weeks’ worth of time off a project that you are working on, what would the ultimate time savings amount to in terms of business benefit? What if you could reduce that time by two to four months—what would that equate to?
42%
How much time engineers and other knowledge workers spend seeking, processing, collaborating and sharing information—time they could use to solve problems. Source: IDC Research & IHS Independent Analysis
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_07-11_CatchWave_cm_rg.indd 8
4/20/16 3:27 PM
FEATURE It Pays to Connect Knowledge Workers with Critical Tools and Insights With more than 70 percent of CEOs viewing innovation as very important to organizational success right now, knowledge workers need a technology platform that allows them to foresee new technology and intellectual properties, make informed strategies, find new markets for existing products and accelerate innovation. According to industry research, technical workforces that are equipped with these insights can:
WWMore rapidly transform consumer, competitor or market intelligence into new and differentiated product designs or development ideas.
WWReduce product development cycle times. WWBreak through technical constraints (i.e., a regulation or blocking patent that looks insurmountable).
WWCollaborate more effectively to reduce time to market, and improve innovation and validation processes. WWEnhance quality management and prevent failures, thereby improving customer satisfaction, avoiding rework and repair, and minimizing major threats or risk to the enterprise.
WWExtract knowledge from vetted and approved control documents, systems and data to minimize risk exposure and increase productivity.
WWIncrease the use of existing IT systems and investments to raise productivity, thus eliminating inefficient, costly, and risky or maverick practices.
WWFormally implement knowledge transfer to ensure the preservation, accessibility or optimization of
senior technical resources and/or specialized technical talent that moves within (or exits) the enterprise.
THE HIGH COST OF INFORMATION AND INDECISION
comes to understanding potential hidden risks. For example, when knowledge workers invest In addition to being ubiquitous, information is more time seeking information than actually also expensive. In fact, many organizations are likely using it, the risk increases that a potential product paying 10 to 40 percent more than they should to failure slips through a review. Knowledge workers acquire basic technical are hired, trained and content (standards, employed for their knowreference books, patents, how and experience. But journals, etc.). they are burying their These excessive heads in data, documents costs can be attributed and systems in search of to decentralized, needed answers, spending uncoordinated or maverick 30 to 50 percent of their purchases of hundreds, Source: The Center for New Product Development: time gathering, managing The Cost of Project Inefficiency. US National thousands or potentially and sharing information, Institute for Science & Technology millions of documents according to industry from disparate sources—service data object (SDO) surveys. As a result, they are diverted from the storefronts, individual publishers, document value-added tasks that drive corporate performance distributors, and even dubious e-commerce sites and the risks become all too real. selling outdated or bootleg materials in violation of copyright laws. BARRIERS TO CHANGE The risks associated with information can be Making the connection between information expensive, too. Using unapproved or erroneous data overload and subpar corporate performance is in the design cycle are obvious examples in which pretty straightforward, but figuring out what to using the wrong information can have catastrophic do about it is more complex. After all, over the consequences. But the technical organization is often past decades, companies invested in multiple a virtual blind spot for senior management when it systems to improve technical workflows, whether
120%
How much the average new product development project exceeds its schedule.
0515IHS_07-11_CatchWave_cm_rg.indd 9
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
9
4/20/16 3:27 PM
FEATURE computer-aided design (CAD), product lifecycle management (PLM), content management systems and so on. Even with all these tools and platforms, organizations struggle to get optimal performance out of their technical enterprise. Why? There are several reasons. To begin with, solution providers traditionally come at this challenge from either a content perspective or a tool perspective, rather than linking the two by layering analytical capabilities atop a foundation of essential content. In addition, without search technology that can integrate various external and internal content sources, technical professionals are left to log in to multiple systems, aggregate information on their own and then figure out how to integrate the data into disparate analytical tools. Furthermore, the many enterprise search tools or other technologies that were available to companies to date traditionally required customization and development. They also lacked the rich functionality needed by knowledge workers to fulfill their specific tasks and activities in the context of their technical workflows. For instance, to conduct root cause analysis (RCA), typically an engineer had to deploy generic technology first, then customize it for specific tasks associated with RCA. The content itself poses another challenge due to a dependency on aligning internal data and systems with external technical content to complete tasks. Put simply, generic technology alone cannot solve the problem. Ultimately, without the appropriate content, analytics, and tools brought together in a holistic and well-orchestrated manner, corporations are typically left overspending and underachieving. They fail to truly turn the tide in their favor, unable to achieve their full potential as knowledge-driven technical enterprises.
10
community, IHS is seeing successful companies start by giving their technical professionals a single go-to source for the content and documents they need to do their work. That includes internal content drawn from structured and unstructured systems, like PLM, CAD, enterprise resource planning (ERP), shared drives, SharePoint and so on. It also includes external content like industry standards and specifications, e-books from leading technical publishers, journal articles, patents and other sources of technical information. The next step is to apply next-generation search technology and content analytics to allow knowledge workers to quickly drill down to relevant answers within all this content without getting bogged down. Finally, companies are leveraging specialized problem-solving tools and techniques tailored to the specific needs of the technical enterprise, allowing their knowledge professionals to analyze and draw intelligence from all the content at their disposal.
30%
Reduction in research time when using a technical knowledge management platform that combines content, next-generation search technology and research tools.
Source: IHS research based on customer successes
ESCAPE THE INFORMATION ABYSS
THROW YOUR ENGINEERS A LIFE RING
How, then, can you approach this challenge? You can start by stepping aside and asking yourself this question: If my organization was drowning in information and if this situation was draining our performance as a company, then what solution would I put in place to rise above the information, restore order, and get my knowledge workers back to innovating and creative problem-solving? Based on more than 55 years of experience providing essential content to the technical
The benefits of supporting the technical enterprise with this sort of three-legged platform—built on content, next-generation search technology, and tools designed by and for technical professionals— can be substantial. Put bluntly, knowledge-based organizations outperform their peers.
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_07-11_CatchWave_cm_rg.indd 10
4/20/16 3:27 PM
FEATURE Industry research shows that engineers and other technical workers at these organizations spend 30 percent less time looking for information, they’re 15 times faster when it comes to leveraging information, and they’re 30 percent more likely to find what they’re looking for when they need it. Based on industry estimates, these performance improvements within the technical enterprise translate into two times greater shareholder returns, four times greater return on revenues, and three-anda-half times greater return on assets for an organization as a whole. Imagine the impact that these improvements would have on your own organization. What would that actually translate into in terms of your ability to meet your business goals and objectives? Would you be able to lower your costs? Increase systems’ return on investment? Increase productivity? Cut two to four months’ time to market off a key project or deliverable? Deliver a 70 percent or greater improvement to your ideation practices? Reduce defects and failures by 200 percent? The possibilities are endless, and the platform that can enable these and other results is within reach. As you begin to think differently about your organization and its dependency on information, you can envision the content, analytics and technology that can eradicate information overload, throw your engineers a life ring, and restore your organization’s focus on innovative, creative and inventive practices. With CEOs’ top concerns resting on the shoulders of the technical enterprise right now, being able to fluidly provide the information and insight that knowledge workers need to fulfill their missions is critical. A knowledge-based organization does exactly that and, in doing so, helps its CEO drive company success in the marketplace. ABOUT THE AUTHOR ANDY REESE is a senior manager in Product Design at IHS, responsible for the IHS technical reference solutions.
0515IHS_07-11_CatchWave_cm_rg.indd 11
Unleash the Technical Enterprise It’s time for organizations to combine content, search and analytics to make a leap and become the knowledge-driven, innovative enterprises they aspire to be. That’s where IHS Engineering Workbench comes in. It’s the only rapidly deployed, next-generation platform for the technical enterprise that provides global organizations with a complete and comprehensive set of content, next-generation search capabilities, and advanced tools to drive profitable growth and competitive advantage from the technical workforce. Using the platform, companies can effectively arm knowledge workers with the technical expertise they require without bogging them down with superfluous data. Innovative and groundbreaking in its own right, Engineering Workbench connects engineering, scientific and technical professionals—and internal communities across the technical enterprise—with more than 110 million must-have engineering and technical reference books, patents, technical articles, reports, design principles and other essential content. It also connects these workers to their own internal knowledge sources, and helps them foster knowledge retention, transfer and discovery, while using next-generation search technology to extract answers and derive insights from internal and external content sources. Furthermore, Engineering Workbench provides advanced research, problem-solving and analytical tools (such as root cause analysis, technology and patent trend analysis, and consumer insights or intelligence) to extract product ideas from social media. Engineering Workbench reduces the total cost of ownership of information and technology purchases, while increasing the return on investment of existing information and technology across the enterprise. Tailored to the unique needs of enterprise knowledge workers, Engineering Workbench empowers business leaders to equip their technical workforce with a holistic, lightweight framework consisting of vetted technical content, advanced research capabilities and a consistent user experience that’s designed specifically for the technical audience. This, in turn, enables the processes and activities associated with knowledge work, and helps improve innovation, drive operational efficiency, control costs and mitigate risk. With Engineering Workbench, scientists, researchers, engineers, technicians and other knowledge workers finally have a single information, analytics, problem-solving and decision-support platform. This enables information-laden organizations to transform into knowledge-driven corporations that benefit from improved product quality, faster time to market, reduced costs, global opportunities, better regulatory compliance and improved customer satisfaction. Empower your engineering community with IHS Engineering Workbench. Learn more at www.ihs.com/ewb.
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
11
4/20/16 3:27 PM
EXECUTIVE FOCUS
{ TECHNICAL KNOWLEDGE DISCOVERY}
By John Buchowski
MASTERING TECHNICAL KNOWLEDGE DISCOVERY
T
he technical enterprise is under immense top-down pressure to directly contribute to corporate growth and efficiency, cost control and risk management objectives. Operating squarely in their CEOs’ crosshairs, engineers, scientists and other key knowledge workers are being asked to constantly innovate, come up with new groundbreaking ideas and beat out the competition on a daily basis. Achieving these goals while also managing unprecedented volumes of data and information is not only difficult, but it also takes up most of the typical knowledge worker’s day. These pressures on engineering and other technical leaders translate into requirements to innovate faster, improve productivity, reduce time to market, manage greater product complexity and improve customer satisfaction. Yet 94 percent of engineers said they feel greater time pressure and stress to solve problems more efficiently and effectively than they did just three years ago. In a recent study, 71 percent of organizations polled said search is vital, but just 18 percent of those firms report having cross-repository search capabilities. And, a staggering 75 percent of companies said it was easier to find information outside their organization than within. For example, when engineers can’t quickly find the information they need, the end results are often product reworks/redesigns (i.e., due to poor access to prior knowledge), poor decision-making and increased risk. Put simply, companies are investing millions of dollars in tools, platforms and information databases—yet their engineers and scientists still can’t find the information they need when they need it.
HALF OF KNOWLEDGE WORKERS CAN’T FIND WHAT THEY NEED
Smart engineering organizations leverage their expertise into significant cost savings, time savings and maximized market opportunities 12
A recent IHS study found that 46 percent of workers can’t find the information they need almost half of the time, and 30 percent of total R&D spend is wasted duplicating prior research and work previously done. Finally, 54 percent of decisions are made with incomplete, inconsistent and inadequate information. For example, one major aerospace and defense organization indexed more than 3,000 knowledge bases. When its engineers retire, they archive their computer hard drives and make them searchable as corporate knowledge. This strategy is helping the organization more effectively manage the big crew change that’s looming as 50 percent
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_12-13_TechKnowledge_cm-rg.indd 12
4/20/16 3:30 PM
TECHNICAL KNOWLEDGE DISCOVERY
of the engineering workforce retires in the next few years. Having a robust technical knowledge discovery process in place is also helping companies get the new millennial workforce (currently aged 19 to 36) in place and properly trained. This is particularly vital in a world in which 91 percent of millennials expect to stay in their current jobs for less than three years. This expectation poses particularly difficult challenges for knowledge-dependent organizations, in which it takes an average of 8.2 years for a new engineer to gain sufficient experience to make non-standard, original technical decisions. This knowledge crisis is hurting engineering productivity by impeding innovation, delaying time to market, driving up costs and increasing risk.
FUTILE SEARCHING AND UNPRODUCTIVE DISCOVERY Every week, engineers and scientists spend a high percentage of their time searching for documents, concepts, answers, standards, experts and other pertinent information. Few would argue the value of these bits of data, but the problem is that the 20 to 30 percent of the day spent on these tasks could be greatly reduced and streamlined with the use of an integrated, technology-based knowledge platform that incorporates all internal and external knowledge. Consider this: The odds that someone within an organization—either a current or past employee—already solved a specific problem that an engineer is trying to tackle are very high. But when that past knowledge can’t be
exponentially. When a problem was already solved in the past, knowledge workers aren’t adding value with their new innovations—they’re simply rehashing something that’s already done. David Meza, chief knowledge architect at the NASA Johnson Space Center, shares how his organization dramatically accelerated engineering research. The organization maintains hundreds of millions of documents, reports, project data, lessons learned, scientific research and other data that is stored in locations nationwide. The data grows in terms of variety, velocity, volume, value and veracity every day, and recently pushed NASA to begin using the IHS Goldfire platform to more effectively manage that information.
ENGINEERS NEED ACCURATE, ACCESSIBLE INFORMATION
Engineers are always hungry for more information to support their decisions. Finding those needles in the haystack can provide an enormous amount of value for current and future innovations. The problem is that retaining all of that corporate knowledge is a challenge. Hundreds of thousands of engineers, scientists and knowledge workers create huge volumes of intellectual property every day. At organizations like NASA, for example, this has been happening since the 1930s. That early research is still as valid and pertinent as it was 80 years ago, but because much of it is unstructured, finding that data and extracting its value can be difficult— particularly when it’s stored on different systems and at different physical locations. Using a platform like IHS Goldfire, companies can Companies are investing millions of stem the enormous loss and/or dilution of knowledge dollars in tools, platforms and information as their workforces age and as the links to critical information begin to disappear. Knowledge transfer databases—yet their engineers and is made easier, risk is minimized, and innovation continues at the desired rate (or better). With half scientists still can’t find the information of the engineering workforce eligible for retirement they need when they need it. within the next few years—and with the technical enterprise being asked to innovate and contribute quickly accessed, cross-referenced and reviewed, knowledge at an unprecedented pace—the companies that empower workers often wind up reinventing the wheel and going faster, more informed decision-making are going to be best back to square one to get critical problems solved. The time positioned to achieve their operational excellence goals and involved with this process not only consumes precious work compete effectively well into the future. hours, but it can also severely impede a company’s marketABOUT THE AUTHOR leading position and increase its risk. As you’ll read in the NASA case study on Page 14, any time a new solution JOHN BUCHOWSKI, a vice president with IHS Product Design, has almost or innovation is introduced, the possible risks increase two decades’ experience developing information solutions for engineers.
0515IHS_12-13_TechKnowledge_cm-rg.indd 13
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
13
4/20/16 3:30 PM
INTERNAL KNOWLEDGE RACE
{ NASA CASE STUDY}
By Rebecca Henry
AT A GLANCE CHALLENGE »» H undreds of millions of documents, reports, and project data spread across multiple locations and departments »» P oor visibility into engineering data sources »» E ngineers using Google for research when in doubt SOLUTION »» I HS Product Design with IHS Goldfire® RESULTS »» T ime spent researching specific project data reduced to hours versus days »» Q uick access to contextually relevant results »» A bility to leverage enterprise-wide data, information and lessons learned
NASA GOES FOR THE GOLDFIRE NASA leverages IHS Goldfire to improve access to critical data across its many locations, departments and engineers
D
uring any given year, hundreds of millions of different documents, reports, project data, lessons learned, scientific research and IT logs are created and accessed by NASA’s nationwide research centers and test facilities. Growing in terms of variety, velocity, volume and value, the data is largely unstructured, and difficult to locate and share among the government agency’s many different departments.
IMPROVING IDENTIFICATION AND PRIORITIZATION OF DATA Limited visibility of organizationwide data is an ongoing hurdle for NASA, which runs multiple research 14
centers, test facilities, flight centers and institutes in the United States. “We are losing vast amounts of critical data,” says David Meza, chief knowledge architect at the NASA Johnson Space Center ( JSC). In many cases, this data loss pushes engineers to use Google as a primary research tool—a fallback that leads to even deeper challenges for the government agency. “Like many other search engines, Google parses out keywords and phrases. If a page isn’t ranked high, Google won’t even return it as a result,” Meza explains. “We needed a better way.” To improve identification and prioritization of data across various repositories, uses
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_14-15_InternalKnowledge_cm_rg.indd 14
4/21/16 7:39 AM
NASA CASE STUDY
and interactions, NASA reviewed an array of technologies and solutions, including semantic search, faceted search, computational and cognitive systems, natural language queries and more, to get a good understanding of how NASA data worked with those different search methods. In the end, NASA turned to IHS Goldfire, the platform for technical knowledge discovery and problemsolving, as it best met NASA’s requirements for semantic search, clustering of topics, faceting, and the ability to save searches and create automated alerts around save queries. In addition, IHS Goldfire gave NASA engineers and researchers the ability to search specific repositories. This was critical because, up to 80 percent of the time, NASA personnel knew where information resided, but it was hidden within millions of documents and thus not readily available. The platform proved its value almost immediately when the Orion program experienced a partial failure of the uprighting landing system in a test flight. The NASA engineering team reviewed past Apollo documents to study the design and approaches to find solutions to improve the Orion design. In the past, a librarian would spend an entire day researching the JSC History Index and Archive Search Index databases for the documents— plus hundreds of JSC oral histories and scanned historical documents, dozens of pages each—in hopes of finding relevant information.
documents and websites, thus enabling a full-text search across all information. The platform also analyzed the results for relevance (i.e., proximity in the document and context). By clicking a link, users can read a summary, view a list of similar documents or access the document immediately. The Orion engineer spent three hours using IHS Goldfire to run some of the same searches that were previously completed on the indexed documents with the Windows search option. For example, after a single search using just one search term, IHS Goldfire returned more than 200 contextually relevant documents—some of these dated back 40 years or more. “IHS Goldfire returned the results instantly,” says Meza, “compared to a preliminary search, which took eight hours to complete—plus another four hours to review—and that turned up very few useful documents.” Using IHS Goldfire, the Orion engineer immediately found hundreds of contextually relevant results on the Apollo program, and nine of these results are now being reviewed for their contribution to savings and improvements in the Orion program.
IF THEY COULD FIND IT IN A COUPLE HOURS INSTEAD OF A COUPLE WEEKS, THEY WOULD. OTHERWISE, THEY ARE GOING TO HAVE TO RECREATE IT THEMSELVES.”
DAVID MEZA, — CHIEF KNOWLEDGE ARCHITECT, THE NASA JOHNSON SPACE CENTER
LEVERAGING PAST LESSONS FOR TODAY’S PROBLEMS By empowering informed decisionmaking and leveraging lessons of the past, IHS Goldfire helped minimize waste, rework, reinvention and redundancy at one of the world’s largest government agencies. “The engineer was astounded because he didn’t have to spend hours reading through volumes of information,” says Meza. “He was able to access good, relevant information that dug down deep and focused only on what was useful. That’s invaluable.”
TRACKING IMMEDIATE RESULTS Using IHS Goldfire’s advanced search tool, NASA indexed 62 gigabytes (representing over 1.2 million pages) of historical
0515IHS_14-15_InternalKnowledge_cm_rg.indd 15
“ENGINEERS DON’T REUSE INFORMATION BECAUSE IT’S DIFFICULT FOR THEM TO FIND IT.
ABOUT THE AUTHOR REBECCA HENRY is a senior solution marketing manager for IHS Product Design.
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
15
4/21/16 7:39 AM
EXECUTIVE FOCUS
{ KNOWLEDGE RACE}
By Bridget McCrea
Winning the
KNOWLEDGE RACE
Workforce survey conducted in November and December 2015. We’ll look at challenges facing today’s knowledge workers, and see how leading enterprises are overcoming these headwinds to deliver increasing value and separate themselves from laggards in their respective industries. [See About the Survey on Page 18 for more information.]
A SHRINKING TECHNICAL WORKFORCE
Leading organizations are using strong internal systems and processes to combat the many knowledgebased risks facing the technical enterprise today
16
I
n the race to harness and use internal and external content across numerous departments and business functions, companies are increasingly turning to their engineers, knowledge workers and other technical professionals to contribute to growth, cost optimization and risk management objectives. Concurrently, knowledge workers are grappling with challenges such as shrinking corporate resources, looming demographic trends (i.e., retiring baby boomers) and unprecedented levels of information overload. These and other obstacles make it difficult for companies to win the knowledge race—right at a time when effective information management is becoming a critical tool for leading corporations that want to achieve operational excellence. In this article, we’ll explore the results of the recent Supply & Demand Chain Executive (SDCE) State of the Professional
The technical professional workforce experienced significant changes over the last two years, with 52 percent of firms either shrinking this aspect of their workforces or simply not growing headcount at all during this time, according to the SDCE survey results. Concurrently, nearly 25 percent of firms are dealing with an increase in the number of senior technical employees who are retiring and leaving the workforce completely. Further complicating the situation are the 50 percent of current technical professionals who are on track to retire some time in the next five to 10 years. “There’s no organization that I know of that isn’t concerned about this,” says Fred Filler, director of engineering content for IHS Product Design. He notes that the high point for engineering graduates from western universities traces back to the early 1980s, so the “magic 65” retirement age is coming into clear view for a high percentage of these engineers. “At this point, we’re expecting half of today’s knowledge workers to retire over the next few years,” Filler adds,
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_16-18_KnowledgeRace_cm_rg.indd 16
4/20/16 3:46 PM
KNOWLEDGE RACE
mentioning that companies dependent DELIVERING MORE VALUE on knowledge workers are becoming WITH FEWER RESOURCES concerned about the implications of Under increasing pressure to deliver the coming mass exodus. more value with fewer resources, and And it’s not like the engineering faster and at a lower cost, the technical pipeline is filled with up-and-coming enterprise is dealing with a new host professionals. During the early 2000s, of challenges in today’s business the technology bubble burst—a environment. According to the SDCE phenomenon survey, 72 percent of that pushed knowledge workers say potential engineers they are having to do and technical more with less—take on professionals to more work and complete seek out alternate more projects with fewer educational resources. At the same opportunities time, 64 percent say the or lines of work. pace of engineering is “When we look at increasing and 54 percent the next progression say cost-cutting pressures of engineers coming are putting quality at risk. into the workforce,” — FRED FILLER, DIRECTOR These complications can says Filler, “there just OF ENGINEERING CONTENT, have a negative impact on aren’t as many.” Even IHS PRODUCT DESIGN corporate performance in for those companies a world in which speed to that do successfully recruit technical market, and product and service quality professionals, the time it takes to train are increasingly seen as must-haves. and cultivate them can be five to 10 Drilling down further, 85 percent years or more—yet another obstacle of survey participants say a shortage firms must be aware of as the big crew of talent and knowledge are already change begins. having a significant impact on the In some cases, companies work technical enterprise, while 86 percent against themselves on the knowledge say the resource/people shortage is worker front. During mergers and negatively impacting product quality. downsizing, it’s often the most When asked about the potential experienced and highest paid engineers knowledge loss due to technical who receive early retirement offers. professionals leaving their companies, This strategy may make sense from an 75 percent of respondents view this immediate-term financial perspective, knowledge loss as a critical issue facing but it can fail miserably when those their organizations right now. senior workers are replaced with As an example of this sort of impact, inexperienced talent. Put simply, there Jeff Cloutier, a director with IHS usually is no replacement. Companies Product Design, relates the story of a subsequently face sudden knowledge hypodermic needle manufacturer that gaps that can quickly bring to a halt was dealing with discoloration on its any growth, cost optimization and risk products’ plastic bases. Nurses opened management objectives. the needles, saw the discoloration and promptly tossed them in the
“WE’RE EXPECTING HALF OF TODAY’S KNOWLEDGE WORKERS TO RETIRE OVER THE NEXT FEW YEARS.”
0515IHS_16-18_KnowledgeRace_cm_rg.indd 17
trash, assuming they were non-sterile or otherwise unsafe. This wasn’t the company’s first time with this issue, but the engineer who originally solved the problem was now retired. The company’s current engineers couldn’t locate him, find the database where he recorded the related data or access his laptop. “The solution was somewhere within the company, but no one had any idea where it was or how to access it,” Cloutier says. The company eventually located the engineer and the solution, but they lost time and wasted effort in the process—not to mention the loss of customer satisfaction and the discarded (and perfectly sterile and functional) hypodermic needles. This is just one example of how a minor knowledge gap can create significant—and irreversible—consequences.
IT’S NOT EASY BEING A KNOWLEDGE WORKER Data complexity and the tsunami of information that knowledge workers are managing are increasing complications for the majority of technical professionals. In fact, two out of three surveyed by SDCE say the volume of information they deal with is rising. The number of information platforms that they work with is also increasing, as is the complexity of the information itself (63 percent) and the number of data sources (70 percent). These factors make it more difficult to be an engineer, scientist or researcher in today’s information-rich world. In fact, 75 percent of respondents say that the challenges associated with managing and accessing information impact production, quality and innovation. The problem isn’t going to improve on its own either, what with the nation’s 75 million-plus baby boomers making
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
17
4/20/16 3:46 PM
KNOWLEDGE RACE
Less than 50 percent of organizations have formal knowledge transfer/retention practices in place to ensure that critical information doesn’t just walk out the door. Supply & Demand Chain Executive State of the Professional Workforce survey
About the Survey Supply & Demand Chain Executive conducted the State of the Technical Workforce survey in November and December 2015. Survey responses were solicited via email and a total of 803 respondents provided answers on the survey. In all, 506 respondents self-identified as engineers or other technical professionals. The survey results discussed in this article refer specifically to this latter group of professionals.
18
their way into retirement. According to the SDCE report, less than 50 percent of organizations have formal knowledge transfer/retention practices in place to ensure that critical information doesn’t just walk out the door. The reality is that important data and knowledge can walk out the door at any time. This is an issue that organizations grapple with every day. But solutions are available to help overcome these challenges, too. NASA, for example, used a technical knowledge management platform from IHS to index historical internal documents and websites, thus enabling a full-text search across all data. The platform proved its value almost immediately when an Orion crew and service engineer used it to research the Apollo program’s upright landing system—saving NASA from having to reinvent a solution that debuted more than a generation ago. (See article on NASA’s use of Goldfire on Page 14.)
LEADERS VS. LAGGARDS In examining how organizations are using strong internal systems and processes to combat the risks facing today’s technical enterprise, the line between leader and laggard is obvious. According to the SDCE survey, 59 percent of participants see their firms as leaders, 32 percent as average and 9 percent as laggards. Overall, the leaders outperform laggards on key measures such as revenue, quality, launch data, customer satisfaction and unit cost. Based on these measures, the case for being a leader versus a laggard is clear; there is a positive impact
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_16-18_KnowledgeRace_cm_rg.indd 18
associated with the former. Right now, leaders are growing their technical workforces while laggards are cutting back. Over the last two years, 55 percent of leaders added staff and 14 percent reduced staff (vs. 19 and 47 percent for laggards). As a result, leaders are losing fewer technical professionals to competition, and retirement and layoffs in general. “In most cases, the companies that are not faring well can expect more layoffs or a loss of workers to competition,” says Filler. “Once an organization begins to lag, a toxic environment begins to build and people don’t even want to be associated with that company.” This fact is particularly true within the engineering space, in which professionals want to make things better. When engineers see something that’s not working properly, they’re more prone to jump ship. This reality is making companies think more carefully about the potential brain drain taking place within their technical enterprises. SDCE reports that 51 percent of leading firms are worried about this (compared to 62 percent of laggards). But even among leaders, 48 percent have no formal practices to keep knowledge from disappearing as engineers, scientists and other knowledge workers retire. To win the knowledge race, avoid risk, and maintain or improve revenues, leading organizations are using strong internal systems and technology-enabled processes that help them effectively harness and access knowledge across the enterprise. Using the right platforms and tools, organizations can improve their current processes, work with fewer resources and have confidence that their technical workforces have the tools they need to operate in the most efficient manner possible. ABOUT THE AUTHOR BRIDGET MCCREA is a technical writer for IHS Product Design.
4/20/16 3:46 PM
{ STANDARDS OPTIMIZATION}
EXECUTIVE FOCUS By Jason Sonneborn
THE EFFICIENCY, COST SAVINGS & SUSTAINABILITY EQUATION Optimizing Internal Standards
Leveraging Industry Standards
T
ADDRESSING DOWN-CYCLE CHALLENGES HEAD ON
here was a time when fit for purpose, standards and over-engineering industry standards in the oil and gas industry were acceptable practices. Commodity prices were triple what they are today, operator revenues were rising, and there was no end in sight for rising crude oil prices. Fast-forward to 2016 and the environment couldn’t be any more different. Not only did crude oil prices drop dramatically since 2013, but capital and operating costs remain high. And while the need to improve returns was already an issue in the high oil price environment three years ago, that need is now a mandate for all companies in the sector. In this article, we’ll explore the current challenges facing the oil and gas industry, and show how optimizing internal standards and leveraging industry standards can help companies gain efficiencies and operate more profitably.
Challenged by a down-cycle that reared its head quickly and has yet to subside, oil and gas companies are looking for innovative ways to maintain profitability and sustain growth. To achieve these goals, organizations are renegotiating supplier contracts, restructuring internal departments and processes, and reducing overhead. Leading organizations are also examining the standards they use, and the impact these standards have on engineering hours and supplier cost, and as a result, developing ways to operate more efficiently. For many, the answer lies in optimizing internal standards and moving away from proprietary standards to a more efficient, operationally excellent way of managing standards and specifications across the board.
0515IHS_19-24_OptimizingStandards_cm_rg.indd 19
Cost Savings, Efficiencies, Sustainability
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
19
4/21/16 7:42 AM
STANDARDS OPTIMIZATION
How Internal Standards Can Drive up Costs due to Over-Specification API standard pumps cost about three times that of ANSI standard pumps and are appropriate when pumping flammable oil. However, many internal standards call for using API pumps more broadly, even for pumping cooling water and condensate. Standards call for nickel alloy when 316L stainless steel is appropriate or tantalum when titanium is appropriate. Proprietary specs would require customized equipment that can cost five to 10 times more than off-the-shelf equipment and with unclear benefit. In addition, out-of-date references to industry standards would drive unnecessary customization and rework, and lack of clarity in deviations from referenced industry standards, and would create extra engineering time on each project.
20
The problem is that companies active in oil and gas exploration and production (E&P) today rely heavily on industry standards. It is estimated that the 120,000 engineers working for the top 500 energy companies in the world rely on 80,000 different industry standards from over 135 standards bodies. But most oil and gas companies also complement industry standards with their own internal proprietary standards to build, maintain and operate their operations infrastructure. The combination of working with industry standards plus internal standards creates what engineers and suppliers refer to as the forklift problem. One internal standard may reference 10 or more other internal or international standards, which then can reference another 10 each. By the time an engineer adds up all of the standard documentation for a particular project, he or she has a very tall stack of paper. These internal standards may leverage industry-approved standards as a starting point, but companies then often layer on additional company-specific requirements to ensure reliability and safety, increase efficiency, address challenges seen on past projects, improve maintainability, encapsulate corporate practices, and reflect the perspectives and experience
of internal groups. For example, an oil and gas company could decide that all of its electrical equipment boxes be painted orange (to meet equipment color-coding requirements) instead of industry-standard green. Whatever the reason, these bespoke standards typically add additional costs that often are not justified by the added benefits.
WHAT’S DRIVING UP COSTS? Engineering costs are being driven up by a number of factors. For example, companies spend $38 billion in unnecessary purchases due to suboptimal internal standards, and 30 percent of total research and development (R&D) spend is wasted duplicating research that was previously done. Out-of-date references, over-engineering and lack of supplier feedback are just a few of the factors that contribute to the challenges. Plus, when internal standards are used (vs. industry standards), companies experience a 100 percent increase in engineering hours required to do the work. As you can see from this example, internal standards come at a cost. Companies that want to enable stepchange advances in cost performance should go back to the basics and simplify the problem by moving away from
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_19-24_OptimizingStandards_cm_rg.indd 20
4/21/16 7:42 AM
STANDARDS OPTIMIZATION
proprietary standards and adopting industry standards when possible. If more robust requirements are needed, it is important to follow a structured approach to identifying and prioritizing changes needed and their cost impact.
Companies that want to enable stepchange advances in cost performance should go back to the basics and simplify the problem by moving away from proprietary standards and adopting industry standards when possible.
PROJECT COST
proprietary standards (or from custom adaptations on top of industry standards) and toward adoption of industry standards. Recently, a global energy company looking to lower costs enterprise-wide asked IHS to review 35 internal standards and list 143 A BETTER APPROACH comparable international standards. TO STANDARDS Research uncovered cost-saving Oil companies are beginning to opportunities including 25 percent realize that proprietary standards can savings on drilling casing/tubing for significantly drive up costs (e.g., those $5 million annually and $180 million that rely on internal standards spent 20 annually for conformance across all to 100 percent more than those using industry standards. industry standards), while industryA second IHS global energy wide agreement on common standards customer optimized procurement can spread costs across a larger base specifications by creating a model of operators and suppliers, and thus of zero-based design with suppliers. reduce cost. In the case of the orange The customer found 15 procurement electrical equipment box, the color specification steps for custom change leads to extra manufacturing specifications and reduced that to six time, requires the supplier to carry steps using zero-based design. The additional inventory, and leads to anticipated savings are 30 percent with custom testing and inspection. its supplier, and a 50 percent reduction In the case of large, complex E&P in engineering hours. projects, engineers at the engineering, In the first example, IHS analysts procurement and modeled the global construction firms energy company’s that build upstream standards to identify infrastructure must design decisions. They get up to speed on used IHS software to different proprietary access 1.7 million industry requirements for standards, and also IHS every project. This Goldfire software to requirement limits semantically analyze knowledge reuse and and identify deviations scale, thereby adding between internal and costs and delaying industry standards. IHS Projects Driven Projects Driven schedules. Across by Internal by International also worked with key Standards Standards thousands of projects individuals from the Source: IHS Research in the industry, company as part of a the impact is billions of dollars in carefully structured value engineering additional costs and delays. exercise to capture cost variances. IHS reviewed the oil and gas INTERNAL STANDARDS company’s 35 internal standards OPTIMIZATION IN ACTION for: blowout preventer equipment; In the quest to sustain growth in a cement; downhole; drilling fluids; rigs/ volatile business climate, oil and gas rig equipment; wellhead equipment; companies must move away from— and casings, tubing and drill pipe. It when feasible and appropriate— compared those 35 internal standards
0515IHS_19-24_OptimizingStandards_cm_rg.indd 21
S P E C IAL E D IT IO N | May 2016 | SUPPLY & DEMAND CHAIN EXECUTIVE
21
4/21/16 7:42 AM
STANDARDS OPTIMIZATION
Industry leaders, who were already focused on driving efficiency and operational excellence, are now feeling an even greater sense of urgency as they strive to maintain profit margins despite oil price reductions of more than 50 percent.
22
to a list of 143 American Petroleum Institute (API) standards for drilling operations that were gleaned from IHS Standards Expert, which tracks 1.7 million standards from 400 organizations worldwide. This in-depth research revealed that: ❯❯ 26 percent of the company’s drilling standards were outdated, having been replaced or dropped as international standards. ❯❯ The company did not comply with more than half of the API standards used by peers. ❯❯ These deviations from industry standards exposed the company to risks of non-compliance, as well as unnecessary added costs. The chief engineer realized that his company could cut costs by conforming more closely to industry standards. After conducting a detailed analysis of the company’s standards for casing and tubing, IHS gained insights into the cost of maintaining proprietary standards vs. adopting industry ones. The team then calculated the company’s standards expenses, and prioritized areas for improvement in terms of cost, reliability and performance attributes. The potential cost savings from closer conformity to industry standards added up quickly. For example, if the average cost of casing is $75 to $100 per meter, and if the company’s well holes are typically 3,000 to 5,000 meters deep, the total cost of casing/tubing for one well would range from $225,000 to $500,000. Using industry-standard casing materials, the company can maintain performance, reliability and riskmitigation needs while saving 25 percent off the premium materials specified in its current internal standards. With an estimated 12 new wells each year, this company can save up to $5 million annually on casing and tubing standards conformity, with additional savings on maintenance
SUPPLY & DEMAND CHAIN EXECUTIVE | May 2016 | S P E C IAL E D IT IO N
0515IHS_19-24_OptimizingStandards_cm_rg.indd 22
of existing wells, once it makes the changes to their internal standards. The company could also realize far greater cost savings by further analyzing its complete set of internal standards in this same manner. These savings include not only material costs, but also a host of other factors, ranging from internal and external engineering to contractor hours to inventory management costs to transportation and labor. In total, the company could save up to $180 million annually by implementing the recommendations across its entire collection of internal standards.
IT’S TIME FOR A CHANGE Industry leaders, who were already focused on driving efficiency and operational excellence, are now feeling an even greater sense of urgency as they strive to maintain profit margins despite oil price reductions of more than 50 percent. The executive-level mandate to cut costs gave the oil and gas industry a compelling reason to drive the difficult-to-achieve consensus needed to develop better and more complete standards. Concurrently, new industry working groups can be created to forge consensus, with senior executives from leading companies providing the impetus for change. And while cost reductions were seen as a priority even before the crash, now they are an absolute necessity. By driving costs out of their own internal standards, putting governance and process controls in place to ensure standards decisions are made in a business context, and using industry standards when possible, companies can offset the negative impacts of low oil prices and high operating costs to develop more operationally efficient strategies for any economic conditions. ABOUT THE AUTHOR JASON SONNEBORN is a senior director in the IHS Product Design business, and leads the global Client Services team.
4/21/16 7:42 AM
Knowledge Discovered Discovered Knowledge IHSisisthe thesource sourcefor forcritical criticalinformation information IHS andinsight insightfor fortechnical technicalprofessionals professionals and
Parts Datasheets Manufacturer Catalogs Parts Datasheets && Manufacturer Catalogs
ParametricPart PartDetail Detail Parametric Interactive Graphs, Videos, Tables Interactive Graphs, Videos, Tables
ReplacementComponents Componentsand andSources Sources Replacement EngineeringeBooks eBooks&&Journals Journals Engineering
DesignGuidelines Guidelines&&Best BestPractices Practices Design Patents from Global Authorities Patents from 66 Global Authorities
Active&&Historical HistoricalStandards Standards Active
Makebetter betterdecisions decisionsfaster faster––no nomatter matterhow howbig bigthe thedecision. decision. Make globalmanufacturing manufacturingand andprocess processindustries, industries,there there InInglobal are no small engineering decisions. are no small engineering decisions.
“Ifwe wewant wanttotogo go “If themoon moonagain, again, totothe
Industrystandards, standards,applied appliedengineering engineeringreference reference Industry content,comprehensive comprehensiveindustry industryknowledge knowledgebases, bases, content, advanced innovative tools. advanced innovative tools.
we’llbe bestarting startingfrom from we’ll scratchbecause becauseall allofof scratch
IHShelps helpscompanies companiesachieve achieveoperational operationalexcellence excellence IHS directives,enter enternew newmarkets, markets,and andspeed speedtime timetotomarket market directives, by accelerating knowledge discovery and shortening the by accelerating knowledge discovery and shortening the researchand andsharing sharingofoftechnical technicalinformation informationby byasasmuch much research 30%. asas30%. Withan anexclusive exclusivecombination combinationofoftrusted trustedauthoritative authoritative With content, advanced research capabilities, strategic content, advanced research capabilities, strategic problemsolving solvingtools, tools,and andthe theworld’s world’sbest bestteam teamofof problem innovationexperts, experts,only onlyIHS IHScan canprovide providethe thefull fullrange rangeofof innovation criticalinformation informationand andinsights insightsengineers engineersand andtechnical technical critical professionals require. professionals require.
thatknowledge knowledgehas has that disappeared.ItItwould would disappeared. takeatatleast leastas aslong longand and take costatatleast leastas asmuch muchtoto cost goback.” back.” go LostKnowledge Knowledge(2005) (2005) Lost DavidDeLong DeLong ––David
Learnmore moreon onihs.com ihs.com Learn Call800-854-7179 800-854-7179 Call 0775-TB-1015 0775-TB-1015
0515IHS_19-24_OptimizingStandards_cm_rg.indd 24
4/21/16 7:42 AM
Industry information and expertise… from microchips to cargo ships. Every decision matters. That’s why leaders around the world rely on IHS to help them make the best choices. As the premier provider of global market, industry and technical expertise, we understand the rigor that goes into decisions of great importance. We scale our thinking across virtually any operation or enterprise, from ground level tactics to high level strategy to match the scope of our customers’ needs. IHS… when decisions matter
WWW.IHS.COM
0775-TB-1015
0515IHS_19-24_OptimizingStandards_cm_rg.indd 23
4/21/16 7:42 AM