The Edge Factor - Sept 2015

The world today is full of uncertainties. At a time like this, companies are cautious about large investments and it is not surprising that balance sheets are carrying a lot of cash. How can companies yield better results without substantial investments? Look to productivity increase for the answer. Here are two examples, one in the shop floor and another in the service sector to show the way. We look forward to hearing from you. Write in to us.

Are Manufacturers ready to make use of Big Data in Manufacturing?

Intel Corporation collected and analysed manufacturing big data for one series of processors; this saved the company $3 million. By extending this solution to more products, Intel expects to realize an additional $30 million in cost avoidance. An Economist Intelligence Unit study reveals that there is increased understanding among manufacturing companies on the use of Big Data in manufacturing. About 67% of the companies reported annual saving of 10% or more in the cost of quality. Manufacturers are also getting benefits in terms of reliability, throughput and maintenance practices by tuning into data from the production processes.

Big data leads to the possibility of a different style of decision making altogether. Companies can test hypotheses and analyze results to guide investment decisions, as well as to drive operational changes on their shop floors.

For example, big data can drive improved operational efficiency by optimizing production schedules and improving asset utilization. Manufacturers can reduce defect rates in the product quality by analyzing process parameters on a minute to minute basis, throwing up anomalies that are lost in the averages. At Meritor, a maker of drive trains, the defect rate in axles manufacture reduced to 67 PPM from 139 PPM in a single quarter. Meritor was able to achieve this by tracking data not just by each part number, but also by individual production operation. This use of information enhanced visibility of operations at the machine level.

Real time alerts could be generated by analyzing manufacturing data on the shop floor including that of suppliers and their shipments. An SMS trigger to key people in the plant will be sent, if the truck arrival is delayed. This is tracked by locating the GPS coordinates of the truck and comparing it with the availability of material in the plant. This would lead to better visibility in supplier operations and greater accuracy in predicting supplier performance overtime.

Most of the companies collect vast amount of data but mainly use them for the tracking purposes or costing, not for the purpose of improving operations. The biggest challenge for these companies is to invest in the systems and skills required to make efficient use of the collected data and drawing actionable insights from the information. The other issue manufacturer faces is to integrate the enormous data collected from the various sources to drive context and meaningful value.

Historically, manufacturers are not able to give actionable meaning to the huge data flowing in their organizations. In this emerging era of big data, it is imperative for the companies to successfully build up capabilities to improve their manufacturing performance and set themselves apart from competitors. As manufacturers start using big data technology, it will have ripple effect on the other areas of the business, thus lead to bottom line improvements for the company.

REFERENCES:
http://www.mckinsey.com/insights/operations/how_big_data_can_improve_manufacturing
http://www.economistinsights.com/technology-innovation/analysis/manufacturing-and-data-conundrum
http://www.informationweek.com/software/information-management/intel-cuts-manufacturing-costs-with-big-data/d/d-id/1109111?

Service industries must focus on productivity for profitable growth.

The services sector stands currently at USD 1.1 trillion, nearly 57% of India’s GDP. It is expected to grow USD 100+ billion annually. This is equivalent to an addition of 1 ½ times the size of Reliance Industries Ltd. every year. During such rapid growth phase, every company is attempting to scale up to capture greater market share. However, substantial & sustainable profitable growth cannot occur without focus on productivity improvement.

As of Aug 2015, the Purchasing Manager’s Index (PMI) of services sector is 51.8 (measure developed by HSBC, >50 indicates growth phase). Given current size of services sector, this represents significant growth potential.

In the last 2 decades, services sector growth in India has primarily depended on IT/ ITeS. A host of factors is changing this: rising disposable income, increasing awareness due to mobile internet penetration, cost advantages, policy supports and FDI investments. Today, healthcare & e-commerce are significant contributors to growth in the services sector. While developments in the Ecommerce industry is widely talked about, the growth of the healthcare industry hasn’t attracted similar public & media attention.

Sneak peek at Health Care industry

Indian Health Care market with current size of USD 75 billion. Growing at a CAGR of 15%, healthcare will cross the current size of the IT/ITeS industry of today in next 3-4 years. It is predicted that health care shall take just 3 years to move from USD 75 to 115-120 billion while it took 4 years for similar growth in IT/ITeS.

Key challenges in healthcare industry

Currently, healthcare industry is facing challenges such as infrastructure gaps (Lack of hospital beds & Underutilization of existing resources such as beds) and scarcity of skilled workforce (doctors, technicians). One route to overcome this, is to invest. Several healthcare companies are doing so. However, typical project lead times are of several years in duration and developing a skilled doctor takes even longer. Financially, a dramatic increase in capacity is likely to bring margins under pressure, if the quality of service starts dipping.

Productivity improvement: Better approach to invigorate scalability

We believe the appropriate approach here is to focus on improving the productivity of existing infrastructure and human resources in parallel with scaling up. This route will deliver quicker capacity increase and ensure profitable growth. For instance, one of our clients, a healthcare service provider is looking at a growth of 20x in 5 years. We are working on increasing the productivity of skilled workforce by 20-25%. This will drive a significant increase in profitability today. But when compounded with the growth in the industry and investments in capacity, it is likely that the profits of the company will be more than 2x of the current revenue in the next 4 years.

So, while increasing capacity is a good thing and very essential in a country like India, productivity improvement cannot be ignored if businesses want to generate higher return on capital.

REFERENCES:

http://www.ibef.org/industry/services.aspx
http://www.tradingeconomics.com/india/services-pmi
http://www.ibef.org/industry/healthcare-india.aspx
http://www.ibef.org/industry/information-technology-india.aspx
http://www.ril.com/ar2014-15/RIL%20AR%202014%20-15.pdf
http://articles.economictimes.indiatimes.com/2013-12-02/news/44657410_1_healthcare-sector-healthcare-delivery-fortis

Here is an interesting short video from ToolsGroup on the amount of data to be stored by 2020. As the opportunity is very big on leveraging the big data, but challenge lies in adoption of new techniques for data manipulation and knowledge extraction.

Watch Full Video at: https://www.youtube.com/watch?v=O58cQwMEQa4

The search for greater productivity in healthcare will lead us somewhat toward streamlined processes, a fair amount to automation, and massively to simply not doing what does not need to be done.

Read Full Article at: http://thehealthcareblog.com/blog/2015/06/05/productivity-in-healthcare/

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Regards

Alagu Balaraman