Debunking the Top Start-up Facility Myths

Recently, a company spent millions of dollars buying a prime piece of real estate on which to build a new manufacturing facility. Because this company was financing the land purchase, an environmental assessment of the site was not required. When ground was broken for the new facility, empty barrels were found. Construction was halted, the ground was inspected, and the nightmare began.

The company was required to remediate the site, which meant schedule delays, unanticipated costs, and lost market share. When launching a new plant, one unplanned incident can be the difference between success and failure.

Common myths about start-up facilities abound in industry. Companies often assume that activities will happen as planned, or they are simply unaware of how many factors can derail a start-up.

The following myths represent just a few of these factors, which can stifle the success on any start-up. The myths are:

1. Everyone knows what the goals of the start-up are.
   
2. Companies fully realize the complexity of choosing a facility location.
   
3. Decisions made now will have little impact on life cycle costs; only capital costs matter now.
   
4. Most companies fully realize the impact of a delayed start-up.
   
5. Vendors will do their part to make the start-up successful.
   This article will explore these myths and shed light on how dangerous they can be if left unchecked early on in the start-up facility planning process.
   

Myth 1: Everyone knows what the goals of the start-up are.

Start-ups can require over 5,000 activities, which must be coordinated as if they were part of an orchestra performing a complex symphony. If each start-up activity is not integrated and managed to meet the overall objectives of the new business, the whole project can fail to meet the business objectives of the company. A successful start-up requires attention to thousands of interdependent details. Each detail represents some element of risk to the project (image the violin playing a series of wrong notes during the performance).

Often these details are handled by multiple entities, and each entity is usually focused on its own area of responsibility. These entities usually are rewarded on how they perform their functions and not solely by the success of the overall project. The following are examples of just some of the activities performed by typical entities involved in a start-up:

• Marketing is trying to deliver a specific product to a specific customer at a specific time.
  
• Product Design is trying to develop a product that will meet specific customer requirements.
  
• Manufacturing Engineering is trying to develop a manufacturing process that will produce the product as cheaply as possible.
  
• Purchasing is trying to purchase equipment and raw materials at the best possible price.
  
• Finance is trying to develop a business case that demonstrates an acceptable return on investment.
  
• The engineering and construction firm is trying to build the facility and set the equipment while trying to maximize its profitability.
  
• The Operations Group is trying to produce the product at pre-defined costs and meet quality specifications.
  

Regular alignment meetings of division managers should be held to establish business launch goals and objectives. These meetings are an opportunity for managers to update the entire project team on the status of start-up-related efforts under their jurisdiction. This will ensure that all involved are working toward the established project goals rather than on their own agendas.

Myth 2: Companies fully realize the complexity of choosing a facility location.

Companies often think that locating a facility to a new site involves only a few key factors, such as choosing a commercial real estate agent, obtaining funding, and developing a blueprint. In reality, however, people involved in the location selection often overlook many other activities associated with choosing an appropriate facility location.

The most successful site selection processes weigh the many factors of site selection on the potential impact each factor has on the business goals and objectives of the company. Some of the factors to consider when locating a facility to a new site are: employee demographics, environmental assessments, permitting and incentives.

Employee demographics. There are many activities associated with determining employee demographics within a particular region. These activities take time and experience in determining how suitable an area is compared to the plant requirements. Often companies do not have dedicated personnel researching demographic information on potential employees. Thus, critical information on work-force availability, salaries, and education fail to reach the decision makers.

Companies that are successful in meeting start-up objectives often use experienced siting consultants who conduct detailed analyses on labor markets in specific regions. The consultants visit economic development boards and meet confidentially with manufacturers in the region to determine work force quality and availability. Predetermining employee demographics before locating to a specific region can minimize training costs and employee turnover.

Environmental assessments. Financing entities require companies to have environmental assessments performed on the building site prior to lending. This usually involves an environmental consultant who will address issues dealing with property history and conditions, water source availability and quality, emissions and wastewater quantities and potential pollutants. These studies will help lower the capital and operating costs of those facilities required to control pollutants.

A due diligence investigation is required under United States CERCLA law to prevent suits against property buyers who innocently purchase a contaminated site. This step makes sense when siting a facility anywhere in the world, although the outcome will not be the same as in the United States. An environmental impact study is recommended for some projects. This typically includes a discussion of the proposed facility’s impact on the primary location for construction and any secondary impact areas. As described earlier, companies that do not perform environmental assessments often encounter sites that are contaminated and need remediation. This occurrence alone can negatively impact a schedule by three or more months.

Permitting. During the site selection process, consultants will help identify the required permits to operate a new facility. The permitting cycle is normally initiated after environmental site studies have been completed and the proposed project has been environmentally characterized. Reports from the studies will be used as supporting documents or engineering reports for the permit applications. What companies do not realize is the time it takes to obtain the vast number of permits required by local, state and federal agencies, and they do not budget for this time. Companies often have to seek outside help in obtaining these permits.

Incentives. In today’s competitive market place, states are constantly offering companies attractive incentives to locate in their states. What companies do not realize is that a large portion of these incentives are in tax credits, and many companies never realize these incentives. An effective site-selection process includes an incentive analysis that will ensure that the company receives incentives that will add value to their business.

Myth 3: Decisions made now will have little impact on life cycle costs; only capital costs matter now.

Capital costs usually represent only a small portion of the total facility cost over the life of the facility. Although 80 percent of a plant’s life cycle costs will be committed by the end of the detailed design phase, many companies plan, design, build and purchase equipment based on the initial capital cost without realizing the long-term impact of those decisions. After facility and process designs have been finalized, the opportunity to affect the plant’s life cycle costs will be minimal.

To control life cycle costs, the operating and maintenance strategies should be integrated with plant, process and equipment design to enable the plant to sustain process reliability, equipment availability, quality and throughput through the formal operability and maintainability reviews. These reviews should be initiated to determine the true life cycle costs of the proposed facility and compared to the estimated cost established during the business case.

For example, standardizing electric drives could cost more initially than purchasing several different drives to perform several different functions. However, using standardized drives can substantially reduce the costs of maintenance, spares, documentation and training over the course of the plant’s life cycle, thereby making the standardized drives the less expensive choice for the long term. From a plant-operations perspective, this is the better choice.

Procurement, however, has a different objective: to choose the least expensive drive that meets the design specifications without regard to the life cycle or long-term cost impact of that choice. Performing operability and maintainability reviews will enable project personnel to make informed decisions on how to optimize the total installed cost of the facility and the manufacturing performance while minimizing life cycle costs.

Myth 4: Most companies fully realize the impact of a delayed start-up.

Although most start-ups are driven by an overall project completion date, many companies do not anticipate the impact that failure to meet interim dates can have on overall costs.

A function vital to any start-up is monitoring equipment deliveries. The late delivery of a critical piece of equipment can cause the late installation of other pieces of equipment as well as delays in other requirements, all of which contribute individually to budget overruns.

Another vital, but often overlooked, start-up function is selecting, hiring and training human resources. Companies often focus primarily on getting a plant up and running on time and within budget, failing to address the reality that a plant must have qualified people in place prepared to operate and maintain the facility before it becomes operational. Delays in the selection and hiring processes and in the training schedules can impact costs as severely as equipment delays.

These are only a few examples of interim deadlines that must be met if the overall project completion deadline is to be met. These deadlines are usually driven by business objectives that directly relate to costs and return-on-investment (ROI) objectives. If not met, these deadlines will substantially impact a plant’s start-up, ramp-up, equipment availability and reliability and quality throughput, all of which directly affect the plant’s costs and ROI. To avoid the costs inherent in a delayed start-up, a company should ensure that every aspect of the project is timed precisely and that each scheduled milestone is met.

Myth 5: Vendors will do their part to make the start-up successful.

Vendors do play an important part in any start-up. Companies rely on them for obvious items such as equipment and raw materials. However, vendors also are essential in providing technical expertise in equipment shakedowns, installation and employee training. They also provide equipment documentation, procedures, and spare parts.

However, like everyone else, vendors represent businesses trying to maximize their profits and provide the best return to their shareholders.

It is essential that every start-up have a vendor management program that starts during the conceptual design of the project. The vendor management program is not designed to squeeze out every penny from the vendors, because it is very important to keep your key suppliers healthy and profitable. However, it is necessary to ensure that the vendors are supplying what is essential to start-up and operating success while keeping the capital and life cycle cost as low as possible.

Any good vendor management program starts before the first purchase order is let. Understanding what the project requires in the way of project support, equipment documentation, training and milestones for equipment design, construction, shakedown and delivery should be included in the purchase order. For example, it is not good simply enough to state in the purchase order that the vendor will provide training. The project needs technology transfer. The vendor must ensure that the people being trained can actually do what the training was intended for, and not just provide a canned classroom-training course for 20 hours.

On-the-job-training, performance qualification/demonstration or certification should be specified in the purchase order. Remember that training is not the goal. Preparing people with the necessary knowledge and skills to perform their job is the goal.
Purchase orders for critical equipment items also should include provisions for client on-site equipment inspections and expediting. Issuing of the purchase order for critical equipment items is just the beginning of any good vendor management program.

Too many projects fail to meet start-up deadlines or increase their cost for start-up because critical equipment items are late or do not work as designed. It is too easy to place an order with a vendor and consider the task is complete until the equipment does meet the delivery schedule. At that point, it may be too late to correct the problem.

A vendor management program is actually beneficial to the vendors. It is much easier for the vendor to quote a client on a clear, concise scope of work, deliver products on time, and meet the client’s expectations if they have the same understanding of the project objectives as the client.

Leave Nothing to Chance

The preceding scenarios describe only a few of the myths about start-ups. There are many more myths that can seriously impact a successful start-up. Experience has shown that establishing clear and concise start-up goals and objectives is the first step in achieving start-up success. The second step is to define specific roles and responsibilities for all of the critical activities and to not leave any activity up to chance. No one wants to put a capital investment at risk by not planning for unforeseen obstacles.

One company had over 5,000 activities listed on a start-up master plan. If only one had the impact as described earlier, think about compounding that scenario several times over and visualize how that could impact your start-up.

Company resources today are stretched in many different directions. Typically, during start-ups each business entity has specific activities and tasks to accomplish. Some activities and tasks are repetitive and could be eliminated; therefore, shortening the schedule and saving money. Integrated master planning can help companies overcome the myths associated with start-up and achieve successful start-ups.
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— Brad Cunic is Senior Director at Fluor Daniel
Technology Services, Greenville, SC, www.fluortechservices.com