Developing a Business Case to Productize

Overview

The future of capital project execution for the heavy industrial sector needs to look at innovative ways to improve productivity and project success, which includes the implementation of productization methods. The benefits of a productization strategy are not well known, however industrial productization is becoming more communicated within the industry as the future implementation model. Industrial productization utilizes more of a manufacturing style approach to not only improve productivity but to reduce overall lifecycle costs and schedules and improve overall quality and safety.

Industrial productization combines modularization and standardization methodologies, to take advantage of repeatable components, equipment and facilities to reduce non-value add execution and design waste. Companies need to develop a business case to productize to ensure that the supports the use of the optimum amount of both modularization and standardization, captures the business drivers and benefits and to align the program teams with the productization strategy.

This paper will discuss the requirements and timing that companies will need to develop an effective productization business case that will complement the overall project business drivers.

Register / Log in to download PDF

Presentation

Authors

Cathy Farina

DyCat Solutions

Cathy is the Vice President of DyCat Solutions Inc., a company which provides innovative solutions to the heavy industrial business sector.

Full Paper

Abstract

The future of capital project execution for the heavy industrial sector needs to look at innovative ways to improve productivity and project success, including focusing on the product design lever through implementation of productization methods. The benefits of a productization strategy are not well known, however industrial productization is becoming more communicated within the industry as the future implementation model. Industrial productization utilizes more of a manufacturing style approach to not only improve productivity but to reduce overall lifecycle costs and schedules and improve overall quality and safety. Industrial productization combines modularization and standardization methodologies to take advantage of repeatable components, equipment and facilities to reduce non-value add execution and design waste. Companies need to develop a business case to productize to ensure that it supports the use of the optimum amount of both modularization and standardization, captures the business drivers and benefits, and aligns the program teams with the productization strategy. This paper will discuss the requirements and timing that companies will need to develop an effective productization business case that will complement the overall project business drivers.

Keywords: Productization, Standardization, Modularization, Modular Construction, Modular
Design, Offsite Construction, Offsite Assembly, Project Management, Program Management,
Capital Projects

Introduction

The future of capital project execution for the heavy industrial sector includes the implementation of productization methods. The benefits of a productization strategy are not well known, however industrial productization is becoming more communicated within the industry as the future implementation model. Industrial productization combines modularization and standardization methodologies, to take advantage of repeatable components, equipment and facilities to reduce non-value add execution and design waste. Companies need to develop a business case to productize to ensure that the supports the use of the optimum amount of both modularization and standardization, captures the business drivers and benefits and to align the program teams with the productization strategy. However, owners, engineers and constructors may not necessarily understand how to develop a business case which supports the use of industrial productization and the proven benefits on their projects.

Industrial Productization is the future of heavy industrial construction projects. This new design build method addresses most owner’s strategies of the future:

  • Improved Rate of Return (ROI) than what has been achieved from traditional design build methods.
  • Reduces the program or project risk and improves safety and quality when compared with traditional custom stick-built projects.
  • Improved contributions to their ESG (Environment, Sustainability and Governance) strategies

What Is Productization?

Productization can be defined as “the process of analyzing a need, defining and combining suitable elements, into a product-like object, which is standardized, repeatable and comprehendible” [1]. Industrial Productization is defined as the process of designing and building one process facility, or sections of a facility that can be replicated for all other similar types of facilities or sections of facilities. It is intended to reduce the business risk for the program or project as the business can break the facility down into “bite-sized pieces”. Industrial productization combines lean design and execution methods, with standardization and modularization. Examples of industrial productization include data centers, renewable natural gas plants, Liquified Natural Gas (LNG) trains, micro/small/ medium scale LNG plants, hydrogen plants, carbon capture plants, air separation units, sulfur plants, small scale nuclear plants, oil and gas well facilities and natural gas plants.

To develop an effective business case, the first step is to fully understand the benefits a productization can bring to your company. The following is an overview of the benefits that productization can bring to a company:

  • Provides cost and schedule certainty which reduces program and project risk
  • Reduced capital costs
    • Significantly reduced home office project management, engineering and procurement costs
    • Improved labor productivity and reduced site construction costs
    • Allows for program procurement which reduces cost and overall material cycle time
  • Higher overall quality
    • Allows for efficient fabrication reducing rework and overall cost
  • Improved safety performance
  • Improved schedule performance
    • Minimizes engineering, material and fabrication from the critical path
  • Improved Sustainability and ESG (Environmental, Social and Governance) Factors
    • Reduced plot footprint leading to reduced carbon emissions
    • Improved waste management
    • Reduced socioeconomic impact at the local area due to the reduced site construction labor and camp requirements
    • Reduced emissions by reduced congestion at site and reduce construction vehicles and equipment
    • Re-use of hydrotest water at module yard
    • Re-location of modules to new facilities
  • Reduce facility lifecycle costs
    • Provides maintenance and operations with consistency which improves overall efficiency
    • Provides overall program flexibility with the ability to fully standardize equipment, material and modules
  • Provides a focused value improvement program

When a company is deciding to implement productization methods on their facility or section of the facility, a business case will need to be developed to support the decision to productize. Also, the timing of when you perform a business case analysis and make the decision to productize is extremely important. This paper will discuss the requirements and timing that companies will need to develop an effective productization business case for a heavy industrial facility or section or a facility.

Optimal Timing for the Decision to Productize

The decision to productize all or part of the facility needs to be made earlier in a project lifecycle, typically before the FEL-1 phase begins. Figure 1 based on the UMM-001 research [3] and RT-283 Best Practice [2] from the Construction Industry Institute, illustrates the optimum timing to determine whether productization is the correct strategy and as the figure illustrates the optimum time is no later than the start of FEL 1 phase. If the decision to productize is made later in a project lifecycle, it will reduce the amount of productization opportunities and benefits the program or project will realize.

Figure 1 – Optimal Timing for the Decision to Productize

Develop a Productization Business Case

Implementing productization requires many early planning requirements that include the development of the standardization and modularization program execution and design strategy to ensure the success of the product development and execution. The business case analysis will need to be performed to make the decision to productize and should be completed in the business planning phase of a program or project.

To perform an effective productization business case analysis, you will need to define or perform the following elements:

  • Define the productization business drivers including performing a market analysis for the product
  • Define the productization concept
  • Perform a cost analysis
  • Perform a risk analysis

Figure 2 below illustrates the workflow that can be used to decide to productize and develop a
business case.

Figure 2 – Productization Business Case Development Workflow

Executive Management Commitment to Productize

The first question in the workflow is “Does the facility or section of a facility have commitment from management to productize?”. The company’s executive management team must be committed to exploring and / or defining productization for a specific facility or section/unit within a facility. A successful implementation of productization for an industrial facility or section of facility requires support, methodology buy-in, and productization champions, including approval roles and responsibilities and promoting a culture of productization acceptance. There must be a clear level of organizational support and corporate responsibility, with a visible and ranking management champion. The corporate culture for the productized facility or section of a facility will need a program or product development team that understands both the modularization and standardization methods that will be utilized on the execution and design to maximize productization benefits. The productization business case will allow management to make an informed decision to productize and the factors that the decision was based on. The business case is intended to be utilized as an alignment tool for the program or product development team throughout the life cycle of product development.

Define Productization Business Drivers

After understanding the benefits that an effective productized execution and design can bring to a productized facility or section of a facility, it is easier to understand the productization business drivers. A market analysis should be performed on the product before defining the program or project business drivers. It should focus on the market demand, capabilities of the supply network and the competitors already in the market. The market analysis should define the size, volume, capacity, and scope of the project under consideration to productize. The analysis would also determine when and where the product in facilities would be built and the market risk to implement productization for the specific facility or units. After the market analysis is completed, the productization business drivers can be determined.

Understanding and aligning on the productization business drivers at the beginning of the program or project and throughout the project life cycle with the stakeholders is extremely important for the success of the program or project and ensuring an effective decision to productize. The following list are proven business drivers that should be considered when developing a productization business case:

  • Achieve or improve the overall program or project Internal Rate of Return (IRR) objective
    • Lower total installed cost
    • Improved labor productivity
    • Improved schedule
  • Reduce the project risk
    • Reduce site labor
    • Provide Cost certainty
    • Provide Schedule certainty
  • Reduce time to market
  • Repetitive business or phased development
  • Lower overall facility lifecycle costs
  • Improve safety performance
  • Improve quality performance
  • Improved Sustainability and ESG (Environmental, Social and Governance) Factors
    • Plot size reduction with an optimal modular layout
    • Reduced site labor impact
    • Improved waste and water management
  • Reduced reclamation costs at projects life end

The main business drivers to implement productization on your program or project should be defined and included as part of the business case to productize.

Define Productization Concept

The productization concept needs to be defined on what and how much can be standardized and modularized for the program or project based on specific market and project factors. To assist developing the productization concept the following factors will need to be defined:

  • Module Concept
  • Technical Data
  • Technology Maturity
  • Degree of Standardization
  • Number of standard modular units / facilities
  • Module Concept

Productization combines both standardization and modularization. The modularization concept needs to be defined on what and how much can be modularized for the project based on specific project factors including what is available through supplier led solutions. This will become the basis of the product design parameters for the different standard modules that may make up a facility. To assist developing the module concept the following factors will need to be defined:

  • Site data and characteristics
  • Transportation and logistics considerations and constraints
  • Technical considerations and constraints

Proposed Site Location, Data and Characteristics

The module concept will need to be reviewed for all possible site locations, to ensure a module size is chosen that will accommodate any constraints the sites may have. To define the module concept and modularization strategy, the following elements will need to be documented regarding the site data:

  • Proposed Site labor productivity and rates
  • Local labor availability including the quality of the labor
  • Environmental (weather) constraints
  • Laydown area availability
  • Site access for module transport
  • Space constraints
  • Local codes and regulations
  • Other site constraints

Modular execution requires access to the site from land and/or water to support the transport of modules from the module fabrication and assembly yard to the plant site. Understanding site access for all potential site locations is critical to determine the degree of modularization that can be supported. In addition, review of the module fabrication and assembly facilities(s) will need to be analyzed and understanding of the contractors’ capabilities will have an impact on the overall product execution. In order to effectively productize and maximize the benefits, long term relationships will need to be developed with the module contractor. In addition, the strategy for the location of fabrication vs location of assembly will impact the amount of inventory required and cycle time. All of these elements will impact what and how much a project can modularize and should be documented as part of the module concept.

Transportation and Logistics Considerations and Constraints

Once the potential module fabrication and assembly yard locations are defined, the preliminary transportation route with options can be identified including the proposed site locations including global locations if the product will be marketed globally. Once this is completed, a preliminary module envelope size can be determined based on any transportation and logistics constraints along the high-level routes. Some transportation constraints include bridges and overhead power lines but can include more depending on if the site location is inland or by water. At this stage there will be a couple of route options depending on the site locations, and this will impact the amount of modularization that can be obtained for the product and become a productization key factor for the standard module design.

Technical Considerations and Constraints

Each facility owner may have some technical constraints that could impact the amount of modularization that can be implemented for the product. These technical constraints are typically found in specifications that are not adapted to a productized facility. Some technical constraints include locating dynamic machinery on modules, the use of centralized or distributed electrical and controls and locating air coolers above other equipment on modules.

Even though these may be considered a constraint, they can be removed by working with the facility owner on updating their specifications to adapt to productized facilities or developing a technical deviation for the impacted specifications. Realizing these technical constraints early in the project lifecycle will allow the project to develop a plan on how to remove them to allow a more optimal product design and realize more benefits.

Technical Data

To effectively productize a facility or a unit within a facility, an understanding the following technical data will be critical to develop the product design basis:

  • Production rates, inputs and outputs
  • Geographic limitations including seismic / weather considerations
  • Regulatory and environmental considerations per proposed location
  • Process standardization and automation
  • Local electrical and controls standards
  • Local engineering requirements

Technology Maturity

When considering productization, the process technology utilized should be simple, flexible, mature, and repetitive. If the process technology is not proven and has a risk of process change in the detail engineering phase, then we would not consider utilizing productization until the process technology is proven. Ensure the technology has the flexibility to respond to production options and it can be scaled if required.

Level Of Standardization

Facility standardization is the development and use of consistent designs and standards for repeatable projects within a program. There is a varying level of standardization that can be applied to a facility. The more standardization that is applied, the more the benefits will be realized. Figure 3 illustrates the levels of standardization:

Figure 3 – Levels of Standardization

There is not a one type “fits all” approach and each owner will need to review and apply the appropriate level of standardization that makes sense for the facility. The higher percentage of standardization, the greater the cost and schedule savings as well as other realized benefits. To fully productize, we would recommend the combined use of standardized modules or vendor packages. The decision on how many module or vendor packages will be standardized will depend on the complexity of the project and the ability to make duplicate identical or repetitive modules for an entire unit or facility.

Number Of Standard Modular Units / Facilities

When considering the productization of the facility or unit, the number of standard modules should be considered. The number should be based on the program or project duration and product lifecycle. The most economical for industrial productization is to ensure that the products are repeatable and can be used for other facilities or units without any customizations.

Perform a Cost Analysis

Understanding the benefits that productization can deliver and how this type of execution will support the business case is important. To support the business case a life-cycle cost analysis should be performed to justify why an owner would want to incorporate productization into their programs or projects. An effective way to provide a cost analysis is to compare a project productization to a traditional custom stick-built project to show the overall lifecycle savings.

To perform an effective cost analysis, the following factors or inputs will need to be defined:

  • Historical custom stick-built traditional project TIC for a similar scope
  • Productization Strategy
  • Cost Savings
    • Labor rates and productivity at the site and the module yard
    • Engineering Design and Owner’s Team Oversight on Subsequent Projects
    • Procurement Discounts from Volume and/or Early Commitment
    • Module fabrication and assembly due to standardized design
    • Construction Materials Management
    • Commissioning & Startup (Planning & Execution) standardization
    • Operation and Maintenance
    • O&M Materials Management
  • Material cost reduction based on key quantity reduction for an optimal modular layout
  • Schedule factors
    • Reduced Schedule
    • Reduced lead time for Long-lead Equipment or Materials
    • Schedule Predictability
    • Shortened Timeline for Future Projects (Phases)
  • Cost Additions
    • Cost and Time of Assessing the Market and Establishing the Scope of the Initial Project
    • Cost of Establishing the Design Standard for the Initial Project
    • Benefits Sacrificed from Conventional Execution in Subsequent Projects
    • Changes in Environmental Regulations, Fiscal Policies, or Community Concerns
    • Additional structural material costs
    • Additional transportation and logistics and module off-loading facility costs
    • Any import taxes, duties or tariffs
    • Mitigation of Economic Risk and Uncertainty

Once you have all the positive and negative inputs you can generate overall cost savings compared to a traditional custom stick-built project. When evaluating the cost benefits of productization it is difficult to place an actual amount on some of the benefits such as:

  • Safety benefits
  • Quality benefits
  • ESG and Sustainability

These benefits can be subjectively quantified to support the business case. The amount of savings will depend on the site location and environmental/socioeconomic conditions.

The UMM-001- Standardization Business Case Analysis Tool from CII [1] provides a template to perform a cost analysis for standardization. It provides a means to evaluate the actual cost impact of productization decisions and can be used to provide a confidence factor.

Perform a Risk Analysis

Productization can reduce the overall program and / or project risk by standardizing the execution, engineering and design and moving the field labor from site to an offsite controlled location such as a module yard. As productization reduces the program and / or project risk, it also introduces some new risks. Understanding the productization risks and developing successful mitigation strategies is very important to the success of the execution of the product development.

Any new risks will need to be identified early in the project lifecycle and ensure there is a risk management and mitigation plan in place. The risk management plan should be reviewed as part of the overall productization business case in conjunction with the productization concept and cost analysis.

Conclusion

In conclusion, to effectively develop a business case for productization your will need to understand and align on the owners productization business drivers that support the business case, understand the site and technical considerations and constraints that may impact how much productization you can incorporate on your project, develop the productization concept and perform both a cost and risk analysis. Once these elements are defined, there will be sufficient data to decide if productization can be effectively applied to your program or project and what level of product is justified. It will also provide a business case for productization to executive management to make informed decisions.

The productization business case is a great tool that can be used to align the Owner business and program or project teams with the productization strategy and objectives at the beginning of a program or project. It can also be used as an alignment tool throughout the project lifecycle for EPC contractor project teams and as the program or project progresses aligning new team members with the overall business case and strategy to implement productization.

References

  1. Productisation: A review and research agenda – Harkonen, Haapasalo, Hanninen – 2015
  2. Construction Industry Institute – RT-283 – Planning for Modularization Best Practice
  3. Construction Industry Institute – UMM-001 – Standardization: Achieving Higher Levels in the
    Upstream, Midstream, and Mining (UMM) Commodity Market