Team up for automation gains

June 1, 2003
Is your company’s automation purchasing strategy stuck in the 1980s?Unfortunately, the answer is yes at too many manufacturing companies, according to Larry O’Brien, research director for process industries, at ARC Advisory Group, a Dedham, Mass.-based research firm.

O’Brien draws that conclusion from results of a recent ARC survey of some 170 process automation users, systems integrators, original equipment manufacturerers and suppliers. As part of the survey, respondents were asked to rank the importance of various factors when evaluating the cost of automation systems. Most respondents rated factors such as lifecycle costs, increased plant performance and return on assets among the most important criteria, while issues such as initial cost and installed cost were ranked least important.

Those results square with the goals of modern, collaborative user/supplier partnerships that are becoming more common in manufacturing, O’Brien says. But when ARC survey respondents were asked about the kinds of relationships they actually have with their suppliers, the results were paradoxical.

Most users surveyed said they had formal relationships of some kind with suppliers. But most of those relationships tend to resemble traditional purchasing agreements that focus on pricing, not performance, O’Brien says. “So while end users have one set of priorities in mind, the kinds of relationships they have with their suppliers aren’t necessarily in line with their priorities,” he observes. “Many of the companies that we talked with are still stuck in the mindset of the 1980s that says, ‘We’ve got a short list of preferred suppliers that we deal with and we try to beat them up to get low prices.’ ”

Classic rift

Purchasing practices lag intentions for a variety of reasons, O’Brien believes. While automation users realize that lifecycle costs are important, for example, most don’t have a standard methodology in place for measuring it. Other reasons are cultural. At most companies, the “classic rift” between purchasing and engineering organizations still remains, O’Brien says. “The purchasing people tend to have shorter term goals and are focused on cost, while the engineering people are more strategic, and are trying to develop an automation strategy that makes long-term sense for the company. Somehow, these two need to be rationalized.”

To bring automation purchasing practices up to date, O’Brien advocates a move toward more use of long-term collaborative partnerships, in which automation users and suppliers work together to drive improved plant performance. These relationships often involve a single supplier who takes responsibility for automating an entire plant or group of plants. The more successful of these partnerships typically develop teams that include members from both the user and supplier, who meet periodically to measure performance improvements, O’Brien says.

Most major automation suppliers, including ABB, Emerson Process Management, Honeywell, Invensys, Siemens and others, have programs in place to aggressively court this kind of business, O’Brien observes. It’s a model, he says, that makes sense for both users and suppliers.

For suppliers, the approach provides security in what has largely become a slow-growth, replacement automation market. “There’s not a lot of new plants being built, so suppliers can’t use the old business model of just bidding on new projects. They have to develop closer relationships with the customers they already have,” says O’Brien.

On the user side, many companies have slashed engineering departments to a quarter or a third of the size they once were, so they no longer have the resources to deal with multiple vendors, O’Brien adds. “They’re relying more on suppliers for doing a lot of the things they used to do themselves, so it only makes sense for them to develop closer relationships with these suppliers. And if they’re going to do that, they might as well do it with an eye toward enhanced performance.”

O’Brien concedes that the road to successful collaborative partnerships is not without hurdles. Before automation-driven performance improvements can be measured, for example, a baseline must be established. “One of the things that kills a lot of these deals is that the users don’t want to let the suppliers into their manufacturing processes to the degree that they need to establish the baseline performance metrics,” O’Brien observes.

Other hurdles involve competitive concerns. “End users have to realize that anything that comes out of the performance enhancement process isn’t necessarily going to be proprietary just to them, and that the supplier is probably going to repeat it with other customers.” Supplier compensation issues can also be tricky. “If the supplier is getting paid based on incremental advances in performance from the plant, and performance improves by an incredible degree, there may be arguments over who is responsible for the gain,” O’Brien points out.

If these kinds of issues can be overcome, however, the payoffs can be handsome, says O’Brien. Collaborative partnerships can be high maintenance and time consuming for users, but in the long run, the time spent can result in increased productivity, better return on investment and enterprise optimization, he concludes.