When Automation Adds No Value

May 19, 2015
The application of automation technologies in the manufacturing and processing industries is always accompanied by estimations of value added after installation. Common industry practices, however, often eliminate this value.

It’s hard to escape the irony, but the fact is that most automation technology expenditures are not typically done to optimize operations. Instead, automation purchases are most often done to replace existing equipment that has ceased to operate or become too costly to repair. As a result, end users rarely leverage the full capabilities of the new technology, opting instead to largely replicate the function of decades old technology with the new technology that can, by design, do so much more.

This, of course, is not a blanket statement about how all companies purchase and use new automation technologies. It is, unfortunately, the typical path followed by many, if not most, companies.

The picture painted here is not my observation. Though I have been covering the manufacturing industries for two decades now, in my role as an editor I have not been afforded the day-in, day-out insights into the automation purchasing decisions and application realities as has Peter Martin of Schneider Electric. The observations about the lack of automation value based on how the technologies are actually implemented are his.

At Maverick Technologies’ recent invitation-only event—“Inside Automation: Theory Meets Reality”—Martin, vice president and fellow at Schneider Electric, drew on nearly 40 years of experience when he related the fact that most automation deployments in the U.S. are in brownfield facilities that are essentially “exact replacements of existing equipment because of capital budgeting. This approach offers little or no value to a company, as most users only end up using 30 to 40 percent of automation system capability.”

Speaking from a viewpoint as a career automation industry insider, Martin says that this common industry practice means “we have a high value industry that typically adds no value. It also means that plants run no better today than they were with simple pneumatic systems.”

One of the core issues behind this problem, Martin said, is that, when exploring the purchase of new automation technologies, “we measure the cost, but not the benefit over the lifecycle. So, if you can’t prove the benefit, it never happened. And if there’s no benefit, there’s no value in upgrading … so why do it?”

Martin does not claim that capital expenditure practices are the sole reason for the lack of value perception around new automation expenditures. Another factor is that plants now operate with far fewer engineers. Many plants are now running with 50 percent fewer engineers than they were 15 years ago, he said, but these engineers are also now expected to “pick up on all the possibilities (of the newly installed automation technologies) and use them to bring added value to the plant.”

Given this reality, how do plant managers and engineers correct this practice? Martin said the answers lies in solving the problem backward by measuring the value first.

“There is a measurement vacuum in industry because monthly reporting does not tackle production management and process control,” Martin said. “So you need a database that can be used to model real-time accounting. Real-time accounting models address unit energy costs and unit materials cost to deliver a contribution margin.”

He pointed out that this modeling can be done in a controller. “Model real-time performance measures and historize them and that will given you a real-time view into the production aspects of business. Then you’re measuring profitability, not just efficiency,” he said.

Adding to Martin’s comments, Paul Galeski, chairman and CEO of Maverick Technologies, said that one of the best ways he has found to address this problem when working with clients is to use Front End Loading (FEL). This process includes detailed planning and design very early in the project lifecycle, which means that changes in design can be done at a time when the cost of making those changes is low. The key to this approach is that it helps provide the kind of detailed information needed by management to assess the risk of a project and make the kinds of resource decisions (capital and human) to maximize the project’s potential for success in delivering the near- and long-term value sought by the company.

The benefits of FEL, according to Galeski, include:

  • Justification and backup for capital expenditure (capex) funding approval.
  • Minimize total capex spend. Galseki added that the FEL process should account for less than 10 percent of total project cost.
  • Support for contract leverage with suppliers and contractors.
  • Reliable preliminary engineering and project planning.
  • Optimized project execution.
  • Improvement of historian functionality and enterprise layer integration.
  • Opportunity to improve and innovate over time with the technologies purchased.