What Component Buyers Want

Dec. 1, 2003
When manufacturers buy components for their automation systems, they want long lifecycles, high quality, backward compatibility and ready support. Nobody can afford a plant shutdown because of a failed diode.

Manufacturers turn out products with ever-shrinking lifecycles. Design cycles are shorter, and product updates have become lightning fast. But the automation system that builds these “mayfly” products are very slow to change. The cell phone that goes obsolete in a few short months may come off a line that is decades old. The suppliers who provide components for these ancient systems have to make sure that their fancy new programmable logic controller (PLC) is compatible with the creaky old equipment that surrounds the hot new component.

Original equipment manufacturers (OEMs) are happy to add functionality and data collection improvements to their automation systems, especially if they can put off replacing the systems for a few years. So the challenge for component suppliers to is to provide long-term parts that can improve the automation system without actually disturbing the system itself. And if the supplier decides to retire a technically obsolete component, the company had better have a clear replacement strategy that will allow its manufacturing customers to keep running the aging round-the-clock systems.

Texas Instruments Inc., of Dallas, still produces products that were designed in the 1940s. With automation systems lasting as long as 20, or even 30 years, component suppliers must demonstrate a commitment to their parts, as well as business longevity. A manufacturer doesn’t want to get stuck trying to replace components produced by a supplier that’s out of business.

Make it last

In return, suppliers can expect a commitment from their manufacturing customers. “Automation systems last a long time,” observes Jim Gibson, regional manager at Weidmuller, based in Richmond, Va. “If a customer needs lengthy availability, we engage in long-term contracts. We provide guaranteed inventory for a length of time in exchange for a partnership to make it win-win.”

So as manufacturers select their component vendors, they typically seek long-term relationships. “When the product has a high development and installation cost, which most programmable devices do, customers prefer to stay with the chosen vendor for as long as possible,” says Paul Ruland, PLC and I/O product manager at AutomationDirect, a components supplier in Atlanta.

In a perfect world, the manufacturer would use the same system indefinitely, adding new functionality, component by component, without disturbing the core system. “As long as an automation system is performing its function and can still be maintained with available parts, customers prefer to extend its lifecycle,” says Ruland. “While there is always new technology being introduced that can make processes more efficient and productive, the need to replace a system that has been made obsolete by the supplier is not always welcome.”

Manufacturers do change vendors occasionally, but only when the burden to continue using the same vendor becomes heavier than the cost of making a change. “The costs of learning a new programming language or re-designing application-specific programs have to be outweighed by other factors before changing suppliers makes sense,” says Ruland.

Compatible forever

Even as component suppliers upgrade and add highly desired functionality to their components, they must make sure the components continue to work within older automation systems. Component suppliers are careful to make sure their new devices are backward compatible. As manufacturers add new functions to their automation systems, they typically upgrade their legacy systems rather than replacing them. “Retrofits are very important,” says David Skelton, director of automation systems at Phoenix Contact Inc., in Middletown, Pa. “Manufacturers can get more out of their systems by buying new technology that increases performance and adds data collection.”

Manufacturers are certainly eager to add buzzers and whistles to their systems that can squeeze out more products or gain new efficiencies, but not at the cost of replacing the system itself. “In many cases, people want to slowly replace their legacy system,” says Dean Norton, marketing manager at Wago Corp., based in Germantown, Wisc. “They want to add controllers that allow them to create additional functionality while using the legacy system.”

On the downside, as manufacturers add new components to old systems, their choices in vendors become increasingly limited. “Components have to be backward compatible, which reduces the set of potential suppliers,” says Gary Vick, director of advisory services at iSuppli Corp., an electronics industry research company in El Segundo, Calif. “Suppliers have to be in there for the long run,” adds Vick. “The supplier may have a component that operates at a higher speed, but it also has to be backward compatible.”

Most manufacturers typically select and purchase components as a team. Replacement orders are commonly delegated to individual purchasing managers within plants, but initial selection is a group effort. Once upon a time, this component buying team included design engineers, plant managers and procurement professionals. But lately, a new professional has entered the scene from the information technology (IT) department. As automation systems incorporate more and more information technology, procurement teams are starting to include an IT representative to bring a new degree of expertise to the component selection process.

In large plants in particular, the component-buying group draws in IT pros. “We’re seeing a trend toward multi-functions involved in looking for automation components,” says Wago’s Norton. “In large automation plants, they include the IT department. The IT people don’t understand PLCs and controls, but the IT person can interface with Ethernet.”

Local influence

Much of the decision-making on automation components, however, now resides on the plant floor, especially when it comes to replacing components in existing systems. “While many large corporations have used corporate engineers to define specifications and vendor preference, there is currently more influence coming from the local plant maintenance and operations personnel,” says AutomationDirect’s Ruland. He adds that the downsizing of corporate control departments drives this trend. “Except for the smallest of operations, it is rarely only one individual that makes the buying decision,” says Ruland.

As automation systems and their supporting components become increasingly complex and full with information collection and connection, service and support become important in the selection of suppliers. Increasingly, manufacturers are looking for attributes such as global support, and the availability of vendor-managed inventory programs. For many manufacturers, service and support issues have become critical to the buying decision.

Components that go into automation systems are not usually purchased in large quantities, even by the biggest manufacturers. Unlike direct parts purchased for inclusion in finished products, manufacturers don’t buy automation components in hundred-thousand quantity lots. This means most suppliers prefer their customers to buy via a distributor once the system is up and running, and purchasing moves to the maintenance stage. Yet—because one tiny failure can bring down an entire manufacturing line—manufacturers are very sensitive about these components. They want a close buying relationship with the component maker, not a distributor.

As a result, the customer/supplier relationship often becomes part of the negotiated agreement. “We create a supplier relationship,” explains Weidmuller’s Gibson. “It’s not just about cost. It’s about customization, extended warranties, global service, reach and supply.” He notes that the distributor base is not crazy about manufacturers’ direct relationships with customers, but Gibson sees direct relationships as critical. “It causes friction in the distribution systems, but with global automation systems, you have to do what the OEM customer wants.”

In some cases, however, distributors fit the bill well as a source of automation replacement parts. “Manufacturers turn to distributors for afterthought products,” explains Diane Sweeney, vice president of marketing development at Newark InOne, a Chicago-based electronics distributor. “We sell the products that complete the sophisticated systems that the customer already has. These are the power supplies, push button switches, warning lights and enclosures.” These products are often best served by a distributor that is prepared to maintain a low-volume, high-mix inventory.

In many cases, manufacturers will buy systems direct from suppliers, but the maintenance purchases are handled by a distributor that commits to stocking and servicing the components. The distributor is often better prepared to service the urgent needs of manufacturers. “We can respond to customer urgencies,” says Don Sjolin, director of product management at Newark. “We can ship it today to keep their plant running.”

Cost, not price

Ultimately, it isn’t the price of the individual component that wins the sale; it’s the overall cost of owning the part that’s important to manufacturers. In addition to pricing, manufacturers examine a range of factors, from the supplier’s business stability and the part’s likelihood of failure, to the vendor’s service and support capabilities. “Many of today’s high profile OEMs, such as Rockwell Automation, look at our types of products as more expensive in materials, but less expensive overall,” contends Weidmuller’s Gibson. “They demand quality at a higher materials cost to get the install cost savings in labor and other areas.”

Customization is also becoming an issue in the selection of component vendors. Usually, customization implies high cost, but when it comes to automation, manufacturers want customized parts at competitive prices, and component suppliers are struggling to accommodate. Given the long-term nature of the relationship, it’s worth the stretch. “In the past, manufacturers have shied away from custom products because they came with a high price,” says Weidmuller’s Gibson. But today, manufacturers are often demanding custom solutions at a competitive cost, he notes, putting more pressure on suppliers to make it happen.

In the end, the selection of components involves a wide range of considerations, from global reach and support to component durability. Manufacturers also want their suppliers there for long-term relationships, and as suppliers ease out old technology, manufacturers want vendor strategies for continued servicing with new parts that keep old systems running. Under the right conditions, manufacturers are okay with component services shifted to distributors, as long as the distributors pony up the service and support necessary to keep automation systems running smoothly.

See sidebar to this article: Texas Instruments: Buying teams, standardization and forever compatability