Automation Suppliers Evolve Service Offerings

Once built into the hardware costs, automation services are now becoming a separate revenue source for automation suppliers, in the face of declining hardware margins.

Users have come to realize that even in-house services have a cost and, in some cases, they have to pay a premium for them. Increasingly, they are outsourcing more and more of these service functions to automation suppliers. Automation suppliers and users alike are still adjusting to this transition, but the end result could have a significant impact on manufacturers’ bottom lines.

Service is the fastest growing segment of the automation market today, and with good reason. The vast pools of engineering expertise that used to exist at major user companies have shrunk to critically low levels. Many of the automation services that are required throughout the lifecycle of a plant can no longer be performed in-house. Users are looking to the next logical choice for these services—the suppliers that provide them with the automation products, systems and software that keep their plants running.

The adoption of standard commercial-off-the-shelf (COTS) products and components drastically reduced the cost of hardware and eliminated most of the proprietary competitive advantage that automation suppliers could build into their hardware. With hardware no longer a competitive differentiator, suppliers looked to their software and service offerings, as well as vertical industry expertise, to make up for the losses experienced in the hardware business. The scope of services offered has widened considerably over the past several years. Services have emerged as a lucrative business addition. When coupled with areas requiring high domain expertise, they can generate high margin business for suppliers.

From Supplier to Contractor

More suppliers today are taking on the task of supervising entire automation implementation projects, acting as the main automation vendor or contractor that coordinates activities among the systems integrators, smaller suppliers and the user. This simplifies things for the user because the main automation supplier provides a single point of responsibility for the success of the project, saving both time and money. Most of the large process automation system suppliers today are taking on main automation contractor responsibility for large projects.

While project services are being increasingly outsourced to automation suppliers, the real benefits for users lie in the increasingly broad spectrum of after-market services being offered. Users today are focusing more than ever on achieving superior return on assets and asset utilization. This also means driving optimum levels of performance from the control system and the automation and plant equipment infrastructure. Again, automation suppliers are stepping in to fill this void with a range of both products and services designed to help users achieve a vision of Real-Time Performance Management (RPM).

Automation suppliers have worked hard to strengthen their vertical industry expertise. It hasn’t been difficult to pick up talent from the various manufacturing industries in the wake of the downsizing trend. Personnel who worked previously at many of the automation suppliers’ customers now work as industry experts for the suppliers.

Suppliers are tailoring their service offerings to fit specific verticals like never before. Both Honeywell and Invensys, for example, have recently introduced business units specifically dedicated to serving the liquefied natural gas market. Many suppliers active in the pharmaceutical industry have developed service groups geared toward achieving regulatory compliance.

Many users are also outsourcing the traditional maintenance function to automation suppliers. Some suppliers, for example, have launched inventory management programs in which they manage the inventory and provide replacement devices as they fail.

Services expertise is an essential part of control system specification and supplier selection. ARC recommends that because services are a large portion of the selection, a reference system should be defined to serve as a basis for benchmarking.

Larry O’Brien, lobrien@arcweb.com, is research director covering process industries at ARC Advisory Group, a Dedham, Mass., research and analysis firm.

More in Control