Automation Services:What Are TheyWhy Are They ImportantWhat Can You do to Succeed?Larry O’BrienResearch DirectorARC Adviso...
2© ARC Advisory GroupAutomation Services Market DefinitionAutomation Suppliers are ProvidingServices Across the Plant Life...
3© ARC Advisory GroupEnd Users Increasingly Look to Automation Suppliersfor Wider Scope of Services Decreased in-house ex...
4© ARC Advisory GroupEnd Users View Automation as Less of aCore Competency Than Before Large Central Engineering Groups A...
5© ARC Advisory GroupEstablishing the Value Proposition:Dwindling In-House Resources US Manufacturing Sheds 19,000 Jobs i...
6© ARC Advisory GroupThe People Challenge: Aging WorkforceExodus of Workers is Reducing Companies’ Ability to Sustain Oper...
7© ARC Advisory GroupThe People Challenge: Bad Economy BringsHuge Wave of Layoffs•“DuPont will cut 2,000 jobs as the chemi...
8© ARC Advisory GroupThe Prize & The Obstacles An intelligent Approach to Services PreservesPlant Assets, Eliminates Unpl...
9© ARC Advisory GroupEngineering vs. Maintenance ServicesHighest Growth is inPost Installation Services
10© ARC Advisory GroupValue-Added Maintenance-RelatedServices Lead Growth0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%C...
11© ARC Advisory GroupThe Maintenance Service Scenario Today0%5%10%15%20%25%30%35%RoutinecheckNoProblemCalibrationshiftZer...
12© ARC Advisory GroupThe Maintenance Service Scenario TodayAccording to DuPont:Maintenance is today the largestsingle con...
13© ARC Advisory GroupDowntime is the Enemy Oil Refining: Current Downtime: 1 – 8 % Petrochemical: Current Downtime: 2...
14© ARC Advisory GroupAging Assets The Installed Base of Legacy ProcessAutomation Systems Reaching the End ofTheir Useful...
15© ARC Advisory GroupAutomation Services Marketplace:Suppliers Vs. Systems Integrators/EPCs56%44% Third PartiesAutomation...
16© ARC Advisory GroupUsers Outsource More to SuppliersTodayIn Three YearsNo PlansDo you purchase automation-related servi...
17© ARC Advisory GroupAutomation Suppliers’ Service Revenuesare Growing Faster than Third Parties2005200620072008200920100...
18© ARC Advisory GroupWhat Advantages do Automation SuppliersHave Over Third Parties?Deep Product &ApplicationKnowledgeAbi...
19© ARC Advisory GroupServices Purchasing Criteria for UsersReturn on Investment, Increased Plant Performancewere Most Imp...
20© ARC Advisory GroupAutomation Suppliers Become MACs:Main Automation ContractorsSingle Point of Responsibility = Lower C...
21© ARC Advisory GroupMain Automation Contractor (MAC) Approach CanResult in Significant Cost Savings To Users30% Savings ...
22© ARC Advisory GroupAutomation is a Small Percent of ProjectSpend, but has a Huge Impact
23© ARC Advisory GroupProjects Should be Done with an EyeToward Operational ReadinessDelays in Achieving Operational Readi...
24© ARC Advisory GroupEarly Involvement of Suppliers in ProjectsCreates More Opportunities, ValueRisk Management = Project...
25© ARC Advisory GroupKey Growth Industries and Growth Factors Oil & Gas – Increased CapitalExpenditures Water & Wastewa...
26© ARC Advisory GroupMarket Shares for Supplier-ProvidedAutomation Services17.6%1.3%1.5%1.6%2.9%3.6%6.2%7.3%8.2%8.8%11.9%...
27© ARC Advisory GroupThank You.For more information, contact the author atlobrien@arcweb.com or visit our web pages atwww...
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ARC's Larry O'brien Automation Services Presentation @ ARC Industry Forum 2010

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ARC's Larry O'brien Automation Services Presentation @ ARC Industry Forum 2010 in Orlando, FL.
Automation Services: What Are They Why Are They Important What Can You do to Succeed?
End Users Increasingly Look to Automation Suppliers for Wider Scope of Services
Decreased in-house expertise/resources among manufacturers.
Engineering firms view automation as less of a core competency.
Suppliers are filling the void as MAV, MAC, MIV, etc.
Suppliers offering more value-add services designed to increase ROA, reduce TCO, etc.
Users now view services with an eye toward business value proposition.

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Transcript of "ARC's Larry O'brien Automation Services Presentation @ ARC Industry Forum 2010"

  1. 1. Automation Services:What Are TheyWhy Are They ImportantWhat Can You do to Succeed?Larry O’BrienResearch DirectorARC Advisory Grouplobrien@arcweb.com
  2. 2. 2© ARC Advisory GroupAutomation Services Market DefinitionAutomation Suppliers are ProvidingServices Across the Plant Lifecycle
  3. 3. 3© ARC Advisory GroupEnd Users Increasingly Look to Automation Suppliersfor Wider Scope of Services Decreased in-house expertise/resourcesamong manufacturers. Engineering firms view automation as less of acore competency. Suppliers are filling the void as MAV, MAC,MIV, etc. Suppliers offering more value-add servicesdesigned to increase ROA, reduce TCO, etc. Users now view services with an eye towardbusiness value proposition.
  4. 4. 4© ARC Advisory GroupEnd Users View Automation as Less of aCore Competency Than Before Large Central Engineering Groups AmongMany Major Manufacturers Have Disbanded Many Groups Have Been Spun Off IntoSeparate Companies (Bayer TechnologyServices) Smaller Number of Personnel Responsible forMore Areas of the Plant
  5. 5. 5© ARC Advisory GroupEstablishing the Value Proposition:Dwindling In-House Resources US Manufacturing Sheds 19,000 Jobs inSeptember – (US Department of Labor) 60% of Oil & Gas Plant Engineers will Retireby 2010 – (Journal of Petroleum Technology) 80% of US Manufacturers Experiencing anOverall Shortage of Qualified Workers --(National Association of Manufacturers)
  6. 6. 6© ARC Advisory GroupThe People Challenge: Aging WorkforceExodus of Workers is Reducing Companies’ Ability to Sustain Operational Excellence010203040506070801900 1920 1940 1960 1980 1990 2000 2010 2020 2030MillionsofPeopleYearPeople Over Age 65Source: US Census-10%21%52%-20%-10%0%10%20%30%40%50%60%Number of People 35 to 44 Number of People 45 to 54Number of People 55 to 64Changing Workforce Demographics from 2000 to 2010Source: US Bureau ofLabor Statistics US Bureau of Labor Statistics• By 2010 more than 25% of workingpopulation will reach retirement age• Trend will continue into foreseeablefuture Globally – Workers are Getting Older• Largest Group of Workers – over age45 and will double in next ten years• Fastest Shrinking Age Group ofWorkers between 35 and 44 –arguably the most productive Europe is expected to lose 1 million jobsannually for the next 25 to 30 years• Severe shortage of skilled workersand engineers! Oil & Gas Industry• 50% of its production engineers willreach retirement age by 2010
  7. 7. 7© ARC Advisory GroupThe People Challenge: Bad Economy BringsHuge Wave of Layoffs•“DuPont will cut 2,000 jobs as the chemical company wrestles withfalling sales. The company had already announced it was cutting2,500 jobs, and said late last year it would pare 8,000 contractorsfrom its rolls.”•“The battered Louisiana chemical industry, which depends upon theauto industry and housing for much of its market, has cut contractconstruction workers and is moving toward reducing company staff.”
  8. 8. 8© ARC Advisory GroupThe Prize & The Obstacles An intelligent Approach to Services PreservesPlant Assets, Eliminates UnplannedDowntime, Improves Productivity &Throughput, and Can Even Save Human Life US Has Huge Installed Base of Aging AssetsThat Require Intelligent Maintenance Most End Users do not Have An Accurate Viewinto What is Happening With Their PlantAssets Much of the Maintenance Being Conducted inToday’s Plants is Needless!
  9. 9. 9© ARC Advisory GroupEngineering vs. Maintenance ServicesHighest Growth is inPost Installation Services
  10. 10. 10© ARC Advisory GroupValue-Added Maintenance-RelatedServices Lead Growth0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%ConsultingEngineering & DesignProject ManagementInstallationTrainingSystem ConfigurationCommissioning & CheckoutStartupOperational ServicesLoop TuningSystem & Device MaintenanceMechanical & Electrical Condition MonitoringPerformance ManagementRemote System MonitoringSpare Parts & ReplacementDecomissioningPerformance Management, Loop Tuning,Startup, & Maintenance Lead Growth
  11. 11. 11© ARC Advisory GroupThe Maintenance Service Scenario Today0%5%10%15%20%25%30%35%RoutinecheckNoProblemCalibrationshiftZero Off PluggedlinesFailed35%28%20%6% 6%4%Source: Shell Global Solutions63% of maintenance laborresults in no action!!
  12. 12. 12© ARC Advisory GroupThe Maintenance Service Scenario TodayAccording to DuPont:Maintenance is today the largestsingle controllable expenditure ina plantMaintenance budget can typicallybe about 2/3 of annual net profitAccording to Dow Chemicals:Cost of unnecessary maintenanceis about the same size as plantprofit
  13. 13. 13© ARC Advisory GroupDowntime is the Enemy Oil Refining: Current Downtime: 1 – 8 % Petrochemical: Current Downtime: 2 – 5 % Food & Beverage, and Pharmaceutical: Current Downtime: 1 – 10 %According to ARC Survey on the Value Enabledby Automation, Downtime Still Represents aSignificant Percent of Production Lost
  14. 14. 14© ARC Advisory GroupAging Assets The Installed Base of Legacy ProcessAutomation Systems Reaching the End ofTheir Useful Life is Equivalent to Over $65Billion – (ARC) Nearly Three-Quarters of US Plants are MoreThan 20 Years Old – (IndustryWeek and MPISurvey) Among Plants With 250-499 Employees, over76% of Plants are More Than 20 Years Old –(IW & MPI)
  15. 15. 15© ARC Advisory GroupAutomation Services Marketplace:Suppliers Vs. Systems Integrators/EPCs56%44% Third PartiesAutomation SuppliersTotal Automation Services Businessis Just Under $25 Billion
  16. 16. 16© ARC Advisory GroupUsers Outsource More to SuppliersTodayIn Three YearsNo PlansDo you purchase automation-related services from?605550454035302520151050Automation SuppliersEngineering Construction FirmsSystems IntegratorsOther63.7 %30.6 %48.6 %19.4 %17.6 %9.7 %18.1 %3.2 %18.7 %59.7 %33.3 %77.4 %Who do you Currently Purchase Services Fromand How Will This Change?
  17. 17. 17© ARC Advisory GroupAutomation Suppliers’ Service Revenuesare Growing Faster than Third Parties2005200620072008200920100.02,000.04,000.06,000.08,000.010,000.012,000.014,000.016,000.018,000.020,000.0Automation SuppliersThird PartiesSystems Integrators Want to doProjects and Move On
  18. 18. 18© ARC Advisory GroupWhat Advantages do Automation SuppliersHave Over Third Parties?Deep Product &ApplicationKnowledgeAbility to DriveEnd User RequirementsInto ProductsBroadGeographicReachIncreasinglyDeep VerticalIndustry ExpertiseLong-TermCollaborativePartnershipsSupplierStrengthInServices
  19. 19. 19© ARC Advisory GroupServices Purchasing Criteria for UsersReturn on Investment, Increased Plant Performancewere Most Important Criteria
  20. 20. 20© ARC Advisory GroupAutomation Suppliers Become MACs:Main Automation ContractorsSingle Point of Responsibility = Lower Cost For End UserCustomerSupplier MACEPCsSystemsIntegratorsInstrumentsValvesSafetySystemsDCSsProductionManagementOptimizationEngineering
  21. 21. 21© ARC Advisory GroupMain Automation Contractor (MAC) Approach CanResult in Significant Cost Savings To Users30% Savings IllustrationTraditionalApproachMAC/MIV ApproachTrainingCommissioning/StartupInstallation SupervisionField InstrumentationSafety SystemProcess ControlSystemDetailed EngineeringFEED Engineering30% Savings IllustrationTraditionalApproachMAC/MIV ApproachTrainingCommissioning/StartupInstallation SupervisionField InstrumentationSafety SystemProcess ControlSystemDetailed EngineeringFEED EngineeringThe MAC Approach Can Result in Project CostSavings of Up to 30 PercentTraditionalApproachMACApproach
  22. 22. 22© ARC Advisory GroupAutomation is a Small Percent of ProjectSpend, but has a Huge Impact
  23. 23. 23© ARC Advisory GroupProjects Should be Done with an EyeToward Operational ReadinessDelays in Achieving Operational Readiness for NewProjects Can Be Incredibly Expensive
  24. 24. 24© ARC Advisory GroupEarly Involvement of Suppliers in ProjectsCreates More Opportunities, ValueRisk Management = Project ManagementLessMoreImpactLevelTimeCountermeasureSpecification Phase Configuration PhaseEarly InvolvementRiskIdentificationNoEarlyInvolvementEarly Involvement Means Better Risk Identification,Improved Cost Reduction
  25. 25. 25© ARC Advisory GroupKey Growth Industries and Growth Factors Oil & Gas – Increased CapitalExpenditures Water & Wastewater – InfrastructuralSpending Power Gen – Many new Projects inDeveloping Economies Pharmaceuticals – Regulatory ComplianceIssues Mineral Processing – Does not ViewAutomation as Core Competency
  26. 26. 26© ARC Advisory GroupMarket Shares for Supplier-ProvidedAutomation Services17.6%1.3%1.5%1.6%2.9%3.6%6.2%7.3%8.2%8.8%11.9%13.7%15.6%0.0% 5.0% 10.0% 15.0% 20.0%OthersSchneiderMetsoAspenTechGEAlstomYokogawaRockwell AutomationEmersonInvensysHoneywellABBSiemens
  27. 27. 27© ARC Advisory GroupThank You.For more information, contact the author atlobrien@arcweb.com or visit our web pages atwww.arcweb.com

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