ARC says Automation Services Market to grow

  • May 31, 2009
  • ARC Advisory Group
  • News
May 31, 2009: The services business remains one of the best growth opportunities for automation suppliers today, and one of the best ways for end users to take advantage of the growing expertise of suppliers to reduce plant maintenance costs, operating costs, and project costs. The worldwide market for supplier provided automation services will grow at a compounded annual growth rate (CAGR) of close to 7 percent over the next five years, according to a new ARC Advisory Group study. “Today, we stand on the verge of an era of transformation for the services business. In the prevailing economic chaos, many end users find their problems are even worse than before. The pace of job loss in all manufacturing industries in the past few months alone has been staggering. Tight operating environments and reduced demand are forcing companies to cut costs wherever possible. Even with the recent collapse in oil prices, projects costs remain high and many end users have postponed projects. The result is that users rely on suppliers to provide them with a continuously expanding scope and depth of automation-related services. This report will zero in on many of the core areas of services that are experiencing more rapid growth and how end users can work with suppliers to reduce costs and provide a path to operational excellence,” according to ARC Research Director Larry O’Brien (, the principal author of ARC’s “Supplier Provided Automation Services Worldwide Outlook.”Why Buy Services from Automation Suppliers?Over the past several years, automation suppliers as a whole have greatly increased their knowledge base of the automation and controls marketplace. While EPCs still have a good knowledge base for generic automation and controls, the expertise in specific supplier offerings has shifted in favor of the automation suppliers. In the wave of downsizing during the ‘80s and ‘90s, many leading end users in the process industries either eliminated or radically reduced the size of their internal automation and control engineering departments, many by 50 percent or more. With the imminent wave of retiring baby boomer employees, end users are faced with even more of a challenge around executing projects and conducting day-to-day operations. EPCs have undergone a similar transformation, and now view automation as less of a core competency than before. Most of the big EPCs used to have large automation and control departments with running versions of all the major suppliers’ DCSs and instruments. This is no longer the case. Both end users and EPCs find it increasingly difficult to hire qualified personnel. This is not only an issue in developed regions, such as North America and Western Europe. Even in China, which turns out a large number of engineering graduates every year, too few highly trained and qualified personnel are available to fill the needs of the process industries. The automation suppliers have stepped in to fill these requirements. Many key people with expertise in automation that are retiring from the end user companies are finding new careers as consultants and engineers at supplier companies. Suppliers, as a whole, have greatly increased their application expertise and project execution capabilities to fill the voids left at the end users and EPCs. In the past decade, the overall balance of services provided to the manufacturing and process industries has shifted from the end users and EPCs to the automaton suppliers. End users no longer have the internal resources to provide the services they once did. Large central or corporate engineering departments no longer exist, or have been stripped down significantly. More and more workers retire or continue to be laid off. End users and even EPCs no longer have the time or the resources to deal with many different automation suppliers on a project. We live in an increasingly open world, and any automation project is going to have several different suppliers for key building blocks: control valves and other field instrumentation, control systems, production management applications, safety systems, asset management systems, and more. Suppliers fill the role of automation services provider quite well, offering many competitive advantages. Automation suppliers have arguably the deepest product and application knowledge for their own solutions. Even knowledge of competitor offerings has increased exponentially as the suppliers focus on competitive migration projects. Suppliers continue to expand this product and application knowledge every day, with more and more focus on specific vertical industry and application segments. Many suppliers have, as a result, become quite good at identifying cost reduction opportunities in specific industry and application segments. Automation Suppliers as Main Automation ContractorsOne of the biggest overall trends in the past decade is for automation suppliers to fill the role of main automation contractor (MAC). Demand for MACs, which can provide a single point of responsibility for all automation-related aspects of a project, has never been higher. This is due to factors on both the end user and supplier sides of the business. End users are under increased pressure to lower the cost of capital projects, find experienced and qualified personnel to execute projects and operate their plants, and reduce operating costs. Accurately forecasting project costs for the process industries is becoming increasingly difficult. Even in the wake of the current economic crisis, capital costs continue to soar, particularly in the process industries. Booming capital expenditure in developing economies, such as China and India, has given way to an environment of uncertainty and unpredictability due to the global economic meltdown. Companies must work harder than ever to reduce risk and provide some level of predictability for the capital projects that are still underway. At the same time, end users are under more pressure than ever to find qualified people as they face a wave of retirements and layoffs among their most experienced workers. Even in a down economy, large infrastructure projects march ahead, and factors such as the US economic stimulus package will actually increase the level of infrastructure projects taking place in the US. Today, the MAC must serve an even larger consulting role to the owner/operator as well as be an integrated partner to one or more EPCs in order to help each EPC manage their own schedules and cost risks. As with EPCs, MACs must be able to provide global clients with a standardized solution anywhere in the world. There are also the issues of operational costs, lifecycle costs, and plant performance. For the end user, the project is only the beginning. Decisions made in the early stages of the project have an impact throughout the plant lifecycle. Data captured during plant construction must be seamlessly transferred through the operational phase. Using a MAC as a single point of responsibility for integration also increases design reliability. One of the key differences between MACs and main instrument vendors (MIVs) is the greater level of collaboration and communication with the end user. The communication channel that a MAC provides between the supplier and system integrator partners on a project and the end user and EPC, results in less changes in project design during the project lifecycle. Learn More

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