Outsourcing Automation Design & Engineering – Short-Sighted Strategy?

  • May 13, 2013
  • Feature

By Bill Lydon, Editor

Downsizing has become a way to increase profits by “leaning out” operations. But this outsourcing may be short-sighted and it is compounded by the current skills shortage in the automation field. I have the opportunity to talk with many automation engineers at user group meetings and conferences every year. Most engineers are working with lean staff, which limits their scope of work to basic necessities. In most cases this means they do not have the time to work on improving the competitiveness of their companies. Remaining competitive is fundamental for any company to grow and automation fits well into this business strategy. This is a key concept that automation people must communicate in business terms to management with the goal of getting more resources to help improve the company’s competiveness.

Competitive advantage by definition is a moving target unless your company’s competitors never improve their manufacturing process, which is an unlikely scenario. For this reason, companies need strong in-house automation staffs that have automation knowledge, are creative, and can get projects done efficiently. There is a view that automation is becoming a commodity and to some extent this is accurate for the hardware and software. Manufacturing plants are not a commodity unless your manufacturing is no better than your competitors. The differentiator is sound and creative application engineering and design of automation in a particular manufacturing plant. Michael Porter of Harvard Business School notes that the primary competitive activities in the value chain are operations that encompass manufacturing. Porter defines operations as “the process of transforming inputs into finished products and services.”

Automation is a major part of operations that can dramatically improve a company’s manufacturing competitiveness.

Automation is a complex undertaking based on engineering, knowhow, implementation, and an overall understanding the plant manufacturing processes that have many interdependent pieces. Applications done by creative automation engineers that understand the technology, machines and production steps at the plant creates competitive advantage. A good example is the application of Advanced Process Control (APC) and Model Predictive Control (MPC) that can really improve production efficiency, yield and quality. Repeatedly, engineers have told me they know this can improve operations but there is not enough staff to devote time to deploying APC and MPC.

Many suppliers are promoting the use of their people to design and even implement automation as an outsourced function. The assumption is that a third-party company can be more efficient and deliver a lower cost solution. A key question to consider is “Will this solution be as complete and efficient as one engineered and designed by people that understand the nuances of this manufacturing process and plant?” An often overlooked cost of using outside resources is the time in-house people spend educating them about the manufacturing processes. In many industries, success is achieved on very thin competitive factors based on techniques, know-how, and in-house experience that should remain an integral part of the company. A major competitive factor is protection of intellectual property and people at an outsourcing company can acquire knowledge and, in some cases, trade secrets that in-house people know but are protected by employment agreements. The growing issues of cybersecurity is another concern with experts noting the biggest threat of virus and other system attacks are from outside contractors that are not subject to the same scrutiny as employees.

At the PAS Technology Conference on April 22-24, 2013, I had a discussion with Harvey Ivey, Manager of I&C Systems and Support at Southern Company, about how they continue to maintain in-house instrument, control, and automation personnel. He explained that there is a tremendous amount of knowledge about the control system and process that they need to keep in-house to properly operate and support plants. “Our fear has always been if you give all that away there is no way to get it back,” said Ivey. They do use outside resources to help with large projects but the core design, configuration, and project management is done in-house. He and others users also described how the skills crisis has added another dimension to this since everyone is “scrambling” for people that are in scarce supply. Outsource resources may not be available when required. Based on this shortage, these companies continue to hire and develop in-house staff. Outsource vendors note they can leverage technology to be more efficient and, in many cases, end users can invest in those same technologies to increase the efficiency and effectiveness of their people.

Smaller companies may have a different set of economics but keeping a core staff of people that understand the automation and manufacturing processes is fundamental to remaining competitive.

I gained another perspective on this issue in April while on a tour of Phoenix Contact plants in Germany. The company builds most of the machines that make their connector products.  They even make their own screws! They explained this philosophy allows them to maintain a leadership position in productivity and quality. It is hard to argue with the success of Phoenix Contact that is more than 80 years old and has achieved 2012 sales of more than €1.59 billion.

Every company should have a focused mission and goals for excellence in the areas that build real value. Outsourcing is tool to be used carefully while maintaining your company’s long term competitiveness.

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