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Maximising returns during a recession

10 June 2009

Khadambari Shangabaraman, research analyst from Frost & Sullivan Industrial Automation and Process Control group explores ways to remain competitive during testing times in an article titled ‘Ability to Maximise Returns From, and Lifecyle of, Industrial Assets to Promote Uptake of Automation Services Amidst Recession’.

Source - Frost and Sullivan
Source - Frost and Sullivan

The global economic slowdown has forced process industries to cut down on investments in new purchases and even cancel or postpone a number of green field projects. However, sustainability is critical to remaining competitive during such difficult times. It has become extremely important for end users to maintain their current production capability, despite the heavy layoffs and limited budgets. Tightened spending notwithstanding, the overall quality of the production process cannot be compromised. Here, services play a key role in extracting maximum returns from available assets and also in extending the life cycle of industrial assets. Automation services solutions enable improvements in Overall Equipment Effectiveness (OEE) at a reduced cost while supporting the functioning of production processes. Accordingly, the EMEA automation and control solution (ACS) services market is set to experience a compound annual growth rate of 9.58 per cent to reach $8416.41 million (€5969.98 million) by 2015.

Multiple Factors Promote Need for ACS Services
Today, advanced automation services need to be incorporated right from the initial stages of the production process in order to bring significant cost benefits to plant floors. “Extending the life cycle of the asset and gaining maximum returns on it has become an urgent need for most end users, resulting in the heightened reliance on services for enhancing asset maintenance and management,” notes Frost & Sullivan Industrial Automation research analyst Khadambari Shanbagaraman. “In addition, limited in-house expertise due to an ageing and increasingly reduced labour pool have further jeopardised the situation, causing end users to depend solely on automation suppliers for complete support and maintenance.” These factors are favouring suppliers, enabling them to generate lucrative business through services despite radically declining hardware and the software prices.

Demand for Services Spans End User Spectrum
According to recent analysis by Frost & Sullivan, oil and gas together with the chemical and power generation sectors accounted for around 62 per cent of the total ACS services market in 2008, with the total EMEA ACS services market accounting for $4436.10 million that same year. The demand for field and migration services as well as operational services is particularly high among the oil and gas and power generation sectors.

Other sectors such as food and beverages and pharmaceuticals contribute more towards consulting services since the production process of these industries is governed by EU and medical standard bodies mandated regulations related to human safety. Project engineering and installation services which accounted for nearly 38 per cent of the total European ACS services in 2008 are expected to witness lower growth due to decreasing capital expenditure.

With end users displaying a preference for one-stop-shop services support, a Main Automation Contractor (MAC) approach has gained significance among automation vendors. Outsourcing automation services to an MAC reduces the total automation expenditure by almost 25-30 per cent as vendors are involved from the initial stages of the production process until the final site completion.

Optimistic Future
Automation services are no longer regarded as just a value-add but, instead, as a crucial steer that enhances energy efficiency, ensures safe automation, promotes site assessment, improves process optimisation and enables effective spare part management. In addition, services are also emerging as a major contributor in empowering the overall operational excellence of end users. The evolving MAC, main instrumentation vendor (MIV) and three party maintenance (3PM) approaches reflect the importance of automation services and their considerable potential across process industries. “While automation services provide more scope for end users to concentrate on developing their core business, it also presents an ideal opportunity for suppliers to advance their vertical and multi-vendor expertise, increase their geographic penetration and position themselves as complete automation contractors rather than just product suppliers,” comments Khadambari Shanbagaraman. “The net impact of such trends is likely to spur automation vendors to increasingly realign their business structure towards expanding their customer base in this competitive market.”


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