This document discusses automation services and why they are important for manufacturers. It notes that manufacturers have decreased in-house expertise and view automation as less of a core competency. This has led suppliers to provide more services across the plant lifecycle to increase returns and reduce costs. The document highlights challenges like an aging workforce and outlines the advantages suppliers have over third parties in providing services. It shows that services revenues for suppliers are growing faster and criteria for users focus on return on investment and performance. Suppliers are taking on more services roles like main automation contractors to provide single point responsibility and lower costs.

1. Automation Services:
What Are They
Why Are They Important
What Can You do to Succeed?
Larry O’Brien
Research Director
ARC Advisory Group
lobrien@arcweb.com

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Automation Services Market Definition
Automation Suppliers are Providing
Services Across the Plant Lifecycle

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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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End Users View Automation as Less of a
Core Competency Than Before
 Large Central Engineering Groups Among
Many Major Manufacturers Have Disbanded
 Many Groups Have Been Spun Off Into
Separate Companies (Bayer Technology
Services)
 Smaller Number of Personnel Responsible for
More Areas of the Plant

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Establishing the Value Proposition:
Dwindling In-House Resources
 US Manufacturing Sheds 19,000 Jobs in
September – (US Department of Labor)
 60% of Oil & Gas Plant Engineers will Retire
by 2010 – (Journal of Petroleum Technology)
 80% of US Manufacturers Experiencing an
Overall Shortage of Qualified Workers --
(National Association of Manufacturers)

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The People Challenge: Aging Workforce
Exodus of Workers is Reducing Companies’ Ability to Sustain Operational Excellence
0
10
20
30
40
50
60
70
80
1900 1920 1940 1960 1980 1990 2000 2010 2020 2030
MillionsofPeople
Year
People Over Age 65
Source: 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 54
Number of People 55 to 64
Changing Workforce Demographics from 2000 to 2010
Source: US Bureau of
Labor Statistics
 US Bureau of Labor Statistics
• By 2010 more than 25% of working
population will reach retirement age
• Trend will continue into foreseeable
future
 Globally – Workers are Getting Older
• Largest Group of Workers – over age
45 and will double in next ten years
• Fastest Shrinking Age Group of
Workers between 35 and 44 –
arguably the most productive
 Europe is expected to lose 1 million jobs
annually for the next 25 to 30 years
• Severe shortage of skilled workers
and engineers!
 Oil & Gas Industry
• 50% of its production engineers will
reach retirement age by 2010

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The People Challenge: Bad Economy Brings
Huge Wave of Layoffs
•“DuPont will cut 2,000 jobs as the chemical company wrestles with
falling sales. The company had already announced it was cutting
2,500 jobs, and said late last year it would pare 8,000 contractors
from its rolls.”
•“The battered Louisiana chemical industry, which depends upon the
auto industry and housing for much of its market, has cut contract
construction workers and is moving toward reducing company staff.”

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The Prize & The Obstacles
 An intelligent Approach to Services Preserves
Plant Assets, Eliminates Unplanned
Downtime, Improves Productivity &
Throughput, and Can Even Save Human Life
 US Has Huge Installed Base of Aging Assets
That Require Intelligent Maintenance
 Most End Users do not Have An Accurate View
into What is Happening With Their Plant
Assets
 Much of the Maintenance Being Conducted in
Today’s Plants is Needless!

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Engineering vs. Maintenance Services
Highest Growth is in
Post Installation Services

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Value-Added Maintenance-Related
Services Lead Growth
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
Consulting
Engineering & Design
Project Management
Installation
Training
System Configuration
Commissioning & Checkout
Startup
Operational Services
Loop Tuning
System & Device Maintenance
Mechanical & Electrical Condition Monitoring
Performance Management
Remote System Monitoring
Spare Parts & Replacement
Decomissioning
Performance Management, Loop Tuning,
Startup, & Maintenance Lead Growth

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The Maintenance Service Scenario Today
0%
5%
10%
15%
20%
25%
30%
35%
Routine
check
No
Problem
Calibration
shift
Zero Off Plugged
lines
Failed
35%
28%
20%
6% 6%
4%
Source: Shell Global Solutions
63% of maintenance labor
results in no action!!

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The Maintenance Service Scenario Today
According to DuPont:
Maintenance is today the largest
single controllable expenditure in
a plant
Maintenance budget can typically
be about 2/3 of annual net profit
According to Dow Chemicals:
Cost of unnecessary maintenance
is about the same size as plant
profit

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Downtime 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 Enabled
by Automation, Downtime Still Represents a
Significant Percent of Production Lost

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Aging Assets
 The Installed Base of Legacy Process
Automation Systems Reaching the End of
Their Useful Life is Equivalent to Over $65
Billion – (ARC)
 Nearly Three-Quarters of US Plants are More
Than 20 Years Old – (IndustryWeek and MPI
Survey)
 Among Plants With 250-499 Employees, over
76% of Plants are More Than 20 Years Old –
(IW & MPI)

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Automation Services Marketplace:
Suppliers Vs. Systems Integrators/EPCs
56%
44% Third Parties
Automation Suppliers
Total Automation Services Business
is Just Under $25 Billion

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Users Outsource More to Suppliers
Today
In Three Years
No Plans
Do you purchase automation-related services from?
605550454035302520151050
Automation Suppliers
Engineering Construction Firms
Systems Integrators
Other
63.7 %
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 From
and How Will This Change?

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Automation Suppliers’ Service Revenues
are Growing Faster than Third Parties
2005
2006
2007
2008
2009
2010
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
20,000.0
Automation Suppliers
Third Parties
Systems Integrators Want to do
Projects and Move On

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What Advantages do Automation Suppliers
Have Over Third Parties?
Deep Product &
Application
Knowledge
Ability to Drive
End User Requirements
Into Products
Broad
Geographic
Reach
Increasingly
Deep Vertical
Industry Expertise
Long-Term
Collaborative
Partnerships
Supplier
Strength
In
Services

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Services Purchasing Criteria for Users
Return on Investment, Increased Plant Performance
were Most Important Criteria

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Automation Suppliers Become MACs:
Main Automation Contractors
Single Point of Responsibility = Lower Cost For End User
Customer
Supplier MAC
EPCs
Systems
Integrators
Instruments
Valves
Safety
Systems
DCSs
Production
Management
Optimization
Engineering

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Main Automation Contractor (MAC) Approach Can
Result in Significant Cost Savings To Users
30% Savings Illustration
Traditional
Approach
MAC/MIV Approach
Training
Commissioning/
Startup
Installation Supervision
Field Instrumentation
Safety System
Process Control
System
Detailed Engineering
FEED Engineering
30% Savings Illustration
Traditional
Approach
MAC/MIV Approach
Training
Commissioning/
Startup
Installation Supervision
Field Instrumentation
Safety System
Process Control
System
Detailed Engineering
FEED Engineering
The MAC Approach Can Result in Project Cost
Savings of Up to 30 Percent
Traditional
Approach
MAC
Approach

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Automation is a Small Percent of Project
Spend, but has a Huge Impact

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Projects Should be Done with an Eye
Toward Operational Readiness
Delays in Achieving Operational Readiness for New
Projects Can Be Incredibly Expensive

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Early Involvement of Suppliers in Projects
Creates More Opportunities, Value
Risk Management = Project Management
Less
More
Impact
Level
Time
Countermeasure
Specification Phase Configuration Phase
Early Involvement
Risk
Identification
No
Early
Involvement
Early Involvement Means Better Risk Identification,
Improved Cost Reduction

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Key Growth Industries and Growth Factors
 Oil & Gas – Increased Capital
Expenditures
 Water & Wastewater – Infrastructural
Spending
 Power Gen – Many new Projects in
Developing Economies
 Pharmaceuticals – Regulatory Compliance
Issues
 Mineral Processing – Does not View
Automation as Core Competency

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Market Shares for Supplier-Provided
Automation Services
17.6%
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%
Others
Schneider
Metso
AspenTech
GE
Alstom
Yokogawa
Rockwell Automation
Emerson
Invensys
Honeywell
ABB
Siemens

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Thank You.
For more information, contact the author at
lobrien@arcweb.com or visit our web pages at
www.arcweb.com