22 February 2007

Automation services

By Jim Pinto

In today’s competitive global markets, users are scrambling to reduce costs and improve asset utilization. Many have even eliminated engineering and maintenance services, preferring to outsource these functions.

Reacting to this demand, automation suppliers are expanding their service offerings to “total solutions,” which includes engineering, systems integration, direct sales and supply logistics, training, and maintenance. Services is the fastest growing segment in the automation market today, analysts said.

The problem is services are knowledge intensive, tending to involve relatively narrow, application-specific expertise, which calls for special modifications and extensions of standard offerings. Further, they typically include on-site systems design, integration, and startup involving different products, beyond the broad portfolio of even the largest suppliers. This type of business is usually subject to intense competition by smaller engineering and systems integrator firms and cannot easily be scaled up for consistent revenue growth and profit margins.

In the past, most manufacturers, even major suppliers, could not provide the wide range of products and services needed in a complete system. This meant engineering and systems integration typically occurred through third parties.

At the high end, there are the large engineering and construction firms that do the design and carry the project through to installation and services. Smaller projects are the realm of systems integrators, typically relatively small service organizations serving only vertical markets in limited geographical areas. The typical SI is a small company (under $10 million) without any real marketing and breadth of geographical coverage. Also, there are applications engineering distributors who serve local markets, doubling as stocking distributors and service providers.

Major suppliers must recognize their service offerings put them into direct competition with these companies, often some of their best customers. The manufacturer has the advantage of additional margins and proprietary product applications knowledge, but the integrator has the advantage of having access to competitor’s products and can often switch to compete.

Systems integration and services always require local presence. The large manufacturers have the financial wherewithal to expand globally. But, they lack the ability to provide the depth of service and the “relationships” local service providers offer. The dichotomy is difficult to bridge, and expensive.

If you are a products supplier, stick to products and partner with good systems integrators. If you are an SI, stay flexible—develop relationships with as many suppliers as possible, so you can offer end users local services with a choice of the best available products.

Related links:

• Automation Systems Integration – the realm of specialists
  http://www.automation.com/sitepages/pid1557.php
• Automation: Products Vs. Services
  http://www.jimpinto.com/writings/choices.html

Behind the byline

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points at www.jimpinto.com/writings/points.html.