These days, to say that more business functions are being outsourced is like saying summertime is around the corner: it’s self-evident, verging on cliché. Companies, already having outsourced a lot of back office functions such as information technology (IT) and human resources management, now are targeting more central business functions, such as accounting and even R&D.
In the chemical industry, maintenance has been performed on a contract (outsourced) basis at many plants for quite some time; likewise, contractors have long handled various aspects of environmental management, such as hazardous waste disposal and wastewater treatment.
However, the level of outsourcing is on the rise in the industry. According to a recent poll on our Web site, ChemicalProcessing.com, nearly half of respondents saw outsourcing increase at their facilities during the last 12 months, whereas only 7% reported a decline.
The push for more outsourcing certainly has not been lost on vendors. Many are expanding or repackaging their offerings so they can win a wider role at plants. An increasing number of suppliers want to go beyond responsibility for their own equipment and take over servicing of both their own and competitors’ units. The ultimate goal is to assume full responsibility at a site for an entire technical area, such as automation and control, fluid handling, rotating machinery or environmental processes.
Implementation of such a broad role depends on plant size. For large sites, a vendor might provide dedicated staff onsite, perhaps even on a round-the-clock basis. For smaller plants, the supplier might send its specialists on a regular schedule to monitor equipment and conduct routine service calls, and have them on call 24/7 for emergencies.
Vendors say the quality and value they provide are incentives for such outsourced service. However, they also cite two other business drivers as strong justifications: Operating companies often lack enough people with the necessary expertise, and outsourcing might allow the companies to treat some expenses as operating costs rather than capital costs, a move that management generally prefers.
“We’ve been providing outsourced wastewater management services since the early 1970s,” says Peter Sesing, general manager for industry outsourcing at USFilter, Warrendale, Pa. “From then to now, you can see that both the facilities themselves and the workforce that manages them have been aging,” he says. “Our ability to bring technical services to these plants is a major asset of ours.”
Many operating companies undoubtedly now have less ability to handle the full range of plant chores. Perhaps this largely is due to an aging and overtaxed staff, which is a common view in the outsourcing community. However, others blame chemical companies for decimating their own capabilities through waves of early-retirement programs, staff cutbacks and the like, making it mandatory to look outside for necessary technical expertise.
During the most recent industry downturn, corporations almost bragged about how severely they were able to cut capital costs. Coming out of that recession, the industry seems conditioned to curb capital spending, even though investment figures have rebounded somewhat. Most of the time, an outsourcing contract is accounted for as an operating cost. Moreover, if the vendor provides equipment or software as part of the contract, those expenses sometimes might be booked against operations.
“We prefer the term co-sourcing to outsourcing,” explains David Spencer, director of global services marketing for Invensys Process Systems, Foxboro, Mass. “Typically, a client calls us in to collaborate with their staff on an enhancement of their existing control system. The fact that the plant manager can justify the project as an operating expense, and that we’re enhancing their capabilities without adding to the client’s own staff, makes the project easier to cost-justify.”
Broader is better
The outsourcing trend has clearly influenced how major equipment vendors position themselves toward their clients. At the beginning of this year, Flowserve Corp., Irving, Texas, realigned a group of related services under the banner of “LifeCycle Advantage.” The program unites related services for fluid-handling equipment, including pumps, seals, piping and ancillary equipment. “More and more, we’re being asked by our clients to provide a way to address all of their needs in fluid handling, not just individual services like spare parts inventory or periodic maintenance,” says Kevin Lancon, alliance program group manager. “Customers are saying, ‘you guys are the experts in this, we want you to deliver it to us.’”
The LifeCycle Advantage program has five parts: equipment analysis; performance and reliability enhancement; structured inventory management; strategic procurement; onsite technical support and troubleshooting; and training.
According to Bob Rich, chemical industry manager for pumps at Flowserve, rationalizing inventory and strategic procurement can lead to considerable savings. “Clients struggle with maintaining the right level of inventory and the costs associated with ordering replacement equipment and parts,” he says. “Very often, we’re able to reduce the inventory count by consolidating 30 or more inventory items into a subassembly, such as a pump power end. That part can be exchanged for upgrade or maintenance and returned for use at much lower cost than dealing with all of the individual inventory items.” He adds that operating companies have been consolidating their list of suppliers for years, and that further centralizing procurement — even when Flowserve acts as the procurement manager for competitors’ and its own products — further streamlines the process.
Modern reliability engineering, which uses tools such as lubricating-oil and vibration analysis to monitor fluid-handling equipment and rotating machinery, can be very successful in making equipment operate more predictably. However, operating companies often are loathe to take on the overhead to maintain such programs. “We have the subject matter experts,” says Flowserve’s Lancon. “We can provide these services when needed, and more significantly, we can help clients determine just how cost-effective they are.”
Lancon explains that it is possible to “overinvest in reliability.” A high level of reliability, as measured by mean time between repairs, can often be justified in sectors like petroleum refining, where throughputs are large and equipment runs nonstop. But in other sectors, a run-to-failure mode might be more economical, especially when the process has been designed with in-place backups.
Based on the extent of services a client seeks, Flowserve will locate personnel permanently onsite or bring in the technical expertise as needed. By starting with a comprehensive view of the plant’s assets, a fixed-fee contract can be established to maintain a certain level of uptime performance or to keep maintenance costs to a minimum.
At last fall’s ISA meeting, Invensys Process Systems rolled out a new bundle of services that it calls Lifetime Performance Services. Three were added at that time: loop management, alarm management and site security hardening. In some cases, elements of these programs are identical to hiring a consultant to provide a certain capability and then to go away. In other cases, however, the service contracts involve lengthy plant assessment studies, followed by periodic servicing. At large facilities, the service could require onsite personnel on a permanent basis.
Loop management is a good example of the latter. “Numerous surveys have shown that only 20%-30% of the control loops at a typical plant stay tuned so that they provide effective control,” says Invensys’ Spencer. “If a company has cut back on the dedicated workforce to provide continuous loop tuning, we can come in and provide this service. Additionally, we help analyze which loops are critical to control functions like advanced process control. Those are the loops that get the closest attention.”
Similarly, alarm management warrants steady attention. Operators typically deal with thousands of nuisance alarms on a daily basis; alarm messages can crop up as a control system’s software gets updated or expanded. Invensys has adopted the alarm management principles of the Engineering Equipment and Materials Users Association, London.
The third new service, site security, addresses both physical security and cybersecurity. Spencer says that chemical companies have an important decision to make regarding plant-based information networks: to depend on the security efforts coming from corporate IT departments or from control vendors. “Site security to an IT department usually means being able to detect intrusions [most IT people I’m sure would argue with that and say that they pay great attention to prevention],” he says. “To us, it means physically preventing an intrusion, by installing appropriate firewalls, security protocols and the like.” Once a site assessment has been performed and security measures installed, the system needs to be regularly maintained as modifications occur in the control system or the information network that connects to the control system.
At Emerson Process Systems, Austin, Texas, wrapping control equipment sales in a comparable set of services has long been the norm. According to William Robertson, director of worldwide services, the activity is growing from a base of providing conventional startup and commissioning services to providing “high-level consultative services” involving advanced process control, simulation modeling and the like. One version of this service offering occurs in PlantWeb, Emerson’s broad architecture for process control and plant management. A component of PlantWeb is the Asset Management Suite (AMS). According to Robertson, a client might acquire AMS, then hire Emerson not only to install it, but to set up the diagnostics to monitor equipment condition, recommend maintenance-management procedures and develop control methodologies to maximize performance or reliability. Further, Emerson provides a Web-based portal that can be customized to the client’s information needs. “The goal,” says Robertson, “is to address the total cost of ownership of the assets and not merely to maintain them.”