Outsourcing moves up the maintenance ladder

May 29, 2006
Outsourcing of non-core operations within a company, large or small, is now a well established corporate strategy. By entrusting services such as IT support, accounting, human resources and other “back office” activities to specialist firms prepared to do the job at an acceptable price, chemical companies can concentrate on their main business — where they are the specialists. That's the theory, at least.

Outsourcing of non-core operations within a company, large or small, is now a well established corporate strategy. By entrusting services such as IT support, accounting, human resources and other “back office” activities to specialist firms prepared to do the job at an acceptable price, chemical companies can concentrate on their main business — where they are the specialists. That’s the business theory at least and, in practice, it does appear to have benefited companies to such an extent that many are continually looking to outsource more and more of what they do.

But where should outsourcing begin and end?

Some chemical companies seem to place no limits on what they consider non-core competencies that can be outsourced. Quite a few farm out manufacturing to toll processors, who will take a client’s materials and process them to order, delivering the finished product as though produced in the customer’s own plant (see Tap into tollers for more on toll processing).

More typical, though, are those chemical operators only prepared to loosen the reins step by step, perhaps starting with outsourcing of plant utilities, building services and non-critical equipment maintenance, but all the while retaining tight control of what they still view as core assets. This has been the experience of Chuck Miller, who is director for solutions development in the industrial markets division of Johnson Controls, Milwaukee, Wis., a company well established in the building automation sector but perhaps less well-known in chemicals. “We’re the best kept secret in the process industries,” quips Miller about the company’s outsourcing services that embrace everything from building automation systems to plant utilities such as water, steam, air and power, and, increasingly, plant maintenance.

Secret or not, Johnson Controls has a client list that includes many blue chip names like BASF and ExxonMobil. Describing his division’s role as more of a consulting-type service, Miller says, “in the chemicals sector, operators still want to maintain ownership of the critical or core process technology, so we aren’t heavily involved in the process itself.”

While plant utilities might at one time have been considered critical to the process, Miller says the dividing lines between what companies consider core and non-core operations are no longer black and white, as the pressures grow on firms to cut costs and become more competitive. But if utilities are not deemed critical, what can be said about process control and automation systems? Clearly, they are core to the safe, reliable and profitable operation of the plant, but there is an increasing trend to farm out their maintenance and performance monitoring.

Deeper involvement

Most of the major process automation vendors are more than willing to enter into long-term maintenance agreements with customers that they have been working closely with throughout the lifetime of the plant. What is changing, however, is the degree of that on-going involvement — moving from the traditional “after sales” type of product and system support to a much more consultative, partnering approach in which vendors not only guarantee that their products will work but also guarantee the performance level at which they will work.

“We do see a trend towards more services being offered or provided to our customers,” says David Ochoa, director of strategic planning for Emerson Process Management’s Asset Optimization Division, Austin, Texas. Like Miller, however, he detects the same note of conservatism within the chemical industry. He says that “companies will outsource some aspects of their asset management, but they still maintain control and overall management of what’s being done on the plant.”

Operating on a global scale, Emerson offers insight into outsourcing trends around the world. “In North America,” says Ochoa, “we see companies being a little slower in adopting some of these services. They still want to combine them with their own capabilities — in which case we go in to help them set up their own program, providing them with training and mentoring — whereas in some Latin American countries we see a trend towards outsourcing the entire maintenance operation.”

Emerson set up the Asset Optimization Division three years ago and it is now looked upon as a business unit in its own right, says Ochoa, rather than as just a support operation to the plant automation side of the company. “What we focus on these days,” he explains, “is plant availability. That’s one of the main drivers for our customers — keeping the plant running longer, more safely, with fewer or preferably no unplanned shutdowns.”

An asset optimization program at the Huntsman Holland petrochemical complex at Rozenburg near Rotterdam typifies the work of the division. Following a consultative audit of its operations by Emerson, Huntsman is implementing a combination of planned and predictive maintenance using Emerson’s AMS asset management software suite that communicates with a PlantWeb network of intelligent field devices. Ochoa says that such higher-level maintenance forms the core of what his division does: “it’s those parts of the plant that require the use of diagnostics and more-predictive maintenance strategies — there is a willingness to outsource that.”

Huntsman’s goal is to use PlantWeb’s predictive technology to schedule maintenance requirements and reduce plant failures. “We see Emerson as much more than a product supplier,” says Laurence Thring, European integrity engineer at Huntsman. “We know we are getting expert advice that will provide an independent input to our future plans.”

On-site staff

Other automation vendors agree that operating companies now are looking to them more for expert advice. ABB Process Automation, Norwalk, Ct., for example, has its own chemical and pharmaceuticals business unit that specializes in taking on the outsourcing of maintenance and operational activities of many companies, not all of which are prime ABB customers. “We have about 5,000 employees out at customers’ sites around the world, according to Stephen Rahr, vice president for services processes.  “They are ABB employees but they are there to do the reliability engineering, the scheduling of preventative maintenance, everything from planning through to execution of the work itself.”

More often than not, of course, those ABB employees were originally part of the customer’s own organization, but are transferred over when a contract is signed with ABB. “We typically insert a few ABB people in key roles,” explains Rahr, “a site manager perhaps, or a reliability engineer, maybe a planner or scheduler — somebody that understands the way we do things and who can bring the rest of the organization along with them.”

Johnson Controls adopts a similar approach on some of its projects. Speaking of an operations-and-maintenance-type agreement with a starch manufacturer in the Midwest, Miller says that after the company had helped solve production problems on a drying process it was asked to take on all the production maintenance for the site. “Now, we aren’t necessarily experts in starch production itself (although we understood their drying problems), but the guys on site are. So we hired them.” In such cases, as Miller puts it, Johnson effectively says to its customer, “you transition these people to us and we will supplement them with expert technology and additional resources.” Those resources can include a Computerized Maintenance Management System (CMMS), Miller notes, adding that Johnson holds the largest number of licenses in the U.S. for Maximo software from MRO Software, Bedford, Mass.
Installing a CMMS is often one of the steps taken by ABB, too. But its first involvement with a service business customer can be relatively low key. “It starts out with almost a consultancy-type arrangement,” explains Rahr, “where we go in and do a feasibility study, collect the data, interview the people on the plant. And then we go back with a business case and, assuming the customer is interested, we put together a contract that is typically three-to-five-years duration.” The whole outsourcing process is, he says, “heavily driven by change management and really implementing new business processes around maintenance in the first year or so.”

Emerson’s approach is similar. “When we do a benchmarking or initial assessment,” says Ochoa, “it’s always sold at the highest level on the plant — even if it’s a small starting engagement, which is typical, plant managers are always involved. You’re dealing with changing work practices, changing the culture on the plant from one of reactive to predictive maintenance.”

Five-year maintenance service contracts are typical for Honeywell, Phoenix, Ariz. In September and October of 2005, the company announced two such contracts together worth more than $30 million. The first is to deliver maintenance services to four of Sonatrach’s plants in Algeria, while the other, across four refinery and petrochemical sites in Hungary and the Slovak Republic, is an integrated service agreement with a subsidiary of MOL Hungarian Oil and Gas Company.

Making a somewhat different commitment to taking on long-term maintenance responsibility for its automation products and systems, Invensys Process Systems, Foxboro, Mass., in March signed a contract with Sinopec Shanghai Petrochemical Company (SPC) for the full Foxboro line of I/A Series control system products. The wide-ranging agreement, which renews annually for the life of the Foxboro equipment covered, provides a combination of remote and on-site services, including on-line checking of devices, annual on-site checking, all emergency site technical support, training and other services. This is the first time SPC has given over its maintenance services to an automation vendor, although Invensys/Foxboro has had a working relationship with the company for more than 20 years.

Remote support

What many of these automation companies have in common is that if they are not actually on-site providing their back-up and asset management services they can offer comprehensive remote, on-line support. While this might not appear on the books as an “outsourcing” contract — because it could just as easily be included as part of the sales contract — the effect is pretty much the same. Having expert support on call in a vendor’s office means a company can carry one less overhead, a specialist that smaller companies in particular would find hard to justify.

Underscoring that point, ABB’s Rahr notes: “We have a group of people in ABB that specialize in vibration analysis, some of it very sophisticated. To have a specialist like that on staff if you are a small-to-medium sized chemical company is almost unthinkable. But through us you get the ability to have someone in another part of the world dial in and diagnose the situation. These smaller companies can access the tools and methodologies that they wouldn’t otherwise have themselves.”

That said, the tools and methodologies now being made available by automation vendors are becoming increasingly powerful. Asset performance management has benefited in recent years from the diagnostic capabilities of offerings like Emerson’s PlantWeb and Invensys’ series of “monitors,” introduced last year to help manage the performance of field devices, control loops and plant equipment. And Invensys, for one, now is eager to take on some of the responsibility for the burgeoning applications for wireless, especially in plant monitoring applications (see CP, January 2006, p. 68).

“Wireless communications will provide a new enabling technology for asset performance management,” says Chris Lyden, the company’s vice president for marketing, at the launch of its managed network approach to wireless applications. By providing access points for the plethora of proprietary wireless systems currently available, and integrating them into a company’s IT infrastructure, Invensys can deliver “significant upfront and ongoing cost savings,” notes wireless program manager Hesh Kagan. “With a standardized security model, we can now effectively manage the wireless infrastructure to help ensure appropriate levels of security and performance.”

For obvious reasons, operating companies might take some convincing about the benefits of outsourcing security issues, but automation vendors certainly are poised to play a role. Honeywell, for instance, now is using its own Geismar, La., chemical plant as a showcase of how it can integrate process control and physical and cyber security systems (see CP, April, p. 9).

Companies are certainly pushing the boundaries of what can and cannot (or perhaps should not) be outsourced.

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