System Integration: Outsourcing Automation Services
How to make a business case for getting help with automation support services and ensure you get the right skill sets for the processes and technologies needed.
Cherri J Schmidt
As the manufacturing environment becomes increasingly automated, companies often focus their investments on improving the skills of the production team to use the new technologies. But what about the skills and knowledge of the resources that have to support and maintain these new systems? The electricians, technicians, and engineers who make up the plant services organization are frequently left behind, often overlooked during the planning stages of the new solution, and the last to receive training. And career advancement opportunities are limited—unless they are willing to move out of their chosen field and into the mainstream of the company’s business.
Outsourcing these highly skilled electrical and automation support services is growing in popularity as a way of improving quality and responsiveness of these services while reducing the total cost of acquiring them.
Variety, customization, cost, quality, safety
Today’s manufacturing environment is becoming increasingly automated and information intensive for a number of reasons, not the least of which is increasing consumer demands for variety and customization. The days of Henry Ford and his philosophy that customers “can have any color they want, as long as it is black” are long behind us. Consumer demand for more variety requires a production environment that is far more flexible and agile than the production model envisioned by Ford. At the same time, consumers also want the lowest possible cost for those products.
Changeover, scheduling, throughput
In response, manufacturers are using automation and information technology to automate the setup, changeover, product scheduling and sequencing, and quality control processes. These technologies provide the means to maximize the throughput of processing and packaging lines without the associated costs of carrying excess production capacity or excess inventory.
Consumer expectations for product safety (such as food that is fresh and pathogen-free) or product integrity (such as getting the advertised amount of potato chips in the bag or the right number of fudge stripes on the shortbread cookie) are also leading to more automation. While other industries have stagnated over the last few years, the markets for metal detectors, checkweigher systems, and vision systems have continued to grow at a fairly steady place.
Safety, sourcing, recalls
Regulatory drivers, such as the U.S. Food Safety Modernization Act, are another consideration. It is no longer enough to simply produce safe product. Manufacturers must be able to prove that the product is safe by having rigorous documentation of all materials and processes used to produce the project—and they must have the ability to recall defective product quickly and cost-effectively.
This has led to another significant trend: the desire to integrate critical information from the shop floor—and from suppliers—with the corporate enterprise resource planning (ERP) system.
For a single-plant company, these challenges are significant, but they are manageable. For a multi-plant company, the challenges can seem insurmountable. While most companies will invest in a standard ERP solution, far fewer will invest in standardizing the automation solutions that are used and deployed on the shop floor. Instead, individual plants are left to decide how much to invest, and in which technology solutions. The result might be a company with 15 similar plants having 15 different architectures employing 50 automation and information technology solutions. Add a few mergers and acquisitions into the mix, along with the associated loss of duplicate corporate staff, and the challenge of supporting the installed base of solutions and technologies grows exponentially.
In-house, outsourced, hybrid
Faced with these challenges, manufacturers have a variety of staffing options available. At one extreme, they keep all of the electrical and automation engineering, for capital projects and maintenance, in-house. At the other extreme, they outsource nearly all such services.
Increasingly, however, the most successful companies have seemed to settle on a hybrid approach, keeping the mission-critical engineering skills in-house and outsourcing the more general purpose services.
Debunk in-house arguments
While the proponents of an in-house staffing strategy would argue that “their business is different,” the truth is that most of the electrical and automation services required to automate a production line or operate a plant are not specific to the product itself. Whether you are making cookies or camp stoves, hamburgers or shampoo, the lights need to stay on and the motors need to keep running. Even packaging, for the most part, is packaging. Product is inserted or wrapped into packages, packages are packed into cases, and cases are placed onto pallets. Rarely (Pringles from Procter & Gamble come to mind) is the entire production process, from formulation through packaging, unique to the product. The reality is that the most proprietary part of food and CPG manufacturing is in the recipes and formulations, which is often the least automated part of the production process. [And can be securely hidden.]
The in-house electrician who keeps the motors running rarely knows much about the actual production process itself. He or she knows only that it is important to keep the motors running so that production management isn’t screaming at maintenance about the line being down. And, while the in-house technician or automation engineer at the plant is usually more knowledgeable about the production process than the electrician is, the fact remains that the critical skill sets for these plant-level resources are the abilities to make incremental improvements to the PLC code, calibrate the instruments properly, or troubleshoot and repair problems.
In fact, even at the corporate level, most companies that employ the in-house strategy maintain a relatively small staff of automation engineers, who are distinctly different and separate organizationally from the product, process, and packaging engineers.
Human-resource in-house dilemma
Assuming your company has settled on an in-house model, there are some human resources challenges that must be addressed.
1. Whom do you hire? At best, you have one or two positions available in any given facility. Do you hire for the technologies you already have deployed? If you hire (or train) for the technologies you have on hand, you are likely to be locked into that technology—and that person—for a very long time. Or, do you hire someone who is multi-skilled and can grow/change as the company’s technology infrastructure changes? If the latter, can you pay them what they are worth?
2. Where do you find them? For most of your production and mechanical maintenance activities, you are able to hire locally, whether your facility is located in a big city or a small town. But finding the highly specialized skills needed to support the electrical and automation infrastructure of your facility can be almost insurmountable in a small town. Even if there are people with the right skills out there who may be willing to move to your neighborhood, how do you find them? The HR departments for most manufacturing plants are structured and staffed to deal most effectively with the nonskilled hiring process on a local basis. And, while online sites such as CareerBuilder and Monster give the illusion that they will reach a good candidate pool for technical jobs, the reality is that you will be swamped with applications from people who are unemployed for a variety of reasons—some of which may not match your company culture.
3. Can you give these people the interesting challenges they desire? One way is to share these resources across facilities. But what kind of quality of life are you offering them if your facilities are hundreds of miles apart? Alternatively, what kind of responsiveness are you giving your facilities when they have to share these specialized resources?
4. Do you have the systems documentation in place to replace these people when they ultimately leave the company for greener pastures?
Benefits of outsourcing
One of the primary benefits of outsourcing is the ability to acquire the quality of talent and skills that you need for the job at hand, without making a long-term commitment to a permanent employee. At the local plant level, especially, it is usually difficult to find one individual with all the skills you need. However, it is possible to find one reliable and established services company that can deploy multiple, highly skilled resources as needed to fill the different needs the plant might have. Or, the plant can spot hire for the special skills that are needed only once or on rare occasions.
While the perception is that contract resources are more costly than employees, the reality is that the fully loaded cost of an in-house resource is usually more expensive than the comparable contract resource. If you are thinking about moving to an outsourced services model, it is important to engage your financial staff in the decision process and ask them to provide a true cost for the in-house resource that includes vacation time, health care, training, retirement, and other benefits.
Similarly, while most companies believe that in-house employees will be more responsive to goals and deadlines, it is actually the contracted employees who are more responsive. This is because most companies are better at demanding performance from a contractor than from an employee. Also, a contractor always fears losing the business due to performance failures, while the permanent employee rarely fears losing his or her job for the same reason.
Continuity is another argument for in-house resourcing. Ironically, there is actually more continuity from the outsourced service. How can that be? Companies come to rely on the in-house resource as the sole source of knowledge about a particular application or facility. Over time the in-house resource tends to be less rigorous than a contractor about documenting changes and keeping drawings up to date. When that in-house expert retires or quits, the company loses all the institutional knowledge. Outsourcing, on the other hand, demands establishing and maintaining standards and keeping drawings and records current. This provides the basis for replacing an individual or even the company that is providing the individual. Further, it shifts the burden to the providing company to ensure that the right employee with the right skills is deployed for the right job.
Managing outsourcing risks
While the benefits of outsourcing can be significant, there are also a number of risks that need to be considered as you develop your outsourcing plans. The following “best practices” can help you structure a process that will produce the best possible outcomes for your facility.
Best practices when outsourcing system integration: Manage risks
1. Treat existing employees with respect
2. Keep the mission-critical work in-house
3. Use clearly defined, performance-based contracts
4. Preserve your best resources
5. Choose a reliable and established service provider
6. Hedge your bets
Courtesy: TEC Systems Group
Best Practice Number 1: Treat existing employees with respect.
Outsourcing models come in many forms and sizes, from wholesale replacement of a major part of an organization to the acquisition of individual resources to supplement the in-house team. Regardless of the size of the contract, outsourcing always has an emotional impact on the in-house resources that needs to be managed. Even adding just one outsourced resource to the team can leave existing employees with the idea that that they simply aren’t “good enough” to handle the job. A wholesale replacement of a large segment of the in-house team can be even more damaging to productivity and morale. Just as it is important to engage the financial team in justifying the decision to outsource, it is even more important to engage the human resources to effectively deal with the in-house resources during the transition.
Best Practice Number 2: Keep the mission-critical work in-house.
One of the most important tasks in developing an outsourcing plan is to clearly define the roles and responsibilities of the in-house and outsourced resources up front. Whenever possible, engaging the affected in-house resources in the process can help create ownership in the solution and mitigate the negative emotional impact. The trick is to be sure that the mission-critical functions (the important work) are retained to provide meaningful and challenging work for the in-house employees while off-loading the more routine (but necessary) work to the outsourced employees.
Best Practice Number 3: Use clearly defined, performance-based contracts.
Acquiring contractors for a specific project is generally straightforward. Contractors are held accountable for a specific scope, price, and delivery. It is relatively easy to tie financial rewards—and penalties—to such clearly defined scopes of work. But even with these contracts, it is essential to clearly define the scope up front and prevent “scope creep” during the course of the project by establishing good project management controls and discipline.
A service level agreement, whereby a company purchases a block of service for a fixed monthly or annual fee, is a little more challenging. While it may not be possible to fully define the scope of work that may be performed over the course of a month or a year, it is important to define the types of assignments that will be allocated to the service provider and establish clear expectations for response times. Use of service hours should also be closely monitored, regularly, and adjusted as needed to better match the service needs of your facility. Otherwise, you may find yourself at the end of the year wondering what kind of value you received for your investment.
Best Practice Number 4: Preserve your best resources.
In the event of a wholesale replacement of a large part of the in-house team, it is important to find an outsource partner who is willing and able to absorb your best resources. In this way, you can retain some of the institutional knowledge and mitigate some negative emotional impact from the downsizing.
Best Practice Number 5: Choose a reliable and established service provider.
Look for a bigger, more diverse (technically and geographically) partner. You may love your local two-person shop, especially if it was formed by former employees. But while you may see some modest improvement in costs, most small shops won’t be able to bring the new solutions and new technologies to bear. At best, they can keep your legacy systems going (probably longer than you should keep them around, given the rapid pace of technology).
The larger, more diverse service providers that can invest in resource development can provide people who are well-trained and well-versed in emerging automation trends and technologies. And most larger service providers will be willing to work collaboratively with your favorite local provider, so that you can get the best of both worlds: people who know the new technologies working side-by-side with people who know your facility and legacy systems.
Best Practice Number 6: Hedge your bets.
Consider keeping at least two service providers on long-term contract or master services agreement, and possibly more. Some large companies will establish contracts with as many as four or five systems integrators, so that the individual plants have the flexibility to choose the integrator that fits best with their local technology framework and plant culture.
If you do have more than one integrator available to you through established contracts or agreements, consider allocating the available work among them over the course of the year so that you do not become captive to one service provider. In this way, you will be able to gain the cost and performance benefits of competition while building institutional knowledge in all of your services partners. Finally, be prepared to regularly review the performance of your pool of integrators and replace those who are not performing well.
Less lead time, lower cost
The benefits of outsourcing controls and systems integration services to complement and supplement your internal team can be quite substantial. Choosing the right partner for the right tasks can help you reduce the costs, shorten the lead time, and improve the performance of new automation solutions. But the risks of choosing the wrong partner for the wrong reasons can also be significant. A carefully structured business process for acquiring, developing, retaining, and replacing contract resources can help you maximize the benefits and minimize the risks of outsourcing systems integration services.
- Cherri J Schmidt is strategic account manager, TEC Systems Group. Edited by Mark T. Hoske, CFE Media, Control Engineering, Plant Engineering, and Consulting-Specifying Engineer.
About the author
Cherri J Schmidt is an experienced manager and leader with more than 25 years’ experience in advancing the use of automation and information technology for improving manufacturing and supply chain operations. From the early days of computer integrated manufacturing (CIM) to the present, she has been helping manufacturing companies in a wide range of industries to develop strategies that will produce a competitive advantage through manufacturing technology; justify complex technology investments; and establish the policies and practices that help transform organizations to effectively manage these solutions. With an engineering degree from Georgia Tech, she also holds an MBA from the Harvard Business School. Schmidt leads the marketing and business development efforts for TEC Systems Group.
About TEC Systems Group
Headquartered in Wichita, Kan., the TEC Systems Group has provided Fortune 500 processing companies with electrical, engineering, automation, and software services since 1984. Hallmarks of the company include a successful track record of outstanding service to clients throughout North America and beyond. TEC is well known for productive, long-term relationships. The company’s first customer is still a customer today.
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2012 Salary Survey
In a year when manufacturing continued to lead the economic rebound, it makes sense that plant manager bonuses rebounded. Plant Engineering’s annual Salary Survey shows both wages and bonuses rose in 2012 after a retreat the year before.
Average salary across all job titles for plant floor management rose 3.5% to $95,446, and bonus compensation jumped to $15,162, a 4.2% increase from the 2010 level and double the 2011 total, which showed a sharp drop in bonus.