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Why is the Automation market declining?
My latest article : "Why is Industrial Automation Declining?" is at http://www.jimpinto.com/writings/iadecline.html ...

Automation Listers : Industrial automation markets are declining and have been for a few years. As a result, all the majors are all scrambling, looking for new markets, mergers and consolidation as a means to survive. My recent articles on this subject have stirred up a lot of discussion. I have had several related e-mails about the points I raised. I'd like to particularly thank Doug Jensen, <jensen@real-time.org> Chief Scientist, Information Technologies Directorate, The MITRE Corp., whose recent e-discussions stimulated a Q&A format and renewed thinking in my latest article : "Why is Industrial Automation Declining?" Why are industrial markets not growing? Why are margins shrinking? Is the decline temporary? Is the malaise worldwide? I hope this article helps to answer these questions. You can review this article on the web at : http://www.jimpinto.com/writings/iadecline.html I'll appreciate comments and suggestions. Cheers: jim ----------/ Jim Pinto email : jim@jimpinto.com web: www.JimPinto.com San Diego, CA., USA ----------/

By Michael Griffin on 12 September, 2000 - 9:27 am

At 11:55 11/09/00 -0400, Jim Pinto wrote:
>Industrial automation markets are declining and have been
>for a few years. As a result, all the majors are all scrambling,
>looking for new markets, mergers and consolidation
<clip>
I read your article. I wasn't aware that these companies were in such dire straits. However, I have a few disagreements with some of your explanations.

You wrote:

>Q: Your articles don't explicitly address the actual reasons why "the
>industrial automation market has shrinking margins, a flat worldwide market
>and no organic growth". And why "older core businesses continue to shrink
>and lose money."
<clip>
You follow this with another question, and then procede to explain it as follows:

>1.Fewer new process plants and factories are being built in the US. <clip>
The question asked why a *worldwide* market would show no growth. Theories which center on one country or region cannot explain this.

>2.Falling prices: older control systems were based on custom technology;
>today they are commercially available products, protocols, operating
>systems and software. <clip>
This is part of the explanation. If prices are falling, then volume can grow without revenue growing. However, it it worth noting that the prices of "custom technology" are also falling, not just those using "commercially available" (I believe you mean third party) products. PLCs are as proprietary as you can get, and their prices have fallen dramatically in the past few years. Today's Micro-PLCs can do the same job (or more) as their larger equivalents of a few years ago, yet they sell for far less.


>3.Most IA equipment is quite reliable and tends to be under-utilized.
>Steel plants and oil and gas refineries are often not refurbished <clip>

This is simply saying that the process industry market is cyclical, it doesn't indicate a long term decline (if this is what you are trying to suggest). To this you should add the Asian economic problems (from which they are now recovering) which put a crimp in the growth of certain basic industries. However, the question was about "industrial automation" in general, not just process industries. General theories cannot be constructed from narrow samples.


>4.It's clear that an oil-refinery should be built near the oil-resources.
>Similarly, steel plants should be near the source of raw materials.

Actually, this is by no means clear at all. If this were the case, we would expect to see the main growth in the steel industry to be in Canada and Australia, where major iron and coal resources are located, not in the far east which has been importing these resources.
The main growth in steel demand has been in the developing world. The steel industry has been locating where its customers are. Chemical
industries have been doing the same, but influenced to some extent by the desire of oil producing regions to use their control of supplies to capture more of the downstream business for themselves.


>5.US development costs are high. The third-world countries (India, China,
>Far East) have good skills at a much lower cost. IA products (software &
>hardware) are being developed (and copied) elsewhere.
Also
>6.US overheads are high, by comparison. <clip>

OK, but I thought we were talking about *worldwide* markets, not just US markets. Problems for US companies do not automatically translate into problems for everyone else.


>Q: R&D generates growth. So, why have the IA majors cut R&D?
>A: When growth slows, R&D is often the shortsighted part of the first cut.
>But, it goes beyond that. From a pragmatic IA marketing standpoint, it
>seems that there is too much technology chasing too few real needs. <clip>

This is perhaps a little closer to the mark. There has been a lot of *useless* technology developed. That is technology has been developed which doesn't solve the problems which customers need to have solved. The industrial automation industry will suffer until these bad investments are liquidated over time.

>new IA technology that increases shop floor throughput by 10% is
>simply doomed to failure.

New general purpose IA technology which by itself increased shop floor thoughput by 10% would be a spectacular improvement in any application I am familiar with. I can't recall seeing a single instance of where application of new IA technology (as opposed to proper application of existing technology) has generated improvements of that magnitude. Unfortunately, improving a production process significantly is seldom as easy as installing a new PLC or drive and turning the speed up.
Most new IA technology has simply allowed us to do what we have already been doing cheaper and easier than ever before. The item which has
made the most difference to the sort of machines I am familiar with is the low cost operator interface panel (display screen and keypad). This has gone from being a luxury to a standard feature. The main benefit is to provide far better diagnostic information to the operator making trouble shooting problems much quicker. I would be surprised to see even this gain us 10
percent throughput though.


>Faster computers and better software do not seem to yield improved
>productivity in a steel mill or a polyethylene plant.

To put this a little more directly, demand for much of the industrial automation market is relatively inelastic. Lower prices and
higher performance may make it more economic to include a higher level of control system content, but it will never by itself generate whole new
demands. It *may* occasionally create some additional demand by making certain projects technically or economically practical, but this market is small. Overall demand (at least in the industries I am familiar with) is driven by the need to control a machine whose existance is largely justified by other considerations.


>Q: If R&D is cut, where will innovation come from?
>A: It is difficult, if not impossible, to generate real innovation midst
>the bureaucracy of a large company. The only way to get it seems to be
>by buying smaller companies. This is true is other businesses too -
>CISCO, HP, EMC and others in the Internet & telecom equipment arena
>have grown significantly through acquisition.

These companies may have grown by aquisitions, but the aquisitions did not create the demand or the technology. The internet business is a bad analogy anyway. Much of what is going on there (in terms of aquisitions) is
driven by the ability of a small number of companies to buy other companies with inflated stock. Also beware of the supposed market capitalisation of some of the more spectacular internet companies. Their figures are typically
based on narrow trading of comparatively small floats. There is at least as much creative accounting and financing going on in the internet world as there is creative technology.


>Q: So, how can industrial automation companies grow? It seems to me that
>the real impetus for change in the IA world has shifted from the factory
>floor (productivity and throughput) to enterprise integration. <clip>
>A: Growth-orientated IA companies are indeed expanding beyond the
>traditional boundaries, to generate new growth through
>enterprise-integration. <clip> "sensor to boardroom" <clip>

This strikes me as the technology area where industrial automation companies are most lacking. It is something of genuine benefit to customers which can generate new sales based on its own merits. It also strikes me as the one in which these companies show the least understanding of what people need.
There has been a lot of talk about "putting valves on the internet", but I don't think people want to web-browse around between valves. They want systems which can gather the overwhelming amount of information which can be
generated by dozens or hundreds of machines and boil it down to something useful they can act on. There are a lot of pieces which need to be in place for this to happen, and not many of them currently exist in a useful form.


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

you wrote:

> Most new IA technology has simply allowed us to do what we have already been doing cheaper and easier than ever before.

I have to disagree pretty strongly with that statement: not only are companies able to produce MORE than we used to, we are also able to do it with fewer personnel, which suggests a more dramatic improvement in throughput than might be obvious.

Yes, we are able to do things cheaper and easier, but I have yet to hear of a company who isn't able to produce more now, with fewer workers, than they used to. Now, I will agree that a SINGLE automation project is unlikely to produce anything close to a 10% increase, but I think Jim's thought may have been more toward the larger picture: the effect of Industrial Automation in general.

By Al Pawlowski on 12 September, 2000 - 2:00 pm

If the Automation market is declining and not being knowledgeable about economics, I wonder if newer IA products are simply too good at enhancing industrial productivity (that holy grail).

Seems reasonable that IA device purchases should decrease if the increase in industrial product demand is less than the increase in productivity provided per new IA device.

Then, to increase profit, IA device manufacturers need to increase margin per device. This could be done by increasing unit prices or decreasing manufacturing costs. Maybe today it is harder to decrease manufacturing costs than gaining price setting ability through increased market share. Could this be a part of the drive behind the increased IA consolidations?

Maybe manufacturers could increase demand by investing in less wealthy populations vs increased R & D (productivity enhancing technology). Say specially low pricing for water treatment plant products in third world countries. Could that be part of the Japanese thinking in regards to apparently high investment in third world infrastructure projects?

Another thought. Could increases in productivity via new technology be part of the drive behind the increasing distrust of tecnology in today's general population, a built-in, unconscious negative feedback mechanism?

Hey, don't blast me too hard if you think this post is wasting your time. Hope I don't do that too often. Maybe the Louisiana heat is affecting my brain today.

By Ralph Mackiewicz on 13 September, 2000 - 3:30 pm

> Another thought. Could increases in productivity via new technology be
> part = of the drive behind the increasing distrust of tecnology in
> today's general = population, a built-in, unconscious negative
> feedback mechanism?

About this I have 2 comments: 1) I don't know that there is in fact a "real" increase in the distrust of technology among the general
population. I think that there is an "appearance" of mistrust based on the generally poor and ignorant coverage that the mass media provides on technology issues. 2) The poor and ignorant mass media coverage will eventually feed some mistrust (self-fulfilling prophecy) but as technology becomes more pervasive and people experience the benefits, the mistrust will be displaced onto the mass media that fed them the bad info (where it belongs).

Regarding the decline in the IA market: It seems inevitable. As mainstream technology advances (Ethernet, PCs, etc.) the price/performance of it will overcome the disadvantages of using
mainstream technology in IA applications (packaging, environmental, etc.). The big guys essentially live off the fact that there are
applications for IA technology not served by the mainstream technology.

And you don't even have to examine globalization issues to see the decline in the IA market (although those factors are very significant). 10 years ago nearly every system we did had a PLC in it bought from a big IA company. Now, hardly any use PLCs. And the stuff going in now is not bought from the big vendor anymore because they
are not competitive with the new equipment that is getting bought. While my company is not large enough to have any macro effects on the market, if you add it up over the thousands of integrators in the market who are in a similar position it makes a difference...a big
difference.

Productivity improvements can negatively affect the IA market in another way. One of the major values that the large control vendors deliver is improved productivity for implementing systems. If
productivity continues to increase substantially, the value of the productivity savings declines proportionally. The counter to this is reduced prices (lower margins) to try and maintain the proportional savings.

I'm not convinced that moving into enterprise integration will successfully stem the decline at these companies. Their existing products give them little or no advantage in this market. One
advantage they currently have is a strong sales force. However, this advantage will fade away quickly as the large companies inevitably abuse their existing sales force as the market declines and margins collapse. They could close off access to the systems/products that they produce so that customers wanting enterprise integration will be
forced to go to them. But I doubt that this strategy will work anymore because it will alienate the customer base.

Is there a winning strategy to survive as a big iron IA vendor with high-growth and large margins? Would any strategy short of
abandonment/liquidation have saved a typewriter supplier? At some point it becomes like beating a dead horse: its not going to move no matter how hard you hit it.

Regards,
Ralph Mackiewicz

SISCO, Inc.
6605 19-1/2 Mile Road
Sterling Heights, MI 48314-1408 USA
T: +810-254-0020 F: +810-254-0053
mailto:ralph@sisconet.com http://www.sisconet.com

By Anthony Kerstens on 13 September, 2000 - 3:40 pm

>..... Would any strategy short of
> abandonment/liquidation have saved a typewriter supplier? At some
> point it becomes like beating a dead horse: its not going to move no
> matter how hard you hit it.

I agree, but while people are beating dead horses, I certainly plan to be looking towards other ways of earning an income. After all, when
the automobile took over as transportation, did blacksmiths continue making horseshoes?

People should stop worrying about the stability of the market and concern themselves with what they are going to do when the next wave comes around. Who cares if a manufacturer goes under (aside from the employees).

Where and when that wave comes I don't know. Whatever it is, it will still have a wire attached to it, and it will need to be programmed or configured. That's what matters.

Anthony Kerstens P.Eng.

It will probably be wireless. ;-)


Anthony Kersten wrote :

>> ... Where and when that wave comes I don't know. Whatever it is, it
will still have a wire attached to it, and it will need to be
programmed or configured. That's what matters.<<

By Anthony Kerstens on 22 September, 2000 - 3:35 pm

Off topic, but sensor power still needs to be delivered and so, why bother with wireless when you have to run a pipe anyway? And if sensor power does end-up being wireless don't count on me being anywhere near it! I don't need the burns and excessive warm feeling. :-)

Anthony Kerstens P.Eng.

Anthony Kersten wrote :

>> while people are beating dead horses, I certainly plan to
be looking towards other ways of earning an income.
Where and when that wave comes I don't know. Whatever it is, it will
still have a wire attached to it, and it will need to be programmed or
configured. That's what matters.

Jim Pinto :

That's the right attitude!
There aren't any "typewriter repairmen" anymore, but I know a lot of successful people who moved on to use their skills at something better in the "new economy".

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Dave Ferguson on 20 September, 2000 - 3:40 pm

Here, here..... I agree with Jim and Anthony, today is the good old days of tomorrow. Be open to change and new technology after all the tractor is the automated robot (ox) of yesterday.

I spent a 5 year career caught up every day in downsizing worries, layoff tension etc. and left. 10 years later I would have missed no work at my
former employer. what a waste of time worrying. Have an open mind to change and move forward not backwards. In this industry, we all like it for the challenge...........this is just another challenge, enjoy it, life is boring without challenges.

Dave Ferguson
Blandin paper Company
UPM-Kymmene
DAVCO Automation

By Paul Gruhn, P.E. Moore Process Automation Solutions on 21 September, 2000 - 3:20 pm

Makes me think of the recent book, "Who moved my cheese?". Embrace change or become extinct.


>Have an open mind to change
and move forward not backwards. In this industry, we all like it for the
challenge...........this is just another challenge, enjoy it, life is boring
without challenges.<

<clip>
>And you don't even have to examine globalization issues to see the
>decline in the IA market (although those factors are very
>significant). 10 years ago nearly every system we did had a PLC in it
>bought from a big IA company. Now, hardly any use PLCs. And the stuff
>going in now is not bought from the big vendor anymore because they
>are not competitive with the new equipment that is getting bought.
>While my company is not large enough to have any macro effects on the
>market, if you add it up over the thousands of integrators in the
>market who are in a similar position it makes a difference... a big
>difference.
<clip>

I keep hearing about all the customers who are abandoning PLCs but haven't seen it in my markets. Maybe our old school clients are just
resistant to change... I must agree with the general theme of this thread unfortunately, that
is the IA market is not a "growth industry". Where our practitioners will land in 5 years (including myself) is the $64,000 question (or is
it the $1,000,000 question, allowing for inflation and Regis' "final answer?").

Russ Kinner
AVCA Corporation
Maumee, OH

> I keep hearing about all the customers who are abandoning PLCs but
> haven't seen it in my markets. Maybe our old school clients are just
> resistant to change...

I haven't been in this market long, and I'm actually more on the software/development side rather than out there in the field, but my boss,
who does have the experience, was mentioning to me about how the different geographic regions of the US use very different hardware sets.

In the midwest, PLCs abound, while on the west coast, and to a lesser extent on the east coast, PCs are much more common place. The fact that my
company, with offices in California, tends to sell more to the midwest, fits into this nicely. Our main piece of hardware, a "smart" operator terminal (where one can do some pretty complex programming along with merely displaying items from an attached PLC or motion controller) is a much harder sell in California, because people like to use PCs.

By Ralph Mackiewicz on 20 September, 2000 - 3:44 pm

> > And you don't even have to examine globalization issues to see the
> > >decline in the IA market (although those factors are very
> > >significant). 10 years ago nearly every system we did had a PLC
> > in it bought from a big IA company. Now, hardly any use PLCs. And
> > the stuff going in now is not bought from the big vendor anymore
> > because they are not competitive with the new equipment that is
> > getting bought. While my company is not large enough to have any
> > macro effects on the market, if you add it up over the thousands of
> > integrators in the market who are in a similar position it makes a
> > difference... a big difference.
>
> I keep hearing about all the customers who are abandoning PLCs but
> haven't seen it in my markets. Maybe our old school clients are just
> resistant to change... I must agree with the general theme of this
> thread unfortunately, that is the IA market is not a "growth
> industry". Where our practitioners will land in 5 years (including
> myself) is the $64,000 question (or is it the $1,000,000 question,
> allowing for inflation and Regis' "final answer?").

I'm not suggesting that the market is abandoning PLCs. Just that the market is changing and that general purpose computing technology has advanced to the point where it can replace some of the application niches that were served exclusively by PLCs several years ago. This might contribute to the perception of a decline in the iA industry.

P.S. People have been predicting (incorrectly) the demise of the PLC since 1982 (I think it was 1982). That year there was a paper at the PLC show in Detroit by G&L that stated that relay ladder was dead because boolean state languages were far superior and special purpose controls would completely supplant general purpose controls like PLCs. Once again, buyers ended up being smarter than those making predictions.

Regards,
Ralph Mackiewicz
SISCO, Inc.

By Dave Ferguson on 20 September, 2000 - 8:28 am

The other issue that I predicted that is kind of happening and everyone has forgotten is that there were huge Y2K issues and budgets and resources that were spent. The IT industry is also
experiencing this to some degree.

I don't know about you but we spent ridiculous amounts of money on Y2k and of course everyone climbed on board and bought all kinds of "extras". Now we are in a position of tighter budgets.

We are all paying the price for this "preparedness". Is this having some effect on the IA market......?

Just a thought......

Dave Ferguson
Blandin Paper Company
UPM-Kymmene
DAVCO Automation

There are many interesting points and replies to this subject. It was disheartening to read the initial report showing my industry heading downhill just as we are entering a new revolution of technology.
I remain cautiously optimistic. On one hand, the technology available can make better, more efficient manufacturers. The internet will never make razors, or cars, or barbecue grills, so manufacturing will always be a necessity. On the other hand, I have seen, especially in the automotive industry, many customers that are slow or even unwilling to accept new improvements to their plants. "It ain't broke, don't fix it" is soon followed by "Why are the Japanese building cars at such a high efficiency rate." As mentioned in the article, I have too many times seen short sighted business plans of cutting R&D and development spending to just maintain the plant a while longer. Many senior executives are just on a step waiting to move up so they look for short term gains, fat cutting, and good returns to get their next promotion. A new platform PLC5 is a vast improvement in programming and troubleshooting over a PLC2, yet how many PLC2s out there are still running - like the article says, the plant will continue to run and produce product, so how do you convince them to adopt new ideas and technologies?
I hope that some of the optimistic views expressed here are passed on to plant management, and for all of you working in plants, please consider this: The technology is here to make a quantum leap in manufacturing, increasing flexibility, efficiency and reducing costs to consumers. You can make your products better and more affordable if you take a far sighted approach to embracing the new revolution of information and automation systems.
I hope that this cry doesn't fall on deaf ears, both for the sake of my engineering and integration services and for the benefit of American manufacturing and the economy as a whole.
(stepping down off my soap box)

By Anthony Kerstens on 1 November, 2000 - 2:30 pm

One thing I've seen (in automotive companies) is
an attempt to follow the Japanese model of team
and "employee empowerment".

Such methods require a high commitment, not just
from management, but also from the employees. Some
of the automotive companies that I know of that
attempted this met with little success. In fact,
going down this particular garden path diverted
attention, resources, and funds away from the
task at hand and the bottom line.

I wonder if this sort of thing is a contributing
factor to decline in the automation market? If it
is, how important a factor?

Anthony Kerstens P.Eng.

Anthony Kerstens suggests :

>One thing I've seen (in automotive companies) is
>an attempt to follow the Japanese model of team
>and "employee empowerment".
>I wonder if this sort of thing is a contributing
>factor to decline in the automation market? If it
>is, how important a factor?

Jim Pinto comments :

I am surprised that Anthony thinks this might be a
contributing factor for *decline* - rather than growth!

Indeed, the age of the web-communications (personal email, B2B, B2C) is the age of employee empowerment! People who have NOT empowered their employees have suffered badly! The high-growth, high-tech companies (CISCO, EMC, HP) could not survive without employee ownership and empowerment!

Jack Welch of GE (although he was known as "neutron Jack" - eliminating lots of people) converted GE from the stuffed-shirt syndrome to an empowered leader. The people who could not or would not take charge were eliminated.

Anthony is right about this :

>Such methods require a high commitment, not just
>from management, but also from the employees.

Jim :

Absolutely - commitment from both sides!
Empowerment is people "taking responsibility" for their own work and results - and unfortunately, some employees just don't seem to be able to do that!

Anthony :
>Some of the automotive companies that I know of that
>attempted this met with little success. In fact,
>going down this particular garden path diverted
>attention, resources, and funds away from the
>task at hand and the bottom line.

Jim :
IMHO - the programs of employee-ownership for major companies such as GM, Delta, United and others - have saved those companies from going downhill.

Japanese "empowerment" was an extension of their earlier "lifetime employment" which was not successful. Employee-ownership and empowerment was originated in the United States.

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Anthony Kerstens on 3 November, 2000 - 1:36 pm

The question I tried to ask, but perhaps not so
clearly, was about the _attempt_ by companies
to follow the Japanese model.

Jim, let me restate my question:

I wonder if the attempt and subsequent failure
to implement management models (not necessarily
Japanese) is a contributing factor to decline
in the automation industry?

In one specific example I can think of, a
significant amount of training, reassignment
of resources, and expenditure of funds led to
dismal failure. Why? Not because the Japanese
model was bad, but the implementation was
not met by the commitment required. There was
not just a lack of commitment, but general
hostility toward those that showed interest. The
subsequent failure in fact made the situation worse.

Jim, you mention specific successes. Are there
any failures, and how big an affect did they have
on the automation industry?

Anthony Kerstens P.Eng.

Anthony Kerstens <akerstens@zarpac.com> restated
his earlier question :

>I wonder if the attempt and subsequent failure
>to implement management models (not necessarily
>Japanese) is a contributing factor to decline
>in the automation industry?
>In one specific example I can think of, a
>significant amount of training, reassignment
>of resources, and expenditure of funds led to
>dismal failure. Why? Not because the Japanese
>model was bad, but the implementation was
>not met by the commitment required. There was
>not just a lack of commitment, but general
>hostility toward those that showed interest. The
>subsequent failure in fact made the situation worse.

>Jim, you mention specific successes. Are there
>any failures, and how big an affect did they have
>on the automation industry?

Jim Pinto responds :

Yes, there has been a lot of re-alignment and effort at re-organization to develop employee ownership and empowerment. I am sure that this indeed absorbed a lot of resources. However, I cannot think of any failures that resulted specifically from this effort and wasted resources in this type of involvement.

Off-line, I received one wise-crack (at least I think it was a wise crack, and not serious) that "employee-ownership" was not an American idea - it was invented by a German (presumably Karl Marx) and implemented by the Russians
(presumably Communism).

Seriously, there is a subtle and significant difference between "collective ownership" and "employee-ownership". The former reduces emphasizes the "collective" - the State; the latter emphasizes the individual Employee-owner, who becomes individually responsible and accountable.

As you can tell, I am passionately in favor of individual-empowerment and employee ownership! I have seen significant success, (and admit that I am probably blinded to the failures).

<soap-box on>
I strongly advise Engineers everywhere to rise up, and demand stock options, ownership and equity-sharing plans! Or else, start your own company!
<soap-box off>

Cheers :
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

Hmmm. I don't see it that way. Not that employee empowerment doesn't make some sense, but I don't see it as the key to success in the "new" e-commerce world.

I would argue that B2B and B2C is primarily software marketing hype. Check out the companies in that sector. Check out how the overwhelming majority of companies are doing supply chain management. Note the fact that there is not a
clear standard for B2B and B2C. Vaporware and hype.

EDI is still the prevalent form of inter-company transactions. The web provides a better way of viewing downstream forecasts, but it is still not linking the supply chain.

Cisco has a unique business model. I don't see employee empowerment being the key to what their doing. They extend their enterprise systems into their supplying plants.

I think automation is more affected by cheap labor than it is modern management techniques.


From: Jim Pinto <jim@JIMPINTO.COM> :

Anthony Kerstens suggests :

>One thing I've seen (in automotive companies) is
>an attempt to follow the Japanese model of team
>and "employee empowerment".
>I wonder if this sort of thing is a contributing
>factor to decline in the automation market? If it
>is, how important a factor?

Jim Pinto comments :

I am surprised that Anthony thinks this might be a
contributing factor for *decline* - rather than growth!

....<clip>

David K. <drklebe@webdock.net> e-wrote :

>I hope that some of the optimistic views expressed here are passed
>on to plant management, and for all of you working in plants,
>please consider this: The technology is here to make a quantum leap
>in manufacturing, increasing flexibility, efficiency and reducing
costs
>to consumers. You can make your products better and more affordable
>if you take a far sighted approach to embracing the new revolution of
>information and automation systems.

Jim Pinto, uncomfortable that his original article is seen primarily as a negative warning, writes :

I am delighted that David has presented this response!
The industrial automation business serves Customers (the end-user) through bringing increased Productivity. Everything else is incidental!

David K continues :

>I hope that this cry doesn't fall on deaf ears, both for the sake of
>my engineering and integration services and for the benefit of
American
>manufacturing and the economy as a whole.

Jim Pinto :

Thank you, David - I must tell you that I have had a lot of personal feedback that presents the positive and hopeful side!

It is my belief that growth is indeed coming - through agile and innovative new companies, who see what is needed and are utilizing new technology to bring results for their Customers. These are the people who succeed!

Cheers;
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Davis Gentry on 12 September, 2000 - 2:03 pm

--- Michael Griffin <mgriffin@ODYSSEY.ON.CA> wrote:

> >new IA technology that increases shop floor
throughput by 10% is simply doomed to failure.
> >
>New general purpose IA technology which by itself
increased shop floor thoughput by 10% would be a
spectacular improvement in any application
> I am familiar with. I can't recall seeing a single
instance of where application of new IA technology (as
opposed to proper application of
> existing technology) has generated improvements of that magnitude.

Our newest motion control board, due to changes in
firmware and addition of lookahead, allows
improvements in complex motion (cutting, grinding,
robotics) on the order of 4-5x (in terms os time
required to finish complex task) using the exact same hardware otherwise. We also usually see large improvements in production on older machines
retrofitted with our previous generation cards as
well, though perhaps not to that magnitude. We're
certainly seeing growth - but we're not process
control, either.

Davis Gentry
Applications Engineer
Delta Tau Data Systems
Eastern Office
Richmond, Virginia

By Michael Griffin on 13 September, 2000 - 12:51 pm

<clip>
>>New general purpose IA technology which by itself increased shop floor
>>thoughput by 10% would be a spectacular improvement
<clip>
AND

>> Most new IA technology has simply allowed us to do what
>we have already been doing cheaper and easier than ever before. <
<clip>

I've had a few replies to these points both on and off list. I don't want to flog this issue to death as it wasn't the main gist of the
discussion. I do want to make it clear what new technology can or cannot do for us.

I didn't say that it was *impossible* to get improvements simply by applying new technology, rather I said:

1) A 10 percent improvement in "shop floor throughput" would actually be a very significant improvement. Note I am not referring to an improvement in some narrowly defined characteristic. Rather I mean 10 percent more parts coming out the end of the machine or production line. This is the only realistic measure of "shop floor throughput".

2) This is very hard to actually achieve by by applying *new technology* from a typical industrial automation company (e.g. AB, Siemens,
Omron etc.) to an existing production process.

3) It is rare enough that I've never actually seen it done (although I have heard people say they have done it). Note I am not saying it is impossible, rather it is just so uncommon that I have not yet seen it. I have seen (and made) improvements of more than 10 percent in machine (and line) throughput, but not due simply to applying new industrial automation
technology to an existing process. When making comparisons, we must make sure we distinguish between improvements due to new characteristics of
technology, and improvements due to better *application* of technology (existing or new).

4) Most new (i.e. within the last 5 years) industrial automation technology has concentrated on making things cheaper and easier to use. I am not saying that this is bad - cheaper and easier to use is a good thing and
well worth having. However, a faster PLC will not make a typical machine run significantly faster.


The point is though that it is wrong to blame slow sales on "new IA technology that" (only) "increases shop floor throughput by 10%". Most custumers would welcome 10 percent improvements that can be bought off the shelf.
Opportunities for such easy gains are really rather rare and so will not generate significant new sales except in certain specialised applications. Several gentlemen have written to me to state that high end motion control is one such exception. There may be others as well.

Overall demand for most products will be dictated by factors outside the control of the industrial automation companies. I stated in my previous letter that "demand for much of the industrial automation market is relatively inelastic" because the demand for products for new machine applications is dictated by demand for the machines they will be incorporated in. I believe I have demonstrated above that it is difficult to generate significant new demand for retrofit applications based on performance improvements.

Inelastic demand has two sides to it. The one side is that higher prices do not have a strong effect on demand. This is nice if you have
enough of a hold on the market to make these price increases stick. The other side of the coin though is that falling prices are not necessarily
compensated for by increases in sales volumes.

What companies do need new technology for is to maintain their competative position relative to one another. If new technology has made products "cheaper and easier to use", then this will be an important selling point when choosing between similar products.
If a company cuts back drastically on R&D, the likely result is there will be no immediate result (except an improvement in profitability). Eventually though, there will be a steady erosion of sales as customers gradually switch to cheaper and easier to use alternatives.


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

By Greg Goodman on 13 September, 2000 - 2:15 pm

> When making comparisons, we must make
> sure we distinguish between improvements due to new characteristics of
> technology, and improvements due to better *application* of technology
> (existing or new).

This brings up an interesting question. How do we distinguish between a new technology and a better application of an old technology? Say I
improve throughput by replacing a single PLC that's trying to control too much with several autonomous PLCs (of the same make and model), each
dedicated to a portion of the task and coordinating activity between them. Have I better applied my old PLC technology, or have I applied a new distributed control technology? If I replace an ancient piece of software with a better-designed one - even one written in the same
language, but using more modern design methodologies or algorithms - have I just used my existing Intel PC and 'C' compiler technology
better, or have I applied the new software technology of object-orientation?

--
Greg Goodman
Chiron Consulting
chironsw@swbell.net -- http://www.swbell.net/chironsw -- (713) 869-6876

By Michael Griffin on 18 September, 2000 - 10:55 am

At 11:33 13/09/00 -0500, Greg Goodman wrote:
<clip>
>How do we distinguish between a
>new technology and a better application of an old technology?
>If I replace an ancient piece of
>software with a better-designed one - even one written in the same
>language, but using more modern design methodologies or algorithms -
>have I just used my existing Intel PC and 'C' compiler technology
>better, or have I applied the new software technology of
>object-orientation?

The question is, could you have done the same thing just as effectively with products that were available 5 years ago? The discussion
concerned *new technology* from traditional industrial automation suppliers, not something you created yourself.
For example, I have increased machine throughput by more than 10 percent just by re-writing the control program to reduce software overhead. I didn't apply any *new technology*, I just carefully applied good, well known software techniques to the problem.

>Say I
>improve throughput by replacing a single PLC that's trying to control
>too much with several autonomous PLCs (of the same make and model), each
>dedicated to a portion of the task and coordinating activity between
>them. Have I better applied my old PLC technology, or have I applied a
>new distributed control technology?
<clip>
As another example, we have recently conducted a retro-fit which did something similar to that. We wanted to improve the reliability and
maintainability of certain machines, and the most practical way to implement the changes was to replace the original central PLC with several micro-PLCs installed in what had been the terminal boxes on the machines.
We reduced cycle time by about 15% (this was a side effect though, rather than the true intention of the project). This was *not* a benefit of new technology, even though the new PLCs were newer models than the original. We could have accomplished the same thing with hardware of the same era that the original was constructed with. Without dwelling on the details, it can be said the new hardware was in many ways a "lower tech" solution than the original.
The new hardware made this project *easier and cheaper* by being so compact that we could fit them in the existing terminal boxes. However, we could still have accomplished it somehow with older hardware.

I would define a gain as being due to a *new technology* if the improvement would have been impossible without hardware or software which
has recently become available. This was not the case in either of the previous examples.


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

By Davis Gentry on 18 September, 2000 - 2:56 pm

>Michael Griffin wrote:
> I would define a gain as being due to a *new
> technology* if the improvement would have been
impossible without
> hardware or software which has recently become
available.

I would disagree to some extent with this definition - rather than the term "impossible" I would substitute the term "economically unfeasible". It is possible that you could have solved the problem you listed at the time using existing technology, but could you have done it for a price tag that made it worth it? One of
the most important changes in technology is the
current ability to manufacture systems or components for small fractions of what a comparable unit would have cost 15 years ago. This all means that you can put sensors or processors in places you would never have considered doing so in the past. This seems to
me to be an important technological advance.

Davis Gentry
Applications Engineer
Delta Tau Data Systems

At 08:21 PM 9/13/2000 -0400, you wrote:

> As another example, we have recently conducted a retro-fit which did
>something similar to that. We wanted to improve the reliability and
>maintainability of certain machines, and the most practical way to implement
>the changes was to replace the original central PLC with several micro-PLCs
>installed in what had been the terminal boxes on the machines.
> We reduced cycle time by about 15% (this was a side effect though,
>rather than the true intention of the project). This was *not* a benefit of
>new technology, even though the new PLCs were newer models than the
>original. We could have accomplished the same thing with hardware of the
>same era that the original was constructed with. Without dwelling on the
>details, it can be said the new hardware was in many ways a "lower tech"
>solution than the original.
> The new hardware made this project *easier and cheaper* by being so
>compact that we could fit them in the existing terminal boxes. However, we
>could still have accomplished it somehow with older hardware.

It could be argued that without the benefit of a small and powerful (new technology) PLC, that you might not have been able to justify the cost for the upgrade. 5 years ago, you might have needed to install larger boxes and a more expensive PLC
to do the same job.

Many of these new micro PLC's are also equipped with powerful networking capabilities, which they actually benefit from more than a larger PLC. This also makes retrofits more attractive.

Bill Sturm

We're having a lot of discussion on whether or not 10% productivity improvements are possible, by new technology or improvements in old technology.

I think we're missing the original point I made.
Quote from the original article :
"From a pragmatic IA marketing standpoint, it seems that there is too much technology chasing too few real needs. Because the training and logistics burden is high, new IA technology that increases shop floor throughput by 10% is simply doomed to failure. Faster computers and better
software do not seem to yield improved productivity in a steel mill or a polyethylene plant. "

The fact of the matter is that *any* productivity improvements that can be yielded by automation are minor, when compared to the total cost and productivity.

A major revolution occurs when the cost/productivity improves by 10 times - yes, let me repeat *10 times*. How will that be possible? For example, by new manufacturing technologies like self-organizing control systems,
Nanotechnology.

Hey, friends, let's stop discussing how the deck-chairs on the Titanic were arranged.....

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

I am pleased with the response to my "Automation in Decline" article! It seems to have struck a chord - hopefully the right one....

Michael Griffin brought up several comments and suggestions:

>The question asked why a *worldwide* market would show no growth.
>Theories which center on one country or region cannot explain this.

<jim>
Yes, I recognize that my information is centered around the US market - because that's still the largest market (and it's flat) and the source of a lot of world-exports. The three primary regions of the world are North America, Europe and Far East. In a relatively brief article (length limitations for publication, both in print and on the web) it is difficult to be comprehensive.

<Michael>
> If prices are falling, then volume can grow without revenue growing.
> However, it it worth noting that the prices of "custom technology"
>are also falling, not just those using "commercially available"
>(I believe you mean third party) products. PLCs are as proprietary as
>you can get, and their prices have fallen dramatically in the past
>few
years.
>Today's Micro-PLCs can do the same job (or more) as their larger
equivalents
>of a few years ago, yet they sell for far less.

<jim>
Unfortunately, volume is NOT growing with the price reductions - so sales (price x volume) is - in some cases - declining. PLC price/volume is a good example.

<Michael>
>the question was about "industrial automation" in general,
>not just process industries. General theories cannot be constructed
>from narrow samples.

<jim>
I WAS trying to address industrial automation, not just the process industries. I WAS implying a long-term decline in automation (the knowledge is becoming a commodity) with a comparison to
agriculture and farming.

<Michael>
>><clip>4.It's clear that an oil-refinery should be built near the
oil-resources.
>>Similarly, steel plants should be near the source of raw
>>materials.<clip>
>This is by no means clear at all. If this were the case, we would
>expect
to
>see the main growth in the steel industry to be in Canada and
>Australia, where major iron and coal resources are located, not in
>the far east which has been importing these resources. The main
>growth in steel demand has been in the developing world. The steel
>industry has been locating where it's customers are. Chemical
>industries have been doing the same, but influenced to some extent by
>the desire of oil producing regions to use their control of supplies
>to capture
>more of the downstream business for themselves.

<jim>
Excellent marketing comments, Michael! Good example of the growing segments.

<Michael>

>><clip>5.US development costs are high. The third-world countries
>>(India,
China,
>>Far East) have good skills at a much lower cost. IA products
>>(software & hardware) are being developed (and copied) elsewhere.
>>6.US overheads are high, by comparison. <clip>
>I thought we were talking about *worldwide* markets, not
>just US markets. Problems for US companies do not automatically
>translate into problems for everyone else.

<jim>
There we go again, the US/world problem. I'm afraid that - since it is the largest market, and exports a significant amount - the US does affect what happens in the rest of the world.

<Michael>
>><clip>When growth slows, R&D is often the shortsighted part of the
>>first
cut.
>>But, it goes beyond that. From a pragmatic IA marketing standpoint,
>>it seems that there is too much technology chasing too few real
>>needs.
<clip>
>There has been a lot of *useless* technology developed.
>That is technology has been developed which doesn't solve the
>problems
> which customers need to have solved. The industrial automation
> industry
>will suffer until these bad investments are liquidated over time.

<jim>
Amen !

<Michael>
> New general purpose IA technology which by itself increased shop
>floor thoughput by 10% would be a spectacular improvement in any
application
>Most new IA technology has simply allowed us to do what we have
>already been doing cheaper and easier than ever before.

<jim>
I was using 10% as an example, saying that even 10% would not be sufficient reason to change. "New technology" (like keyboards) that become standard features do not generate growth and profit for the suppliers, because they quickly become "commodities" (low priced and competitive).

<Michael>
> I don't think people want to web-browse around between valves. They
> want
>systems which can gather the overwhelming amount of information which
>can
be
>generated by dozens or hundreds of machines and boil it down to
>something useful they can act on. There are a lot of pieces which
>need to be in
place
>for this to happen, and not many of them currently exist in a useful
>form.

<jim>
Amen !

Michael, thank you for your practical insights !

For those who have not seen the original article :
"Why is Industrial Automation Declining?"
which stirred all these interesting and useful comments and responses, click your browser on :
http://www.jimpinto.com/writings/iadecline.html

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

Automation List :

I appreciate the keen interest in the subject of my article and the many via-list and direct email responses we have received.

Somehow, a lot of references are being made to Michael Griffin's initial posting comments, rather than the original article. And, it appears that some of you have *not* read the
original article.

Please read the original article : "Why is Industrial Automation Declining?" It's on the web at :
http://www.jimpinto.com/writings/iadecline.html

Or, you may download a pdf-file copy at :
http://www.jimpinto.com/pdf/iadecline.pdf

Thank you!

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Faiz M Bhutta Intech Process Automation on 14 October, 2001 - 8:29 am

Yes, I read the article at JimPinto address. We have to see the factors causing market change
1.Globalization of markets causing highly volatile environment for market forces
2.customers have limitless choice because of internet access to websites
3.shorter product life cycle because of fastly changing technologies & needs
4.Easy and low cost access to markets and information because of fastly developing web technology and netwroking/communication tools.
5.cost and efficiency a prime concern
6. continous restructuring to improve efficiency
7. Contingency management theories devoid of human element

All above factors are instumental in causing change in the market which does not mean that autoamtion market is declining. Yes, it is true that above factors are casing decline in marginal profits but market expnasion and growth creates more avenues for business.

Will it stay. Yes, it will stay till the market forces balance. It is matter of supply and demand. Old forces will die and new forces will emerge and I think that this process will continue till 2010 and marginal profits can be increased if the asian markets be provided impetus to grow quickly.
Faiz M Bhutta

By SILVESTRI Marco - Computes on 12 September, 2000 - 9:42 am

I've found your article very interesting, so I'd like to ask you a question:
In this article, you don't say anything about robotics: also robotics industries are all scrambling?

I live in Italy (that is considerable back US in technology world race) and - hey - here seem to me that manufacturing industries are starting to
introduce robotics, also due to lack of workers.

Thank you for your answering.

Marco Silvestri

By John Coppini on 12 September, 2000 - 4:21 pm

Here's my opinion:

1. The industry is overcrowded; there are too many manufacturers. Just look at any magazine like "Control Engineering". Dozens and dozens of boring ads hawking the same, tired equipment. You only need so many sensors, controllers, PLCs, HMIs, etc., etc., etc.

2. The majority of companys treat their employees like a disposable commodity. They hire fresh, naive graduates and fire them when the personnel start making too much money compared to what can be gotten straight out of school. The result is a severe degradation of engineering expertise based on experience and hard-won, hands-on education. Many projects become R&D projects when they should simply be design projects that are based on past project experience ---- problem is the past experience has been fired or has wised-up and quit to go to greener pastures or more professional lines of work. After all, when you see all of your associates treated like highly educated migrant workers, one gets the message. Particularly, given the new class of scab migrant worker: the H1B.

So, can anyone tell me where I am wrong?

> 1. The industry is overcrowded; there are too many manufacturers.
> Just look at any magazine like "Control Engineering". Dozens and
> dozens of boring ads hawking the same, tired equipment. You only
> need so many sensors, controllers, PLCs, HMIs, etc., etc., etc.

> So, can anyone tell me where I am wrong?

I don't think you're wrong.

But then, I'd have thought that a couple dozen different models of automobile would pretty much satisfy every identifiable consumer requirement. Ditto all the other commodity "durable" components that fill the marketplace: VCRs, camcorders, televisions, the umpty-thousand
different PC's and laptops from major manufacturers, mail-order houses, and corner chop-shops... There are a lot of these things around because they offer lots of trade-offs. Some are feature-rich and cost more while others cater to the "don't make me pay for more buttons than i'm
going to use" crowd; some are built to last and cost more while some are bought for an 8-year-old's bedroom where the additional cost isn't
justified because the additional robustness won't actually improve its survivability..." People have lots of reasons for making the choices they do; technical merit is just one of them. Even suitability to the task isn't always the most important one. Is there *any* technical
justification for a Humvee in a city? (Well, okay, Srbenica is a city. I limit the example to large, well-paved civilian-occupied cities not
currently at war.)

My technical prejudices would have me believe that engineers choose products to solve technical problems, based on clear-sighted evaluations of the technical merits and the price/performance characteristics of a component or solution, and the support and service offered by the seller. If this is, in fact, the case, then the wide variety of offerings are apparently justified by a broad range of requirements.

If this is not the case, and engineers are buying components and solutions based on political considerations, personal experience with a
particular vendor, favorite colors, religious preferences, fashion statements, keeping up with the Joneses, or whatever... then the wide variety of offerings is justified because the vendors have correctly identified that they are satisfying more than simple technical
requirements.

--
Greg Goodman
Chiron Consulting
chironsw@swbell.net -- http://www.swbell.net/chironsw -- (713) 869-6876

By Matthew da Silva on 13 September, 2000 - 11:42 am

I didn't read the article because it has a leading title, but I'll respond to Marco Silvestri's intelligent comments.

In the semiconductor markets also automation is growing (which is the opposite of declining ;)

I agree that primary processing of fuels should be close to the source. It's happening in the refining industry where you have floating refineries and storage vessels. Such vessels are the prototypes for off-world (cf Armageddon, Alien etc.) processing of raw materials which will happen in the future.

Steel is different because the product is subject to much more manufacturing after the refining process. Alumina, however, _IS_ refined close to its source because the yield per pound is so low.

Robotics are also booming, and automation for non-traditional markets such as food processing and handling, are also not declining AFAIK. In countries such as italy and Spain I think that you'll find a lot of growth in food processing. In fact, a company in the Basque part of northern Spain has developed its own smart valve positioner. There's also a new valve positioner been developed by Gemu (mainly sanitary control valves for semiconductor and pharmaceuticals). Another small company in Denmark -- traditionally important for oil production, the same town is also home to a Bettis positioner factory -- has introduced its own design valve positioner.
Finally, Neles just bought StoneL valve switch maker; it's clear where they are aiming.

With so many new products for automation of processing operations, I see potential for a lot of growth.

Maybe those companies are simply aiming at the wrong industries, and expect profits in identical places and identical volumes as during the 70s and 80s when computers were a novelty.

Best,

Matthew Yamatake Tokyo
http://www.yamatake.co.jp

By Grenville Spearpoint, Nestle South Africa on 18 September, 2000 - 12:59 pm

Jim,

While it may not give industrial automation a significant lift there is scope for expansion in the food industry.

The confectionery industry is a good example. Not too long ago there was a occupation known as 'Sweet Makers' whose members had to serve an apprenticeship. IMO this industry lacks a number
of transducers that if available would make a valuable contribution to the expansion of automation.

Chocolate goes through a process of tempering not unlike the steel industry. This is a critical factor in it's production. It's been awhile since I was involved in the industry but I doubt if
a transducer exists that provides on-line measurement of chocolate temper. It is probably still done manually on the bench.

There also a high probability that flavours still cannot be measured automatically. Manned tasting panels are likely to be the order of the day. There are a number of similar tasks in the food industry that would benefit from the development of appropriate transducers.

You may also be surprised by the lack of automation expertise in some companies that are well established names in the supply of production machinery to the confectionery industry. Some of them make excellent plant from a mechanical point of view but automation of their plant is shockingly bad.

Regards

Grenville Spearpoint
miware@cis.co.za

Grenville Spearpoint comments :

>>While it may not give industrial automation a significant lift
there is scope for expansion in the food industry.

Jim Pinto agrees :

Yes, there are segments of IA that are doing fine, and where there is room for innovation. Food is an example - of an industry that is always "local". There is a significant amount of
innovation and productivity improvement that is possible.

Go find the green-fields!

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

Grenville Spearpoint,
It is interesting as a Nestle resource that you find such a lack of technology because in counterpoint I have done a couple of projects for Nestle utilizing high level motion control and process control in England and Russia, where Nestle was in fact capitalizing on latest technologies. I do notice that the installed base of technology seems to flow slowly from corporate headquarters areas to plants in other countries, sometimes even other areas of a country. It seems that as these companies seek to build plants in other countries to save expense they also do not promote the highest tech solution for the plant. Is this due to a shortage of local expertise or further cost cutting measures I wonder.....

By Pierre Desrochers on 7 November, 2000 - 8:17 am

Just a little addition to this...

I've been working in the past for a company which was built by a German conglomerat. It was built entirely with relays and controler (TTL transistors and analogic boards). When I ask one of the early engineer on why there was no PLCs and PCs, I was told that.

1. This plant was a copy of 7 others they add in Europe and they use all their spare parts to build it since the others were revamped to newer
technology
2. They believed they could not find lower level technical personnel in North America which were up to the challenge of troubleshooting such beast ... (this was mid-80s)

I've heard number 1 reason many other times after this occasion ... in different plants...

My 2 cents

Pierre
integral@videotron.ca

Marco Silvestri asked :

>Are robotics industries also all scrambling?

Jim Pinto responds :

The objective of robotics is to develop machines that reduce human labor - first of all boring, time-consuming and dirty labor, but also achieving a level of quality not attainable manually.

Robotics - as a clearly identifiable segment - has had good penetration in the automotive business (assembly, paint-shops, etc.) It is a segment of industrial automation that is continuing to grow, with some penetration occurring outside automotive.

Look at "Robotics and Advanced Manufacturing Market Growth" which refers to the North American Robotics Industries Association:
http://www.crsrobotics.com/markets/index.html?mkt_trends_fs.html

I recognize that a lot of my references are related primarily to the US, but that's still the largest market, and that's where most of my
information comes from.

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

Surely this is also a regional thing?

Generically, smaller production facilities are yielding to larger production facilities as smaller concerns close down or are brought up, whilst larger companies consolidate. This means we have less industrial controls, but those controls are more productive.

But location is a prime factor. For example high exchange rates have essentially sounded the death bell for much industry in the UK and US, who are becoming ever more service economies. Other areas of the world are becoming more industrialised.

Areas were industry is being increased are frequently the recipients of technology transplants, that is, a factory receives a ready made production line that has been developed elsewhere. In order to do this you need global suppliers, i.e. big ones, hence another nail in
the coffin of small businesses.

In the global marketplace the number of companies and the number of production facilities are shrinking, fewer and bigger. This is the global economy folks.

By Michel A. Levesque, ing. on 14 September, 2000 - 12:58 pm

The article from Jim Pinto really gets you thinking.
So here are my thoughts on this:

I believe that the global market is not declining.
Maybe if one looks at just the major market (NA), but not the entire worldwide industry. If the entire industry is on the decline then why are we (list members) not out looking for other jobs?
The industry as a whole may be sagging, but the long term trend is up. We saw the same happen when the relays came out, or even when plastics were the future (anyone remember The Graduate).
At one point every market reaches a certain level of technology saturation...until the next big thing happens. The automation market is just shifting its scope to developing countries
(that is why they are called "developing"). We are being very close minded if we think only of the NA automation market. Europe and Asia are close to if not already technology saturated.
So what is left: developing countries.

Another juicy item from Jim is the level of R&D funding. R&D, those two words usually spread fear in the hearts of accountants everywhere. In a technology driven market such as automation, manufacturing companies who are not putting at least 10% back into R&D are doomed to fail. We are an automation integrator and we cannot fall below 20%. If we do, we will be eaten alive by our competitors. To be able to invest the 10%
without throwing it away on useless technology means that the marketing and acceptance of a product (or technology) are critical. How can the smaller innovative companies deal against mega-worldwide corporations with marketing and sales clout coming out of their goo-goos? We see this all the time, the big boys buying up the
smaller boys with good products...and the big boys call this R&D!? We need developments in artificial intelligents, photonics, etc.!
To blazes with the old stuff, where is the new "next big thing"? I just hope the manufacturers and developers are smart enough to see the merits of R&D in the long term and not just those pesky
quarterly profit margins. If the industry is declining, the failure to find the next big thing is the main reason for this decline.

Jim mentioned that geography plays a part, I agree... but to say that conversion plants (refineries, sawmills, etc.) must be close to the raw materials is short-sited. A conversion process must acquire raw materials cheaply,
convert them, then send these higher priced commodities to their own customers. What costs more to ship? Raw materials or finished commodities. In many cases the output from a plant
is costlier to ship than the input. From this we can see that a plant is better off closer to its customers than to the raw materials. Sure some industries have the reverse in terms of costs,
but by and large it is more efficient to be close to your customers. Which puts us back to the developing countries as the next market.

So where does this leave us? Simple, if the world's biggest automation market (NA) is drying up, change the market. Go on to greener pastures.
Everybody says they are on the global economy bandwagon...Well folks, it's time to seperate the men from the boys. Either go global, or stay local. But, if you stay local the market will dry up as the technology saturation progresses...until the next big thing.


Michel A. Levesque eng., mcp
Directeur Bureau Montreal
AIA Inc.
mlevesque@aia.qc.ca

Michel A. Levesque commented :

>I believe that the global market is not declining.
>Maybe if one looks at just the major market (NA), but not the
>entire worldwide industry. If the entire industry is on the decline
>then why are we (list members) not out looking for other jobs?

Jim Pinto responds :

Ah! But, many in the industry *are* laid off and looking for new jobs. Take a look around you. The consolidations among the majors are causing a lot of divestitures and cutbacks.

This remind me of a joke-truism :
When someone else is laid off, it's a Recession.
When *you* are laid off, it a Depression".

Michel :
>The industry as a whole may be sagging, but the long term trend
>is up.

Jim:
Sorry, Michel, the long term trend is *not* up. It's flat, or down. Many people have asked - is this temporary, until the "return to normal". Is this only until the "next big thing" ?

Answer : Sorry, folks - there will not be a return to normal. Please review again my comparison with "farming".

Quote from the original article (please read it) :
This is not an accident - it's part of the evolutionary process. Farming, which once employed a major segment of the population,
now employs less than 2% in the US; there are few rich and innovative American farmers. Similarly, manufacturing employed over 35% in the US less than a century ago and this is steadily reducing to about 15% today.

Michel continues :

>Another juicy item from Jim is the level of R&D funding.
>R&D. In a technology driven market such as
>automation, manufacturing companies who are not putting at least
>10% back into R&D are doomed to fail.

Jim :
I agree wholeheartedly!
Engineering and R&D is the lifeblood of a company.
Look at any company that has less than about 10%, and you have a declining business. A growing business puts a much higher percentage into new products.

Michel :
>We see this all the time, the big boys buying up the
>smaller boys with good products...

Jim:

This is because - and I quote :
"It is difficult, if not impossible, to generate real innovation midst the bureaucracy of a large company. The only way to get it seems to be by
buying smaller companies. "

This has spelled the death-knell of large, corporate central engineering.

Michel :
>If the industry is declining, the failure to find the next big thing
is the main reason for this decline.

Jim:
Amen!

Michel concludes :
>Go on to greener pastures.
>Either go global, or stay local. But, if you stay local the market
>will dry up as the technology saturation progresses...

Jim :

Amen! Amen !

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

Jim said:
>Farming, which once employed a major segment
>of the population, now employs less than 2% in
>the US; there are few rich and innovative American
>farmers.

Hmm, I think that the *percentage* of U.S. farmers who are rich and/or innovative is at its highest point ever. As a *result* of this, we need far fewer of them. This, folks, is what *success* looks like, not failure. Think of all those former farmers who have now been freed up to build computers and surf the web <grin>.

The automation market is a bit of a different case. I think it is becoming highly segmented and specialized, hence the proliferation of companies, products and technologies. To a major supplier, this looks like stagnation (and, to them, indeed it is). It also looks like stagnation to analysts, for whom only the major suppliers are visible.

But, in aggregate, it is anything but market stagnation. It more closely resembles the chaos described by Thomas Kuhn in his "Structure of Scientific Revolutions", in the period between when an old theory/technology is exhibiting its limits and when a new theory/technology becomes accepted. People cast about for new ideas, many different approaches are tried, and ultimately one or more of these new ideas come to the fore.

I wonder what the automation market will look like 20 years from now?
Regards to all,
Ken Crater, President
Control.com Inc.
ken@control.com

An astute observation, Ken.

This is not the first time this has happened in the automation industry either. It seems to go in about 30-35 year cycles. First there is
consolidation of big companies, accompanied by stagnation. Then some little startups come up with a biig idea, like, oh, a really good differential pressure transmitter, for example (Rosemount) and they start out in somebody's garage, but they grow. We are in the third such wave of ferment in the automation industry.

Walt Boyes

By Matthew da Silva on 21 September, 2000 - 5:04 pm

Good points, both.

Walt boyes said:
Then some little startups come up with a biig idea, like, oh, a really good differential
pressure transmitter, for example (Rosemount) and they start out in somebody's garage, but they grow.

And, don't forget that those guys who started Rosemount were former Honeywell employees who took off to recycle their intellectual property in
an environment more conducive to experimentation. Same thing happened in Australia Honeywell where the Plantscape system was designed. It would have
been tough to try developing such a system in the U.S. due to corporate internal tensions; but it could happen in an affiliate remote from the
center. This leads nicely into Ken Crater's quoting of Tom Kuhn's seminal work, a stunning essay describing the mechanisms surrounding advances in science. He points out that change is the exception rather than the rule. The 'rule' is for existing paradigms to be exercised to the maximum of their capacity. In the systematic elucidation of any theory, eventually weaknesses are made clear. New techniques for measuring these weaknesses emerge and become technologies (that are applicable elsewhere also). Eventually, somebody stumbles onto a new idea, which is tested for robustness in a sort of 'hazing' and is not accepted until it has been
repeatedly resolved to identical or very similar outputs, in multiple independent experiments. A paradigm shift occurs where enough of these
discoveries force larger, monolithic beliefs to be adapted in order to fit the new data.

I don't agree in the decline theory ;) but I do think that the manufacturers should be looking at improving their market research techniques and also in communicating their advantages.

> But, in aggregate, it is anything but market stagnation. It more closely
> resembles the chaos described by Thomas Kuhn in his "Structure of
> Scientific Revolutions", in the period between when an old
theory/technology is
> exhibiting its limits and when a new theory/technology becomes accepted.
> People cast about for new ideas, many different approaches are tried, and
> ultimately one or more of these new ideas come to the fore.

By Keven Dunphy on 21 September, 2000 - 7:36 pm

Just a small point of clarification...

Rosemount was started by three gentlemen from the Univeresity of Minn who had a contract with the Air Force for a temp probe... while Honeywell is based in Minneapolis as well, they didn't have a direct contribution to the founding of Rosemount.

Has it really been that long since Rosemount stopped talking about Very Heath and the chicken coop?

Keven Dunphy
Colorado

On 15 Sep 00, at 18:34, Ken Crater wrote:

> Jim said:
> >Farming, which once employed a major segment
> >of the population, now employs less than 2% in
> >the US; there are few rich and innovative American
> >farmers.
>
> Hmm, I think that the *percentage* of U.S. farmers who are rich and/or
> innovative is at its highest point ever. As a *result* of this, we need far
> fewer of them. This, folks, is what *success* looks like, not failure.
> Think of all those former farmers who have now been freed up to build
> computers and surf the web <grin>.

Productivity has certainly increased. The U.S. has been able to grow much more than its population needs for many decades now. However most nations have a great fear of becomeing dependant on others for food, and thus they heavily subsidize their farmers. Such was the case here in the U.S.for many years, but recently it has been dramatically reduced. Many farms are now corporate, and there are still many
struggling to survive. It is difficult to sell grain to a country when your competition is heavily subsidized, while you are not.

Larry Seib, lseib@kuh8b.cc.ukans.edu


Lawrence Seib
Director
X-ray Laboratory
The University of Kansas
Malott Hall
Lawrence Kansas 66045
Phone (785) 864-4347
LSeib@kuhub.cc.ukansas.edu

Ken Crater mentions :

>I think that the *percentage* of U.S. farmers who are rich and/or
>innovative is at its highest point ever. As a *result* of this, we need
far
>fewer of them. This, folks, is what *success* looks like, not failure.

Jim Pinto responds :

Yes, indeed !
Fewer farmers feed the country, with a surplus!

Ken :
>Think of all those former farmers who have now been freed up to build
>computers and surf the web <grin>.

Jim :
This is happening in a big way in most countries.
The sons of the scions of farming are the owners of successful technology companies!

Ken :
>The automation market is a bit of a different case. I think it is
becoming
>highly segmented and specialized, hence the proliferation of companies,
>products and technologies. To a major supplier, this looks like
stagnation
>(and, to them, indeed it is). It also looks like stagnation to analysts,
>for whom only the major suppliers are visible.

Jim :

Ken makes a key point. When the dinosaurs stagnate, the little companies innovate and prosper.

Ken :
>I wonder what the automation market will look like 20 years from now?

Jim :

Totally different ! And the prospect is indeed exciting! Reflect on the change in the computer business in the past 20 years - from domination by IBM main-frames, to CISCO and SUN.

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Al Pawlowski on 20 September, 2000 - 8:26 am

Robert Lucky had some interesting comment on this in his Sept. 2000 IEEE Spectrum column.

>Jim: (Pinto)........................
>
>This is because - and I quote :
>"It is difficult, if not impossible, to generate real innovation midst the
>bureaucracy of a large company. The only way to get it seems to be by
>buying smaller companies. "
>
>This has spelled the death-knell of large, corporate central engineering.


Al Pawlowski, PE
al@almont.com
dba ALMONT Engineering
Baton Rouge, LA USA

By Bruce Axtell on 20 September, 2000 - 9:14 am

<clip> from Jim Pinto's message

Answer : Sorry, folks - there will not be a return to normal.
Please review again my comparison with "farming".

Quote from the original article (please read it) :
This is not an accident - it's part of the evolutionary process.
Farming, which once employed a major segment of the population,
now employs less than 2% in the US; there are few rich and
innovative American farmers. Similarly, manufacturing employed
over 35% in the US less than a century ago and this is steadily
reducing to about 15%
today.
<clip>


Jim: If you compare manufacturing against a century ago (1900) you should expect to see a decline in manufacturing. Much of today's manufacturing is going offshore to cheaper labor markets. To offset this, the demographics of the labor market has shifted to the service, data, and information industries, which are growing.
Secondly, there was really no "automation" industry in the 1900s. Manufacturing-yes, automation-no.

I haven't bothered to check it, but my guess is that manufacturing has increased from 1900 in Malaysia, Taiwan, Mexico, or most any other offshore country you would care to name, particularly in the last 35 years.

Michael Griffin's post raised some of the same comments I have, so I won't reiterate, but technology also drives down sales dollar volume, which I think can be misleading.

For example, What in the past may have taken a PLC, a communications module at each end of the link, etc. is now integrated into one package. I can buy a PC today for less money than I paid for my 286 in 1985, that includes a CD-RW, Ethernet card, modem, and DVD drive, floppy drive, more RAM, bigger hard drive, etc. In the past, many of these would have been options, and the price would have been much higher. Thus, more PC, more devices in it, less money.

Many functions are melded into a single package, which sells for less than the individual components would have. So is sales dollar
volume an accurate indicator, or just one of several indices that should be looked at in the big picture? Would units sold be a better indicator (e.g., number of starters, drives, etc.)?

Wouldn't this partly explain the reason the automation folks are busier than ever, as pointed out by Michael Griffin, and yet the dollar volume is declining? Or maybe there are just fewer people doing the same amount of work that makes us so busy?

Bruce Axtell

> Quote from the original article (please read it) :
> This is not an accident - it's part of the evolutionary process.
> Farming, which once employed a major segment of the population,
> now employs less than 2% in the US; there are few rich and innovative
> American farmers. Similarly, manufacturing employed over 35% in the US
> less than a century ago and this is steadily reducing to
> about 15% today.

I wasn't going to comment on this, but since you felt it was important enough to draw extra attention to this. You seem to be suggesting that
that innovation makes people rich, or that farmers are not innovative. While I disagree with either premise, as a farmer I find the latter
offensive.

As far as the former, I find that to be in error as well. Along with innovation, several other things need to take place. For instance, patents or secrecy, so that you don't have to share your
innovations, and a market for high return from the innovation. Most of the innovative farmers share their innovations. When they try different practices, that they find to be successful, they share it with their neighbors, university research, and farm publications. They don't try to keep it for themselves.

Also, your statistics are loaded to give a false impression. While their are some innovative farmers, once they apply their innovations, they are no longer farmers. For example Murphy Farms came up with a system to mass produce hogs. They are no longer farmers, but a corporation. Or farmers selling seed come up with better seed varieties, become more successful, then there focus becomes more on producing seed, that business grows into a seed company. Thus many farmers with successful innovations become non-farmers, ie, not in the 2% any more.

Mark Blunier
Any opinions expressed in this message are not necessarily those of the company.

Original comment from Jim Pinto :

>> Farming, which once employed a major segment of the population,
>> now employs less than 2% in the US; there are few rich and innovative
>> American farmers. Similarly, manufacturing employed over 35% in the US
>> less than a century ago and this is steadily reducing to
>> about 15% today.

Mark Blunier was offended :

>You seem to be suggesting that that innovation makes people rich,
>or that farmers are not innovative. While I disagree with either premise,
> as a farmer I find the latter offensive.

Jim :
My apologies, Mark - I didn't quite mean it as it came out.... My comparison with farming was to indicate that the total population involved in farming has reduced significantly. There are indeed many innovative and wealthy farmers today - I know several personally, in avocado, chicken and hog farming. But, I also know a lot of
farmers in Idaho and N. Dakota who are "paid" by the Government to allow fields to lie fallow. Farming productivity produces a surplus in the
US.

Mark :
>Most of the innovative farmers share their innovations. When they
>try different practices, that they find to be successful,
>they share it with their neighbors, university research, and farm
>publications. They don't try to keep it for themselves.

Jim :
Yes, that is a clear example of the change in paradigm that occurs when a business (like farming) achieves a new and different paradigm.

Mark :
>While their are some innovative farmers, once they apply there
innovations,
>they are no longer farmers. For example Murphy Farms came up with a
>system to mass produce hogs. They are no longer farmers, but a
corporation.
>Or farmers selling seed come up with better seed varieties, become more
>successful, then there focus becomes more on producing seed, that
business
>grows into a seed company. Thus many farmers with successful innovations
>become non-farmers, ie, not in the 2% any more.

Jim :

Excellent examples of the metamorphosis that occurs from conventional practices to the birth of new ways to innovate and develop the market,
as Ken Crater has suggested in his earlier comments.

Ken (previous) :
But, in aggregate, it is anything but market stagnation. It more closely resembles the chaos described by Thomas Kuhn in his "Structure of
Scientific Revolutions", in the period between when an old theory/technology is exhibiting its limits and when a new theory/technology becomes accepted. People cast about for new ideas, many different approaches are tried, and ultimately one or more of these new ideas come to the fore.

Jim :
I like this discussion a lottttt. It is bringing out a lot of new and different ideas, comments, suggestions, thinking!

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Dave Ferguson on 20 September, 2000 - 12:32 pm

Jim:

Companies today are playing the Stock Market investor game and we are all part of it. If my 401K doesn't produce, I switch to another never thinking about the people that I lay off across the country.

First comes the wave of re-managing, then automation, then consolodation to save money on infrastructure (duplicate accounting, payroll, purchasing, sales etc) then layoffs etc. The only issue is in the meantime, no-one is making better products and you get knocked off the top of the hill.

As you said there are a number of examples farming, steel etc. We are experiencing it in the paper industry. The only issue I have is R&D gets hatcheted as one of the first. And innovation slowly dies and in the end sooner or later YOU HAVE TO MAKE A BETTER PRODUCT, it might not be this year or next but sooner or later .......... This is what keeps getting forgotten in the crazy stock prices world. There is a great Dilbert with Wally and Dilbert watching everyone get laid off and downsized and the next frame looking at their computer and saying "Stock price ....... up three
points" and high fiving each other.

We are reaping what we sowe (SP) so to speak in this country. We have all heard, who will buy the product when we are all automated .............. I say who will by our product when we have stripped out all the resources to make it better ...........................

Stock price ............... Up Three Points ....... Yeh

Dave Ferguson
Blandin Paper Company
UPM-Kymmene
DAVCO Automation

By Ralph Mackiewicz on 20 September, 2000 - 12:40 pm

> Michel A. Levesque commented :
>
> >I believe that the global market is not declining.
> >Maybe if one looks at just the major market (NA), but not the
> >entire worldwide industry. If the entire industry is on the decline
> >then why are we (list members) not out looking for other jobs?
>
> Jim Pinto responds :
>
> Ah! But, many in the industry *are* laid off and looking
> for new jobs. Take a look around you. The consolidations
> among the majors are causing a lot of divestitures and cutbacks.

Yes, but this, by itself, does not mean that the overall IA market is declining. It means only that the fortunes of the "majors" is declining. As I said before, we are doing more systems these days with less "IA" content (PLCs) and more generic technology content. The stuff being used as replacements is not purchased from the
majors. Does this mean the overall IA market is declining or is the decline a statistical fluke caused by an over dependence on the assumption that the overall IA market is defined by the majors?

> This is not an accident - it's part of the evolutionary process.
> Farming, which once employed a major segment of the population,
> now employs less than 2% in the US; there are few rich and innovative
> American farmers. Similarly, manufacturing employed over 35% in the US
> less than a century ago and this is steadily reducing to about 15%
> today.

Yes, but just because the market changes does not mean it is declining. While there may have been some "real" declines in manufacturing, there are many many people working in manufacturing that are not classified as being employed in manufacturing. As most manufacturers have gotten focused on their core businesses they have
restructured by shedding employees involved in many other aspects of their business (IT, IA, clerical, etc.). They then hire back a
significant percentage of these employees (in terms of head count) from subcontractors ostensibly in the "service" industry. This is
called "outsourcing". The result is a statistically visible decline in manufacturing employment. However, I would suggest that a good
portion of this decline is a statistical fluke due to the fact that either 1) the early numbers were inflated because it counted support people not directly involved in manufacturing or 2) the new numbers are depressed because many employees supporting manufacturing are now classified as service.

The same kind of affect could be happening in the IA industry. The 'majors' just aren't in a good position to take advantage of the change so they undertake M&A activities to fight this off. But the facts that sales at the majors are flat or declining and that they are involved in M&A is not necessarily by itself indicative that the
IA market overall is declining.

I'm not suggesting that you should put your head in the sand and ignore the changes that are occurring that are discussed in the article. But change at the majors is not necessarily a decline
overall. Change at the majors can mean real growth in areas that they aren't serving.

Regards,
Ralph Mackiewicz
SISCO, Inc.

By Michael Griffin on 18 September, 2000 - 3:15 pm

At 11:24 14/09/00 -0400, Michel A. Levesque eng., mcp wrote:
>The article from Jim Pinto really gets you thinking.
>So here are my thoughts on this:
>
>I believe that the global market is not declining.
>Maybe if one looks at just the major market (NA), but not the
>entire worldwide industry. If the entire industry is on the decline
>then why are we (list members) not out looking for other jobs?
<clip>

Several other people have raised this point, and quite frankly I am very curious for more details from Mr. Pinto about this. I don't know about the Montreal area, but things seem to be booming around here and have been for some time. I have heard repeatedly from companies building automated equipment that they can't seem to hire enough programmers and control system
designers.
There are some fairly large companies in southern Ontario that build equipment, and more have been opening up as people see the business
opportunities. A lot of this equipment is exported. Quite a bit goes to the US market, but also to other countries around the world.

If these companies are all so busy, then why would the market for the components they use be declining? The only explanations I can think of are:

1) I am imagining the whole thing.

2) The Canadian market (or at least southwestern Ontario) is booming, but the rest of the world isn't. (Is this likely though?)

3) This decline is actually just a local US phenomenon, and isn't affecting Canada or the rest of the world. This is not entirely impossible. The structure of the economies of the US (which Mr. Pinto is looking at) and Canada (which I am looking at) are very different which means there is no reason why demand for any particular class of specialised products would
necessarily be synchronised (or have any relation at all) between the two.
On a slightly different tack, we have had custom equipment quoted for us by American companies and I have noticed that the price of equipment built in the US is much much higher than comparable equipment built here. In
conversations with these companies I have discovered that they have found it very difficult to compete with Canadian companies in terms of price for typical custom (one-off) machines ever since the American dollar rose so high. I seriously doubt that this particular problem has been large enough to have a significant effect on the overall market in the US though.

4) There is a major world wide decline in industry segments that I am not familiar with (e.g. process industries) that is masking growth in areas that I am familiar with. There are a number of very good reasons why this may be so.

5) Price decreases are large enough that volume is growing (slowly) while sales value is declining. Inelastic markets might mean that lower
prices would not necessarily increase sales volume significantly.

6) *World wide* sales declines are an illusion caused by converting all sales into US dollars. The US dollar has risen against virtually all other currencies (for no particularly good reason). Unless you happen to be
an American company with expenses and sales primarily in US dollars, this will give a distorted picture of your real situation. Restating sales in say euros, yen, (or even Canadian dollars?), might show a different picture.

7) Market declines are an illusion caused by measurement sampling error. Sales may be shifting between different product types (possibly from different companies) and the sales indexes are not adapting to this quickly enough. If you base your overall sales estimates on sales figures from a small selection of companies, and those companies' sales *are* declining while the overall market is actually growing, your sales estimates will be wrong.

Mr. Pinto - would you care to comment? Particularly, I would like to know why industrial automation suppliers would have declining sales if their customers are so busy. What are we missing here?


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

By Anthony Kerstens on 19 September, 2000 - 1:19 pm

Michael,

The only qualification I would have on that
is that it's not just being able to hire people,
but hire good people who can hit the ground
running.

I've been in some bad scenarios resulting from
work being done by someone not proficient with
control systems (the "competition"), and having
to clean-up the mess after.

Anthony Kerstens P.Eng.

> -----Original Message-----
> From: The Automation mailing list, managed by Control.com Inc.
> [mailto:AUTOMATION@MIND.CTC-CONTROL.COM]On Behalf Of Michael Griffin
>
.....
> the Montreal area, but things seem to be booming around here and have been
> for some time. I have heard repeatedly from companies building automated
> equipment that they can't seem to hire enough programmers and
> control system
> designers.
> There are some fairly large companies in southern Ontario
> that build
> equipment, and more have been opening up as people see the business
> opportunities. A lot of this equipment is exported. Quite a bit
> goes to the
> US market, but also to other countries around the world.
> ....

By Michel A. Levesque, ing. on 19 September, 2000 - 1:32 pm

Michael Griffin <mgriffin@ODYSSEY.ON.CA> wrote:

> Several other people have raised this point, and
> quite frankly I am
> very curious for more details from Mr. Pinto about this. I
> don't know about
> the Montreal area, but things seem to be booming around here
> and have been
> for some time. I have heard repeatedly from companies
> building automated
> equipment that they can't seem to hire enough programmers and
> control system
> designers.

I too am very curious about those numbers. Michael, for your info. the entire province of Quebec is booming. I used to work for the Rockwell distributor here before starting with an integrator, I have seen the market here grow substantially in the past seven years.

We are also doing jobs internationally (even in the US, because some US integrators cannot get the staff to meet the demand). South America, China, Australia and the middle-east are also booming.

I am assuming that Mr. Pinto is only using numbers from the major manufacturers and extrapolating for the entire industry. This would be like looking only at Boeing and Airbus for the aviation industry and totally miss Bombardier and Embraur, which are creating a whole new segment of the industry. But, I could be wrong.


Michel A. Levesque eng., mcp
Directeur Bureau Montreal
AIA Inc.
mlevesque@aia.qc.ca

Michel A. Levesque eng., mcp wrote:
>I believe that the global market is not declining.
>Maybe if one looks at just the major market (NA), but not the
>entire worldwide industry.

Michael Griffin asked for some clarification :

> I am very curious for more details from Mr. Pinto about this.
>I don't know about the Montreal area, but things seem to be
> booming around here and have been for some time.
>I have heard repeatedly from companies building automated
>equipment that they can't seem to hire enough programmers
>and control system designers.

Jim Pinto responds :
C'mon, guys - put your marketing hats on for a while.... Sure, with a large and broad-based market like industrial automation, there *are* some segments (products, markets, geographical) that will continue to grow. But, the market **as a whole - worldwide** is flat (read - not
growing).

Canada is approximately 10% of the total US market for automation products (most people recognize 5-15%) and some geographical areas and segments will continue to show growth (in the US, Canada and elsewhere).

Michael continues :
>There are some fairly large companies in southern Ontario that build
>equipment, and more have been opening up as people see the business
>opportunities. A lot of this equipment is exported. Quite a bit goes to
the
>US market, but also to other countries around the world.

Jim :
Michael, define "large". Define "lot" and "quite a bit" - (exported to the US and other countries).

Michael asks :
> If these companies are all so busy, then why would the market for
>the components they use be declining?
>The only explanations I can think of are:
> 1) I am imagining the whole thing.

Jim :
No, you are thinking locally, and perhaps are blocking out the idea of a broader trend. During the depression days, there were industries and business segments that were indeed quite busy.
Farmers today cannot find good labor to pick apples and do the harvest.

Michael's list :
> 2) The Canadian market (or at least southwestern Ontario) is
>booming, but the rest of the world isn't. (Is this likely though?)

Jim :
Not likely. The Canadian market for industrial is *not* booming - except in some very narrow geographical and market areas.

Michael's list :
> 3) This decline is actually just a local US phenomenon, and isn't
affecting Canada or the rest of the world. This is not entirely impossible.

Jim :
In a world that is financially linked, that *is* impossible.

Michael continues:
>The structure of the economies of the US (which Mr. Pinto is looking at)
>and Canada (which I am looking at) are very different which means there
> is no reason why demand for any particular class of specialised products
> would necessarily be synchronised (or have any relation at all) between
> the two.

Jim :
The economies are different, but the underlying financial structure is the same. On my global "Industrial Automation Majors" list, there is no
Canadian based company. All Canadian majors are subsidiaries of the US, European and Japanese majors. *Oh yes!* there is a relationship between the two.

Michael continues (On a slightly different tack) :

> we have had custom equipment quoted for us by American companies
>and I have noticed that the price of equipment built in the US is much
> much higher than comparable equipment built here.

Jim :

Yes, because "custom equipment" is *always* quoted high, since it needs local assistance. Harking back to my article - quote :

"US overheads are high, by comparison. The Majors are moving to "turnkey services" and "systems integration", but cannot compete against local
labor-rates with knowledge that is often available locally. Projects are most often won on price, at shrinking margins. "

Michael :
> I have discovered that they have found it very difficult to compete
>with Canadian companies in terms of price for typical custom (one-off)
> machines ever since the American dollar rose so high.

Jim :
It has *nothing* to with the dollar value.
Custom (one off) projects are always lower priced locally, and avoided by foreign companies, since they always need local, on-the-job hand-holding.

Michael :
> 4) There is a major world wide decline in industry segments that I
>am not familiar with (e.g. process industries) that is masking growth in
>areas that I am familiar with.

Jim :

Yes, some segments are shrinking more than others.

Michael :
> 5) Price decreases are large enough that volume is growing (slowly)
>while sales value is declining. Inelastic markets might mean that lower
>prices would not necessarily increase sales volume significantly.

Jim :
The market is *not* elastic - lowering the price on a PLC by 50% would *not* increase the demand for the number of PLCs in a project.

Michael :
> 6) *World wide* sales declines are an illusion caused by
converting
>all sales into US dollars. Restating sales in say euros, yen,
(or even Canadian dollars?), might show a different picture.

Jim :
Nope ! It is *not* a currency problem! That is always a temporary shift in a global economy.

Michael :
> 7) Market declines are an illusion caused by measurment sampling error.
>If you base your overall sales estimates on sales figures from a small
>selection of companies, and those companies' sales *are* declining while
> the overall market is actually growing, your sales estimates will be
wrong.

Jim :

Sorry, Michael - marketing analysts and researchers are indeed familiar with the fundamentals of Math and Statistics.

Michael :

> Mr. Pinto - would you care to comment?

Jim :

Because this discussion has been going on for a while, I felt compelled to answer point by point.

Michael's summary :
>Particularly, I would like to know why industrial automation suppliers
>would have declining sales if their customers are so busy.
>What are we missing here?

Jim :
Why ? Please go back and re-read the article.
I have listed 6 major reasons for the decline.

As to the customers being busy - I know a lot of avocado farmers and apple-orchards that can't grow enough avocados and apples. So, would you like to be a farmer?

Michael, I appreciate and applaud your detailed thinking and your diligent list and questions. I too am an Engineer, by background and training. I hope I have helped!

Sincerely :

jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Michael Griffin on 20 September, 2000 - 2:10 pm

At 15:44 15/09/00 -0700, Jim Pinto wrote:
>Michael continues :
>>There are some fairly large companies in southern Ontario that build
>>equipment, and more have been opening up as people see the business
>>opportunities. A lot of this equipment is exported. Quite a bit goes to
>the
>>US market, but also to other countries around the world.

>Jim :
>Michael, define "large". <clip>
For the companies I deal with, say 200 - 300 million dollars plus in annual sales for the largest down to 50 million dollars plus for some of the medium size ones. I believe there are a number of other sizable ones, but they don't build the sort of equipment I buy. These are not giant companies, but this isn't a business composed of giant ones, rather it tends to have a
lot of small or medium size ones.
I don't have detailed sales figures, that's not the business I am in. The point was though that if these companies are expanding at 20 - 100 percent per year, why are the companies which supply them with components doing so poorly? What is so exceptional about the companies that I do business with that they are *all* so busy while the rest of the world isn't?


>Michael's list :
>> 2) The Canadian market (or at least southwestern Ontario) is
>>booming, but the rest of the world isn't. (Is this likely though?)
>
>Jim :
>Not likely. The Canadian market for industrial is *not* booming -
>except in some very narrow geographical and market areas.

OK, but Michel Levesque mentions that "Michael, for your info. the entire province of Quebec is booming. I used to work for the Rockwell
distributor here before starting with an integrator, I have seen the market here grow substantially in the past seven years."

Now I see Ontario booming, M. Levesque sees Quebec booming (with respect to the industry we are talking about) - and that just about covers
the most of Canada as far as general industry is concerned (excluding mining, pulp and paper, oil, etc. which are process industries). The bulk of
the automotive, appliance, aerospace, electronics, telecommunications equipment, chemical, steel, general industry, etc., etc. are concentrated between Windsor and Quebec City. (And if anyone from Alberta is reading this, please take a tranquilliser before commenting on that point). To put these numbers in perspective, I believe that nearly one in five of the cars
built in North America are built in southern Ontario so some of these industries are not insignificant in size.
In other words, as far as Canada is concerned, "very narrow geographical and market areas" are precisely the ones that M. Levesque and I are *not* referring to. So the question remains, what is so exceptional about what we see around us?


>Michael continues:
>>The structure of the economies of the US (which Mr. Pinto is looking at)
>>and Canada (which I am looking at) are very different which means there
>> is no reason why demand for any particular class of specialised products
>> would necessarily be synchronised (or have any relation at all) between
>> the two.
>
>Jim :
>The economies are different, but the underlying financial structure is the
>same. On my global "Industrial Automation Majors" list, there is no
>Canadian based company. All Canadian majors are subsidiaries of the US,
>European and Japanese majors. *Oh yes!* there is a relationship between the
>two.

Yes, but what is your point? I was only advancing a theory as to why I may be wrong while you may be correct. Is the possibility I have advanced the reason why I may be wrong?


>Michael continues (On a slightly different tack) :
>> we have had custom equipment quoted for us by American companies
>>and I have noticed that the price of equipment built in the US is much
>> much higher than comparable equipment built here.
>
>Jim :
>Yes, because "custom equipment" is *always* quoted high, since it needs
>local assistance. <clip>
and
>It has *nothing* to with the dollar value.
>Custom (one off) projects are always lower priced locally, and
>avoided by foreign companies, since they always need local,
>on-the-job hand-holding. <clip>

Except that some of these US companies are physically closer to us than some of the Canadian companies, yet they bid 50% or more higher. However again, you are arguing my point rather than your own. I advanced a theory as to why I may see a growing market, while you see a shrinking one (machines built here and shipped there). I agree that the machinery market tends to be local (except for very large or specialised machines). This is why I dismissed this explanation by saying "I seriously doubt that this
particular problem has been large enough to have a significant effect on the overall market in the US though." In other words, I don't believe that it could explain why I (and M. Levesque) would believe we see a busy market while it is declining in the US (or world wide).


>Michael :
>> 6) *World wide* sales declines are an illusion caused by
>>converting all sales into US dollars. Restating sales in say euros,
>>yen,(or even Canadian dollars?), might show a different picture.
>
>Jim :
>Nope ! It is *not* a currency problem! That is always a temporary shift
>in a global economy. <clip>

However, "temporary" can last for years - long enough to put a severe squeeze on any business. Introductory economics courses used to teach that currency values followed trade flows. This has long been an obsolete notion. Currency values now follow capital flows which dwarf real trade in goods and services. This is why the US can have a 400 billion dollar trade deficit and a rising currency, while Canada can have a 29 billion dollar trade surplus and a falling one (figures in US dollars, from the latest issue of The Economist).
The result is that price differentials between countries (even at Parity Purchasing Power values, let alone nominal ones) can persist over long periods of time. The only limit for traded goods such as industrial automation products is how long the companies which control the markets are willing (and able) to maintain price differentials in the various markets in
order to pursue their long term pricing strategies.
Actual manufacturing costs of many of the products they sell are only a fraction of the final sale price. This means it is financially
feasible to have different prices in different markets provided they actually can keep these markets separate by various means (e.g. tight
control of distribution channels).

Are they doing this? I don't know. I was merely advancing another theory as to why the market may look busy to me (and others) while it is actually "declining" world wide.
This point could be easily dealt with if anyone had a representative list of prices changes of various products in different markets. If prices do not closely follow currency movements, then there exists the potential for the situation I have outlined above. If this is the case, then of course Mr. Pinto may be entirely correct in his statement that the market is declining, but only from the point of view of US dollars.

>Michael's summary :
>>Particularly, I would like to know why industrial automation suppliers
>>would have declining sales if their customers are so busy.
>>What are we missing here?
>
>Jim :
>Why ? Please go back and re-read the article.
>I have listed 6 major reasons for the decline.

Ok, I understand that good scholarship requires occasionally going back to the primary sources. However, this is where I *started* on this thread. I listed your six points and discussed each one. This conversation proceeded from there. My conclusion was that I could understand your points as explanations of why the process industries or the US market may be in
decline, but they did not provide sufficient explanation of a *world wide* general decline.


>As to the customers being busy - I know a lot of avocado farmers
>and apple-orchards that can't grow enough avocados and apples.
>So, would you like to be a farmer? <clip>

Sometimes the idea has its attractions. However, to extend your own analogy, if everyone is buying apples and (I'm not sure what an avocado
looks like - so lets say apples and pears), then I would be very surprised if the farmers weren't selling any.


This discussion has so far consisted of a mountain of speculation hoisted upon a modicum of fact. Your article can be summarised as follows:

Pinto's First Postulate: "The total automation market is stagnant ... there may be some segments growing more than others, but the total market is simply NOT growing."
Can you please cite some suitable statistics for this? I looked for some on your web site, but wasn't able to find any. I believe that "Control Engineering" publishes some sales statistics now and again, but I don't recall what they were.

Pinto's Second Postulate: "For the majors, their strategic core businesses continue to shrink and some segments are losing money."
So, are Rockwell, Siemens, etc. seeing their PLC and motor control businesses shrink? Are their sales in these areas actually declining? By how much?

Pinto's Third Posulate: "most industry participants - vendors, customers, sales channels - continue to be blissfully ignorant of the fact
that leadership is changing hands, talent is migrating to greener pastures and consolidations are occurring because business is stagnant."
Are these people ignorant of the business stagnating, or are they ignorant of the "leadership changing hands" etc.? I must admit that I (a customer) was ignorant of both. Why though would the vendors and sales channels be ignorant of either stagnant business or "changing leadership". I thought that that sales figures were all these guys ever talked about.

Please Mr. Pinto, I am not doubting your word on any of this. However, I was trained to look at the numbers. Can you (or anyone else)
please tell us what these declining sales figures are?

I will finish up by commenting on the anecdote at the end of you article. You related: "Some time ago, while visiting a steel plant in China, I asked the engineers where they got their knowledge. They showed me a McGraw-Hill 1948 textbook on steel making. And then I looked at their instrumentation - well maintained and more than adequate pneumatic displays, recorders, valves and controls."

The state owned heavy industry in northern China (and in Szechuan) is well known as a black hole down which the state pours a substantial proportion of its annual budget each year. This has become unsupportable in recent years, so that the state faces the choice of either modernising or closing them down. Given the large numbers of people employed in these
industries, closing them is not very politically attractive.
If I were in the business of selling control systems to steel mills, I would look at your anecdote and see an interesting business opportunity.


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

Automation Listers :

This subject has stimulated a significant amount of feedback and new thinking, and I appreciate everyone's involvement!

Michael Griffin has been a major contributor - thanks, Michael. I'd like to address some of his new points :

Michael defines large as :
> For the companies I deal with, say 200 - 300 million dollars
>plus in annual sales for the largest down to 50 million dollars
>plus for some of the medium size ones. These are not giant
>companies,but this isn't a business composed of giant ones,
>rather it tends to have a lot of small or medium size ones.

Jim Pinto:
The financial and marketing definitions are :
Large : at least $ 1b and above
Medium : $ 100m to $1b
Small : $ 20m to $100m
Yes, indeed - the industrial automation is composed of a few (10-20 at most) - large companies and a host of small ones.

Michael :
> The point was though that if these companies are expanding at
>20 - 100 percent per year, why are the companies which supply
>them with components doing so poorly? What is so exceptional
>about the companies that I do business with that they are *all*
>so busy while the rest of the world isn't?

Jim :

I know *no* company in the industrial automation business that is growing 100% a year, (unless it is very tiny, which doesn't count).
Small companies (like OPTO-22 and Moore Industries - can you name a few others?) have stalled at $ 20-50m, with little or no consistent
growth (I'd really like to have *anyone* contradict me, with clear numbers).

Michael :

> Now I see Ontario booming, M. Levesque sees Quebec booming (with
>respect to the industry we are talking about) - and that just about covers
>the most of Canada

Jim :

Canada is about 10% of the US market, with *no* large industrial automation majors. Most Allen-Bradley Distributors are stuck, or declining. A-B
itself is declining. And, we are talking about some geographical segment "booming" ?
You guys are giving me a headache. Stop it!
(My apologies for my impatience - there is too much myopic repetition here).


Michael (on higher US pricing) :

> some of these US companies are physically closer to us
>than some of the Canadian companies, yet they bid 50% or more higher.

Jim :

Please understand that some US companies bid higher simply because they do *not* want the systems integration and custom-business.

Michael :

>Mr. Pinto may be entirely correct in his statement that the market is
>declining, but only from the point of view of US dollars.

Jim :

The market is declining - and *not* only in US dollars. The total market is stagnant, growing in spots, but declining overall. Doesn't anyone get my farming metaphor?? Farmers produce more, the overall market for food is the stable, but the individual farmhand (not the isolated, innovative farming conglomerate) is getting "poorer" and migrates to better work in other industries.
Please, I do *not* intend to insult the innovative and wealthy few in farming. I am drawing the parallel that there are simply fewer (and poorer) farmers.

Michael :

>Your article can be summarized as follows:
>Pinto's First Postulate: "The total automation market is stagnant
>... there may be some segments growing more than others, but the total
>market is simply NOT growing."
>Can you please cite some suitable statistics for this?

Jim :
No, it would take a book of numbers. And this is a discussion list. I refer you *not* to the Control magazines (who tend *not* to discuss these
topics openly, for fear of offending their advertisers), but to the financial analysts who drive the stock market. Rockwell, Honeywell, Emerson, Siemens and all the big companies have declining stocks, because market growth is simply not there. Consolidations (and consequent layoffs) are occurring because many companies are ailing.

Michael :

> Pinto's Second Postulate: "For the majors, their strategic core
>businesses continue to shrink and some segments are losing money."
>So, are Rockwell, Siemens, etc. seeing their PLC and motor control
>businesses shrink? Are their sales in these areas actually declining? By
how
>much?

Jim :

**Yes** indeed! PLC sales are declining (for the reasons I listed - lower price, competition, etc.) I challenge any major IA company reading this to come back and give us growth numbers for the past 1-2-3 years.

Michael :
> Pinto's Third Posulate: "most industry participants - vendors,
>customers, sales channels - continue to be blissfully ignorant of the fact
>that leadership is changing hands, talent is migrating to greener pastures
>and consolidations are occurring because business is stagnant."
> Are these people ignorant of the business stagnating, or are they
>ignorant of the "leadership changing hands" etc.? I must admit that I (a
>customer) was ignorant of both. Why though would the vendors and sales
>channels be ignorant of either stagnant business or "changing leadership".
I
>thought that that sales figures were all these guys ever talked about.

Jim :

*Key* point. It's the emperor's clothes syndrome - no one wants to admit that the industry is stagnant. Everyone *assumes* - making an ass out of u and me - that everything is OK.

*Hooray!* Michael, you have helped me to make my key point.

Let us - Michael Griffin and Jim Pinto and the Automation List challenge any major industrial automation company - Rockwell, Honeywell, Emerson,
Siemens, Invensys, ABB - to refresh this list with some growth numbers, or some of the correct facts and figures that are sorely needed.

Sadly, I think there will be no takers.

Sincerely :
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Keven Dunphy on 25 September, 2000 - 1:39 pm

Here are some numbers for one Process Control company. This data is all collected from Emerson Electric's 1999 annual report.

Total sales $14.2 Billion

The Process Control portion is $2.9 Billion which grew 7% from 1998. This growth is totally a result of acquisitions (Westinghouse and Daniel).
Underlining business declined in sales. The earnings (before taxes) for the division were $313 Million, down from $343 Million in 1998... particularly interesting in light of the acquisitions that "added" to earnings.

While this data does generally agree with the point of view that the process control market is declining, I would caution the List from drawing too many conclusions based on Emerson's stock price trends. Since the Process Control division represents less than 25% of the total revenues, Emerson's stock price could be influenced to a much greater extent by events in the remaining
75% of the company. I would encourage everyone to note the money Emerson has invested in its telecom power division... which incidentally is growing both revenue and earnings at rates similar to those turned in by the Process division in the 80s.

Great thread everyone!

Keven Dunphy

I do not know about the Automation market as a whole, but with the de-regulation of the electric energy market and the explosion of power plants being built, my observation is: (1) more work than people; (2) longer delivery times when ordering equipment. This would lead me to think
that things are expanding in this segment of the automation market.

Good point about de-regulation. Also in my limited experience, power generation plants are often behind the curve in automation technology and could certainly benefit in increased efficiency. Another contributing factor would seem to be the further restricting rules on environmental polution, which will require more monitoring and control of pollutants by these newly constructed plants, as well as retrofitting existing plants.

By Phillip Costantinou on 19 September, 2000 - 3:07 pm

My 2 cents:
Interesting IA article. These trends, and the consequences we are seeing, were all predicted in the Megatrends book back in the early '80s. I noticed, for example, that there were several vendors at the recent isa show in New Orleans for 'e-business' products/services. I think that that is the future for North America; less sweat work and actual material goods production, more white collar "high tech" work (just look at the recent boom in the stock market with all the day traders-I know of at least 2 people that quit "regular" jobs to be day traders over the internet from their homes).
Thanks, and please keep up the good work.
-Phil

It is my opinion that the market is changing, whether or not it's declining is another story. I have seen many of my clients change their opinions about automation services. They once (20 yrs ago) saw automation as a magic black box and very few engineers were capable of perfoming this service. Many young engineers in the last 20 years went into this area of the business, say vs power engineering. As well, with control systems being implemented these days with relative ease due to new features like graphic oriented configuration programs and more standard architectures the work is not being seen as special as it has been generically in the past. What I see now by my cleints is that automation engineering is no more a specialty than mechanical engineering, it is starting to be treated like a commodity engineering service and billing rates are beginning to suffer from the premium billings we once enjoyed.

Craig M. Borel, P.E.
Department Manager
Instrument & Automation Department
RPM Engineering, Inc.
225-297-3015
cmborel@rpmengbr.com

At 11:25 AM 9/15/00 -0500, Craig M. Borel, P.E. wrote:

"It is my opinion.....<snip>... What I see now by my clients is that automation engineering is no more a specialty than mechanical engineering, it is starting to be treated like a commodity engineering service and billing rates are beginning to suffer from the premium billings we once enjoyed."


It seems to me that there is always truth in this type of observation; the mentality that embraces new developments and wants to get involved during
the early stages of a new technology is quite different from the mentality that wants the job descriptions firmly established from years of experience.

That being said, there are always niches present in any field which will allow pioneer-types to have fun at their job. For example, in mechanical
engineering, it may be fairly easy to find people who can run AutoCAD and get a drawing out--not like in 1985. But it is still hard to find people
who know mechanical engineering AND materials or electronics well enough to make the cutting-edge products required by the marketplace. People with
multiple skills are rare and valuable in today's specialized workplace.

When there is a transition period, people whose jobs are threatened by the shift can react by:

1) Ignoring the situation totally, eventually getting a job at McDonalds.

2) Increasing their contributions to their 401K and waiting it out until retirement, hoping to miss having to learn anything new (I've heard this a lot!).

3) Leave their field right now and totally change their area of expertise (I've heard of several automation engineers becoming stock brokers, for
example). Note that their expertise still may be valuable (e. g. evaluating technology companies).

4) Get expertise in a related field that makes their specialty more valuable, for example learning about some exotic chemical process for the xyz industry, or learning a foreign language well enough to be able to shift to liaiason engineering/tech support...

Personally, I don't feel threatened by any of this; although I have spent most of my adult life wearing different hats in the automation field, there are plenty of other fun sandboxes out there to play in. Remember also, <<vita brevis, ars longa>> ("life is short, art is long"). Years of
experience are not gained overnight, and can be very valuable if you find the right employer who recognizes it.


One last comment--

Mark Blunier said:

"....<snip>...For example Murphy Farms came up with a system to mass produce hogs. They are no longer farmers, but a corporation. Or farmers selling seed come up with better seed varieties, become more successful, then (their) focus becomes more on producing seed, that business grows into a seed company. Thus many farmers with successful innovations become non-farmers, ie, not in the 2% any more."

Someone recently told me that 50% of all the lawyers are located in the US, and there are 400,000 students in US schools waiting to become lawyers. I haven't verified these numbers, but I know that these people are all going to need something to do when they get out. Wouldn't it be great if someone could figure out a profitable way for lawyers to innovate and become non-lawyers? This would truly be a contribution to US society, and would warrant a Nobel prize of some sort! ;^)

Cheers,

Willy Smith
Numatics Inc.
Costa Rica

By Kirk S. Hegwood on 22 September, 2000 - 9:13 am

I agree. Is it the automation manufacturing that is declining or system integration?


Kirk S. Hegwood
President
Signing for Hegwood Electric Service, Inc.
Kirk.Hegwood@HegwoodElectric.com

Willy Smith said,

"Someone recently told me that 50% of all the lawyers are located in the US, and there are 400,000 students in US schools waiting to become lawyers. I haven't verified these numbers, but I know that these people are all going to need something to do when they get out. Wouldn't it be great if someone could figure out a profitable way for lawyers to innovate and become non-lawyers? This would truly be a contribution to US society, and would warrant a Nobel prize of some sort! ;^)"

Mr. Smith,
Here is the answer...
We need a legal-ease compiler so we can put these people to work writing automation code. I'm thinking "outside the box" of ways to put some people back in the box. So anyway, where's my prize?

I'll get right on it.

... joking of course.

Mark R.

By Anthony Kerstens on 25 September, 2000 - 2:46 pm

When you think about it, lawyers aren't much different from us.

We carefully craft control software to control our systems. They carefully craft briefs and documents to control their "systems".

They have the right nit-picky mentality. Just teach them some electricity and programming.

Anthony Kerstens P.Eng.

Automation List :

real-life, real-time example of the items covered in my article - Automation in Decline.

Here is an extract from today's financial news on
Rockwell (Allen-Bradley) :
-------/
Rockwell (NYSE: ROK - news) is a stock to avoid until the sales outlook for the firm's automation business improves. Today Rockwell joined a growing number of U.S. companies by warning
that earnings per share would be about $0.09 lower than expected at $3.55 for fiscal 2000, which ends September 30. The market responded
by sending the stock price down 20% by midmorning.
Rockwell also announced that it expects fiscal 2001 earnings per share to range between $3.10 and $3.20, substantially below the consensus estimate of $3.76. Accelerating weakness in its already soft U.S. automation business is to blame. Automation accounts for about 60% of sales, which were flat in 1998, fell 3% in 1999, and are expected to decline 5% in 2000.

The primary cause for the shortfall was delays in capital spending by automotive manufacturers. These capital projects are typically for assembly lines and are big-ticket items. During its conference call this morning, Rockwell management stated that it doesn't expect any improvement over the next six months, and it could not forecast with confidence beyond that period. Parts shortages and a declining euro also hurting sales and earnings.

Management stated that it does expect free cash flow to range between $450 million and $500 million in 2000, meeting or at least coming
close to its previous guidance of $500 million. Nonetheless, until the sales outlook improves for automation, Rockwell is a stock to avoid.
------------------/

My next article - Pinto's Pointers in the October issue of Industrial Controls Intelligence and Plant Systems Report, will be on the subject : "Companies in trouble".

Anyone who has news and views to share, please send !

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Michael Griffin on 21 September, 2000 - 3:48 pm

At 09:24 18/09/00 -0700, Jim Pinto wrote:
<clip>
>Today Rockwell joined a growing number of U.S. companies by warning
>that earnings per share would be about $0.09 lower than expected
<clip>
>Accelerating weakness in its already
>soft U.S. automation business is to blame. Automation accounts for
>about 60% of sales, which were flat in 1998, fell 3% in 1999, and are
>expected to decline 5% in 2000.

Aha! Finally! Some real hard genuine numbers! Something we can actually look at. Rockwell (i.e. Allen Bradley) has a sales problem.

>The primary cause for the shortfall was delays in capital spending by
>automotive manufacturers. These capital projects are typically for
>assembly lines and are big-ticket items.

So, we see that Rockwell (i.e. Allen Bradley) is very concentrated in the large automotive companies in the US (nothing we didn't already know there), and these companies have not been buying too much from them lately. Big assembly plants are a very cyclical market though. Changes tend to be tied to introductions of new platforms, and this is not a regular event.
Furthermore, these companies have been putting more and more of their assembly work out to their suppliers, not all of whom buy Rockwell
hardware. In this case though, Rockwell's loss may be someone else's gain.

>During its conference call
>this morning, Rockwell management stated that it doesn't expect any
>improvement over the next six months, and it could not forecast with
>confidence beyond that period. Parts shortages and a declining euro
>also hurting sales and earnings.
<clip>

So what do we see here? One large company, (Rockwell) has a decline in sales because:
1) A few large customers have delayed purchases (a cyclical problem).
2) The sales slow down is apparently primarily in the US market (a local problem).
3) Part shortages (internal management problems).
4) A declining euro (currency movements).

What we haven't seen yet is something which tells us that Rockwell's problems are those of the industry in general (world wide). It would be particularly interesting to know to what degree Rockwell's explanations of the reasons for their problems constitutes fact, and how much is just wishful thinking.


I find it very interesting that Rockwell cites a declining euro as one of the causes for weak sales. Currency movements as a cause of an
apparent sales "decline" for companies keeping their accounts in US dollars was one of the points I had mentioned earlier. A company which kept accounts in euros may see a corresponding "rise" in their American sales when translated from dollars to euros.

The really interesting point though is the little statement at the beginning about "Today Rockwell joined a growing number of U.S. companies by warning that earnings per share would be about $0.09 lower than expected". In other words, this problem is not specific to Rockwell or to the industrial automation business either. This may rather be a sign of a general economic decline rather than just a problem in industrial automation (not that this would be of any help to Rockwell).

>My next article - Pinto's Pointers in the October issue of
>Industrial Controls Intelligence and Plant Systems Report,
>will be on the subject : "Companies in trouble".

We will look forward to this. What would be particularly useful is some figures for other companies similar to those you have included here. I don't know though if the big conglomerates like Siemens and ABB break out
their industrial automation figures from the rest of their business. I believe that both of these companies are primarily in other lines of business.

It would also be interesting to know if the problems are mainly with a few large companies, or across the industry in general (both large and small). A structural change in the industry could shake out quite a few big
players. It is worth remembering that very few of the many large mini-computer manufacturers survived the transition to the
workstation/server/PC market. This doesn't mean the computer industry disappeared or declined though - it just changed.


**********************
Michael Griffin
London, Ont. Canada
mgriffin@odyssey.on.ca
**********************

By Dave Ferguson on 25 September, 2000 - 9:21 am

Come on guys think about it. Last year sales were through the roof and automation was the big thing. (Everyone upgrading everything in partial fear of Y2K. And everyone else climbing on board, buy me an extra PC or two just in case.......

This year sales down (Y2K) over, mad bosses because nothing major happened, money spent over budgets, beancounters go on rampage due to overbudget spending, automation losses....

No MBA needed to figure this one out.

Dave Ferguson

No Flames Needed, not trying to ruffle feathers but think about it.

By Anthony Kerstens on 20 September, 2000 - 3:54 pm

Perhaps some of you should read Dick Morely's book. I found it intriguing. He discusses this very topic, comparing manufacturing of old to present, predicting where it will be in 2020.

Rather than farming, perhaps a good example would be that manufacturers used to have a VP of electric motors. Sound familiar? i.e.. VP of IT, VP of this, VP of that.... There comes a point where we start to take a technology for granted. I don't think automation will be any different, although the nature of it is more complicated than an off-the-shelf motor.

As for manufacturing moving the cheap labour markets, Dick's book agrees. But predicts that automation is still required to bring manufacturing to the next step where you drop a turnkey operation in the middle of nowhere. It's one thing to bring a process to cheap labour. I don't think that making a buck on the back of cheap labour is going to cut it in the future
because those nations will eventually institute labour laws much the same as we have, hence requiring alternative automated methods.

Jim: Have you read Dick Morely's book? Any comments on it in light of what you've previously said?

Anthony Kerstens P.Eng.

Anthony Kerstens comments :

>>Perhaps some of you should read Dick Morely's book. I
found it intriguing. He discusses this very topic,
comparing manufacturing of old to present, predicting
where it will be in 2020.
Jim: Have you read Dick Morely's book? Any comments on
it in light of what you've previously said?

Jim Pinto feedback :

Yes, I have read Dick Morley's book,
"The Technology Machine - Manufacturing in the Year 2020" and have recommended it on the JimPinto.com website :
http://www.jimpinto.com/reading.html#MORLEY

You can follow this link to find reviews and buy the book on Amazon.

Comments :
I concur with Morley's view - Manufacturing will move to where the resources are, and move away when the resources are depleted. And, it will change significantly. Automation is *not* just to reduce labor - but to improve quality beyond what manual labor can produce, and to reduce waste etc.

Anthony is right about cheap labor eventually also becoming expensive, due to local labor-laws etc. So, leave out labor from the equation.

Read Dick Morley's book!

Cheers:
jim
----------/
Jim Pinto
email : jim@jimpinto.com
web: www.JimPinto.com
San Diego, CA., USA
----------/

By Anthony Kerstens on 22 September, 2000 - 9:09 am

Dick Morley invented the Modicon PLC, and is sometimes referred to as the father of the PLC.

The book is:
"The Technology Machine : How Manufacturing Will
Work in the Year 2020" by Patricia Moody and
Richard Morley; Free Press; ISBN: 0684837099

Anthony Kerstens P.Eng.

> -----Original Message-----
> From: Rooney,John Peter [mailto:jprooney@foxboro.com]
> Sent: Wednesday, September 20, 2000 1:55 PM
> To: akerstens@ZARPAC.COM
> Subject: RE: INFO: Why is the Automation market declining?
>
>
> Dear Anthony Kerstens:
> I've been following this but I do not recall a book by Dick Morely being
> mentioned.
> What is the title, author's actual name, etc.???

By O'Connor, Denis on 25 September, 2000 - 2:41 pm

I just bought a used copy at www.half.com. There is one more copy available for $11.25. It sells on Amazon new for $22.40.

>Dick Morely invented the Modicon PLC, and is sometimes
>referred to as the father of the PLC.

>The book is:
>"The Technology Machine : How Manufacturing Will
>Work in the Year 2020" by Patricia Moody and
>Richard Morley; Free Press; ISBN: 0684837099

Denis O'Connor
Manager of Operations
EUA Cogenex Corp.
Boot Mills South
100 Foot of John Street
Lowell, MA 01852

The Industrial Automation market is declining because there have been no advantages to continue to buy automation systems since the only changes have been are in hardware. The software is still the same and provides no added benefits for companies to purchase new versions. There has been no integration of front office with back office; no means of following the entire manufacturing process to track information/data, and it still takes a lot of time and effort to modify programs and to reconfigure systems.

By Faiz M Bhutta on 10 October, 2001 - 11:21 am

To my point of view, industrial automation market is not declining but changing very fast due to globlalization. If in one market there were few
players, now there are many players and market share of companies is divided in one market but they searched new markets and compensate the revenues. Other phenomena is fastly changing technologies which has created new avenues for business and technology becomes obsolete quickly and product life cycle is short. The mergers and acquisitions is the phenomena to have more market share in one market segment and less market share in other market segment causing more agreggate income than previously. In fact the industrial market is not declining but expanding and due to factors like international competitive environment, globalization, e-business
environment, increasing customer awareness and internet access to markets & knowledge, margins are no doubt decreasing but the companies compensate by searching new markets and web technology provided easy path for new market
search and penetration with less risk and less expenses which indirectly adds to the revenues because of less marketing expense. I conclude that
market size is expanding, revenues are increasing but margins are squeezing.

Faiz M Bhutta Intech Process Automation