This week I had the honor of attending the Siemens Automation Summit held in Orlando Florida. During the conference analysts had the opportunity to interview Raj Batra, CEO of Siemens Automation division, 1 of 16 business divisions within the conglomerate. Raj and the entire Siemens team were optimistic for several reasons as they herald the manufacturing renaissance taking place here in the United States.
For the last few decades, manufacturing has been looked at as a drag on the business model, with many MBA certified C-suite decision makers looking for ways to outsource, go fab-less, or get their products made by contract manufacturers. Costs like overhead and labor were the primary focus as CEOs looked to lower OpEx and improve cash flow. In the last few years much has changed with the advent of hydraulic fracturing and the abundance of cheap energy. This is coming at the same time as wage rates grow in China and many manufacturing processes are becoming automated. With Energy costs now attributing up to 60% of a factory’s total OpEx, many manufacturers are looking towards the US where energy prices are 1/3 that of Europe and ¼ that of Asia. There are other advantages to manufacturing close to home as well, namely time advantage.
Mass customization has been in full force over the last 10 years with the sheer number of product varieties rising 250 percent. Consumer tastes and trends are changing so fast that the products are often still on the boat while demand changes overseas. Enhancing flexibility within assembly and manufacturing is one way to mitigate this risk and the way to do it is to manufacture closer to the demand center. Manufacturing is also becoming a knowledge based profession so centralizing the expertise is making a lot more sense. Companies will increasingly look to modernize existing assets with top technology, allowing machinery to continue to run long after it has been fully depreciated. CFOs and business managers are really latching onto this trend especially in this low interest rate environment where cost of capital is extremely low. Siemens has recognized that now is the time to invest capital in modern industrial equipment before rates begin to rise again and they are doing just that.
Siemens is the recognized leader within the Industrial Automation space propelled mainly by their industrial controls products. Aside from automation, Siemens is now in the top 3 on the process side boasting a $30 billion install base. Through both of these businesses, Siemens is leveraging a relatively new services branch which is primarily software based and focused on things like asset monitoring, predictive analytics, and most importantly, project lifecycle management. As technology costs continue to plummet and labor costs rise, the new value will be created by lowering the engineering time it takes to complete a project. Through the Siemens TIA portal, now boasting over 55 million lines of computational code, engineers can see up to a 30% reduction in engineering time. In a few years Siemens expects all physical assets to become digitized, that is, all documentation, certification, validation, etc. of everything from a dumb pipe to an advanced control system will be housed in a central software program that is continually syncing in real time. Concepts like this will allow for easy changeover and procurement of replacement parts; An idea that VDC is labeling as “optioneering.” A new, drop-in replacement can be installed, with all specifications and necessary information propagated out to all related systems. This fully integrated, virtualized, cyber physical model is the next essential step in realizing a connected factory.
The Siemens Automation Summit was a great experience and the excitement surrounding the event was truly palpable. Engineers from legendary manufacturing companies like Dupont, Air Products, and Dow Corning were interacting and enthusiastically discussing new methods and best practices. With innovative software tools, intelligent sensors, secure industrial networks, and an army of educated engineers the American industrial renaissance is charting an ambitious course towards the next level of global economic prosperity.
- Frank Bertini, Sr. Analayst - IAS
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