Is your EPC ready for the new business model (Part I)?

Everyone knows about the effects of the IT revolution on the process, power, pharmaceutical, and petrochemical industries. But what about engineering, procurement, and construction (EPC) firms? How are they being affected, and where will all this new technology take their business? This article attempts to address these last two questions and postulates new business models between EPC's and their clients.

By Jim Sohaney,
Sohaney Consulting Enterprises

The business relationship between EPCs and their clients in the process, power, pharmaceutical, and petrochemical industries is changing as a result of the IT revolution.

In this column, I'd like to look at how IT is changing process industry engineering and manufacturing. I'll also postulate how these trends will evolve over the next 5-15 years, and describe how EPC's might take advantage of this scenario to develop new profitable business relationships with their clients.

IT revolutionizes owner-operator engineering and manufacturing

In the last ten years we have seen an incredible increase in the number of IT tools available to an owner-operator or EPC aimed at effecting tremendous productivity gains in the creation of physical assets. We have gone from basic 3D-CAD to fully integrated systems that include document management, desktop 3D viewers, auto-pipe routers, PDM, e-content software, estimating databases, business decision software, automated workflow, and much more.

Companies like Bentley, Intergraph, ASD, Documentum, FileNET, CADCENTRE, and others have pioneered the way. What has been the effect of all of this new technology on the cost and time to build a new physical plant?

As I wrote in my last article on Chemical Online in March, the use of these tools has begun, in some cases, to show dramatic effects on the cost and speed to build a new plant. There are documented cases where project costs have been reduced by 40-50%. Project cycle times have been improved by 30-50%.

This is only the beginning. As companies learn how to integrate these new tools and as faster and more efficient software is developed and employed we will see an order of magnitude improvement in cost and project schedule by 2010 over a 1990 base.

Some of the new automated design tools now available can increase design efficiency by as much as ten times. The day will come soon when a $100 million facility design will be completed in a matter of a few days.

Similarly, in manufacturing we are beginning to see the use of EDM, maintenance management software, task tracking, 3D models, safety specific software and more. These IT tools plus the use of workflow streamlining techniques like lean manufacturing and Six Sigma are beginning to show dramatic improvements in manufacturing productivity.

Overall productivity gains of 30% or more have been realized in some cases and we are just beginning to scratch the surface. As people change the way they work mission critical workflows like hazard reviews will be done in a fraction of the time due to the reuse and electronic management of the information in a streamlined work process.

We should not be surprised at these types of results. We are in an IT revolution not an evolution. Every major revolution in technology has brought with it radical changes in productivity and as a result the creation of new business models.

Optimizing integrated workflows

So where is this all going? Where is the end point that signifies the end of radical change and a return to evolution not revolution?

The dollar driving force behind these changes is huge! The conservative numbers I quoted above multiplied by trillion-dollar construction and manufacturing expenditures will ensure that the final result will be far from the starting point.

I believe that things will start to reach equilibrium when the surviving companies have streamlined their workflows in total and integrated IT into all of their core and supporting work processes. So the final model is a company organized around its three or so core workflow processes that are totally streamlined to service the customer (Six Sigma model) utilizing IT integration.

What are some of the things that must happen in order for us to reach this state?

• Reorganize around a core. Owner Operator companies will reorganize around a few core workflow processes aimed directly at supplying the customer with the product or service. There are a number of methodologies that can be utilized to achieve this configuration (e.g. Six Sigma)
• Streamline workflow. Owner Operator companies will also streamline their functional supporting workflow processes using techniques like lean manufacturing, etc.
• Integrate IT ubiquitously. Utilization of IT tools to facilitate and enable all company workflow processes will be the norm. Integrating these tools together in an efficient manner to meet the specific needs of your company will be a core competency.
• Measure lifecycle economics. Owner-Operators will finally begin to look at the costs associated with building a facility in the light of total lifecycle economics. This will be possible because the restructuring of their companies around core workflow processes will finally eliminate the negative silo effects between engineering and manufacturing.
• Manage change. The skills associated with change management will become critical since organizations will continue to undergo massive cultural changes (see Managing Change: A guide for chemical engineers, Chemical Engineering, June 2000).
• Treat Information as an asset. Controlling the information and critical data associated with a company's core process will become absolutely essential. This information will be reused many times over to greatly improve efficiency. See my March article from Chemical Online on the value of the information assets (a term trademarked by Trinity Technologies). How this is done will differentiate between the players.
• Look for changes in billing. Regarding the EPCs and their customers; there will continue to be tremendous pressure to eliminate the duplication of resources that exists during any project where both parties are involved. It will become increasingly difficult to craft a business relationship between Owner-Operators and EPCs based solely on charges per man-hour, since this type of arrangement is diametrically opposed to the forces of productivity heretofore described.
• Software will reflect workflow. IT vendors will begin to shape their products consistent with the forces stated above. Their functional enabling software should be plug and play to minimize cultural change effects. Their base software should contain overarching workflow design for the particular core process and industry that they are targeting. FileNet products seem to be based on a workflow strategy, as are others in the vendor community. SAP achieved great success by doing just this for ERP.

Part II of this article will detail how EPCs can take advantage of these changes to build stronger relationships with their clients.

Jim Sohaney specializes in project engineering and manufacturing process optimization using the latest workflow methodologies and IT software. His background includes stints at Trinity Technologies Corp. and 23 years at Air Products & Chemicals, the last five as manager of Chemicals Group capital project lifecycle initiatives. While at Air Products, he led the implementation of PALADIN, which introduced engineering IT tools into the company's capital asset creation process. It remains one of the most successful capital project automation programs ever undertaken.

For more information: Jim Sohaney, President, Sohaney Consulting Enterprises, 2366 Hailey Ct., Fogelsville, PA 18051. Phone: 610-285-4853. Cellular: 610-390-5739. Fax: 610-285-2095. E-mail: Paladin373@aol.com.

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