It Also Takes A Little TCO
EP Editorial Staff | October 9, 2013
According to automation and controls giant Honeywell Process Solutions, true sustainability can’t be realized without factoring total cost of ownership into the calculation.
By Rick Carter, Executive Editor
With nearly half of its products linked to energy efficiency, Honeywell is a leader in promoting sustainable operations for manufacturers and facility operators worldwide. But the respected New Jersey-based company doesn’t limit its discussion of sustainability to energy efficiency. To achieve the highest level of sustainability, it recommends also putting on a green visor to study the numbers—all of them. Most important, say its experts, are those tied to the total cost of equipment ownership, an accounting procedure that enables managers to calculate any system’s true cost (based on all related factors, direct and indirect) over an actual or projected lifetime.
“TCO and sustainability can be both parallel and overlapping,” says Doug Bach, a Honeywell Process Solutions Customer Marketing Manager based in Phoenix, AZ. Plants seeking to integrate sustainable principles into their operation typically focus on reducing costs related to energy and maintenance, he says, expecting to move forward with the same or greater reliability and less environmental impact. But other equipment costs and expenses affect this goal as well, such as those related to acquisition, upgrades and ongoing support. For this reason, says Bach, “There needs to be an equation that considers the benefits and justification of doing many different things to the equipment over time. The total cost of ownership is never just about the cost of buying equipment,” he explains. “It’s everything else.”
Honeywell’s TCO-based approach includes what Bach calls a “migration path forward” that involves “having a written plan to stay on that path and understanding the useful life of a system.” A system’s “useful life” is a key term with regard to TCO. Applied correctly, TCO covers the necessary details about the support needed to reach a calculated useful life and, consequently, to prevent dollars being spent on systems that have become obsolete.
TCO calculations can be applied to any type of equipment or capital purchase. Bach’s frame of reference centers on the automated distribution control system (DCS) hardware and software for which Honeywell is known. His customers are largely process manufacturers that use DCSs to digitally control continuous and/or batch output at multiple locations through hundreds or thousands of I/O (input/output) devices. DCSs are also used to control equipment, such as variable speed drives. The job of maintaining and supporting such systems is usually entrusted to highly trained in-plant specialists, vendor implementers or both. It’s at this point, Bach suggests, where attainment of true sustainability can be missed if the type of written automation plan he refers to is not in place. Without one, it’s too easy to assume a DCS (or any other system) is humming along as designed, when in fact it could be wasting money, which fits no one’s definition of sustainability.
System support reduces TCO
Bach makes clear that his job is not to make the case for what he calls “rip and replace” projects for systems that have reached a certain age. It’s about providing customer education and support for systems, almost regardless of age. “I deal with DCS hardware that might be anywhere from 11 to 16 years older than the initial calculated useful life. We also have 35-year-old equipment that is still running and we have programs to wrap a level of support around those customers. But at some point,” he adds, “an aging system does become a risk and a potential downtime situation, so we work to help customers understand when they need to make decisions about useful life and keep their systems supportable.”
That level of advice can only result after in-depth customer/vendor interaction. Sample questions Bach might ask to create a TCO profile include:
- How willing is the company to maintain a system at levels needed to reach its calculated useful life?
- What level of accountability exists among key roles at the company?
- Are metrics being used, tracked and reported? Are they linked to goals?
- Are best practices written and shared?
- How comfortable is the company adopting new technology?
- Are the company’s systems proprietary or open?
- Is maintenance of the installed DCS a core competency?
- What types of long-term support partnerships does the company currently have?
A structured assessment is undertaken to provide such details and create “a baseline of where the customer is,” says Bach. “This will include a discussion around risk, unplanned downtime and problem resolution. For example, we’ll find out if procedures have been created for when a problem arises or if the site has a talent-succession plan. If someone retires and a skillset goes missing, we’ll identify that.”
Bach says he often finds “the opposite of a total-cost-of-ownership mindset” in plants, especially those that lack basics like system back-ups. “One client had to restore and didn’t have up-to-date back-ups,” he says. “They also had no written disaster-recovery plan and lacked critical spare parts that would be needed if a failure occurred. Maybe they were trying to cut back and decided they didn’t need to have certain parts onsite. But at this point, their total cost of ownership goes way up because they would most likely have to expedite a part, potentially pay extra for it and probably wait a couple of days to get back on line.”
Even more costly to operate can be plants that lack an overarching strategy. “Nearly half of the customers we talk to don’t have written, well-communicated life-cycle management plans,” says Bach. “This means they don’t have that link between business strategy and support strategy. So if they’re not managing cost across multiple sites and getting into integrated-service agreements and really looking into managing an installed system with an eye on five years down the road, they’re potentially spending too much to keep their systems running.”
Post-assessment solutions are, naturally, as varied as each client’s specific needs. Bach pinpoints training, however, as a common major concern among the many plants that face the double challenge of aging equipment and retiring workers. The new open-technology platforms for automated systems, he says, add to that challenge because they require a different skillset than older, proprietary systems. “So from a maintenance perspective, I’m talking to people who are thinking about retiring and I’m talking to the people who are replacing them,” says Bach. “The new people may be IT-savvy and well-educated, but lack process-control experience, so our training programs are likely to include components like remote-technology to help them do their job better. All of this is part of total cost of ownership in the Honeywell world,” he adds. “It’s driven by our customers having to do more with less, and our goal to have them lean on us for guidance.”
Not a ‘flavor of the month’
Honeywell’s emphasis on TCO is not new, says Shawn Gold, Global Program Manager for Honeywell’s Services Marketing Group, based in Vancouver, Canada. “We are talking about it now,” he says, “but more importantly, we’ve been practicing it for years.” He refers to the company’s longtime focus on supported product evolution, which helps keep TCO low and is the opposite of planned product obsolescence. Plant owners naturally want to get as much value from their investment as possible, he says, and they fear obsolescence, but often lack the knowledge, time and resources to take full advantage of what they have. According to Gold, Honeywell has emphasized long-term value since the mid-1980s, when a technological leap over its DCS offering from a decade earlier convinced the company “that we had to ensure customers could keep their systems current and have access to all necessary services: that rip-and-replace was not necessary with Honeywell. This has been ingrained in our actions, if not always our words.”
With the growing acceptance of open-technology platforms, Honeywell now predicts that the TCO approach is poised to play a far more important role in manufacturing. “If you’re getting into a world with more change,” says Bach, “you need to take a look at the impact that’s going to have. How much needs to be changed, and how quickly? That is a key component of TCO that I don’t think users or manufacturers always understand. Open technology can create additional challenges and risk, like shorter component life cycles for one, even though much of the core equipment includes lower-cost, off-the-shelf products. When you get to the actual core products that you can extend the life on and find a step-wise migration rather than rip-and-replace, you can manage it cost-effectively. But you must have a written plan to manage the open-system life cycle, which is different than the life cycle of a proprietary system. Nearly all of what you already have invested in engineering costs and wiring as well as knowledge and intelligence—which is usually more than the cost of the control products themselves—can be retained.”
Gold notes that when strong system support is a given, an accurate TCO calculation helps keep the focus on long-term, sustainable goals and the path to reach them. “Once you know your equipment is supportable, that opens a discussion about how you make sure it stays supportable and sustains its value,” he says. This means following procedures outlined with a TCO-based plan. These naturally include basic maintenance (like filter replacement), says Gold, along with the more-challenging requirements of maintaining open-technology equipment. “Open systems are more work,” he says. “They will require a periodic technology refresh, for example, and you’ll have to deal with cybersecurity management.”
Because open technology opens the door to viruses and other cyber events, including cyber attacks, there’s little room for complacency when it comes to system management. “Any plant using open technology needs to know what a cyber event would cost,” says Gold. This must include the probability such an event would cause a production loss and a certain amount of time to repair. “We do that kind of analysis for our customers,” he says. “We can also predict the probability of that happening, based on the industry they’re in.” Gold says plant operators should realize that if they do come under a targeted cyber attack, “there is little chance of stopping it. You must invest in an appropriate level of security and hope the attackers go after an easier target. Based on your knowledge of what a cyber attack would cost if it happened to you, you can determine what you might be willing to spend to stop it from happening or reduce the risk significantly. That is what an effective TCO analysis has to include.”
You need help
Even without the threat of a cyber attack, it makes sense that today’s plant professional would welcome reliable guidance and support on the automated-technology front. To this end, Honeywell is taking what Bach terms “a more proactive posture toward providing holistic system care.” This includes services like remote patch management and its new Assurance 360 services program, which is designed to better balance the risk-exposure/service-cost equation between Honeywell and its customers. “For other things, like troubleshooting,” he says, “we’ve been telling customers to allow us to observe system behavior while its happening and not just tell us over the phone what they think is happening. The ability to articulate a problem over the phone versus allowing us to see it will enable us to solve things 50% faster, and we’ll be able to identify a problem faster without having to swap files and send things through e-mail.”
Gold calls remote capability “a real game changer.” He has similar expectations for an upcoming new product that will help customers better manage cybersecurity. Other areas of emphasis for the company will include change-management and best-practice strategies as Honeywell strengthens its efforts to help plant operators understand an increasingly complicated big picture. “The fact is, manufacturers have become overwhelmed with too much technology,” says Gold, “and they don’t have enough resources to handle it all. Helping them better understand TCO and how to manage their systems effectively is clearly in their best interest,” he adds, “as well as in the best long-term interest for Honeywell.” MT
Industry Trends That Impact TCO
TCO (total cost of ownership) comes into play whether equipment owners calculate it as a real number, see it as an abstraction or don’t recognize it at all. Numerous broad-based factors impact it, including the aging workforce, the skills shortage and aging plant infrastructures. Others are more focused, such as those uncovered in a 2008* survey of process automation system operators conducted by the ARC Advisory Group. Their responses indicated that:
- 84% planned to run their installed systems up to 10 years beyond the suppliers’ stated obsolescence date (the date after which repair of components and technical support is no longer offered by the supplier).
- 64%, in fact, operated installed process automation systems 11 to 20 years beyond their system’s calculated useful life.
- 69% did not believe that passing their system’s obsolescence date was a reason to fund a system upgrade as long as it continues to operate reliably.
- 58% did not have a written life-cycle management policy that would incorporate TCO calculations and strategies to keep TCO at an assigned level.
*Honeywell process automation experts believe that the 2008 figures continue to represent current conditions accurately.
Source: ARC Advisory Group, “Trends in Process Automation System Lifecycle Management & Operational Services” report, 2008.