5th ENGINEERING SUMMIT 2017
A conference report by 1155PM consultants GmbH.
The tagline of this year’s 5th Engineering Summit was “Time to Change”. Engineering companies, plant construction companies and manufacturers of special purpose machinery face significant challenges in international competition, which they must address by transforming traditional business models and methods of project management. Political tension on the international stage, as well as competition from Asia and North America, remain issues of great concern to the industry. Organised for the fifth time by the German Engineering Federation (VDMA, the Engineering Summit in Mannheim on 4 and 5 July 2017 created a platform for around 300 senior representatives in the German mechanical and plant engineering sector to discuss the necessity of changing their approach on international markets.
The 16 talks focussed mainly on the roll-out of digital processes for the companies’ internal workflows and on the optimisation of cost structures. The discussions after each talk underlined the participants’ keen awareness of the need for change.
Read on for our summary of the talks by the individual company representatives at the 5th Engineering Summit, as reported by Mr Edgar Wintersperger, Key Account Manager in our company:
1. Keynote: “Time to change”. Mr Tom Blades, Chief Executive Officer, Bilfinger SE.
First up in this year’s reliably fascinating event was the talk by Mr Tom Blades, who outlined his assessment of how the market for industrial services will develop. Based on the volume of $231 billion in 2016, Tom Blades predicted that the market for industrial services would grow by 2.6 percent p.a. to $256 billion in 2020. A study by Bilfinger SE indicating that the number of industrial facilities operating around the world that are older than 10 years will rise from roughly 25,000 in 2010 to 33,000 in 2020 strongly suggests that this estimated rise in market volume for industrial services is on the conservative side. Bilfinger SE is addressing this development by initiating internal change and is hence moving away from its traditional role in the project business toward a new role as provider of industrial services.
2. The change process in a mid-sized plant construction company: Mr Mesut Sahin, Chief Executive Officer, MMEC Mannesmann GmbH.
In recent years, MMEC Mannesmann GmbH has experienced several phases of change under the leadership of Mr Sahin. Indeed, Mr Sahin confirms that the company is still transforming. Operating as part of Mannesmann until 1999, the company was then incorporated within the French Technip Group and renamed Technip Germany GmbH. The plant engineering firm returned to the Mannesmann fold in 2016, taking the name MMEC Mannesmann GmbH. In his talk with the catchy title “Change is hard. Resisting change a lot harder”, Mr Sahin emphasised the need for companies to adapt to changing market circumstances. It was fascinating to learn about the extremely structured and methodical manner in which MMEC Mannesmann GmbH has addressed – and continues to address – the need for change in its own ranks. MMEC Mannesmann GmbH is actively driving change, starting with an initiation phase in which the company commissioned extensive staff interviews on the need for change in the company, to the implementation process with its adaptation of internal organisation and project workflows. Inclusion of all stakeholders in the change process was a particularly important aspect for the company.
3. Economic situation in large-scale plant construction. Mr Klaus Gottwald, spokesperson for the VDMA Large-scale Plant Construction Workgroup.
Mr Gottwald began with an introductory description of developments in order volumes for large-scale plant construction in the period from 1980 to 2016 and an overview of the top markets for the Mechanical Engineering Industry Association VDMA. He then proceeded to outline the opportunities and risks for the industry:
- Difficult economic times on the global markets, accompanied by political and commercial risks for market participants.
- Dwindling demand for industrial facilities in the emerging countries (China, Brazil, etc.).
- Stagnation or even erosion of commodity prices.
- Burgeoning competitive pressure from Asia.
- Opening of the Iranian market for investments.
- Rising demand for environmental protection technology.
- New business models and greater efficiency through digitisation.
- Growing demand for industrial services and concession models.
4. Service strategies in industrial plant construction. Mr DI Karl Purkarthofer, Head of Metallurgical Services, Primetals Technologies Austria GmbH.
Mr DI Purkarthofer from Primetals Technologies Austria GmbH held his talk in English, stating that his Austrian dialect would make the contents sound exactly the same in German. His claim to master the English language approximately as well as his fellow countryman Arnold Schwarzenegger sent ripples of laughter through the audience. But after his humorous introduction, he went on to provide an extremely in-depth assessment of the challenges currently facing Primetals Technologies Austria GmbH and the host of other companies within the metallurgical plant engineering sector. He described the following as the most important:
- Industrial consolidation > 80-percent reduction in the number of western companies operating in the metallurgical plant engineering segment over the last 20 years.
- Over 60-percent erosion in market demand for metallurgical plants in the last 10 years.
- Growing pressure to innovate > It is now 15 years since the last development of revolutionary technologies.
- The 4th Industrial Revolution > Over 400 percent increase in smart system components over the last 10 years.
Mr DI Purkarthofer closed by outlining his conviction that “open organisations” are the right way to drive corporate agility and hence to respond quickly to changing market circumstances.
5. Strengthening of EPC capabilities in large-scale plant construction: what needs to be done? Dr Thomas Gäckle, Head of the Directorate for Commodity Policies, Federal Ministry for Economic Affairs and Energy (BMWi), and Mr Christian Elsholz, Director, PricewaterhouseCoopers GmbH.
Dr Gäckle started by describing the study by PricewaterhouseCoopers GmbH, before Mr Elsholz proceeded to outline its findings. The market protagonists interviewed by PricewaterhouseCoopers believe that the winning formula that the market must adopt mainly involves:
- supporting and managing risks.
- strengthening political lobby work.
- handling customer requirements and competitive pressure.
- establishing new sources of funding.
- expanding business models.
- intensifying collaboration.
- exploiting modifications in credit insurance.
- introducing of deployment concepts.
- creating global presence.
The speakers used the findings of the study as a basis to define six calls to action that would help strengthen EPC capabilities for German companies operating in the sector:
- Cooperation platform EPC-Ecosystem.
- Centre of excellence for digital project management.
- Joint delegations from industry and politics on an international stage.
- Expansion of state export support.
- Germany as a hub of technology.
- Introduction of greater flexibility in project work.
The after-talk discussion centred chiefly on the support that companies involved in industrial project business would like to see provided on the political side, especially in regard to financing.
6. Keynote: Digitisation in plant engineering. Dr Savas Lazaridis, Head of Global Engineering, thyssenkrupp Industrial Solutions AG.
Dr Lazaridis started his talk with the provocative question of whether digitisation within Industry 4.0 will be a blessing or a curse. He proposed the theory that 50 percent of all current jobs will be lost in the coming 15 to 20 years due to:
- rapid increase in digitisation.
- democratisation of technologies.
- automation of processes and workflows.
- fear of the future.
Dr Lazaridis then switched his attention to an ‘electronic lady’: EMELIA. She is the digital vision by thyssenkrupp Industrial Solutions AG for the future of the company’s engineering and construction business. The issues that thyssenkrupp Industrial Solutions AG is seeking to address with this innovative approach include electronic availability of real-time information on ongoing workflows and process-related systems, electronic system navigation and the performance of completeness checks for system components. Dr Lazaridis used his very lively talk to provide a vivid outline of how digital technologies can be used to track the phases in plant construction and how improved control and design of workflows and processes can be introduced.
Dr Lazaridis wrapped up with the statement that 40 percent of the time used in a plant construction project is wasted on the search for materials and documentation at building sites. Moreover, inconsistent data and project changes lead to engineering cost overruns of 20 percent and to significant overruns in construction schedules. Among his core statements was to emphasise the significant potential for cost optimisation in industrial plant construction.
7. Potential of Industry 4.0 for large-scale plant construction: results of a recent industry survey. Mr Marc Artmeyer, Partner, maexpartners GmbH.
Mr Artmeyer presented the study conducted by maexpartners GmbH in 2015 on the issue described in the heading, as well as its findings. The company had already completed a study entitled “Industry 4.0 in industrial plant construction. Revolution or evolution?” in 2015. The findings at the time indicated that Industry 4.0 has significant potential to increase competitiveness, but also that new competitors entering the market with attractive business models must be seen as a risk to German companies in the industrial project business segment. Conducted by the company in 2017 and presented the same year at the 5th Engineering Summit, the new study by maexpartners GmbH elucidated that German companies operating in the sector are called upon to take action in the area of Industry 4.0 even more than in 2015. Mr Artmeyer also stated that companies are failing to elaborate digitisation strategies as a clear priority. The study goes on to say that the potential to increase competitiveness among plant engineering companies identified in 2015 has not yet been exploited.
8. Challenges and potential for digitisation in large-scale plant construction. Dr Markus Reifferscheid, Vice President Research and Development, SMS group GmbH.
Dr Markus Reifferscheid began by describing the vision “Smart Plants in the Steel Industry” by SMS group GmbH. The company investigated the question of which topical areas might benefit most from digitisation. It then defined seven key areas of future optimisation potential, including “New Steel & Grades” and “Legal Framework & Networking Capital”, as well as “Lean Processes & Cost Structures” and “Customer Satisfaction & Flexibility”. Dr Reifferscheid concluded with the following summary:
- SMS group GmbH started to address the issues of Industry 4.0 / digitisation many years ago.
- The process is more an evolution than a revolution.
- Digitisation will transform the production, maintenance, quality management and procurement processes in companies first of all.
9. How do machinery and plant builders benefit from digitalisation? Mr Jörg Winkler, Head of Communication Solutions, Voith Digital Solutions GmbH.
Mr Winkler cited the names of once illustrious companies, among them Wang Laboratories and Commodore International, to outline how crucial it is for companies to adapt to changes in market circumstances. Mr Winkler then used his talk to present examples of the lead technology systems in the Belo Monte and Serraria projects as demonstrations of just how far the Voith Group has already progressed down the path of digitisation. Among other things, the company focuses on expanding industrial services and the rollout of software solutions to reduce costs. The areas addressed by the software include monitoring of plants and systems and the communication of problems and anomalies to the Voith service staff and operating personnel before any significant damage can occur.
10. Keynote: Effectiveness and efficiency in project management. Dr Wilhelm Otten, Head of Business Line Process Technology & Engineering, Evonik Technology & Infrastructure GmbH.
Dr Otten began his talk with examples of projects from the perspective of a system operator. He went on to describe that between 2012 and 2015, four of the 39 projects (> €5 million) initiated by Evonik were not completed on time or budget. Dr Otten also mentioned that six larger projects since 2012 did not proceed beyond the phase of initial planning and that even some of the company’s investment decisions failed to yield the anticipated returns. The company has therefore defined the following objectives based on this historical performance:
To ensure attainment of business and project goals (quality, costs, schedule) by:
- Improvements in project management through
- Shared project understanding and consistent implementation of the technical standards needed for project fulfilment.
Competitive investments through:
- Peer benchmarking of Evonik investment projects
- Reduction in specific investment costs by 10 to 15 percent.
The goals were met in the majority of company projects (> €5 million) during 2015. To do this, the company launched the internal projects “Redesign of Project Fulfilment” for greater standardisation and reduced project deviation, as well as the “More Efficient Investment” project. The “Redesign of Project Fulfilment” project yielded numerous proposals for improvements such as a binding project definition (specification sheet) or the obligation of project teams to conduct structured technical risk assessment at defined reference points within Evonik. Dr Otten confirmed that “Redesign of Project Fulfilment” was successfully implemented at Evonik and is already starting to bear fruit.
The company’s “More Efficient Investment” project comprises six subprojects, including “Analysis of Cost Group Development”, “Benchmark Independent Project Analysis” and “Minimum Cost Approach”. Dr Otten described that the pilot phase of the project is currently being implemented and that the initial savings potential already adds up to €65 million.
11. Modularisation of healthcare systems: a template for large-scale plant construction? Dr David Estapé, Technology Manager Life Sciences, M + W Central Europe GmbH.
Starting with an introductory overview of the biopharmaceutical market and the trend toward smaller/modular production facilities that has pervaded the biopharmaceutical industry from 1990 to the present day, Dr Estapé went on to outline the pros and cons of modular system designs, for instance the business driver “Speed & Flexibility”, as follows:
- Buildings to accommodate the production systems can be constructed at the same time as the authorisation procedure for the facilities/products.
- The meteorological conditions do not affect installation of the productions systems.
- Greater schedule leeway to prepare the building site and infrastructure.
- Downscaling of building site activity and operational downtime.
- Early design freeze is necessary.
- Transport of the modules presents risks; limits for module dimensions and transport times.
- Specific regulations and authorisations for particular countries must be implemented by local, possibly inexperienced service providers.
Dr Estapé then put a number of questions to the audience to investigate whether modularisation of biopharmaceutical systems would be a viable business model for the future.
12. Creative approaches to cost-cutting in E, P and C. Mr Ewald Munz, Director Business Development EMEA, CYIENT Limited.
Mr Munz kicked off by outlining the key challenges in the EPC segment. He described that design and engineering costs typically account for between three and 15 percent of total outlay. Mr Munz used a case study to present a maintenance solution prepared by the elevators division at ThyssenKrupp, which is based on predictive action by service technicians. As an example, Mr Munz mentioned identifying the biggest causes of technical problems in an elevator. Once they are known, sensors are attached to them to log and analyse data input. A service technician has access to this data and uses a 3-D visor to enter the elevator in a virtual scenario in order to localise and assess the problem. Deployed in the field, the service technician will then be familiar with the elevator problem and can therefore ensure cost and time-optimised repair.
13. Which measures and trends increase productivity? Wolfram Gstrein, Managing Director, VTU Engineering Germany GmbH.
Mr Gstrein used his talk to address the necessity of effectiveness and efficiency in the realisation of industrial projects. Besides describing typical pitfalls in project fulfilment – among them incompatibility between the project contract and the project requirements – he also described the common practice in the project business that system design follows the project contract and not the other way round.
His conclusion: experience and lessons learnt in major and minor projects indicate that many factors help to optimise project costs, minimise throughput times and increase engineering quality. Moreover, he contends that a significant increase in efficiency and effectiveness can only be achieved by close collaboration between the principal and the contractor in a project, combined with the smart deployment of modern fulfilment methods and software tools.
14. Keynote: Winning formulae in the fulfilment of major projects. Dr Christian Bruch, Executive Board Member, Linde AG.
Eschewing slides, Dr Bruch used the Engineering Summit to report on the efforts undertaken by the company he represents, Linde AG, to drive the digitisation of plant construction projects. In his outlook, Dr Bruch also touched on artificial intelligence (AI) as the automation technology of the future. Dr Bruch addressed this issue to stimulate discussion, floating the question of whether “German plant engineering” will even exist in 10 years.
15. Process optimisation during the quote phase. Mr Jürgen Scheidt, Director Project Execution. TGE Gas Engineering.
Following a brief introduction to the market segment in which TGE Gas Engineering GmbH is active, Mr Scheidt quickly addressed the challenges in project initiation and engineering. He described a highly dynamic tender phase in a tough competitive environment, as well as the significant pressure to deliver turnkey engineering solutions that precisely satisfy the customer’s project requirements. Both aspects necessitate optimisation of the bidding process on the contractor side, among other things to:
- minimise the costs of preparing quotes.
- optimise the interfaces between technical disciplines.
- minimise the complexity of quote preparation.
- consider that the totality of activities and tasks during quote preparation are a project in their own right.
- consider that the likelihood of being awarded the contract in industrial project business is frequently less than 20 percent.
Mr Scheidt went on to emphasise the necessity for the stakeholders to change their attitudes and behaviour in preparing quotes. Besides other issues, Mr Scheidt also addressed topics such as questioning the understanding of one’s own role or how interdisciplinary communication must be managed. Mr Scheidt wrapped up with a quote by Sir John Harvey Jones (former president of Imperial Chemical Industries): “The task of leadership is to make the status quo seem more dangerous than launching into the unknown.”
16. Outlook: New approaches in project management. Mr Clemens Dachs, Chief Engineer, Siemens AG.
Mr Dachs used his extremely humorous talk to describe the efforts his company has made to speed up delayed projects through integrated workflow management. The method that Siemens applies is to conduct a systematic search for – and then to optimise – patterns in project schedules. Mr Dachs described project examples to elucidate how splitting and smart sequencing of project tasks can help to optimise scheduling potential.
One of his messages at the end of the talk emphasised that systemic optimisation is more than a buzzword and that thinking in systems and the consideration of their interactions within a project can open the door to optimisation potential.
We experienced a varied programme that showed an awareness among attendees of current and future challenges. However heterogeneous the discussed solutions may have been, there was unanimous agreement that the German plant engineering and special-purpose machinery sector is urgently called upon to take action in order to avoid losing touch with the international projects business.
(Authors: Edgar Wintersperger/ Juergen Hahn)