View from the other side

The balance between Cost, Credibility and Confidence

This article, the fifth of our ‘View from the other side’ feature columns from our colleagues in the USA, is provided by Chris Warnett. Chris, a UK expatriate, is the President of CPLloyd Consulting Inc. Rochester NY, providing marketing and applications expertise for the valve and automation industry. Chris has over 38 years of engineering, sales and marketing experience in valves and automation. Reach him at chris@cplloydconsulting.com | Tel 001 585 298 6239.

The recent fluctuations in oil prices have forced oil companies to review and revise future capital spending. The more immediate consequence to the valve and actuator industry is the even greater scrutiny of expenditures on current projects, MRO (Maintenance, Repair and Overhaul) and replacement equipment.

When profit margins are placed under stress, then there is an imperative to cut costs. This applies to all industries, not just the oil and gas sectors. When this happens, all areas of cost are examined and not least the purchasing of valves and actuators.

Even conservative industries look to alternatives when pressured by a drop in revenue. So when procuring material, companies may be tempted to entertain bids from lesser known suppliers and manufacturers.

Specifications that were previously sacrosanct, may become more elastic if significant savings become a temptation.

But an attitude that some equipment has become commoditized, and therefore all manufacturers equal, can be a dangerously short sighted one when it comes to valves and actuators.

In our industry, reputations are built over decades. The time it takes to bring new products to the market, fully tested and field proven, presents a barrier to new suppliers and new technology alike. However to the end user, this conservatism, is aimed at avoiding plant problems. If products fail to meet specifications for construction or performance on site, the ramifications run from minor to catastrophic.

Products that do not perform to specification can impact the process efficiency of a plant. A control loop with a valve that exhibits poor controllability over the process variable, erodes plant efficiency. This may cost a few thousand dollars a year of lost product or many thousands, depending on the severity of the problem. For example the temperature control of a Hydrocracker can have such a high impact on productivity that excessive temperature swings could cost over $1M per year in lost production.

Further, if a valve or actuator has been supplied below specification, or certain aspects of the specification have been waived to save money, there is a real possibility of equipment failure.

An example would be an offshore oil production platform where a humid and saliferous atmosphere demand that materials of construction have a high level of corrosion resistance. If an off specification product were supplied, it may work during the initial approval testing, but failure could result after only a few months of offshore duty.

Then, if the user’s maintenance support is not be able to resolve the failure, a service call would be needed from the manufacturer or supplier. For offshore work this could easily cost over $2000 a day. The equipment may be repairable on site or may need to be replaced. In either case the cost of the failure could run into many thousands of dollars when service, parts and lost production are factored in.

When unfamiliar products are accepted to save up front purchase costs it pays to remember that the user is left with the cost of ownership of that product. This ownership cost spreads over the lifetime of the product and includes:

1) Initial purchase cost
2) Installation cost
3) Running cost
4) Anticipated maintenance costs (Preventive Maintenance)
5) Un-anticipated maintenance costs (Breakdown)
a. Repair costs
b. Lost production costs
c. Replacement production costs

The initial purchase costs and the anticipated running and maintenance costs can be reasonably extrapolated when selecting familiar brand named equipment. Users may have an installed base of product and experience with these costs.

The un-anticipated costs, by definition, are harder to predict.

In the power industry, many plants have a level of redundancy built in, however in some areas this is not always possible. If a critical fan damper actuator failed, for example on the main forced draft fan (FD), then the boiler and generator set associated with that fan would have to be taken off line. The time to repair the actuator could run into several days for a second tier manufacturer that did not have an appropriate level of global parts and service support. The power company in the meantime would have to utilize replacement generation from the next available, lower efficiency, plant. This easily could cost the company hundreds of thousands of dollars per day.

When these un-anticipated life cycle costs are brought into the equation, the savings of a few percent on the purchase price can easily be eclipsed by one failure.

There are hundreds of valve and actuators suppliers around the world, many claiming to comply with the standards and specifications used by our industry.

Even with these assurances the credibility of a manufacturer may be in question. The manufacturer may be using a reputable brand name without the permission or even knowledge of the Brand owner. Despite some success in battling the counterfeiting of western brand names and designs, the practice still continues. However, the high level of publicity given to this practice in recent years has put valve users on their guard.

Certificates of compliance to standards and specifications are important tools to ensure even reputable brands are up to date on compliance and can be requested for each contract.

Some users still perform their own quality audits on manufacturers. These audits in some cases include review of material certification for individual casting pours as well as mill certificates. This requirement is not confined to the nuclear and offshore oil industries. One major US municipal water department routinely requests this level of certification on contracts.

The best way to protect against inferior or bogus product is to use only known reputable suppliers of known reputable brand named valves and actuators. Fortunately there are many strong brands to choose from, so that competitive bidding is still practical and effective.

The more credibility that a valve or actuator manufacturer can accrue, then the greater the confidence that the end user can place in their product and its overall lifetime performance.

Published: 5th September 2015