Automation suppliers saw MRO services overtake new projects in 2010
Promising signs continue to point toward a sustained process automation market recovery to continue through 2011. During 2010, the automation market was at the point where suppliers serving the installed base with MRO activities fared better than those relying heavily on project business. Suppliers ate through a huge chunk of their project backlog and finished product inventory while new projects were postponed or canceled during the recession. Also, shipments for many new project orders received during 2010 were delayed until 2011.
ARC expects the tepid growth seen during 2010 to accelerate in 2011, but remains skeptical about the process automation market reaching pre-recession growth levels. Historically, the process automation market has been characterized by slow yet steady growth, and we expect the market will return to this pattern with an overall CAGR of roughly six percent over the five-year period of 2009-2014.
“Suppliers with quick access to raw materials and components and an efficient supply chain to enable quick ramp-up of production and inventory will be in the best position to participate in the increase in demand,” according to senior analyst David Clayton, the principle author of ARC’s “Automation Expenditures for Process Industries Worldwide Outlook.”
Global Manufacturing PMIs Show Expansion
Purchasing managers’ indexes (PMIs) provide a good barometer of overall health in the manufacturing and automation markets. PMIs typically include data, such as production level, new orders, supplier deliveries, inventories, and employment level. A PMI reading below 50 indicates a general contraction in the manufacturing economy being measured while any reading over 50 indicates expansion. The J.P. Morgan global manufacturing PMI edged up to 57.8 from 57.1 in January, marking the second-fastest reading ever in the global gauge, which is based on other surveys covering over 7,500 purchasing managers in nearly 30 countries. Output and new order components accelerated, and the input price gauge rose to 76.7 from 73.3 in January. The US ISM represents 28.6 percent of the gauge, followed by Japan at 12.3 percent, China at 7.4 percent, Germany at 5 percent and the UK at 4.2 percent.
Plan for Increasing Demand
Most automation suppliers followed a conservative strategy of cutting cost and inventories to match declining demand during the lengthy economic slowdown. Suppliers accustomed to taking risks should put themselves in a position to take advantage of growth opportunities that are taking root in developing countries. Sluggish demand has hurt the bottom lines of sub-suppliers, making them more open to negotiate on both prices and terms.
As the economy recovers, automation suppliers must make plans to make the necessary changes and emerge as stronger organizations that are able to meet renewed demand. However, this confidence will only come if there is a clear understanding in their organizations about the long-term trends that drive demand for automation and develop strategies to satisfy those demands.