In this episode, Senior Manager Bryan Powrozek becomes the guest and Vice President of Marketing & Practice Growth Denise Asker becomes the host. Bryan and Denise discuss the top trends impacting industrial automation companies this year. Listen in to hear their take on data, collaboration, M&A and more.
Podcast Transcript:
Denise Asker:
In reading the article that you and Jim pulled together, you talked about these five trends. To kick it off, he emphasized that data, which we know is so important, but he described it, he took it a little further and described it as new oil. I’m curious about what aspect of data management fits that description and why it’s so essential to this segment.
Speaker 2:
Welcome to The Sound of Automation, brought to you by Clayton and McKervey, CPAs for growth driven businesses.
Denise Asker:
Welcome to The Sound of Automation. In this episode, we’re going to mix things up a bit. I’m Denise Asker, vice-president of marketing and practice growth at Clayton and McKervey, and I’m serving as your guest podcast host. Today I have the pleasure of interviewing your regular host, Bryan Powrozek, who leads our industrial automation segment. And we thought it would be fun to pick his brain on some information he recently learned from Jim Beretta. Some of you may know Jim as the host of The Robot Industry Podcast. And Bryan and Jim talked about the five trends that were identified in 2023 for the industrial automation segment. And we wanted to explore those a little bit today, so welcome, Bryan.
Bryan Powrozek:
Excellent. Thanks, Denise. And good to have you back on the podcast. It’s been been a while.
Denise Asker:
It has been a while.
Bryan Powrozek:
So good to get the band back together.
Denise Asker:
Absolutely. This is a lot of fun. I’ll be a little rusty since I haven’t been at it for a while, but you will pull it all together. I have no doubt.
Bryan Powrozek:
Well, we’ll try. We’ll do our best.
Denise Asker:
So in reading the article that you and Jim pulled together, you talked about these five trends. To kick it off, he emphasized that data, which we know is so important, but he described it, he took it a little further and described it as new oil. I’m curious about what aspect of data management fits that description and why it’s so essential to this segment.
Bryan Powrozek:
Sure. And when you think about the importance of oil to most manufacturing processes, whether we’re talking about extracting it for fuel, or using it in the production of plastics, or whatever the case may be, it’s a very critical resource for every industry. And so data is taking on that same level of importance to organizations, and ironically, very similar to oil, the companies that know how to properly find it, extract it, process it, and then use it will have a leg up on their competitors. So really, this trend should come as no surprise to most business owners. I think that data and data analytics has been something that’s been on their radar for a long time now, but it’s just continuing to gain more and more importance as issues get tighter. And you look at for example the recent supply chain problems.
Companies that were able to manage data think about, okay, I’m going to need to order this part because it’s got a six month lead time and it’s going to slow down my production schedule. Those companies weathered that supply chain storm a little bit better than the ones who just kind of operated in the way that they always had. And well, we’re going to order the parts when we need them, and now we’re sitting around for six, seven months while we wait for that part to arrive. And we can’t ship this final product to our customer because we’re waiting on one piece.
Denise Asker:
So the data put them in a better position.
Bryan Powrozek:
So data is just going to continue to grow in importance.
Denise Asker:
Yeah. I’m hearing that in your description. Just to put you on the spot, how’s the industry doing overall in their incorporation of data? I mean, your example was poignant in the sense that those that had access to data obviously would be better off, more efficient, making more profits. But how are we doing overall as a segment?
Bryan Powrozek:
I think that it’s very interesting to me when you look at it. So if I use automation companies, particularly the ones that are really trying to drive industry 4.0, they’re really data companies. Right? They’re helping manufacturers identify the critical pieces of information, things that they’re going to need to improve the efficiency of their process, provide better tracking of their production. But then it gets very hard to turn that lens back around on yourself and apply those same methodologies and those same ideas to your own business. So I kind of feel like there’s a bit of a stratification. The larger, more advanced companies in the industry have the resources, have the bench strength to be able to go out and invest in bringing in the people that they need to help establish those practices and those procedures internally.
As you get down into the small and mid-sized area, that’s where it becomes a little bit harder because those businesses are typically focused on getting the work out the door, and they don’t have a huge bench to go out and start taking on this new data analytics project or data tracking project within their own organization. So it’s kind of a story of the haves and the have nots.
Denise Asker:
Okay, makes sense.
Bryan Powrozek:
But it’s going to be critically important for those small to mid-sized companies to find a way to get into this because they’re the ones that are supplying and feeding the larger companies. And so it kind of all breaks down if this reliance on data only goes down to a certain level within the ecosystem.
Denise Asker:
Okay. That’s a fair point. Great. So what I noticed on Jim’s article is that a lot of these points seem like common sense. But as we just learned with data analytics, they do go deeper, so I would say the next one fits into that. He talks about collaboration as a key trend. We’ve been talking about collaboration for decades, so share what he means by collaboration today. And then I’m also curious on if there’s been any impact [inaudible 00:07:06] work on the need and the strategic value in collaborating.
Bryan Powrozek:
Yeah. And I think when you talk about least in the automation world, when you talk about collaboration, probably the first thing that comes to mind for most people is collaborative robots. Right?
Denise Asker:
Yep.
Bryan Powrozek:
Being able to have a robot working right next to a human operator without the safety guarding and the protection and everything that goes along with it. But Jim really sees collaboration going beyond that and looking at: How do you make the most of the human and the machine relationship without just saying, “Okay, we’re going to replace every human with a machine”? Because there’s certain things, that’s one of the challenges of automation, is teaching the machine to do the things that a human ordinarily would do. If you’re talking about picking up a rivet, putting it in this hole, and then riveting the piece together, those type of operations are very easy to automate. I say easy, but it’s a relative term there. But those are good opportunities for automation.
But now to train with machine learning and artificial intelligence to train a machine to have the same capabilities of a human, it starts to get much more complex, much more challenging. And so is there a way to leverage the knowledge and the flexibility in the human brain with the efficiency and repeatability of the robot. So one of the things Jim talks about is supervised autonomy solutions. So that’s where you have a human who’s monitoring multiple automation systems, and is really just there to handle the exceptions, the things that it becomes too difficult, at least right now, or too expensive, to use machine learning and artificial intelligence to address, use human intelligence to address those exceptions, but let the machines do what they do best, which is the consistent, repetitive work that you can automate.
Denise Asker:
Interesting. So again, how is that trend being carried forward in the industry right now? Is it again the bigger players have this more under control, and the smaller ones are catching up, or what are you seeing there?
Bryan Powrozek:
I think you’re seeing it kind of across the board. The bigger players obviously have the R and D departments and the bigger war chest to kind of invest in these and developing these new technologies. But really, and when you look at the breakdown of small to mid-sized, not just automation companies, but manufacturers, they may not necessarily be able to afford to bring in one of the big players to help automate their system. And frankly, their plant probably doesn’t need full automation. They just need to automate one section of their plant to really see a big return on their investment. So having the smaller players getting involved in this and kind of focusing on kind of their peers in terms of the manufacturing environment is going to be important because I think that’s where a lot of the gains are going to come in and you’re going to start seeing some of this innovation of, how do we take …
It’s easy to innovate when you have an unlimited budget and unlimited resources. But let’s make this practical, for a small to mid-sized manufacturer that can maybe invest $50,000 to $100,000 in automating some element of their manufacturing process. Where’s that investment best made? What’s the project? How do you scale a small automation project to fit in there? So those are going to be the challenges, and I think that the skillsets are there across the board. This is what system integrators do every day. Right? So it’s helping them learn how to speak to a manufacturer who really doesn’t understand automation and show the value of what their capability is.
Denise Asker:
Right. Thank you for that.
Bryan Powrozek:
Yeah.
Denise Asker:
All right. The third trend that Jim identified was a reduced time to market, so I don’t know if this has just been an ongoing trend or something that has been expedited with the pandemic. But I’m curious on what you’re seeing and if you can speak to kind of the future of that trend. Is the world just going to continue to get faster and faster? Will we plateau at some point?
Bryan Powrozek:
Yeah. I think that is a trend that has been going on since the third industrial revolution. Things are always newer, faster, smaller, more compact technologies are always coming out at a faster rate. But I think in terms of how Jim is looking at is the automation companies, the custom machine builders, system integrators who can find ways to get their technologies to market faster are going to have a competitive advantage over those that have a more traditional six to 12 month lead time to develop a system. And so some of that can be handled just by the product offering. Look at your product base and understand. Are there any concentrations here? Do we do a lot of palletizing or or de-palletizing stations for manufacturers? Okay, maybe we can develop some standard core pieces there that now whenever a customer comes to us, we’re not redesigning the entire thing.
We’re just redesigning maybe the end of arm tool, or something like that. And now we maybe have a stockpile of some of the components we need to get started on these jobs. So now we’ve taken a six month lead time and cut it down to three because that’s, when you look at the re-shoring efforts and companies want to move manufacturing from China to Mexico, or even back to the United States, they want it right now. They don’t want to have to wait six to 12 months to get that started. So if you’re able to find ways to take time out of your process, that’s going to give you a competitive advantage in the market. And so standardizing is one option. Another kind of goes back to the data point. Right?
If you understand your forecast of demand for chips, or pumps, or valves, or whatever the component might be, now you can maybe start ordering some of those things in advance so you have them in the shop and ready to go when the orders come in, and now you’re compressing your lead times there. So there’s a couple different approaches to how to take advantage of that, but it’s going to be important to really try to focus on that and make that part of your business plan, versus just sitting back and saying, “Well, these systems always take six to 12 months to manufacture,” and you’re just going to have to deal with that.
Denise Asker:
Okay. I noticed that one of the sub points that Jim made was in dealing with inventory, which you referenced a little bit with the pumps. Is there a science around that? Are there guidelines that might help system integrators manage their inventory to get to market quicker without carrying too much in cost?
Bryan Powrozek:
Yeah. This is a characteristic of their business that I’m interested to see how it kind of plays out because that is one adjustment we’ve seen a number of integrators make. They typically try not to carry any more inventory than they had. Their systems were engineered to order, so they would wait until they needed the parts. They’d order the parts, get them in, build the system, and send it to the customer. Well, those lead times now force them to say, “Well, in order to service my customer better, I’m going to have to get into the business of managing some inventory.” So there’s been system issues. Maybe their ERP doesn’t do a great job managing inventory, but they never worried about it before because they didn’t carry inventory. Now they are, and so they’re trying to navigate those challenges.
So in theory, if the supply chain corrected itself and everything got back to the way it was, they could now shed that part of their business and say, “No, we’re going back. We’re just going to engineer an order again and keep going.” Before they do that, I think they really need to consider. Is that the right approach? Is there something we can learn from this most recent supply chain issue that now makes our business more effective? So if you’re going to start carrying inventory, now you need to start track. Okay, what are the things that turn quickly? Because those are the ones I’m going to want to have on my shelf. If I order this one PLC component and I don’t use it for 12 months, okay, there’s probably not a reason to have more of those than you need sitting on the shelf.
But if I’m constantly sending this component out to a customer and I go through five or six of them a month, well, you probably want to put some sort of strategy in place to figure out. How do we keep those on hand, or at least some level on hand, to help shorten our lead times?
Denise Asker:
Yeah. That makes sense. Makes sense. Good, thank you. All right. I liked this next trend. This talks about traditional lines of service [inaudible 00:16:59]. So people assuming new roles, are those roles expanding? I’m curious if you can speak to what you’re seeing on that front.
Bryan Powrozek:
Yeah. I don’t think this is a trend that is unique to integration and automation companies. You see this all over the marketplace. And I think what it really comes down to is if customers find a vendor, or a partner, however you want to characterize yourself, but if you find somebody that does good work, they want to do more work with them. And so the way that kind of plays out in the automation space is you may focus on this one element of the process, your special is, I’ll say palletizing and de-palletizing again. That’s your expertise. Well, the customer then comes to you and says, “Well, can you do the step just before that or the step just after that? Can you take on this piece?” And so now the scope kind of starts to creep up the engagements and you start picking up more peripheral systems.
And in my client base, one area I’ve seen this a lot is kind of the preventative maintenance service type of arrangements. I’m not going to say there’s a typical way it’s done, but usually machine builder, automator, designs the system, installs it, gets it set up and running, and then walks away. And the customer has traditionally handled the maintenance and kind of the upkeep. And then occasionally, if something goes wrong, they bring the integrator back in. More and more, you’re starting to see this focus on service contracts, support contracts, even automation as a service is gaining some steam. Why wouldn’t I just take ownership over this for the life of the system? Now yes, the customer may be paying me more or paying a different way. You’re going from a capital investment when you buy the system, to maybe if you made it a … If you come up with a system where you’re in more of a subscription model, where you get the machine but now you’re just paying me $5000 a month to keep this thing working.
Now you’re going out, you’re doing the maintenance. You’re making sure it’s working correctly. The manufacturers themselves can now redirect those resources. People that they used to need to have on staff for maintenance, they can now put them into another part of the process. And so I think you’ll see a lot more situations like that. Jim also talks about kind of the convergence of the OT and the IT environments, so the OT is the plant floor equipment, the IT is what you traditionally think about the computers and emails and all that other stuff. Both sides are sitting there looking and saying, “That’s not that much different than what we’re doing on our side of the aisle. So why can’t we get into that space? Why can’t we kind of expand out into that market?” So you’re going to see this push and pull of businesses looking and trying to see, like I said, those things that are around them in the plant that maybe they can start getting into, which is another argument for some of those service and support contracts because we see it within our own client base.
The more I’m out at a client, the more I’m talking to them people who are boots on the ground, the more issues and ways I can help are uncovered. So that’s another option for business owners to kind of figure out their strategy because they’re now getting paid to come out to the plant and look at what’s going on and see where challenges are, so creates just another opportunity there.
Denise Asker:
Yeah. It sounds like this is happening very organically based on the needs of the business.
Bryan Powrozek:
Yeah, organically based on needs of the business or I’d say the real visionary business owners are thinking about this and making a point of it because they know there’s opportunities out there that they just need to uncover, and now they can expand and diversify their business.
Denise Asker:
Great. Well, his last point, which shouldn’t surprise anyone, is the topic of M and A. So it’s been a hot topic for years. I’m assuming that you’re seeing this to be a continued trend in 2023.
Bryan Powrozek:
Oh, yeah. And just in talking with our partners on kind of the M and A private equity, investment banking side, automation has been an interesting sector for them for a while. It’s continuing to elevate itself because they’re looking at the same things we’re all looking at, seeing if chip manufacturing is going to be brought back here, or if really any manufacturing is going to be brought back to the US. There’s going to have to be a heavy automation component to it in order to make that cost-effective. So they are very interested in this market, and so you’ve got outside investors who want to get in. You look at just the acquisition equipment, or the acquisition activity that’s happened over the past couple years of large automation companies acquiring smaller automation companies. Maybe it’s for the resources. Maybe it’s for the market they serve or a technology they have. But that has continued, and we see it continuing into the future. There’s no reason for that to slow down. So now you’ve got kind of the big fish eating the small fish type scenario, so that’s going to continue.
But the real interesting thing to me about that, and it goes back to something I mentioned earlier, is as the larger companies get larger, they need to go after larger projects because structurally, they’re just set up to support bigger clients, bigger customers, bigger projects. Well, if you acquire all the smaller companies, who’s left to service that middle market, the small to mid-sized manufacturers who know they need these automation solutions? So what we expect to see, and which has kind of panned out, is there’s always an upcoming class. Right? There’s always a group that’s looking and saying, “I’ve worked for an integrator since I got out of college. I’ve really got this desire to strike out on my own and try and do things.” Well, there’s going to be a lot of opportunity for those types of entrepreneurs because the middle market’s going to create a vacuum, and so now they can get into it. There’ll be opportunities. There’ll be ways for them to grow.
So it’s not like the big companies are going to acquire the small, and then there’s just going to be no more small companies. The bench will get replenished and there’ll be a lot of opportunity for everybody because there’s probably more demand for automation right now than the market itself can handle. So if you now start consolidating and focusing on specific customers and specific industries, there’ll be opportunities for someone to step in and fill that void and go after the companies that don’t have someone to service their needs right now.
Denise Asker:
Yeah, makes sense. I know we do a lot in this space. Are there one or two easy ideas for companies that might be thinking about a transaction in the next 12 months?
Bryan Powrozek:
Yeah. If they’re thinking about the transaction in the next 12 months, that’s unfortunate because they’ve missed a lot of opportunity for planning.
Denise Asker:
Okay. So let’s be more optimistic. Thinking about a future transaction, timeline to be determined.
Bryan Powrozek:
Yeah. Well, I guess the biggest piece of advice I would give to anybody is it’s never too early to start thinking about it, not even okay, I want to leave the business, but to start adopting this mindset of, at some point, and I heard somebody, I can’t remember who to credit with this, but somebody had told me at one point. Every business owner will some day leave their business. They’re either going to die or they’re going to sell, but we’re all leaving our businesses at some point. So it’s best to have your plan in place and things ready to go because that’s another thing about this industry is because there is so much interest in it, you never know when you’re going to get that knock on the door.
You never know when somebody might look and say, “Hey, I want to get into that geographic market, or I want to get into this particular element.” Maybe I’m more of a robotics integrator, but I want to pick up some more controls capabilities, so you never know when that’s going to come up. So having your house in order and your plan together will just help prepare you if and when that eventuality happens. But a lot of the things that we talk to companies about in order to get ready for that are just good business sense. It’s just things that are going to help you run a more effective business, have a better understanding of when you make a decision to invest in a new technology, or a new ERP system, or expand to a geographic market. What’s the reason for that? How is it going to help you get to where you want to be when it does come time to sell your business?
And maybe you look at it and say, “When I look at it through that lens, no, this doesn’t make sense. I don’t need to do that. It’s an unnecessary risk,” or you look at the numbers and you say, “Yeah, this is a no-brainer. I have to do this. It’s too good of an opportunity to pass up.” So we really encourage all the business owners we work with to really start thinking about their business for what it really is, which is probably their largest investment in their entire portfolio. And so you wouldn’t … We’re doing a workshop with CSIA at their upcoming executive conference just solely based around this whole topic. But you wouldn’t put all your money into an investment portfolio and then just walk away and never look at it again. So that’s-
Denise Asker:
Well, it’s an [inaudible 00:27:43] with your business.
Bryan Powrozek:
Exactly. You’ve got to take the same approach to your business and make sure you’re doing the things because … And we’ve all seen it. It’s so easy to get caught up in the day to day and working in the trenches, and getting this piece of equipment out the door, that you take your eye off the ball and where the business is going and where you want it to be going.
Denise Asker:
Yeah. Well, that’s a great place to leave it today. I want to thank you for allowing us to switch roles a little bit, well, inviting me in altogether. And you and Jim did a nice job with this topic. For our listeners, if you want to learn more, there’s articles found on claytonmckervey.com, along with our podcast, past episodes and other topics on the segment of industrial automation, so I hope you all check it out. Bryan, I look forward to seeing you soon.
Bryan Powrozek:
All right. Thanks, Denise.
Denise Asker:
All right. Thank you, bye-bye.
Speaker 2:
Thank you for tuning in. Don’t forget to like us, subscribe, and share on social. To learn more about Clayton and McKervey, visit us at claytonmckervey.com. That’s C-L-A-Y-T-O-N-M-C-K-E-R-V-E-Y.com. We thrive on finding the solutions for you.
