Artificial intelligence is already changing the way air, water, and energy equipment is purchased, operated, and even the way market research is conducted. However, it would be a mistake to think that we are at a stage where AI will replace human wisdom. In fact, decision-making will be driven by Wisdom Enhanced Process SolutionsTM (WEPS). Smart technology can be likened to a PhD degree, but WEPS is the ultimate use of that degree. The selection of the type of stainless to be used in a valve and then the continuous corrosion monitoring all benefit from human insights.
By Robert McIlvaine, President and Founder – The McIlvaine Company
What is WEPS?
WEPS is a solution which provides the lowest total cost of ownership (LTCO). This solution may have the latest automation, but human experts are still needed to maximize the results. There are individual WEPS and a combination. The stainless valve solution is integrated with the process equipment and automation tools. The continuing operation of the process to achieve the LTCO depends on human intervention as needed. Much of this intervention can be standardized, but there is no substitute for the intervention of the top expert as needed.
A process combination could be stainless steel, valves, pumps, and filters. It would also contain the PLCs, instruments, and sensors needed for the continuing operation with the least amount of human intervention. Valves are a good example of stainless choices. There are three categories relative to the combination:
- A valve company that relies on the plant automation supplier.
- A valve company that provides the smart valve portion of the automation.
- A valve company that also provides the complete automation of the process.
Suppliers of both control valves and automation include Azbil and Andritz. Andritz manufactures all the equipment and the automation, so it essentially provides the complete range of wisdom that is needed. It has been a manufacturer of filters, air pollution control, and other process equipment for decades and has acquired additional companies. It recently acquired the valve division of KSB. It has incorporated its own automation products under the name Metris as part of its solutions. So Andritz has the ultimate tool to insert wisdom into the process solutions.
Other valve manufacturers are providing at least some of the automation through collaboration agreements with automation suppliers. The impact of corrosion on stainless valves is measured in several different ways which influence future decisions on stainless selection.
Control valve wisdom is an important factor in the process. Azbil provides automation and analytical services for the process equipment. For example, in polymer plants, Azbil provides the automation and analytics for the mixers and extruders and other equipment as well as providing the control valves. A mixer operation’s LTCO is in part the accuracy of viscosity measurements as well as the response time. Azbil also incorporates the wisdom of the operators by digitizing their responses as they make the rounds of the system. The control valve manufacturer needs the input from industry experts in anticipating future needs for the valves.
Grades of stainless steel vary but in general the higher the performance, the greater the cost. The LTCO is a balance between the two. The use of stainless versus alternatives not only results in longer life but in less down time for the operation.
Market Research with AI
AI is already allowing market research to be much more accurate. There are some fundamental changes in the approach.
Bottoms Up versus Top Down
Most market research in the past has been done on a top-down basis. In the future, it will increasingly be bottoms-up with the individual prospects being the bottom level and predictions made about the potential market share for each prospect. If the market is growing at 5% per year and the valve life is 10 years, then the replacement valve market is twice as large as the new valve market, so the vendors know exactly who the prospects are for much of the total market. Companies that already have some experience with valve operation comprise 95% of the valves are purchased. The bottoms- up approach is not only the most accurate way to determine the market but also the best way to provide salespeople with the prospects to target.
New Metrics for Market Research Numbers
In the past, market research has typically failed to provide very precise definitions for revenue numbers. In the future, precise definitions will be needed, and there are some new metrics. Previously, the reports provided revenues and volume. With stainless valves of varying sizes, volume is meaningless. However, Volume Adjusted Revenue (VAR) is a better volume metric. Since the list price is known, the actual volume can be determined. VAR can be adjusted to actual prices in two steps: The first would be the average discount from standard prices, and the second is the lower pricing in developing countries. The price for a valve in India may be at least 30% lower than that same valve sold in the United States or Europe.
Wisdom Circle
- Suppliers: Valve sales and technical personnel.
- Owner O&M: Observations that would typically be included as rounds of notations can be digitized. Azbil includes this under human automation.
- Complementary Products: Product suppliers that are served by the valves have considerable wisdom to add.
- Consultants: In addition to the typical consultants, niche experts need to be cultivated.
- Industry: Experts on specific processes within an industry need to be included.
- User Groups: The amount of available wisdom from user groups is substantial with the Gas Turbine User Groups being a perfect example.
- Media: Conferences and exhibitions are an excellent resource.
The stainless valve suppliers can capture all this wisdom as they prepare analysis of LTCO in each application.
EBITDA
The top valve companies are achieving EBITDA of 30%. The combination of VAR and discounts is a way to establish a good statistical basis for accurate forecasting.
Summary
Artificial intelligence has changed the market for stainless valves and other stainless air, water, energy equipment. The supplier of the stainless used in the valves and process equipment is governed by the same pricing structure as the equipment itself. Decisions will need to be made about how each Hub is approached to obtain the 30% EBITDA and maximize sales.
About the Author
Robert McIlvaine founded the McIlvaine Company in 1974 and oversees the work of 30 analysts and researchers. He has a BA degree from Princeton University.