Economic climate for manufacturing 01 10

Road to Sustainable Recovery: The Environment for Manufacturing and

Automation in 2010 and Beyond

Road to Sustainable Recovery: The Environment for Manufacturing and

Automation in 2010 and Beyond

Craig ResnickResearch Director

ARC Advisory [email protected]

Larry O’BrienResearch Director

ARC Advisory [email protected]

2© ARC Advisory Group

OutlineOutline

Where are We Now? Global Indexes Impact on Manufacturing Energy Trends Industry Consolidation ARC Growth Forecast and Drivers Effects of Stimulus Spending ARC Economic Survey Results The Sustainability Challenge Navigating The Road to Recovery The Sustainability Challenge


Where are we now?Where are we now?

Global recession is easing, manufacturing back on a growth track, the worst is presumably over

Manufacturing must adjust to impending demand increases

Significant investments will still need to be made in many sectors, (Oil and Gas, Power)

Some sectors of the manufacturing economy may not ever recover to their previous status (US Automotive Industry for Example)

We have looming, long-term crises that will be addressed with the help of more advanced forms of automation


The Global Recession: Not Over YetThe Global Recession: Not Over Yet

Most believe that US recession is now over, but economic reports make it too early to call an end.

Employment and real estate, housing continue to drag down US economy.

“The 5.7 percent annual growth rate in the fourth quarter was the fastest pace since 2003. The Commerce Department report Friday is the strongest evidence to date that the worst recession since the 1930s ended last year, though an academic panel that dates recessions has yet to declare an end to it.”

Reuters: Germany said its economy shrank 5% in 2009 and probably stagnated in the fourth quarter, compounding concerns that Europe's recovery will be rocky.

Reuters: China is expected to return to double-digit economic growth in the fourth quarter of 2009, partly due to a low comparison base in the fourth quarter of 2008, when GDP growth dipped to 6.8 percent.


Impact on Manufacturing: A look at Recent PMIs from Around the WorldImpact on Manufacturing: A look at Recent PMIs from Around the World PMIs, or Purchasing Managers Indices are a good indicator of overall

health of manufacturing. Shows purchasing manager trends in orders for materials. Number of Below 50 indicates a general contraction in manufacturing.

At 56.1 in January, up from 54.6 in December, the JPMorgan Global Manufacturing Purchasing Managers’ Index registered its highest reading for 5.5 years. The latest improvement in overall operating performance reflected accelerated growth of production and new orders, while a slight gain in staffing levels was signaled for the first time since March 2008.

The most recent Markit Eurozone Manufacturing PMI reached 51.6 in De-cember, up 0.4 percent points from November and the highest reading since March of 2008. According to Markit, Germany and France spear-headed the upturn, with growth in Germany marking a 26-month high in November.

December marked a fifth consecutive month of expansion in the ISM PMI, while the overall US economy grew for the eighth consecutive month. The PMI for December reached 55.9 percent, which marks the highest reading since April of 2006.


JP Morgan Global Manufacturing PMI Comes Roaring BackJP Morgan Global Manufacturing PMI Comes Roaring Back


European Manufacturing PMI Indicates Similar TrendsEuropean Manufacturing PMI Indicates Similar Trends

Graphic Courtesy of http://eurowatch.blogspot.com/


German Manufacturing PMI Data from Market Economics Indicates TurnaroundGerman Manufacturing PMI Data from Market Economics Indicates Turnaround

Germany's manufacturing sector improved further in December but below the flash estimate, the BME/Markit Economics said on Monday. The seasonally adjusted manufacturing Purchasing Managers' Index or PMI increased to 52.7 in December from 52.4 in November. – Markit Economics


China Manufacturing PMI Indicates RecoveryChina Manufacturing PMI Indicates Recovery

At 56.1 in December, up from 55.7 a month previously, the headline HSBC China Manufacturing PMI™ pointed to a marked improvement of operating conditions in the Chinese manufacturing sector that was the second-fastest recorded by the series to date. For Q4 as a whole, the PMI averaged its highest reading in the survey history.

Manufacturing production in China rose sharply in December, with the average rate of expansion for Q4 the fastest since Q2 2004. Where a rise in output was signalled, panellists widely attributed this to greater inflows of new work.

Source: Markit Economics


India Manufacturing PMI Shows ExpansionIndia Manufacturing PMI Shows Expansion

A rebound in manufacturing helped India’s economic growth accelerate for the first time since 2007 in the second quarter, a recent report showed.

Policies employed by the central bank and the government are providing a stimulus to the economy worth more than 12 percent of gross domestic product.

Source: CLSA


Brazilian Manufacturing Industry Back on an Expansion PathBrazilian Manufacturing Industry Back on an Expansion Path

The headline seasonally adjusted Brazil Manufacturing PMI™ rose slightly since November, hitting its highest level for just over two years. The latest reading signaled a robust improvement in the health of the Brazilian manufacturing economy. Underlying this expansion were faster increases in output and employment, while new order growth remained sharp.


Russian PMI in DeclineRussian PMI in Decline

Business conditions in Russia’s manufacturing sector deteriorated further at the end of 2009, according to December survey findings from VTB Capital. Output was only marginally higher than in November, and new orders fell for the second month running.

Meanwhile, manufacturers continued to shed staff and cut inventories. Input and output prices both rose on the month but, in both cases, the rates of inflation remained historically weak.


Latest Manufacturing Institute for Supply Management (ISM) Report On BusinessLatest Manufacturing Institute for Supply Management (ISM) Report On Business

Manufacturing growth accelerated in January as the PMI registered 58.4 percent, an increase of 3.5 percentage points when compared to December's seasonally adjusted reading of 54.9 percent. This is the sixth consecutive month of growth in the manufacturing sector, and the highest reading for the Index since August 2004 when it registered 58.5 percent.

“Overall, the recovery in manufacturing is continuing, but there are still some industries mired in the downturn as evidenced by the seven industries still in decline."


Latest Manufacturing ISM Report On BusinessLatest Manufacturing ISM Report On Business

Month PMI Month PMI

Jan 2010 58.4 Jul 2009 49.1

Dec 2009 54.9 Jun 2009 45.3

Nov 2009 53.7 May 2009

43.2

Oct 2009 55.2 Apr 2009 40.4

Sep 2009 52.4 Mar 2009 36.4

Aug 2009 52.8 Feb 2009 35.7

Average for 12 months – 48.1High – 58.4Low – 35.7


US Durable Goods RiseUS Durable Goods Rise

Orders for durable goods, those meant to last several years, rose 1 percent. Last week, the government estimated they had climbed 0.3 percent for December.

Bookings for capital goods excluding aircraft and military equipment, a measure of future business investment, increased 2.2 percent after a 3.2 percent jump. Shipments of those goods, used to calculate gross domestic product, rose 2.1 percent in December, the biggest gain since March 2008.


USBLS Productivity and Costs (Output per Hour of all Persons) RisingUSBLS Productivity and Costs (Output per Hour of all Persons) Rising

Manufacturing sector productivity grew 13.4 percent in the third quarter of 2009, as output rose 8.4 percent and hours worked fell 4.4 percent (tables A and 3). The third quarter gain in manufacturing productivity was the largest in the series, which begins in the second quarter of 1987.


Industrial Production and Manufacturing Capacity Utilization in the US IncreasingIndustrial Production and Manufacturing Capacity Utilization in the US Increasing

0

10

20

30

40

50

60

70

80

90

US Federal Reserve Manufacturing Capacity Utilization

Mining Capacity Utilization

Utilities Capacity Utilization

Industries in the Crude Stages of Production Capacity Utilization

For the fourth quarter as a whole, manufacturing output increased at an annual rate of 5.7 percent.


Canada’s Manufacturing Sales Increase in October…Canada’s Manufacturing Sales Increase in October…

Gains in some Canadian manufacturing sales sectors were offset by losses in others for a net gain of 0.1 percent in November, Statistics Canada said Wednesday.

Manufacturing sales were worth $42.6 billion in November, and represented the fifth increase in manufacturing sales in six months, the report said.

Among the major gainers were chemical manufacturers, which reported a 5.3 percent monthly increase and petroleum and coal product sales rose 2.9 percent, StatsCan said.

The largest drag on overall performance was a 4.3 percent decline in the transportation industry and some of its sub-sectors.


…But Canada’s Industrial Capacity Utilization Falls…But Canada’s Industrial Capacity Utilization Falls

In the manufacturing industries, the capacity utilization rate increased to 65.6%, from the record low of 64.7% in the second quarter.

This increase followed four quarters of decline. It was attributable in part to strength in the transportation equipment industry, where capacity utilization rose for a second straight quarter following eight consecutive quarterly declines.


Capital Spending has Yet to Make Full RecoveryCapital Spending has Yet to Make Full Recovery

BATON ROUGE, LA--(Marketwire - January 4, 2010) - Industrial Info Resources (Sugar Land, Texas) -- The goalposts keep getting moved. Owners and operators of oil and gas terminals and transmission projects in North America are now looking to the second half of 2010 for a recovery in capital spending, according to Jesus Davis, Industrial Info's manager of oil and gas industry markets. "Six months ago, those owners and operators thought capital spending might return in the first half of 2010," Davis said. "Right now, and for the next six months, they're just trying to keep their doors open."

Chevron Corporation (NYSE: CVX) today announced a $21.6 billion capital and exploratory spending program for 2010, a five percent decrease from projected 2009 expenditures. Included in the 2010 program are $1.6 billion of expenditures by affiliates, which do not require cash outlays by Chevron's consolidated companies.

SUGAR LAND, TX, Nov 16, 2009 (MARKETWIRE via COMTEX) -- Researched by Industrial Info Resources (Sugar Land, Texas) -- On Friday, November 13, Suncor Energy Incorporated (Calgary, Alberta) announced capital spending plans for 2010. The company plans to invest approximately US$5.24 billion, with $1.43 billion going to growth projects and the remainder going toward sustaining existing operations. The growth projects include the restart of construction on stages 3 and 4 of the company's Firebag bitumen production facility, leading Suncor President and CEO Rick George to say in a conference call, "This officially restarts the growth of oil sands."


Capital Spending has Yet to Make Full RecoveryCapital Spending has Yet to Make Full Recovery

Global spending on oil and gas exploration and production has been projected to rise by 11 per cent to $439 billion in 2010, reversing a drop in pending in 2009 as energy prices climb. A survey conducted by analysts at Barclays Capital on 387 oil and gas producers showed that the increase in the spending on exploration and production followed the drop in spending of 15 percent in 2009 from the previous year, when oil prices reached a record high.

Exxon on Monday (Feb 1) said capital spending reached $27.1 billion last year, up 3.6% from a year earlier. Fourth-quarter spending reached $8.3 billion, Exxon's highest three-month total ever. Exploration expenses charged to income, which capture spending on unsuccessful wells, rose 39% last year.


Another Key Indicator: the Price of OilAnother Key Indicator: the Price of Oil

Long term oil prices are going to go up.

There is a fundamental gap in long term supply versus demand.

The U.S. raised its forecast for crude-oil prices in 2010 by 1.5 percent on speculation that consumption will increase as the global economy recovers.

Jan 14: West Texas Intermediate oil, the U.S. benchmark, will average $79.83 a barrel this year, up from last month’s forecast of $78.67, the Energy Department said today in its monthly Short-Term Energy Outlook. That’s up 29 percent from the 2009 average price of $61.66 a barrel.


International Energy Agency (IEA) report shows Long-term Shortage & Supply ConcernsInternational Energy Agency (IEA) report shows Long-term Shortage & Supply Concerns

Source: IEA, Seekingalpha

Energy investment worldwide has plunged over the past year in the face of a tougher financing environment, weakening final demand for energy and lower cash flow.

In the oil and gas sector, most companies have announced cutbacks in capital spending, as well as project delays and cancellations, mainly as a result of lower cash flow.

Falling energy investment will have far-reaching and, depending on how governments respond, potentially serious consequences for energy security, climate change and energy poverty.

The capital required to meet projected energy demand through to 2030 in the Reference Scenario is huge, amounting in cumulative terms to $26 trillion (in year-2008 dollars) — equal to $1.1 trillion (or 1.4% of global gross domestic product [GDP]) per year on average.


Energy Information Administration (EIA) Energy Consumption History and ForecastEnergy Information Administration (EIA) Energy Consumption History and Forecast


Energy Capital Project Costs are Still High, Declining for UpstreamEnergy Capital Project Costs are Still High, Declining for Upstream


Energy Capital Project Costs are Still High, Increasing for DownstreamEnergy Capital Project Costs are Still High, Increasing for Downstream


IHS Cambridge Energy Research Associates Capital Costs Index for Power GenerationIHS Cambridge Energy Research Associates Capital Costs Index for Power Generation

ConsolidationConsolidation

Suppliers and Users of Automation Have been Consolidating.


End User Industry Examples of ConsolidationEnd User Industry Examples of Consolidation

Exxon Mobil Corp.'s planned purchase of natural-gas producer XTO Energy Inc. (XTO), an event that could put a spotlight a controversial drilling technique that is allowing access to vast new domestic supplies

Mines and Energy Minister Edison Lobao confirmed that Petrobras is in talks to buy a stake in Portugal's Galp Energia

Breitling Oil and Gas Corp. announced Wednesday that it has in place a preliminary agreement for the purchase of Southwest Energy Exploration of Oklahoma City, OK

Kraft trying to purchase Cadbury Inbev and Anheuser Busch merger India's Reliance Industries Ltd. has just sweetened its bid for

chemical maker LyondellBasell to $13.5 billion Merger of Kirin and Suntory pending Mars and Wrigley merger

Bottom line: Newly created enterprises need help to develop strategic manufacturing plans!


SiemensSiemensInvensysInvensys

MarcamMarcam

EurothermEurotherm

WonderwareWonderware

SimSciSimSci

APVAPV

TriconexTriconex

L&NSCADA

L&NSCADA

N-PignoneSCADA

N-PignoneSCADA

PacSimPacSim

ABBABB

Cellier Engineering

Cellier Engineering

August SystemsAugust

Systems

Combustion EngineeringCombustion Engineering

Alfa LavalAutomationAlfa Laval

Automation

HoneywellHoneywell

POMSPOMS

MeasurexMeasurex

AlliedSignalAlliedSignal

InterPlantConsultingInterPlant

Consulting

P&F SafetySystems

P&F SafetySystems

L&NL&N

Walsh Automation

Walsh Automation

=Recent=Recent

Systems Mod.Systems Mod.

DynaproDynapro

ETGETG

Entek IRD Entek IRD

Sequencia Sequencia

AnoradAnorad

EJAEJA

RockwellRockwell

ICS TriplexICS Triplex

PavillionPavillion

TeschTesch

DataSweepDataSweep

Eutech Eutech

Entrelec Entrelec

APV (Divest)APV (Divest) UGSUGS

CEDESCEDESHSBHSB

CMS Tecnologia

CMS Tecnologia Incuity Soft.Incuity Soft.

DLI Eng.DLI Eng.

ORSIORSI

MilltronicsMilltronics

Turbo-WerkTurbo-Werk

MooreMoore

CompexCompex

VickersVickers

Danfoss FlowDanfoss Flow

US FilterUS FilterTata HonTata Hon

Goldstar HonGoldstar Hon

EmersonEmerson

DMIDMI

Bristol Bab.Bristol Bab.

Westinghouse

Westinghouse

Intellution(Divested)Intellution(Divested)

KenonicsKenonics

CSICSI

PC&EPC&E

DanielDaniel

Saab MarineElectronics

Saab MarineElectronics

Orion CEMOrion CEM

Solartron Mob.

Solartron Mob.

DamcosDamcos

IndXIndXInterCorrInterCorr

EnrafEnraf

PAS APCPAS APC

MDCMDC

Autom. Grp.Autom. Grp.

GepaGepa

Applied Aut.Applied Aut.

RobiconRobicon

PropackPropack

SATSAT

Quantum Engineering

Quantum Engineering

Xian Hensheng

Xian Hensheng

Ber-MacBer-Mac

Kuhlman ElectKuhlman Elect

Vectek Electronics

Vectek Electronics

MorganMorgan

ShinwhaShinwha

BJCBJC

InnotecInnotec

Rutter HinzRutter Hinz

MaxonMaxon

CallidusCallidus

RoxarRoxar


How has ARC Revised its Growth Forecasts?How has ARC Revised its Growth Forecasts?

Market effectively bottomed out in 2009

North America, Japan, Western Europe ALL contracted 2009-2010

BUT we still expect the global market to grow

Recovery could be delayed depending on a number of factors, double dip recession, etc.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2009 2010 2011 2012 2013


Investments Must Continue to be Made in Key Industry Segments, In Spite of Economy!Investments Must Continue to be Made in Key Industry Segments, In Spite of Economy!

America’s Crumbling Infrastructure

Roads & Bridges Water & Wastewater Power industry Aging control systems Nanotechnology

Sustainability is the Issue! Sustainability of Your Business!

Innovation Instrumental in Driving Economic Growth

Users and Suppliers Must Continue to Invest in R&D


Infrastructure Needs ModernizationInfrastructure Needs Modernization

ARC Estimates Total of $65 Billion in Installed Process Automation Systems are Reaching the end of their Useful Life

The Majority of this is in the Hydrocarbons Sector in North America, Europe, and Middle East

Industry is Plagued with Old and Inefficient Technology that Management is Hesitant to Replace

33.7%

16.1%

50.2%

New Plant

Expansion

Modernization


IT Versus Automation – Installed Base


Automation is a Small Percent of Project Spend, but has a Huge ImpactAutomation is a Small Percent of Project Spend, but has a Huge Impact


Average Loss Per Major Incident, a Key Driver of Increased AutomationAverage Loss Per Major Incident, a Key Driver of Increased Automation

Source: J & H Marsh & McLennan, Inc.

0 25 50 75 100

Mechanical failure

Operational error

Unknown

Process upset

Natural Hazard

Design error

Sabotage / arson


0 25 50 75 1000 25 50 75 100

Mechanical failure

Operational error

Unknown

Process upset

Natural Hazard

Design error

Sabotage / arson

Average Dollar Loss Per Major I ncident by Cause Millions of Dollars



0 25 50 75 100

Mechanical failure

Operational error

Unknown

Process upset

Natural Hazard

Design error

Sabotage / arson


0 25 50 75 1000 25 50 75 100

Mechanical failure

Operational error

Unknown

Process upset

Natural Hazard

Design error

Sabotage / arson

Average Dollar Loss Per Major I ncident by Cause Millions of Dollars


At an Average Cost of Close to $100M in Damages per Incident, Operational Error is The Single Biggest Reason for Unscheduled

Shut down


The Maintenance Service Scenario TodayThe Maintenance Service Scenario Today

0%

5%

10%

15%

20%

25%

30%

35%

Routinecheck

NoProblem

Calibrationshift

Zero Off Pluggedlines

Failed

35%

28%

20%

6% 6%4%

Source: Shell Global Solutions

63% of maintenance labor results in no action!!


Stimulus Spending, Where Does It Go?Stimulus Spending, Where Does It Go?


Obama’s Infrastructure Plant and What it Means to the Automation BusinessObama’s Infrastructure Plant and What it Means to the Automation Business

Infrastructure: $90 billion Where does the Infrastructure money go? $30 billion: Highway construction $10 billion: Rail and transit projects $31 billion: Modernize federal and other public

buildings for long-term energy savings $19 billion: Water projects


Obama Stimulus Plan Targets EnergyObama Stimulus Plan Targets Energy

Energy: $58 billion Where does the money go? $32 billion: Fund a smart

electricity grid $20 billion-plus: Renewable

energy tax cuts and a tax credit for research on energy efficiency and clean energy, plus a multiyear extension of the green energy production tax credit

$6 billion: Weatherize modest-income homes


What the Stimulus Plan Means for AutomationWhat the Stimulus Plan Means for Automation

Power and Water are seeing Huge Investments

Increased Investment in Intelligent Building Automation Systems

Increased Emphasis on Boiler Efficiency

Sophisticated Approaches to Energy Management

Hundreds of Millions of Dollars Worth of New Systems and Instrumentation Will be Required

Money is entering the system


Industry and Its Role in Power ConsumptionIndustry and Its Role in Power Consumption

Industry is Number One Consumer of Total Energy Industry is Number Two Consumer of Power Behind Buildings Industry Generates a Significant Amount of its Own Power


ARC Economic Indicators SurveyARC Economic Indicators Survey

From July to December, the survey had 109 respondents

Survey will continue to run monthly ARC will develop monthly, quarterly trends

Respondents are encouraged to take the survey each month (click on link)


ARC Economic Indicators Survey: ResultsARC Economic Indicators Survey: Results

Majority of respondents are more optimistic about overall economy

Manufacturing capacity utilization steady at 70 percent

Order and booking activity holding steady, with increases offset by decreases

Backlog increases offset by decreases Manufacturers Still Tentative about

Plant Investment Manufacturers Capital Spending

holding steady


From your perspective, how do you view the change in the economic climate from:From your perspective, how do you view the change in the economic climate from:

At the end of the year, the Majority of respondents are optimistic about economy – Pessimism is way down

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

July Aug Sept Oct Nov Dec

Perc

ent R

espo

nden

ts

Month

Optimistic

Pessimistic

No Change


At your site, approximately what is your current manufacturing capacity utilization?At your site, approximately what is your current manufacturing capacity utilization?

On average, the majority of users are maintaining capacity utilization of more than 70 percent

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


Less Than 70%

More than 70%

Other/Don't Know


At your site, how is your Capacity Utilization changing?At your site, how is your Capacity Utilization changing?

Majority of respondents expect little change in capacity utilization

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%


Perc

ent R

espo

nden

ts

Month

Increasing

Decreasing

No Change


How are your orders and bookings changing?How are your orders and bookings changing?

Respondents increases in bookings offset by decreases in bookings resulting in little overall change for last

couple of months of 2009

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%


Perc

ent R

espo

nden

ts

Month

Increasing

Decreasing

No Change


How is your Backlog changing?How is your Backlog changing?

Backlog increases are offset by backlog decreases

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%


Perc

ent R

espo

nden

ts

Month

Increasing

Decreasing

No Change


How to you expect your Spending will change next month?How to you expect your Spending will change next month?

Manufacturers Still Tentative about Plant Investment

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Plant Equipment

Plant Automation

Field Devices

Plant Software

Plant Services

Enterprise IT

Enterprise Software

Enterprise Services

Surv

ey R

epon

dent

s

Increasing Decreasing No Change


How do you expect your CAPEX spending will change next month?How do you expect your CAPEX spending will change next month?

Little change in CapEx at the end of 2009

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%


Increasing

Decreasing

No Change

Don't Know


The number of individual plant or manufacturing operations in my company are:The number of individual plant or manufacturing operations in my company are:

Respondents come from a wide manufacturing base

15.5%

16.9%

16.9%14.1%

12.7%

23.9%

One 2 to 5 6 to 10 11 to 20 21 to 50 50 or more


Which of the following vertical industries best describes your firm's manufacturing business?Which of the following vertical industries best describes your firm's manufacturing business?

A wide variety of industries are represented in the survey

2.9% 1.4%

10.0%

27.1%

2.9%

8.6%

1.4%1.4%

21.4%

8.6%

2.9%1.4%

2.9%1.4%

5.7%

Automovtive

Cement & Glass

Chemicals

Electronics

Food & Beverage

Machinery

Metals

Mining

Oil & Gas

Pharmaceuticals

Power

Pulp & Paper

Refining

Water & Wastewater

Other


Respondent’s Primary BusinessRespondent’s Primary Business

Good cross section of organizations involved in manufacturing

41.6%

13.0%

5.2%

31.2%

5.2% 3.9%

Manufacturer

System Integrator

OEM

Plant Automation Supplier

Enterprise Solution Supplier

Other


Respondent’s Geographic LocationRespondent’s Geographic Location

Majority of respondents from EMEA region

29.9%

14.3%44.2%

6.5%1.3% 3.9%

Corporate Management

Engineering

Sales or Marketing

Operations

Maintenance

Other


Respondent’s Job FunctionRespondent’s Job Function

Management and Sales functions well represented in results

37.0%

40.7%

18.5%

3.7%

North America

Europe, Middle East or AfricaAsia

Latin America


Thank YouThank YouFor more information, contact the author at

[email protected] or visit our web pages at www.arcweb.com


The Sustainability ChallengeThe Sustainability Challenge

In addition to having to deliver to a highly competitive, flat world economy, manufacturers have to meet the new SUSTAINABILITY challenge

Sustainability is the response to the increased pressure on the environment, the rising demand for natural resources, energy, and the need for a socially responsible approach to business

Sustainability will drive towards a higher level of COLLABORATION between organizations and systems and most likely a complete rethinking of traditional organizational structures

Automation Suppliers are uniquely positioned to help manufacturers meet the SUSTAINABILITY challenge with Collaborative Power and Control Solutions


Sustainability Will Raise the Bar Even HigherSustainability Will Raise the Bar Even Higher

To create zero waste

25% reduction in solid waste in 3

years

To be supplied 100% by

renewable energy

Stores 25% more

efficient in 7 years

Fleet 25% more efficient

in 3 years

To sell products that sustain resources &

the environment

20% supply base aligned in 3 years

Wal-Mart Corporate Environmental Sustainability GoalsWal-Mart Corporate Environmental Sustainability Goals


“Green” BuildingsEnergy Recovery Package Innovation

Ft. Pierce FloridaFt. Pierce Florida

PepsiCo’s responsibility is to continually improve all aspects of the world in which we operate – environment, social,

economic – creating a better tomorrow than today.

Respect andFairly Treat our

PEOPLE

ProvideTrustworthyPRODUCTS

Conserve andRespect our

ENVIRONMENT

Sustainability Will Raise the Bar Even Higher PepsiCo

Sustainability Will Raise the Bar Even Higher PepsiCo


Climate Change Creating HavocClimate Change Creating Havoc

Mean Temperature Change

World CO2 Emissions

CO2 Concentration

Scientists project a 3º to 7º F rise in global temperatures by 2100 – Consequences could be dramatic

• 3.7º F = Arctic ice disappears

• 5.4º F = Amazon disappears

• 7.2º F = Agriculture declines


The Addition of Power Generation Capacity is Getting Harder, Energy Conservation and Management a Must

The Addition of Power Generation Capacity is Getting Harder, Energy Conservation and Management a Must

Asian demand for equipment and services drives up Capital Goods Prices globally

The cost of new plants is rising very rapidly

Example: US estimated costsfor new PowerGen capacity• Up 19% in the last year• Up 69% since 2005• Up for all types of plants

• Steam• Combined cycle• Wind• Nuclear• Hydro

Ind

ex V

alu

eIn

dex V

alu

e

(These measures includes design, equipment, and construction; exclude fuel costs)(These measures includes design, equipment, and construction; exclude fuel costs)


Manufacturers and Processors Have The Most To Gain By Saving Energy

• Uses more energy than any other single sector; >1/3 of U.S. energy consumption

• Produces approximately 30% of U.S greenhouse gas emissions

• Accounts for more than 35% of U.S.natural gas demand

• Accounts for 28% of U.S. electricity demand

• Energy is key to economic growth in domestic manufacturing

• Many companies have been unable to pass higher energy costs on to their customers, which has impacted their profit margins negatively

Industry33.4%

Transportation27.2%

Commercial17.9%Residential

21.5%

Energy Use

Source: US Department of EnergySource: US Department of Energy


Major Energy-Intensive IndustriesSustainability impacts ALL!Major Energy-Intensive IndustriesSustainability impacts ALL!

Energy Consumption (Trillion Btu)

Petroleum

Chemicals

PaperPrimaryMetals

Food Processing

Nonmetallic Minerals

Tobacco/Beverages

Furniture

Leather Machinery and Computers

Wood

TransportationFabricated Metals

Textiles/Apparel

Plastics/Rubber

Electrical

Printing

Miscellaneous1

10

100

1000

10 100 1000 10000

En

erg

y I

nte

nsit

y (

Th

ou

san

d B

tu/$

GD

P) Energy-Intensive

Industries

Industrial Energy Intensity vs. Energy Consumption

Mining

Source: US Department of EnergySource: US Department of Energy


Energy Challenges Create Drivers For SustainabilityEnergy Challenges Create Drivers For Sustainability

The World Commission on Environmental and Development defined Sustainability as the development that meets the needs of the present without compromising the needs of future generations

The Core Principle is care and respect for the environment and the society we live in

By applying this approach manufacturers judge the success of product designs not only by the financial but also by the contribution to society and the ecosystem

The concept of sustainability reaches beyond environmental stewardship

Sustainability is a positive business approach that has as much to do with delivering economic benefits, and being a responsible member of the community, as it has to do with reducing the environmental impact


Application Example* UPS Worldport - Louisville, KY

The world’s largest fully automated package sorting facility

Sort Capacity Per Hour: 421,000 packages

Number of Conveyor Drives: 25,314

Miles of Transport Conveyors: 128 miles

Power consumption: 72 MVA

(City of Louisville: 114MVA)

Facility Size: 5.6 million square feet

YTD Overall Investment > $2 billion

IT Equipment 4,500 Scanners 6,000 PCs 1,500 Printers >500 Data Communication

Devices 380 Servers

*Source: Presentation by ARC at Schneider Electric Initi@tive 2008*Source: Presentation by ARC at Schneider Electric Initi@tive 2008


KPI Efficiency Goals Accomplished through Advanced Automation Solutions !

1999 Grade Lane (manual)

2007 Worldport

(automated)

%

Volume 495,000 pps 812,000 pps 64

Design Capacity 215,000 pph 304,000 pph 41

Staffing (Sorting) 1984 2362 19

Productivity (per person)

48 pph 93 pph 94

Injuries (LTI) 10.9/yr 2.0/yr -82

Missorts 1/2226 1/4554 -51

pps: packages per sort (1 sort: aprox. 2.4hrs) pph: packages per hour


The Triple Bottom Line

Impact on Sustainability ?


• 82% Reduction in Injuries (LTI)• 82% Reduction in Injuries (LTI)

Increased Efficiency Impacts Sustainability PositivelyIncreased Efficiency Impacts Sustainability Positively

ECONOMIC

ENVIRONMENT

SOCIAL

• Information leverage and system flexibility enhancement through enterprise collaboration• Information leverage and system flexibility enhancement through enterprise collaboration

• Energy efficiency maximization through use of variable speed drives for motors wherever possible •Throughput increase and sorting error reduction through advanced automation solutions implementation• Jet and truck fuel reduction by maximization of the sorting intelligence of material handling solutions• Increased visibility and regulation of power consumption through Power and Automation collaboration

• Energy efficiency maximization through use of variable speed drives for motors wherever possible •Throughput increase and sorting error reduction through advanced automation solutions implementation• Jet and truck fuel reduction by maximization of the sorting intelligence of material handling solutions• Increased visibility and regulation of power consumption through Power and Automation collaboration


What Can We Collectively Do To Navigate The Road to Recovery? What Can We Collectively Do To Navigate The Road to Recovery?

√ Recession was global, no region spared√ Recent economic news remains mixed√ Manufacturing was hit hard

But: Global recession is receding Recent economic news is positive Manufacturing must adjust to impending demand

increases Significant investments will need to be made Stimulus spending, plus demands for

sustainability, will increase automation

Industry Leaders Need to Plan Now to seize the road to recovery

Economic climate for manufacturing 01 10

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