The global pump and valve industries have been riding a recent rollercoaster of swings over the past five years. The 2014 drop in oil price drove an oil and gas market decline; followed by a recovery that coincided with a slowdown of lesser proportions in the power segment. Trade wars and protectionism are currently driving incremental challenges, making life difficult for smaller, less flexible companies to succeed on a global scale.
Today’s decisions and success involve more factors than ever before. Technology needs to be best in class to meet new engineering, procurement and construction (EPC) and end user specifications. It also must do so while managing an overall complex total cost of ownership equation for the customer that involves a high degree of variations in local regulations, material sourcing restrictions and government trade tariffs while leveraging the latest technology and expertise to ensure product quality.
Setting up Shop for Success
When life was simple, customers made purchasing decisions on product technology with high quality, along with recognition that they could rely on local expertise for support over the life cycle of the product. Major pump and valve production factories were subsidized by a hub-and-spoke model of support from decades of expansion of service shops and aftermarket centers into remote regions. These shops were set up to provide rapid response product, along with local customer application support for peace of mind. Having a recognized product and brand carried weight, but combining this with a local footprint into the hotbed industrial areas of the world for service and support was a winning combination.
As more and more competitors built on this strategy over the years, and customers’ options expanded, the mark for success was also pushed to include an expanded range of products with an expectation for lower prices. Demand for lowest cost factories pushed pump and valve suppliers to expand into countries with best labor rates. India, China, Mexico and Eastern Europe were all thriving with expansion as the market volume increased in parallel to a push for lower prices of the commoditized products. Supplier capacity was increased, and overall costs were lowered all while the expertise and knowledge was stretched over a wider global range to support the business. Keeping up with this trend became the standard in today’s marketplace.
Building on Regulation Compliance
Just because you once did something does not mean you still can. New regulations are constantly emerging, and compliance awareness has become increasingly difficult to manage as organizations expand further away from a central hub.
Global industry standards, including the American Society of Mechanical Engineers (ASME), that govern segments such as the safety valve business with strict quality control requirements that mandate that suppliers rigorously enforce their process control qualifications throughout their entire network of qualified suppliers. Expanding shops into incremental territories adds compliance oversight to ensure all regulations and certifications are maintained, especially when these regulations may not be core to the region where they are producing.
For example, finding, qualifying and maintaining high quality from a pressure equipment directive (PED) welding supplier in a region outside of Europe can be an onerous task if this is not a common core competency of suppliers within the region.
In addition to global industry standards, emerging local regulations constantly add an incremental level of attention to detail and due diligence to stay on top. Over the last decade, China has increased control requiring several approvals to import product, including China Manufacturing License for Safety Valves, General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) certification for control valves, Northeast Power Systems, Inc. (NEPSI) certification for electronic equipment, explosion proof requirements for mechanical equipment, to name a few. Suppliers can spend hundreds of thousands of dollars achieving certifications, and a magnitude more extending these certifications around the world throughout a global supply chain footprint, if required.
Material Where You Source
Setting up a global supply chain involves a strategic approach to sourcing material. Finding a supplier with a high-quality product and necessary industry certifications, as well as best cost, can be tricky. Typically, most supplier development programs will start off in a region where a critical mass of technical and quality expertise resides, such as China or India where there is a high-volume of valve production. Both countries have some of the best foundries thanks to heavy investment in technology to deliver high quality and improve yields. Additional investments from OEM are pumped into these foundries through pattern development and qualifications to establish a stronghold for the best cost production.