Who Moved my Cheese? The heck with who moved my cheese, who moved my valve repair customers! Those of us in the industrial valve repair business can certainly relate to Dr. Spencer Johnson’s book, “Who Moved My Cheese”, which deals with handling change. The way our business is rapidly changing, it feels like just about the time we figure out what the customer needs and how best to meet that need, some new paradigm takes over in the maintenance arena and voila… the rules have changed again!
In the 50’s and 60’s, to be successful in the industrial valve repair business all that was required was some mechanical ability, good people skills and a nice fishing boat or a prolific deer hunting lease. Since then, we have seen the industry morph its way through end-user AML’s, manufacturer’s authorizations, OEM service centers, API Valve Repair Standards, ISO 9000, preventative maintenance and run-to-failure mode. The only constant through it all has been that there are still valves being repaired.
Just like our big brothers in the VMA, the valve manufacturers, our industry is bobbing around on a sea of constant change. Nothing can be taken for granted. Old customers may not be current customers and old ways of doing business just may not be profitable anymore, especially for the shrinking number of independent valve service facilities. As Barry Kemerer, president of Precision Pump and Valveaptly states, “In today’s market, you have to adapt quickly. We used to make money doing business the same way for many years, but not any more”.
Changing Maintenance Philosophy
Of course we are not the only ones dealing with change in a big way. Our customers, the embattled domestic end-users, are squeezed between the rock of a global economy and the hard place of making a profit. As a result, many of the users are looking hard at ways to control costs. And near the top of that list to be controlled are maintenance costs. And as we all know, maintenance dollars are what keeps the valve service industry alive. In the good old days (for valve repair companies) it was preventive maintenance, which was manifested in the scheduled turnaround, where virtually every valve in a unit would be inspected and usually repaired. The winning turnaround bidder could expect one to two weeks of hard, but profitable, blood, sweat and tears. Although the pace was hectic, the valve shop was able to plan for the work and was prepared to handle it.
Today, the buzzword in maintenance circles and throughout most of the industrial world is “Run to Failure” (RTF) mode. Plants are increasingly pressured to get a strong return on their maintenance investment, and RTF has proven in the past several years, to be a good way to help achieve that goal. But this new philosophy presents challenges for the valve shop. “Run to failure mode puts a crimp in scheduling turnaround work. If you can’t schedule, you are in trouble, as far as shop work goes,” says Mike Carbonaro, President of Valve Reconditioning Services. Although RTF reduces the scheduled turnaround shop work, it can create opportunities for more emergency field work, when those valves finally need repair or replacement. Carbonaro adds that “the added aggravation of dealing with run to failure field service work often doesn’t outweigh the extra income of the ‘work-to-completion’, emergency repairs”.
As many valve service companies look for related areas to grow their business, consulting with end-users on valve reliability and maintenance issues is a good potential income target. Predictive maintenance is often used in conjunction with RTF and unlike the control valve, with its smart-valve and field-bus technology, gathering data for the end-user, the vanilla block and check valves are not as adaptable to real-time data technology improvements. Since many critical non-control valves have to be monitored regularly, because failure could be catastrophic for some of them, there are additional opportunities for valve service companies to provide field valve inspection and survey work.
Providing additional services and value-added service, is important in gaining an edge in today’s valve repair market. According to Wayne Kohoutek, President of Midwest Valve, “You have to be an expert in many different areas today- control valves, actuation, PRV’s, metallurgy, engineered valves and more”. Kemerer echoes that opinion, “We are now providing engineering and purchasing support for our customers”. He adds that “sadly, we had one purchasing agent tell us to delete all that extra stuff and just give us your lowest price. Our people should be doing that kind of work anyway”. Unfortunately, many of the end-user engineers are either so-green or so over worked that they don’t have the time or the knowledge to do those “extra” things.
Disappearing End-User Expertise
Another big issue that affects the valve service industry and the valve industry as a whole, is the disappearance of much of the end-user valve expertise. The gold-plated watch syndrome has stripped many of the end-users of their valuable, experienced operations and maintenance personnel. “The maintenance personnel are not the same. They are new guys that don’t have a feel for the historical maintenance or history of the unit”, according to Carbonaro. These “new guys” want to do the right thing, but unless they were well mentored, their decisions, or in some cases their indecision, can cause problems for the valve service company.
This lack of valve knowledge is compounded by the fact that many of the large valve companies have reduced staff, especially in the engineering and research and development departments. This valve knowledge gap is being filled in many cases by the valve service companies, which usually have as much or more practical valve expertise than most of the manufacturers, due to being on the front lines of the valve operation and service wars everyday.
A Different Competitor
In any industry there is always competition. And there has always been ample competition in the valve service arena. But recent business trends have changed the complexion of that competition. “Our competitors today are not the guys (repair shop) down the street, but new valves”, says Kohoutek. The steadily lowering costs of new imported valves, combined with the OEM valve rebuilding programs are causing the valve shops to think out of the box, just to survive. Ten to fifteen years ago, 2” class 150 valves were almost always repaired rather than replaced. Today the cost of a new 2” class 150 gate valve is around $100. Most end-users want to keep repair costs at 50-65% of new for most valves, which equates to $50-65 available to repair the valve. Most shop rates are around $50/hr, and when added to a base transaction cost, plus new packing, gasket and bolting; a quick inspection, a coat of paint and a hydrostatic test are about all you can do to the valve. Admittedly, 2” valves, which are traditionally the loss leaders of the industry, are probably not a good cost indicator, but the repair costs for other sizes are relatively proportional.
Today’s non-repairable borderline is around 6” for class 150, commodity carbon steel, WCB valves. Some users have raised this replacement-only bar to 12” class 150. As repair shop costs increase and the price of new valves continues to drop, this non-repairable size limit will get larger. Ironically, many of these valves will end up in the scrap heap and will ultimately end up in China, the largest single importer of US scrap, to be made into many products, including new steel valves, which are imported back to the United States!
The rebuilding and selling of rebuilt valves by some OEM’s is also an area of competition for the valve service company. Utilizing their own service center’s capabilities and expertise, they offer their own, as well as other manufacturers rebuilt valves to end users at a substantial savings over new valves. The user then has the choice of a new valve, a factory warranted rebuilt valve or repair of their existing valve. Two out of three of those solutions are not beneficial to the valve repair facility. The choice to repair a valve also may hinge on the availability of OEM parts. “Some manufacturers will sell a factory warranted, rebuilt valve for about the same price they will sell the parts to an independent shop”, according to Kohoutek. That obviously helps sway the customer toward the new or rebuilt valve purchase.
Parts, Always an Issue
The price and availability of OEM parts is always an issue for independent valve shops. “Parts for engineered valves are especially high. The old repair cost formula used to be 75% labor and 25% parts, now it is just the opposite. The manufacturers of these valves want the customer to buy a new one, not repair the old one”, says Kohoutek. “We scrap out some large OD valves simply because the cost of OEM parts is so high”, he adds. However, when you are performing work for an OEM, to help them out of a jam, it is amazing how much support you can get. “The engineering and parts support is outstanding when you are doing an OEM warranty job”, according to Carbonaro.
The teeter-totter of price vs. quality is now firmly tipped to the low-price direction. In most cases today, the customer is asking for cheaper and faster, which puts added pressure on the valve repair companies. “We are being asked to repair valves cheaper than we did 3-4 years ago. Price is the driver now, not quality,” states Kemerer. The drive for lower repair pricing, combined with fewer repair jobs, has made most valve service companies a lot “leaner and meaner”. “Our company is now looking closely at every expense item, both our internal and external costs. Our indirect labor costs have skyrocketed. We are being forced to look at things we used to not look at and operate much more efficiently”, he adds.
Niche markets, value added services and diversity are the “current” keys to success in the valve repair business. “The key to making money in this business is valve mix. There is only so much you can charge to repair a common ANSI gate valve,” according to Kohoutek. Kemerer agrees, “The future of block valve repair is not good”. Many of the shops are looking toward adding lines of new valves to sell. And as more and more manufacturers increase the number of distributorships, in the future some of these may be valve service companies. It is a good fit to have the same company, sell, service (modify & perform warranty work) and repair the product.
Being able to respond quickly to a customer’s needs will be paramount in maintaining excellent customer service, especially for those users which are married to some form of RTF maintenance philosophy. Predictive maintenance data may allow for some degree of shop repair planning, but true RTF events will have to be dealt with swiftly, competitively and competently. Failure to do so will mean the competition (new or factory-rebuilt valves) will get the business. This means that the successful valve repair companies of the future may not look or do business like they do today.
What might the next generation, successful valve service facility look like? First of all it will have to be vertically integrated in order to respond quickly, without being encumbered with outside contractors for items such as machining, welding, heat-treating and basic non-destructive testing. The shop will have expertise, if not experts, in actuation, engineered valves, instrumentation and other related disciplines. It will be the norm to see mechanical and even welding engineers on staff at these companies as well. Everything, from shop-floor management to field service manuals will be readily accessed on computer. All valve repair steps and service records will be traceable via computer data acquisition system and be readily accessible to the customer.
Competent field service work will also have to be offered. Most end-users are reducing the number of valve repair vendors, and companies that can perform both effective field and shop service will have the edge. Needless to say, 24/7 availability will be even more important.
The successful shop will have authorizations from a number of OEM’s and a close relationship with their respective engineering departments. A clear channel for parts and engineering information, not encumbered by sales politics, price-gouging or apathy will be a necessity, because both the OEM and valve service companies reputations (and money) are at stake.
There are still many customers to be served and money to be made in valve repair, even though the rule book is being rewritten every day. It will require shops to look at everything they do and how they do it, and be visionary enough to anticipate and be proactive to industry changes. Costs will have to be strictly monitored. Some customers may even have to be “fired” if it is unprofitable to repair their valves. Kemerer sums it up well by saying, “Shops need to get costs down and work smarter in order to beat the competition. If not, I don’t see how we will be doing what we are doing in five years”.