Consolidation

Greetings, and welcome to AutomationSolution's inaugural monthly motion control column.

The pace of change in the motion control market is fast and getting faster. It is my ambition to candidly discuss that change with you each month from the vantagepoint of a "distributor." Because this column is a new feature to the Plant Automation.com site, I thought it important that you understand who AutomationSolutions is and where I, as the monthly "motion control editorial guy," am coming from. Equally important, and a chief factor behind AutomationSolution's formation is the theme of this first column: Consolidation.

Who is AutomationSolutions?

AutomationSolutions is currently comprised of eleven "automation solution providers (ASPs)," in 24 offices throughout North America. Current member and affiliate companies include:

• AutomationSolutions Atlantic (MA)
• Controlled Motion & Automation (MN)
• CSI Motion (NY)
• Distributed Motion (CA)
• Le Group Rotalec (Eastern Canada)
• MSI Technologies (AZ, CO, ID, NM, TX, UT)
• Multitech (PA)
• New England AutomationSolutions (CT)
• Pacific Motion Group (WA, OR)
• Process Automation Devices (IN)
• SMI Technology – (IN)

Each of our 24 offices specializes in precision motion control. Our offices also provide engineering services, systems integration, machine/process intelligence, precision/mechanics, sensors, vision systems, automation accessories and other emerging industrial automation technology.

You may have noticed that I didn't use the word "distributor" when describing AutomationSolutions. Convention suggests that distributors are time/place utilities, whose primary function is to provide a readily available and local source of supply for a collection of related products and technologies. Additionally, convention suggests that distributors buy in large volumes from manufacturers, maintain an inventory of that product, and resell in low volumes to end users.

Contrast that to an AutomationSolutions member organization who is more likely to devote more floor space to its customer training room than it does to its stock room. Its field force consists nearly exclusively of graduate engineers, who in turn call primarily on engineers. Though obviously representing and serving both constituencies, we view ourselves more as extensions of our customers' engineering departments than we do as extensions of our supplier's sales/marketing departments.

Now that you know who we are, let's talk about a primary factor behind our formation: consolidation.

Consolidation

As with most maturing industries, the manufacturing segment of the motion/machine automation business is rapidly consolidating. I don't want to take up too much space dwelling on specific cases here, but Danaher's acquisition of Pacific Scientific; Parker's acquisition of CTC; Baldor's acquisition of Optimized Controls, Sweo and Northern Magnetics; Bayside's acquisition of Microslides; and most recently, Kollmorgen's acquisition of NEAT are just a few examples of the consolidation we have seen and will continue to see.

The size and number of these mergers is likely to accelerate due to the ever increasing acquisition appetite of the large public companies who must grow both accretively, in order to satisfy the expectations of their shareholders, and must jockey for position as a leading "player" once the consolidation dust settles.

So how does consolidation impact small, independent high tech distributors?

• It increases their dependence on a single major acquisitive supplier,
• It creates new line conflicts,
• It results in lost lines.

While the above produces undesirable turbulence within the distributors' businesses, the real threat to their existence as independent companies may come after the consolidation is complete. The three to six manufacturing players who emerge as leaders will, in the process (via acquisitions), have developed full and comprehensive automation product offerings. That is, they will manufacture all or nearly all the components needed to solve an automation application. Thus they will no longer require the complementary lines and economies of scope that they currently rely upon the distribution channel to provide, as the major manufacturers will themselves possess these strengths.

When this occurs, it is not unreasonable to suggest that these firms may elect to establish their own direct channel, or a channel they so dominantly control that it can no longer be considered independent. By uniting to form AutomationSolutions International, with the intention of then further consolidating the still highly fragmented distribution sector of the motion/machine automation industry, we create a new, major market player. AutomationSolutions can emerge as one of several major global players in the post-consolidation environment, the alternative to the single brand manufacturing "Titanics" -- the major player that without bias can construct solutions, selecting components from various best of breed suppliers.

For all their strengths, it is impossible for major full line suppliers in technology oriented businesses to remain competitive across the span of their offering. By assembling solutions from the most competitive within each category, AutomationSolutions can compete and succeed. Thus, we can help ensure the preservation of a truly independent channel. As such we can be the champion of the best technology and the best companies our industry has to offer, including the new/emerging companies, which is often where the truly innovative and exciting technology is to be found.

There are a number of significant trends and issues facing the motion control market in addition to consolidation, but they are simply too numerous to discuss in any detail in a single column. In brief, we think them to be smaller and smarter technology with improved performance and increased value, commoditization, network communication, Internet communication, globalization, PCs as the platform of choice, and an increasing focus on software versus hardware. I will discuss each of these, and other issues, in future columns.

Until next month...happy automating.

Scott Johnson has been involved in the motion control industry for twenty-five years. He began his career with Warner Electric in 1974, and by 1980 was VP of sales and marketing. In 1981 Johnson was recruited by Compumotor (later purchased by Parker-Hannifin) and was elevated to General Manager in 1988. He moved to Industrial Devices Corp. in 1991 as president and COO, and became CEO in 1995. In December 1997 Johnson became the founding CEO of AutomationSolutions. Scott can be reached via email at scottj@automationsolutions.com.