The engineering, procurement, and construction (EPC) business and regulatory environment is changing and it’s changing fast. The industry is experiencing business consolidation, diversification, and sluggish growth in the VUCA world. The perennial issues of fluctuating raw material prices, skilled workforce availability, and dynamic scope changes make it tougher to manage profitability. Increasingly, the project owners now prefer lump sum turnkey (LSTK) business contracts thereby putting additional margin pressures for EPC contractors.
At the same time, there are new opportunities with rise of EPCM model, digital manufacturing (Industry 4.0) and SMART cities. EPC companies are best positioned to capitalize on these opportunities by investing in digital operations, enhanced collaboration and new business models but the competition is stiff. Therefore, it’s imperative for EPC players to focus on new revenue stream of “operations and maintenance” (O&M) and exploit “digital technologies” to enable efficient operations.
The challenges are perilous and EPC companies need to look beyond their core competencies for new streams of revenue. On the other hand, project owners are increasingly aware of importance of O&M and the discussion is shifting from pure “budget allocation” to “perfect service-level requirements.” Hence contractors need to move up the value chain to take up responsibility of operations and maintenance of projects built under EPC contracts.
O&M services typically cover routine maintenance, Security, warranty, insurance, parts replacement, preventive maintenance, operational tower, remote monitoring, energy optimization, facility operations, turnaround and outages, performance management, receivables management, and so on. Few specialist companies offer additional value through extended O&M in terms of asset management services.
O&M is an emerging trend and leading EPC players have already embarked on this journey and achieved as high as 15 % revenue only from O&M. In the industrial market, project owners now prefer EPC contractor that bundles O&M services to ensure quick turnaround for repairs. There are other EPC players who have created specific offerings around asset management are great enablers for project and operations management. For example:
As companies go global, the geographic spread of projects demands greater visibility, information flow, and collaboration among business units. Adoption of technologies and solutions such as big data and analytics, mobility, IIoT, and digital content management across the value chain will help improve collaboration, effective project execution in a complex environment, and intelligent decision-making.
Digital is the new construction partner. Digital transformation can help in competing with emerging market players as well as to drive gains in productivity, quality, and operational efficiency. EPC companies anticipate about 4 % cost savings and 3 % revenue growth through digital transformation. Historically, the EPC industry is ill-reputed for low investment in technology but now the perception is changing. EPC companies are investing in emerging technologies. Here is the list of top digital use cases for EPC projects.
Additionally, the considerable amount of data generated during the design, procurement, construction and operations can be harnessed to drive value, reduce cost, and create digital assets. The project owners are embracing new technologies to deliver on the promise of Industry 4.0 and EPC companies have to follow the suite to stay in the business.
In a recent conversation, the global CIO of an EPC company asked one question: “What is the next big thing in the engineering and construction industry?” We know the answer now. I call this “EPCM 4.0”—extended EPCM with digital power. There would be more emphasis on the “M,” with a focus on “O&M” and “Digital” will transform the industry at large.
To summarize, in today’s dynamic business and operating environment, engineering and construction companies need to focus on the key imperatives of increasing service revenues through new business models such as O&M and efficient operations by embracing digital technologies. “Industry 4.0” is all set to take the manufacturing industry to the next level; “EPCM 4.0” will do the same for the engineering and construction industry.