Industrial/Automation Forum

With the financial clouds beginning to clear, companies look to new applications for sensors and new requirements for safety

CONVENED AND MODERATED BY RICHARD COMERFORD

According to the U.S. Federal Reserve last month, the recession is nearing an end. As it happened, Electronic Products had just convened its annual Industrial / Automation Forum and was able to ask the participants if they were seeing signs of improvement.

Economic climate

Electronic Products: I’d like to begin by asking what is the state of industrial manufacturing and automation today, in an era in which things are happening with GM and Chrysler? In general, the marketplace is changing very rapidly, so it seems to be a new world we’re entering now.

Wayne Meyer (MEMS Marketing and Applications Manager, Analog Devices): Industrial is very important for Analog Devices because we serve tens of thousands of customers and, of course, we service some big vertical, global companies. We’re very horizontally focused, and high performance is our hallmark. In terms of the industrial and automation we service, we don’t go through huge fluctuations the valleys and mountains with either revenue or gross margins, and that’s why we do what we do.

It’s certainly been down for us overall, but it’s coming back. And for MEMS motion sensing and accelerometers, which up til now you’ve seen primarily used in the Wii and iPhone, we’re seeing a huge push into industrial. People are trying to put an easy, intuitive human interface into all sorts of industrial systems. I’d say a dominant part of the business we have for MEMS in particular is industrial, once I take out individual consumer electronics companies like Apple. So from my perspective, industrial is doing really well.

Electronic Products: Can you talk about that in terms of global or local? Are there differences continent to continent or do you see pretty much growth occurring or recurring everywhere?

Wayne Meyer: I would say there certainly are some regional specifics. North America and Asia are definitely not as impacted as Europe, because of the heavy emphasis on automotive in Europe. From our perspective, it seems to be the one area hit a little harder than the other regions.

Frank Pipitone (Vice President of Variable Components, BI Technologies): We too are into motion and position sensing, only with a passive component. And even though we do have a wide customer base, our business is down very significantly this year, primarily because no one’s really building any new equipment. No one’s willing to invest.

Most of our product is custom in nature. So once we get into an account, we typically keep that account forever because the product is custom. And we tend to go to market particularly to the industrial accounts on a direct basis and not through distribution.

But we’re finding that many of the companies that we’re dealing with are working three- and four-day work weeks and are reluctant to invest in any new projects or equipment. So we’re not doing as well as we had hoped right now, but we do believe we’ve bottomed out.

David Webber (Director of Product Management, C&K Components): We’ve seen parts of our business impacted by the economy. We have kind of a two pronged approach when we approach the market. We have a number of large volume commodity products that are doing really quite well in the market.

And we’ve got some custom applications that have struggled a little bit as well. In the industrial market there’s been a fair amount of vendor reduction. The industrial companies are starting to get a little bit more strategic in their buying power.

There’s been some vendor consolidation, and frankly with the state of the economy there’s been a number of customers that we do business with that have some strong concerns, in the current economic environment, about the financial security of their supply chain.

We’ve been the beneficiary of a lot of upside business as a result of that, we are in a very strong financial position and we are well diversified. But we are very much involved in sort of the servermarket and we’re seeing a lot of designs and new opportunities there.

We’re involved a lot in enclosures and kind of emergency shutdown functionality in which we’re seeing a lot more activity. So it’s a great growth market for us and we feel like we’re well positioned there.

John Peabody (Vice President of Major Accounts, Omron.STI): Coming from the perspective of machine safeguarding, we’re going to have a little different view. But listening to what Frank said, we’re basically in the same boat.

At Omron STI, a big part of our market share is automotive, so you can guess what kind of impact it has had on us.

We’ve diversified quickly and adapted to this economy. Like Frank said, we think the downturn is at or near the bottom, and orders will start to increase soon.

We’ve targeted industries that are actually doing quite well during these economic times — food and beverage and certain parts of the packaging industry, companies like Dopaco that manufactures packaging for companies like Jack in the Box and McDonald’s. Targeting these types of accounts has helped us maintain business and prepare for increased demand when the economy rebounds.

Electronic Products: Scott, since your parent is actually based in Europe and Wayne earlier mentioned he had seen some weakness in Europe because of the concentration in automotive, what’s your viewpoint?

Scott Hewitt (President, Sick Stegmann): We’re kind of in between a couple of positions, between Frank and John, and maybe Dave and Wayne a little bit. Sick basically concentrates in three major areas: factory automation, what we call logistics automation (like package handling for UPS or FedEx), and process automation for the chemical industries, oil and gas, and things like that.

But we’ve done a lot of things over the past several years to diversify, not necessarily in anticipation of a major recession, but just from a growth perspective that should position us pretty well. We’re down, but not as bad as some other companies and some of our competition. We’re very global.

It’s extremely soft in Europe especially in the servo side. The European market tends to be a little bit ahead of the North American market in terms of the level of automation in different industries, so when they saw a downturn, it was extremely sharp, especially on the servo motor side and OEMs and things like that.

But we do have some opportunities globally in Asia, which is all upside potential for us, and so we’re actually doing pretty well there because we just started our presence there in the past five years or so.

If you look at things like automotive, we were heavily leveraged into automotive, not in car applications but automotive production machinery and things like that.

And we’re remaining engaged in that industry because we think that once things turnaround. . . . there’s a specific plan to be at 15 million unit sales in the U. S. by 2012. If that really happens then I think all of us can see a little bit of a turnaround in automotive.

So we’re not disengaging from any markets, but we’re diversifying. In my particular case we only do the encoders, but we’ve actually gone into some more consumer-type applications: DVD vending machines, ATMs, and things like that. We’re trying to get our speed and position sensing devices into more applications like that, and not just relying strictly on industrial OEMs.

We’re seeing the same kind of things with OEMs; a lot of our OEM customers trying to make their existing machinery last longer and get productivity out of that. It’s shifting from a new machinery market to a maintenance market, which you know is not really growth.

Emerging trends

Electronic Products: That’s true, but hopefully the worst is behind us. Let’s start looking ahead. What do you think is going to happen in 2010, 2011; what new kinds of things might we be seeing in the marketplace?

Wayne Meyer: Well, I had alluded to the fact that we’re seeing a lot of trickle down of motion sensing from consumer into industrial. That’s a big trend you’ll see coming into industrial as people go through redesign and want to add that kind of user interface stuff. But it also ties to a whole bunch of ease of use and power management and all of these different kinds of things for your next design.

So that’s the kind of the trends that I see going forward that will come out in the next couple of years. There’s already stuff that I can already see coming that is really, really cool stuff and innovative for industrial.

Scott Hewitt: I’d love to chime in a little bit. You know some of the things that we’re specifically seeing that probably everybody will see at one point or another (if you haven’t already) is what we’re calling the new energy, primarily wind and solar. A lot of that is going to be regulation driven, so what really happens, especially in North America, with legislation and things like that will drive that to a greater or lesser extent.

You have a lot of solar panel farms and wind turbine farms that are in remote locations, and so reliability becomes a real key element of the design of all the systems. It begs for industrial-type products.

But you have to always keep one eye and one ear toward the government side of things. I don’t necessarily want to get into political discussions on cap and trade, but if some things happen the industries boom, if they don’t happen the industries don’t. But that’s some of the kinds of things that we’re seeing.

Wayne was talking about consumer-type applications coming into the industrial world. We definitely see that, but then we’re also as a company trying to push more into the consumer world. I wouldn’t try to put an encoder in a Wii, because it would cost more than the rest of the machine. But you have things like vending machines where we can bring some of our sensors and technology into play. We can take our technology to Asia and have it mass produced at a point that’s economical for the machine builders to use it. So that’s something that we’re pushing for.

David Webber: We make a lot of end-machine-interface kind of applications. We’re getting a lot more requests for higher levels of sealing. You know IP65 to IP67 is typically what we’re being requested now.

As things are getting in harsher environments, we are also being asked quite a bit to extend our temperature ranges so we’ve been doing a lot of investigation with plastics to be sure that we’re not going to be running into any issues, and that’s driving, per Scott’s point, getting into more energy management kind of products and programs.

Reliability has become a real key. It’s got to work and we’ve got to make sure that it’s easily serviceable out in the field. So we’ve been helping a lot of our customers with ease of installation and doing a lot of kind of value-stream stuff going up the food chain — with wire leads and connectors and really almost becoming a packaging expert helping them easily integrate into their installation or application.

We have been using a lot of our consumer sensor now for our navigational-type products, and they are now being used and requested in industrial applications. Of course we need to look at the sealing levels and at some of the materials being used to make sure that they’ll still stand up in the industrial applications.

Frank Pipitone: We’re starting to see many customers demanding much longer life on the product, and we’re in the middle of the debate between contacting and noncontacting sensors.

I think that it speaks to what was mentioned earlier about reliability of the product, but it’s also saying that perhaps our customers are trying to differentiate themselves by having longer-lasting equipment and product out there in the marketplace.

The solar energy market has posed a number of very significant opportunities for our company, particularly in microcircuits.

Automotive has remained relatively strong for us because we’re on small car platforms and they’re obviously doing okay; we’ve even looked for some growth there. And we’re actually trying to take our automotive technology and move it toward heavy industrial applications.

For my particular product line, we see an emerging market in professional audio and video. We’ve been participating more and more in that space, and it’s been kind of exciting. We’re taking our technologies that addressed industrial applications in the past and now applying them to this new audio and video market.

Safety

Electronic Products: John, from a safety perspective, do you see new demands coming for greater safety in the industrial environments these days?

John Peabody: Basically there’s increased demand with respect to safety. The market as a whole is becoming more and more aware of the needs and requirements of safety and not just from a legal standpoint.

I think we’re all aware of the fact that OSHA requires you to make a safe work environment for your employee. But enough studies have been done by insurance companies and OSHA to show that, when you safeguard correctly, there’s actually a benefit-to-cost ratio that’s anywhere between 3 to 1 and as high as 6 to 1.But it’s important part that the safeguarding be done correctly in order to realize the benefits. If you do it incorrectly all bets are off.

So with the standards that are telling you how to safeguard correctly, the laws, and with the studies that show there’s definitely a dollar benefit to safeguarding we’re seeing an increased need for safeguarding correctly. Due to the aforementioned, the safety market is going to continue to grow somewhere between 8% and about 12% CAGR depending on the type of product or service.

Electronic Products: Are talking about safety for individuals, or do you include safeguarding your operations as well, against outside attack or anything like that?

John Peabody: From my perspective and the market that we touch it’s basically the factory automation, how do you make the factory floor safer so that personnel are protected and reduce the chance of fatalities, amputations, and injuries in the process of manufacturing parts.

Safety is becoming a core value of many larger companies. . When you look at any of the process industries (petrochem), manufacturers (automotive, electronics, etc) the list goes on and on – that safety is a core value. Company mission statements, vision statements and value statements include language that places importance on safety of personnel, environments and surrounding communities. It is a part of their social responsibility.

It is a high priority to them. . I was speaking at a conference, about two years ago. And the president from the company that was sponsoring the conference was addressing about 150 of his key personnel and EH&S professionals.

He said safety is extremely important to us. We view safety right up there with our quality, our productivity and our profitability.

If we can’t do safety right, I question whether we can do anything else correctly.

More and more companies are placing an emphasis on safety and it’s being viewed as equally important as quality, productivity, and profitability. Because of this, the safeguarding companies that manufacture safety devices are going to be tasked with creating devices that are simpler to understand and install. If they don’t, they will loose market share.

The new safety devices will need to be very flexible and smarter. So that when these safety devices are installed, they do not simply maintain productivity but have a goal to actually enhance productivity by reducing downtime and set up times through ease of use and advanced diagnostics.

This is what the customers will need and demand from safety device manufacturers.

Scott Hewitt: Sick also has safety products, and I have to concur completely. We’re not in safety in terms of light curtains, scanners, and things like that, but from the component side; we manufacture encoders. And we’ve worked with customers who were trying to do safe machines —safe position, safe speed — primarily for the health and safety of employees, but also to protect the machinery. We do get some applications that get into people-counting and things like that that might be indirectly related to security, but primarily it’s people safety.

We’ve seen a shift coming from our customer base from supplying components like an encoder that are compatible with use in safety systems —- let’s say (SIL 2) or (SIL 3) systems to actually providing our encoders that are safety rated themselves with a 2 certified or something like that.

Or where our device is actually rated as safe. So even – even if you’re not in the safety industry per se like light curtains, like (John) and we also are we’re starting to see that —- those safety aspects driven down even into the component level.

We’ve seen that for many years. We provide encoders that go into the elevator industry. And elevators – you know anything that moves people in a building you know has safety requirements. And that’s been around for 20 years , you know, dual outputs and redundant outputs and things like that.

And so we’re starting to see that driven not just into devices that are designed for safety but also components that are used in machines where safety is a considering.

David Webber: C&K is doing a lot with detect products. We’re seeing increased demand for that and customization with the detect products. We’re also very involved with ATCA and advanced mezzanine cards.

For ATCA a customer is looking at the reliability and time to market of a product. You’ve got to make sure that it never goes down. It’s going to be very robust. And we’re seeing a lot more emphasis on trying to use a product that’s going to be stable, reliable, stuff that’s going to be commercially available for a number of years because they want a building block.

They want something that’s kind of a commodity- type product. We’re seeing a big drive there. A lot of our detects are hooked up to fan controls or motor controls to make sure that when a cabinet or an enclosure gets opened the fan stops.

We are getting more involved with magnetic sensing or reed sensors because it gives you a lot more flexibility in terms of misalignment, in an enclosure and can give you a longer life than some standard electromechanical product. We are seeing a lot of customers driving us toward non-contact sensing.

Electronic Products: Wayne could you address the issue of new demands for sensors too? Is safety one of the things that are driving the demands for new sensing approaches?

Wayne Meyer: Absolutely. And I’ll give you an example: an industrial environment, a big plant where there’s some type of chemicals, and you’ve got security guards on weekends. Say they’re carrying a radio, but management can’t get a hold of them.

If they put a sensor in the radio, it can tell them if they’ve got a man down; if the radio hasn’t moved for five minutes — or two minutes, one minute, whatever you set that to be — or it’s flat on the ground, it will automatically alert someone and fire up the EMS to get someone out there so we can see what’s up. So that’s just one good safety example.

Here’s another — think of the bridge in Minnesota that fell. Well, we talked with a company that makes probes that are able to find cracks and stress, fatigue or anything like that. You hold the probe in your hand and it’s got like a six foot rod with a sensor on the end that you take and place on the place you want to measure.

Typically, the user is in some uncompromising position — up in a bucket or on your back or whatever — and has a control box on a straparound his neck. He’s got a probe in one hand and then you’ve got your other hand just by human nature is you put it somewhere to stabilize yourself.

And now I’ve got nothing to be able to change any settings on the box without compromising safety. So we had this discussion with this company about how to use (MEMS) up in the probe ––or in the handle that you’re holding where I could say press the button that says I’m trying to control something through a motion.

And then I use my hand to change the gain just like a volume knob. Therefore I’m not releasing my right or my left hand because I’m holding onto something and I’ve still got the probe in my hands. But I can manipulate through shock —- movement, tapping, or whatever with the other one, everything that I want to do on the box.

But it’s a —- that’s a safety thing, right?. So that’s another example of where sensors are in an industrial —- you know, there’s the man- down stuff, there’s the I want to keep someone safe. Then there are all of these other things that are about safety and security using motion sensing which is really again taking off just because you’d be amazed. People —- you know everybody sees these ubiquitous things like Nintendo and you know the Wii and the iPhone and see that you can do more.

And now everybody says oh my gosh, I make paper clips, how do I motion sense my paper clips? Literally. Everybody is doing that. And it’s industrial, it’s medical, it’s everything. And so that’s the kind of stuff. So there’s a lot of education out there with motion sensing.

And if you go on our website we’re trying to show all of the positions you can do. You can rotate, you can tilt, you can shock, you can accelerate, you can do positions because they don’t know and it’s a lot of education.

Electronic Products: That’s true. And I think although an area that’s very interesting and changing rapidly is the man/machine interface or human/machine interface where the way that we interact with the machine being – whether it be flipping the screen or shaping the device is opening up new opportunities for better, more intuitive operations.

And for I think in many ways safer operation of the machine. And I don’t want to – that’s only one perspective. I’d like other – to hear from you folks what you’ve seen in this area.

Wayne Meyer: Well let me, let me – this is (Wayne) again. Let me just comment —- make one comment to what you just said and then I’ll let everyone else talk here. But exactly what you said with machine interface. It’s when you – you know I’m going to go back to consumer, right.

You look at what an iPhone does and how much that has raised the bar over what we expected consumers to —- when we run into whatever it is that’s the kind of user interface that now is like the bar.

And if you have something that is half of that it’s crap, right. So you know you’ve got this bar that’s moving up that says this is what I expect and then you get intuitive with motion so —- so you know that machine interface rises certainly slower than consumer but consumers are pulling it up.

Electronic Products: Interesting perspective. Thank you, (Wayne). Yeah, let me ask (Scott) do you have a viewpoint on that?

Scott Hewitt: Well we don’t really get into the man/machine interface very much from an encoder perspective. But you know just from a general perspective from SICK you know we get into —- you know we have a wide range of sensors and products not just —- not just what the encoders and safety light curtains but for example if I have position sensing I’ve got a laser way to do it, I’ve got a proximity way to do it, I’ve got an optical way to do it, a magnetic way to do it.

And we come into a lot of —- a lot of systems and especially when we talk about logistics automation, (baggage) handling and things like that. We get into a little bit more integration and again not necessarily a man/machine interface but certainly ease of use as a general concept.

You know a lot of things that we used to refer to as plug and play now kind of become a little bit meaningless and the level of what’s expected just exactly what (Wayne) said, has gone up.

We’ve probably all experienced you know or anybody that’s bought let’s say a PC five years ago and then bought one today you’ll find out how much less you’d pay for the same performance or how much more performance you get for the same price.

We’ve probably all had that kind of an expectation pushed onto us – you know cost reduction and/or performance increases at the same price. So just from a general perspective I can comment on the expectations from the consumer world being driven into the industrial world.

And the fact that it’s being absolutely easy to use and it of course dovetails into safety. I can’t really comment on machine/man interfaces.

I could do that but you know just some of the expectations that we see certainly driven by other areas.

David Webber: We are experts in the man/machine interface and what we really have worked with and strived for with a lot of our customers is we’ve got to make sure that there’s no strain, that it’s very intuitive in reach, color, feel.

It’s got to be consistent in its feedback. We develop a lot of joysticks for transportation. We do a lot with analog outputs or linear outputs for signals. It gives you a lot of repeatability and we’ve done a lot with the joystick manufacturers.

We’ve worked with some military customers and it’s – one of the interesting things that we’ve found is we were working on a push button opportunity at a joystick manufacturer and they are very active with remote IED robots that help explode the IEDs and their joystick looks completely like a PS3 wireless controller.

And the reason is that the young soldiers who use those have logged so many hours on a PS3 that they are so intuitive with the controllers that it’s very easy, it’s very intuitive. They don’t need to retrain them on how to use it because they spent far too much time probably on the TV using it.

Electronic Products: That’s really interesting. I now realize that video games are really job training.

David Webber: They’re paying off, one way or another. The kids always said that they would; we just never believed them.

You know the other thing is the iPod is – you know obviously is a very intuitive, a readily adopted interface. But you know when we look at that scroll wheel it’s not necessarily an intuitive movement for the thumb particularly if you’re scrolling through a long list of music.

We’ve developed a product that would allow you then to just jog through either quickly or slowly without having to make that kind of clockwise movement with your thumb in a consumer product.

We’ve been getting a lot of positive impact and feedback on newly developed product to alleviate that situation.

Electronic Products: Okay. Let me talk to something – well to switch gears a little bit here. I want to talk about if we can, something about what you’re seeing in the way of factory networks. I’m wondering if – I’m not sure who can talk to this, regarding things like the use of the Ethernet- type products, LAN products.

As well as the use of wireless products within the factory. Can anyone comment on that?

David Webber: ATCA is becoming more readily adopted in industrial spaces, in military spaces, medical spaces so you’re seeing people trying to use it as a standard building block to get their product up and ready into the marketplace more quickly. . They are using ATCA because it is such a robust and dependable architecture and that its ability to process so much data so quickly has led it to be adopted in mobile medical applications and military applications. . They are used because they are so efficient in their high capture rate for imaging or for sensing and jamming signals.

One of the things we’re starting to see with the integration of switches is a lot of them are adopting a CAN-Bus interface loop or system. . Now people are starting to request address switches to help locate the switch when they put it into an integrated application. It’s a fairly recent development but it’s in the ease of use for the installer to get something set up or change the programming as needed.

John Peabody: From a machine safety standpoint and that’s really the only angle I can take on this. It’s a small market that we deal with, and relates to the OEMs (machine bMachine Builders) and the end users with respect to integrated safety.

A trend that we’re seeing is an increased use of safety PLCs and programmable safety controllers that are interfaced to the safety devices and switching devices on a single field bus that can accommodate both safety and non-safety functions for motion control.

Basically they can combine the safety functions with the motion control on a single safety rated network thatwhich is going to reduce the cost and also increase the performance. Typically you’re looking at a lot less wiring, fewer components versus having the two separate systems one for the safety system and one for machine control.

The single network reduces engineering time and gives increased reliability.

These systems provide better diagnostics because they can monitor each device whether it’s a safety device or a non-safety device on the network and report that status back to the HMI.

We’re going to see more integrated safety in the larger scale safety integration retrofits at the end user and by the OEMs.

Electronic Products: You mentioned something that I think it’s key, it’s been mentioned a couple of times. The need – the need to lower the cost here, and yet you’re dividing —- designing products that must go into extremely harsh environments, ones that are requiring greater safety.

What impact are those demands having on your design process, how you design things and what technologies you bring into the process? And I open that up for —- again for anyone who can discuss that need for costs in a harsh environment.

Frank Pipitone: Certainly there’s a lot of pressure placed upon us now as everybody is going after the same piece of business. And as products are required to withstand these harsher environments and last longer, yeah, there are costs associated with that.

There are two things we’ve been doing and one is working much closer with our suppliers in terms of the types of materials that they’re supplying to us, the costs for those materials, and trying to build a longer term relationship with them so that there is more of a partnership, if you will and then just normal vendor /customer relationship.

And then secondly, we’re finding that some of this product we have to move offshore in order to compete. We can still provide the reliability and the quality that’s required, and obviously save a little money on labor costs, and in many cases the material costs as well.

Scott Hewitt: We’ve also done some offshoring from a cost standpoint at some of the more —- some of the more —- the higher volume of course. But even longer term you know offshoring is painfully easy to do and painful in multiple ways.

But you know eventually everyone will be there. They’ll be going to the low cost and you have to start to get a little bit creative to actually be competitive from a cost perspective.

You know what we’ve done —- you know without giving away too many secrets is you know we’ve tried to use industrial available components. You know we – you know so especially electronic components that are for example, when we put bearing in our encoders we use automotive standard bearings because they’re extremely inexpensive, extremely rugged.

It’s not an issue today. If there’s a supply shortage we’re at the end of the supply chain. You know an encoder manufacturer versus a car company. But you know you can be a little bit creative in terms of how you design your products.

Use common components across multiple platforms and things like that so that you can actually increase quality and increase reliability and IP protection and all those things without increasing costs at all.

So that’s some of the things that we try to do. We try to do standardization across the board. And mind you what (Frank) said, working with your vendors as partners, we’ve found cost savings – you know this isn’t necessarily related to technology as much as business but you know we go to a vendor and we have a machined part or a printed circuit board that we want manufactured.

And we want our vendors to question why it – why the design is that way because if you talk about – a lot of companies have a hard enough time designing for ease of manufacture inside their own building. But when you design something and have somebody in Asia build it for you, you know it’s an order of magnitude more difficult.

So we’ve actually had our vendors question us why do you do it that way? And we can do it a lot less expensive if you do it this way. Does that meet your requirements?

So just some things that you can do with one of your vendors to kind of – kind of make things you know value engineered if you will and to take costs out of it while still increasing quality, still increasing reliability, still increasing the functionality and the rating and all those kinds of things.

Those are just some of the techniques that we’ve employed.

David Webber: I would really echo that as well. We’ve been becoming a lot more intimate with our suppliers.

We’ve been coming more vertically integrated where necessary in some of our offshore locations particularly for the uncommon components- the stuff that we don’t really run in volume that was creating the longer lead times to try to be more reactive to our customers and get them product more rapidly.

We’ve been becoming a lot more intimate with our vendors as well and getting recommendations on standard materials and stocks to drive out costs.

And part of it is too just getting their early stage – the manufacturing site involved in the manufacturability of the product once it’s designed. Depending on what region where you would necessarily put it there may be a plastic or a material that’s more readily available in one region of the world than another.

So identifying where we’re going to locate that manufacturer of that product as quickly as possible really helps us identify the most appropriate materials.

Electronic Products: Interesting. Material driven as well as being labor driven. I was wondering about the impact of consolidation. How is consolidation in this business changing the way you operate, or are you driving consolidation by the way you operate?

David Webber: Our industry is begging for consolidation. It’s actually very fragmented. We have a lot of specialists that do just one or two types of products. You know when we look at our competitors it’s mostly by type of product rather than, generally speaking, another competitor that goes kind of toe-to-toe with us.

One of the things that’s kind of impacting our drive to get costs out of our system has been the regulatory environments, the RoOHS reach. And there’s been obviously a lot of nongovernmental organizations getting involved to wanting to ban PBTs and ensure they are getting halogen free products.

And that’s actually been slowing us down in trying to get costs out of the system because some of the new high temp plastics that are halogen free or PBT free are actually a little bit more expensive.

So we’ve been trying to counterbalance some of that —- that drive that’s been going on in the regulatory environment.

Scott Hewitt: We had a similar situation when we first implemented RoHS. We found that particularly for us it was lead that was in the parts that we used.

And over time you know this is a perfect case of Europe driving North America and it was a really consumer product driven regulation as much as anything that eventually filtered through the industrial space.

We found out eventually non RoHS compliant parts became more expensive than the RoHS- compliant parts. It’s what do you do in the meantime. You know something like a “halogen free” may never – may not ever get a critical mass.

That’s something that’s foreign to me so I don’t really know — – I’m kind of talking out of the top of my head right now. They may not ever get to critical mass where it becomes you know attractive economically.

But you know if customers demand it at the end of the day you’d have to do it and find a way to do it at lower cost than the competition. You know vendor consolidation is something that hits us both as a customer. Obviously we have vendors that supply materials to us and as a supplier to our customers.

And we haven’t really found – you know if David’s market’s fragmented, the encoder industry on a global basis is cuckoo. I mean you know if it’s a billion dollars total business and you know if there’s —- I can’t even keep track of the number of encoder companies in the United States that have – that probably have sales of under a million dollars.

It’s highly fragmented. Everybody picks a market and tries to serve it really well. You know just over the past several years Omron has gotten strong into the encoder business, SickICK has gotten a strong encoder business by buying Stegmann.

Pepperl & Fuchs bought an encoder company, Group (Schneider) bought an encoder company. And everybody that’s in a general sensor business seems to be getting strongly into the encoder business. But there haven’t really been fewer encoder companies unfortunately.

Because I think if there was consolidation we’d be in a pretty strong position. We haven’t seen the economy really —- you know everybody’s business is down but we haven’t seen any major players drop out yet.

Frank Pipitone: From a consolidation standpoint, major customers are certainly attempting to reduce their supplier base. .In response, we continually seek opportunities to add to our product offering by expanding the use of our existing technologies and/or by seeking acquisitions. From a consolidation standpoint on the supplier side, one of our challenges is due to the high level of custom product that we sell. We have custom tools scattered around the world to make materials for us. And some suppliers have suffered from the economic crisis, so we have to make sure that we can still maintain a pipeline of material. It’s forcing us to look elsewhere again, to tool up some of these special partners.

Electronic Products: Is it changing your thinking about how you tool up as well?

Frank Pipitone: Well yes and no. Unfortunately we’re in a reactionary mode as opposed to a proactive mode, so the thinking is we’re just hoping we still get the material right now. There is a general reluctance to fund tooling for new projects at this time.

David Webber: We’ve been able to re-approach many of our material suppliers for cost reductions because they’re as hungry to get business as we are – and the rest of us seem to be.

You know so we’ve been able to have some really frank, open negotiations with them and say listen, we have this great opportunity but neither one of us are going to be able to touch it unless we’re able to find a way to get there.

We have been able to really work quite a bit with our suppliers, which has been very good.

Electronic Products: Are there any topics you would like to discuss which we haven’t hit on?

Scott Hewitt: I didn’t follow the rules and I’m already late in the game. But you know one of the things that we’re finding – you know we provide discrete product in encoders. So in a nominal configuration it’s got a shaft and bearings and a mounting flange and a PCB and the sensing technology and connection and all those kinds of things.

And what we’re finding is a lot of our —- especially our larger OEM- type customers and several motor manufacturers, acAC Induction motor manufacturers and people that build the machinery in large volume.

They’re looking to not only reduce costs but reduce size and they’re looking for a type —- a higher level of integration. So we talked about you know working with vendors to —- for cost reduction.

This is a specific case where our customers are working with us and saying instead of providing an encoder that’s a totally stand- alone device we want you —- we want to work with you to design components that get built right into our let’s say motor.

So there are no bearings that —- we don’t need bearings in an encoder because I’ve already got bearings in a motor. I don’t need a shaft in an encoder because my motor already has a shaft.

You know so we’re working very closely with some of our customers to really almost be a component supplier as opposed to an encoder supplier to where we still have the sensing technology given the level of performance and reliability and resolution and things that they need.

But it’s not a – it’s not a part you could identify. If you looked at the motor you couldn’t really tell what the encoder was.

Electronic Products: Interesting.

Scott Hewitt: It’s just kind of built into the motor so to speak. So we’re seeing a lot of – you know it’s not like all of our customers but we’re seeing some of the much larger ones who are trying to do more performance – you know more (torque) out of smaller packages and things like that, driving us to be a more integral part of their product.

Frank Pipitone: We have a number of customers who come to us and in their desire to reduce their costs, they’ve asked us to actually look upward in their bill of material and do additional value adds, whether it be harnesses and connectors or PCB or whatever, to give them an assembly instead of a component.

And so we’ve had some opportunities to offer some lesser- cost solutions to these type of accounts.

Electronic Products: Interesting. So Frank your customers are asking you to bundle more in, and Scott your customers are asking you to unbundle there.

Scott Hewitt: Yeah. In fact we have a lot of our customers for whom we’re providing sub assembly with their cable connector assembly whether they’re going out and finding the cable connector assembly less expensively because you know that’s not really our stock- in-trade —- kind of an up sell for us.

But I think what (Frank) and I are talking about is slightly different. You know what we’re talking about – you know we’ve got this —- he’s got a —- let’s say I’ll pick a server motor where the bill of material says encoder and it no longer says encoder.

It’s broken out into its components that are built into the motor. But you know we have a similar experience to what Frank’s talking about because you know a lot of times there will be an encoder in a device and it is giving you simply speed or position information. And they might have another device on the machine that’s giving you acceleration or torque or temperature feedback or things like that.

So we’ve been asked to actually incorporate other sensors and our encoder —- encoder seems to be kind of the one device that everyone wants to bring other sensors through and have it communicate back to you know— – to the controls by one point as opposed to you know five different sensors having five different connections into the drive.

So we’re working with a couple of customers. I’m not going to call it a trend. It’s a —- you know a couple of customers asking us to do that level of integration for them.

David Webber: Yes. You know we’ve been partnering quite a bit with a number of our customers. One of the things that a lot of our customers are asking us to do is become essentially a packaging expert. We traditionally have provided the component, but increasingly we are being asked for help on quickly and easily integrating our component or application from a manufacturability standpoint into their application.

So we’ve developed quite a kind of niche in that. We have been asked to do a lot of wire leads and connector opportunities as well. Again, that’s to help the with the integration of the product into the assembly.

So those are definitely things that we’ve been increasingly requested to handle. We also have a lot of customers coming to us and saying you know we know you guys don’t necessarily do this but would you look into this because we really need some help?

There’s definitely been a trend of vendor reduction at a lot of our larger customers. They’re refining their buying habits and they’re trying to leverage their buy with some strategic suppliers. And that’s been very helpful for us.

John Peabody: I have to agree with that, with respect to vendor reduction and partnering with customers that are looking for value add. That’s definitely one of the trends that we have seen with in larger corporations.

There are many companies that provide safety products only. There are those that provide safety consolation only. And engineering companies that will provide engineering to help design the safety interfaces.

And we’ve had the customers come to us and ask if we can handle it all. They want a one-stop shop.hey,

We’re seeing this from the larger end users out there, and not so much from smaller companies. The larger companies, companies like Eaton, Textron, and Alcoa, want to deal with one vendor for compliance, quality, consistency and price.

One of the trends as I mentioned, was the risk assessment. More and more companies are requiring a documented – a risk assessment using the processes as stated in the standards prior to the installation of the guards and devices on the machines that are already on the factory floor or the ones that are coming from the OEM (machine builder) prior to the receipt of that new machine.

They also want specific information in the assessment report. The standards for risk assessment/risk reduction are requiring that you specify the risk level and then what the safeguarding performance needs to be along with the circuit performance based on low, medium, or high risk.

Some things that the standards don’t include that the customers do want is a detailed guarding concept. This only comes from experienced assessors that are update with all of the available safeguarding technology and their applications. The customer knows that they have problems and that is why they are doing the assessment. They know the machine is hazardous. What they really want is a clear specific solution to reduce the risk and bring the machine into compliance.

So the customers are saying not only do I want an assessment but I also want the solution. Many of the risk assessment reports that we have seen by some machine safety consultants lack a detailed solution to reduce the risk. . The reports typically include the risk level, guard and device performance requirements based on risk, and circuit performance requirements according to the standards. But the report (in some cases) will not include a recommended solution. The customer wants to know the solution, along with the residual risk (the risk level after the solution is integrated).

After the solution is implemented, what is the residual risk? Is it the tolerable risk, acceptable risk, is it low risk? The customer wants to know what he is getting for his money.

Electronic Products: So you’re basically seeing a functional integration here.

John Peabody: Absolutely — not just bundling product but providing all of the services that are associated with or needed to solve the problem. They are also looking for the vender to help establish corrective action priorities.

In many cases, the customer wants the supplier to come in and do a wall to wall inspection of machine hazards and provide them with some detailed information as to where they stand with respect to compliance and then help them establish some priorities to implement corrective action.

Wayne Meyer: Well I mean we always see – in semiconductors, it’s all about integration. I guess I would say although you do see different things becoming —- and I did processors for a while, networking, going centralized, and then you get kind of decentralized.

Where’s the smarts in the machine? We see more smarts going to the endpoint, basically kind of like being a dumb terminal and then sending everything to a server.

Everything’s getting —- going to the edge so – in terms of embedded devices. So smart’s at the endpoint and inside there of course it’s all about integration —- smaller, lighter, faster, cheaper type of stuff. So you know that’s what we see all the time.

Electronic Products: So you’re being asked to increase the functionality on the device basis at the endpoint?

Wayne Meyer: Absolutely, and do it in half the size with half the power and make it more rugged, with less harmful materials, and road compliant and all that. And then —- and then from —- everybody’s gotten hit from the resourcing standpoint so we get hit with constantly I can’t write this code or I can’t do this. Can you do it for me? So you know we spend a lot of time putting up a lot of verified – verified circuits that are on our Wweb site that you can cut and paste, putting up drivers, putting up all sorts of software so that we couldn’t take all those phone calls.

We’d be crushed to our knees —- you know dropped to our knees if we had 3% of those call us. So if it’s not hands off where we – you know we would just fall apart. So everybody’s asking for help because they all have less to work with, and they’ve got to do it in half the amount of time, and so forth. So that’s the kind of stuff we run into.

Electronic Products: Well you raise the interesting issue about software and software safety verification. That would be a whole other topic we could talk about at some point. But since we are getting towards the end of our discussion, I would like to ask each of you to kind of sum up.

Wayne Meyer: Well from my perspective we kind of covered a lot of it, but I would say from a semiconductor view it started out with the first paradigm was about getting data. The second one was about adding ian audio. The third one was about adding in video. And now it’s adding motion.

So I think that’s the fourth paradigm. Right? So all this stuff that we talked about and again in consumer and in various speeds will trickle down into industrial and motion is definitely one of them. And it raises that experience.

It does make things safer. It makes things more intuitive. You don’t have to go through some complicated menus. It’s all human motion and gesturing that we’re all used to. And that’s the kind of stuff that is rippling down into this area rather quickly I would say, rather quickly for – as we know industrial much slower compared to the speed of consumer.

Frank Pipitone: Overall we’re finding that consumers are demanding more and more responsiveness and improved reliability. They talk about seals for harsh environments.

But I think the biggest thing is that we’re finding that customers are asking to work with us more closely to develop a solution for them that may or may not be readily apparent in the component product offering that we have.

But we’re using technologies and engineering capabilities to sometimes come up with some solutions that are a combination of components that they might have purchased from elsewhere. So that’s kind of exciting for us. And we see that continuing to move forward.

David Webber: This has been a very dynamic time. We’re seeing a lot of our key customers really wanting to have a strategic source, a strategic partner that they want to work very closely with. We’ve been fortunate to be able to really solve a number of complicated problems on programs for them in a very fast amount of time.

Our customers want a really stable partner that they know is doing very well financially, and that’s been an interesting trend particularly given this market, we’ve been the beneficiary of that.

The broad product offering that C&K brings to the table has been very helpful to us. We’re definitely seeing a lot more requests for more robustness, longer life,. and additional levels of sealing. This criteria have been keeping us busy with our material selections and keeping the test labs certainly very busy.

So it’s been a very dynamic time. We feel like we’re very well positioned to take advantage of it particularly when the market moves north.

John Peabody: Sure. Basically with respect to machine safeguarding and some of the trends that we’re going to see just to summarize quickly, is the consolidation and partnership with safeguarding venders and the end users for the products and services to create a value added total safeguarding solution. We expect to see more machine risk assessments, and the standards and realized cost savings will drive this.

When assessments are done correctly they yield proper guarding solutions that help productivity, and the cost/benefit is realized.

Next is harmonization of the machine safety standards which I think will be good for everyone You’ve got the new functional safety standard that’s out now. It hasn’t been fully adopted in the United States yet but we expect it to be.

This will allow the machine tool builders to build machines that will be compliant anywhere in the world. In the past, the OEM built one way for North America and a different way for Europe, which can be a waste of time, energy and money.

We’re going to see smarter, safety devices from the front end (Safety Sensors) all the way to the back end (MPCE devices, encoders and drives). They’re going to be easier to use, easier to program and very flexible, all in the name of safety, productivity and driving costs down for the end user and OEM.

With respect to more integrated safety for larger systems, again it’s cutting costs and making a much safer solution so that the end user or the operator at the machine is both safe and productive, driving production up and cutting costs of the safety rated controls system.

With regard to outsourcing of services, we’re going to see more companies relying on outside expertise during the lean times and I expect this trend to stay even after the economy improves..

We fully expect to see more of the outsourcing of services and partnering with companies that can provide all of these services from risk assessment, safety system design, and installation. The one stop shop.

Scott Hewitt: Well I won’t be repetitive because you know I see a lot of the same things in terms of the consolidation, outsourcing of services and tending to work in partnership both with your customers and vendors and decreasing costs at the same time and increasing quality and robustness and those things.

But if I put – just put one little different twist on it I’d say that the – those of us who will be around in the future are the ones who have the maximum flexibility to work not just —- try not to classify all of our customers in one way but to really work directly with those customers and come up with solutions that are very tailored to their situation.

So you know that’s one of the things that SickSICK has going for them is with respect to any application, we have multiple sensors that can solve that problem so we don’t really have a specific axe to grind. We can come up with the sensor that’s really best for the application.

We can take —- we can disintegrate our sensors if you want like what I was talking about with encoders. We can do integration if we want which is to bring multiple sensors together in a system or subsystem approach. And it’s really —- the right solution is going to be different for different customers.

And those of us who are flexible to work with the customer and give them what they want are the ones that are going to be successful. .

■