Hi All,
I am having a question hoping that I can find an answer.

Can System Integrators buy DCS/SCADA/ESD & F&G Hardware only from Original Equipment Manufacturers (OEM) ? So that they can engineer it and sell it to their customers directly? I am assuming the answer is yes, but the prices they get, does it keep them on the race ?

Appreciating your help

thanks,
Ahmad

What would be the Systems Integrators Scope of works ?

Examples of OEM's I have in mind :
Honeywell
Yokogawa
Invensys
Siemens
ABB

I think this depends a great deal on your particular market and the business model in that market, as well as if you're in the automation or process control business.

For example, if you're working with Siemens for Automation components like PLCs, sensors and drives, and they operate through a sales distribution / reseller channel like they do in the US, as an integrator (or anybody just off the street) you can buy from a distributor - but the question often comes down to what kind of pricing, or if your pricing will be much better than the end user's pricing.

Typically large machine builders who are using the most dollars will get the best pricing because they need little support and are purchasing so many dollars worth.

Smaller machine builders and system integrators often don't require much support because they know the product well, but don't have the dollar volume to get the same discounts that really big machine builders do. Sometimes integrators can specify product and steer more dollars to a certain manufacturer, so they can get descent hardware prices.

End users often (but not always) need a lot of hand-holding and they're often just looking for spare parts, so they often have a higher cost than integrators or machine builders.

Hope this helps you understand.

Matt

Thanks Matt, your reply is of Help thanks a lot,

So this means that in the US each OEM is having a number of authorized Distributors who are getting special prices from the OEM factory and then selling to system integrators ?

what about Asia Pacific Region ?

Ahmad - you are correct for the US market. Because of the large geography, large number of dollars and the already established market conditions of engineering based distributorships, this is how many large automation manufacturers like the ones you listed go to market.

Unfortunately, I'm not familiar with Asia Pacific area of the world, but general business sense dictates the pricing tiers (Machine Builder, Integrator, End-User) would hold, even with a direct sales office.

However, there are always exceptions. If you take a very large end user, like Coco-Cola, they might have special, direct pricing with a global purchasing agreement that might be even better than a large machine builder! There are dozens of factors that come into play in pricing.

If you want my two bits on how to negotiate best pricing, it's mostly about informing the sales person about your situations:

1. Understand how many dollars of product you'll consume in a year.
2. If possible, for integration projects where the end user doesn't have a preference, try to stick with recommending a single automation supplier and let that supplier know that you have buying influence over your customers. Loyalty matters.
3. Let the manufacturer know that you are capable of supporting the products your purchasing with little or no help, if that is true.
4. Let the manufacturer know if you intend on reselling the products to the end user.

Note that there are real costs and risks of reselling product! Besides just shipping costs, you have to manage your cash flow as well as the always inherent risk that you won't get paid for product! There are integrators that think that becoming a mini-distributor is a good idea without understanding all the risks.

Example:

You have an integration product with $36,000 in parts that you purchase and $5,000 in integration and labor. You decide you'll propose doing all of this yourself and sell the package to the customer for $45,000 so you're getting another $4,000 (10% margin) on the parts. The customer agrees to 50% down, 30% on delivery and 20% at completion.

First off, your down payment doesn't even cover the cost of materials. Second, you have to ship all this stuff to the customer - better hope it doesn't get damaged! Third, if you don't get that last 20% because the customer is a cheat, you're actually at a loss because you have so many dollars vested in the parts as opposed to the integration and labor. If you were to let the customer buy the parts themselves, you'd still have some money in your pocket at the end of the day if they cheated you out. Companies big and small don't pay sometimes, and when the checks get larger, so do the risks (and rewards!).

Bottom line - distribution & reselling is a different business than integration, and it's not a trivial difference! Good luck.

Same procedure in Asia pacific too.

In my point of view Control System bidding Price to an EPCC Company or end user for a new project depends upon the following factors.

1- Single or Multiple OEM can offer their system. If there is single OEM recommended than price may be enhanced up to 10 times. This is what which I am observing in Middle East Market.
2- In case of multiple OEMs, edge go to that OEM who is complying max specifications.
3- How well coordination between System Integrator, distributor and OEM to win the Job.
4- What are the prospects of future expansion?
5-Presence of other OEM in the region and their technical skills.
6- How well understood end user requirement by System integrator.

Thanks Faheem for your comment it is very helpful, I would really appreicate if you can elaborate more on your point no. 3

To win Job from EPCC Company or end user, when you are in competition with other vendors and and OEMs is an art. When your distributor and OEM will not in coordination to understand the situation and will not enhance technical features and mange discounts from their portions you may lose the Job. You know each company have long discussion sessions prior to finalize control system. During these discussions any vendor can understand the situation and can make new plan to enhance their proposal technically as well commercially .