Trend Report:
Large Scale Engineering Projects

Knowledge management and the transfer of know-how are becoming crucial factors in the engineering business.

_The 58, 000 employees in the German engineering industry are standing their ground. The large-scale engineering working group at the German Engineering Federation reported that order volumes at member companies increased by 4 % to 16.8 billion Euro in 2001. Strong foreign demand was a key factor in this positive trend, and this was a remarkable achievement given the intense price competition in foreign markets.

Two current examples underline the industry’s ongoing success in the international marketplace. Lurgi has received an order from the Turkish Petroleum Corporation (Turkiye Petrolleria A. O., TPAO) in Ankara to construct engineering facilities at an underground gas storage complex in Turkey. Lurgi will have total responsibility for detail engineering at the site as well as for supply of turbines and compressors. The contract includes surface equipment required to store and retrieve the gas. Operations at the facility are planned to commence in August 2004.

Linde was recently awarded a 380 million Euro contract in Norway. This is an important accomplishment in the market for natural gas liquifaction equipment, which holds significant future potential. The company will construct Europe’s largest natu­ral gas facility for the international Snrahvit group (Statoil ASA, Norsk Hydro, Total­FinaElf S.A.) on the Norwegian island of Melkeya near Hammerfest, which is north of the Artic Circle. The contract includes facilities for storage of natural gas at temperatures reaching -162° C as well as equipment for loading liquefied gas into tankers. It also covers project management, engineering and acquisition and con­struction supervision at the facility. By 2006 at the latest, the facility will go into operation with an annual production capacity of 4.3 million tons of liquified gas. Global demand for liquified natural gas, which will be an important source of en­ergy in the future, is expected to increase by around eight per cent per annum. Although both of these projects will be carried out on this side of the Atlantic, the US continues to be the most important customer market for German engineering firms. China and South Korea dominate Southeast Asian business. There is also good news in the Middle East and Central Asia, where business is growing. Industrial power generation plants (40.7% share) and chemical facilities (14.3%) make up the largest portion (55%) of orders received by the German engineering industry. Other key segments are steel production and rolling mills (12.7%), electri­cal technology (10.3%) and the paper and textile industries (2.8%).

Is a German Engineering AG on the Cards?

Despite good prospects for the German engineering industry even in a time of crisis, observers see a need for consolidation, because the industry is relatively fragmented. Consideration has been given to the consolidation of domestic and foreign facilities and optimisation of marketing and sales operations. The goal is to leverage synergy effects leading to cost reduction.

The idea of forming a German Engineering AG through the merger of several German engineering firms into a large corporation is still lurking in many (analysts’) minds. This concept implies that an Italia S.p.A., a France SA or a United States Corp. would also make sense. But is the argument that the international engineer­ing community needs a large, powerful corporation really compelling? There is reason for skepticism, and there are many indications that small, highly maneuver­able units perform better than supertankers that are difficult to steer.

Flexibility and the willingness to go down new paths are generally more important than sheer size. To cite a practical example, the Dutch engineering firm Fluor Daniel won the International Project Management Award in June 2002 for a large petrochemical project. Within a short space of time, the company was able to con­vert refineries belonging to the Veba subsidiary Ruhrol to handle the production of fuels that conform to new EU regulations. By using efficient project management techniques, the firm completed the project ahead of schedule, and this resulted in considerable cost savings. Working to a tight framework of deadlines, budgets and quality requirements, a 20-member core team completed the refinery conversion by the middle of 2001. Instead of filling binders with contracts, the team reduced the volume of documents to only 35 pages and a few annexes, which is undoubtedly a rarity in the world of large-scale engineering. Possible areas of conflict were identi­fied up front and solved jointly, so that the project goal could be achieved. There was no superfluous hierarchy, and open communications were encouraged.

Project Management: The Hub of Activity

Communication primarily means exchanging data, particularly where concurrent engineering comes into play. The reason for this is that in the global marketplace, alliances and cooperative efforts are often the preferred business model. This re­sults in an increasing need for simultaneous development of processes and equip­ment. Basic engineering is performed in Germany, for example, and detailed engi­neering is provided by cost efficient subsidiaries in Eastern Europe. Because the facilities will be constructed in China, a local engineering firm is responsible for the steel structure. An insider has graphically described this as turning the world into a large network.

Complex, intelligent software is indispensable for a large project such as the phar­maceutical active ingredient facility at Boehringer Ingelheim, which contains about 900 pieces of equipment and 4,500 conduits. Acting as the general contractor, Lurgi Life Science used professional CAD planning tools, ranging from 2D planning applications for the approximately 300 PIDs to applications for equipment model­ing, piping, frame work and electrical raceway. Some modifications to the software were made to represent the extensive architectural aspects, and new tools were created for 3D equipment planning, including new macros to generate equipment or new features to handle electrical, measurement and control equipment planning.

Project management becomes significantly more important in this environment. If you base your project on distributed engineering, you must clearly define the spe­cific interfaces between work segments, and this cannot be done without a well­-functioning project management team. High-performance software products can provide valuable project control support. Practitioners recommend EDM systems with integrated engineering workflow together with 3D CAD software offering modern database architecture.

Improving Efficiency in Administration

Efficiency and productivity in indirect activities, particularly in administration, is a good place to start if you want to achieve improvement and cost savings in your engineering projects. Especially the well-established companies in the large-scale engineering project sector still have a high percentage of employees who are not directly involved in the value add process. Moreover, studies have shown that around 70 percent of all quality problems have their source in the administrative area. An insider has calculated that production normally only takes 15 per cent of the time that elapses between receipt of order and delivery. The rest of the time is taken up by administration. On top of that, practitioners believe that 20% of engi­neering effort involves non-creative work. This time is mainly lost through manual administration of documents. The objective then should be to increase administra­tive efficiency. This reduces cost, increases quality and reduces throughput time. It is an area that contains significant cost-saving potential.

Taking document management as an example, automated document management systems are useful aids at all stages of the engineering planning process. Engineer productivity clearly improves, as does the quality of engineering planning activities. Users claim that they can now save up to half of the document management costs that they used to incur in the past. There are various changes (in national and international law, FDA validation requirements, etc.) that have a significant impact on business processes in the chemical industry and the pharmaceutical industry in particular.

...contd.

 

Print this Page

Email this Page

Post your Opinion

Rate this article