20 July 2004 - The recent downturn in the combined heat and power (CHP) market, followed by limited sales opportunities, has intensified competition between equipment manufacturers, says a recent study from Frost & Sullivan. Providers of gas turbine and engine CHP solutions are being compelled to revamp their product and service offerings to gain consumer preference.
The study, covering in-depth interviews with around 120 end-users of gas turbine and engine systems from diverse industries such as food and beverage, pulp and paper, automotive and chemicals across the European Union, enables suppliers to identify areas for improvement and formulate clear-cut strategies based on the needs of their customers.
"Superior levels of availability, reliability, efficiency, output and fuel flexibility are not only critical to retain and create customers, but also stand out in a market where differentiation in terms of product features is limited," states Frost & Sullivan (http://www.power.frost.com) Industry Analyst Colin O'Hanlon.
With most end-users partaking in Frost & Sullivan's survey emphasising minimum accepted reliability levels of 95 per cent, suppliers can no longer afford to be complacent. In fact, the failure of gas turbine OEMs in meeting stipulated performance targets led end-users to favour turbine packagers that consistently meet, and in some cases, exceed the stated terms in contractual agreements.
"Gas turbine packagers have a greater understanding of the end-user's requirements and are able to exceed expectations by giving a higher degree of satisfaction not only in terms of better product performance, but also the quality of servicing," reiterates Mr O'Hanlon.
In addition, suppliers must be ready to ease end-users' anxiety concerning forthcoming legislations such as the emissions trading scheme. This legislation specifies the permitted levels of CO2 emissions creating uncertainty over the impact it is likely to have on end-users' operating costs.
Most end-users would rather turn to alternative power and energy solutions than be penalised for high CO2 emissions, the Frost & Sullivan study notes. Conversely, some appeared likely to upgrade their system to an improved version that produces less CO2, thereby presenting greater opportunity for sales to suppliers of on-site power equipment.
Suppliers would also need to incorporate a sophisticated service portfolio to complement their product offerings. In fact, following product performance, which obtained a rating of 4.61 out of 5, service offerings with 4.21, emerged as the most important criterion. Quality of work, faster delivery of spare parts, speedy response times, technical know-how and customer training could go a long way in assuring a supplier's long-term survival.
Since customer service is all about the 'people factor', end-users were found to appreciate the suppliers' ability to listen to clients, discuss and respond to their needs. Moreover, a pronounced differentiation in service offerings was likely to be critical in winning end-users' confidence.
For instance, though delivery time for spare parts can stretch up to five days,
end-users in the Frost & Sullivan study preferred vendors that supplied them within two days. In terms of responding to faults, customers expected a response by e-mail or telephone within two hours and a fully working system within two days of the fault being reported.
Though qualified engineers are necessary for efficient servicing, specific knowledge of the end-user's system and better organisational skills were seen as being of crucial importance to suppliers. This could significantly impact the quality of work and eliminate common problems such as inappropriate equipment and unsystematic records.
The increasing trend of outsourcing service and competition from third-party service providers has been threatening the supplier's service income. On the other hand, outsourcing is also providing suppliers with an opportunity to increase lifetime revenues from existing customers and raise customer loyalty by offering more complex service contracts.
End-users were found to be outsourcing periodic maintenance while retaining plant operations in-house in order to streamline operations, reduce lifecycle costs and generate cost savings. Since financial considerations are crucial in a mature market, it was viewed as incumbent on suppliers to offer a complete range of services at affordable prices and prevent end-users from turning to a third party to meet their requirements.
"End-users are not partial to any one criterion in their decision-making process and are constantly on the lookout for suppliers that provide them with value for money by striking a balance between superior product performance, service offerings and price," concludes Mr O'Hanlon.