Felled by the dotcom bust, when its telecoms customers evaporated, subsea engineering company Soil Machine Dynamics has steadily gained market share in the oil and gas and renewables sectors.
Peter Imlah tells Will Stirling how a company founded by three university lecturers hired an extra 100 people this year and is now devising complex flow production systems to cope with the swell in demand for its hi-tech subsea roving machines.
Imagine the scenario: you go to university, you study engineering. You leave university, apply what you’ve learnt and build some machines. You set up a company and sell those machines.
The product develops into new applications, the company grows into a multimillion pound business. For some engineers it’s the dream outcome of their hard study. And it’s precisely the kind of applied engineering, high value-add, export driven company the UK needs more of. This is the interface of science, engineering and good business. Welcome to Soil Machine Dynamics.
Soil Machine Dynamics (SMD) is a very good example of commercialised British ingenuity. A 40-year history with deep experience in telecoms and offshore subsea engineering helps. But it is the company’s flexibility and will to make one-off special projects like trenching machines, more standardised remotely operated vehicles (ROVs) in quick series, and entire cable and pipe handling systems that is the reason behind its success. Newcastle-based SMD has grown year-on-year since 1997 to a turnover of £65m today.
The now part private equity-owned company was founded in 1971 by three engineering lecturers from the Agricultural Engineering department at the University of Newcastle upon Tyne who developed a pipeline protection system that had some similarities with existing agricultural technology. Subsea pipes and cables are prone to snagging by anchors and fishing gear. Their two main inventions were trenchless cable burial and plough steering.
‘Trenchless’ burial of cables involves minimum seabed disturbance that reduced towing forces and replaced the spoil from the cut trench directly back over the buried cable, leaving no open trench. Plough steering, a patented technique, allows the subsea plough to follow a cable laid on the seabed in front of it in a simultaneous lay and bury operation. The operation enables cables to be laid at lower tension.
The techniques and the prototype machines built to execute them proved successful and SMD was born.
During the mid-1980s the company built and sold several machines, mainly to telecoms companies. Many of the employees in the early days of the company were graduates from the same university department. Alan Reece, the founder, MD and majority shareholder, went on to bequeath money to the University of Cambridge Engineering Department and in 2009, the Institute for Manufacturing at Cambridge opened its new building in his name.
One-offs to turnkey systems
SMD continued to build the main electro-hydraulicmechanical equipment used on the seabed, but it realised that full vessel systems were viable for manufacture. As each contract progressed, another piece of the suite of equipment was added. “The control system for the first machine built was outsourced, for the next machine we designed and built the control system ourselves,” says joint managing director Peter Imlah, who has been with SMD since 1986.
“Subsequently we designed and built the handling equipment, the launching system to deploy it from the ship, the towing winches, umbilical winches, then that built up into supplying telephone cable laying equipment which are linear cable engines – tension devices to hold on to the cable as it was laid in the water.” Over time the company developed a turnkey solution to convert the whole aft deck of a ship into a cable laying system.
During this time, SMD expanded its subsea vehicle fleet into cable maintenance ROVs. These are big, post-installation, free swimming and neutrally buoyant machines, which carry out repairs and reburial inspections, propelled in some cases by 10 thrusters.
The power size starts from 180kW, but in the boom telecoms era the biggest one made was 900kW, for Global Marine Services. “We have since made a 2.1MW pipeline trenching machine, but this is exceptional,” says Imlah.
“These are water-jetting devices with multiple thrusters and cameras, quite sophisticated devices.” The basic technology of these is comparable to workclass ROVs used in the oil and gas industry, although they generally deal in lower power, smaller machines.
In 1999 SMD acquired Hydrovision, a small ROV company, in Aberdeen, primarily as a way of getting into the oil and gas market.
During the 1980s and 1990s the expansion of the telecoms industry fuelled SMD’s growth. “For 10 years we were making just one unit a year, then suddenly we made 10 in a year,”says Imlah. “About 95% of our business was in telecoms then and turnover had peaked at about £50m in around 1998.
And we had won a Queen’s Award for technology and export.” By 1999, SMD had developed a broad suite of equipment for a range of subsea maintenance and engineering applications.
Then the dotcom bubble burst and the good times came to an abrupt halt. As SMD’s growth was linked directly to the growth of the telecoms industry, sales dived. The product is hard-wearing and the requirement for new equipment had been driven by the expanding number of installations.
“Although the bulk of the work was in telecoms, we had maintained a presence in oil and gas, mainly in trenching machines, but it was for less predictable requirements.” Imlah adds: “But this one-off work often fuelled technical developments, like mechanical trenchers, chain cutters, wheel cutters, jetting technology – so it was important to keep that.”
The emergence of this oil and gas business coincided with the decline of the telecoms market, and SMD shifted its focus more exclusively into oil and gas ROVs. “We had a very quiet year or two [2001-2002], and reduced our headcount from about 150 down to 40,” says Peter Imlah. “Turnover dropped from £50m to £10m until business started to pick up in oil and gas, supplemented by some renewable energy work.” In 2002, SMD built a lay and bury tractor – or LBT1 – for installing inter-turbine array cables for offshore wind farms. These cables link turbines in an offshore farm in a gridpattern and the machine was designed to carry, pay out and bury the cable. “Many of our customers in the telecoms sector have shifted focus into the renewables sector.”
Brave new world – Workclass ROVs
The company broke into the workclass ROV market for oil and gas, a much more competitive area with several global providers. SMD were the new kids on a very big block. “In the early days we had a very niche product, the telecoms cable plough, and by the time anyone else had figured out it was a lucrative market we had become the preferred supplier,” Imlah says.
“Moving into ROV was a big challenge, there were well-established players. We sold our first workclass ROV to Qinetiq for military range maintenance work. Subsequently we won a contract to build vehicles for Subsea 7, a large oil and gas construction contractor which has the second or third biggest ROV fleet in the oil and gas industry.”
The Subsea 7 contract proved a turning point – by deciding it should focus on operating not manufacturing, Subsea 7 effectively removed itself as a competitor and became a customer. The first contract was to build four Subsea Hercules vehicles, which led to a real coup for SMD. A subsidiary of Subsea 7, drill support division i-Tech signed a frame agreement with SMD to build up to 20 new generation ‘Centurion QX’ ROVs to i-Tech’s specification.
“That was a big step for us in the market – in four years we built 18 of those vehicles,” says Imlah. At the same time SMD developed its own range of drill support and construction ROVs.
A more standardised production system From a standard telecom plough, SMD’s product range has grown into a diverse subsea machine portfolio.
The challenge now is to finetune a production system that reduces build time using cells for a standardised specification, while keeping flexible enough to produce one-off machines to any specification. “We’d like to standardise the range as much as we can, to bring costs down. At the same time we believe we have a competitive advantage by providing all the supporting equipment for the machines – the deployment systems and control units,” says Imlah.
“Some competitors are less able to do this We regularly provide turnkey solutions to match the deployment systems to the available space and layout of the vessel or rig.” Today the company has repositioned itself as a major ROV player in the global oil and gas industry, while still sustaining some telecommunications and renewable energy business. Its oil and gas credentials were endorsed in July when SMD signed a new contract with Subsea 7 for 20 ROVs – with an option of a further 10 – to a new SMD design, to be delivered over the next 18 months.
A few years ago this delivery schedule would have been impossible, but the firm is developing a standard production process which can deliver two machines a month, which it intends to expand to three a month. It has also hired 100 people this year, bringing headcount to 260.
Can SMD hit 20 machines in 18 months? “We’re contractually committed to do it, so we will,” says Imlah. “It is a challenge and has required a large change in approach from bespoke, one-off engineering activiy to a more standardised production system of identical product – but we’ve also had to maintain flexibility.” The frequency and variance in the order book has forced SMD to adjust the way it builds its product.
Bespoke and new products
Trenching machines and tidal
The Special Purpose Vehicles business stream covers trenching machines for pipeline telecoms cables, power cable and renewables’ cable burial.
These are more variable, customised.
SMD designed a tidal turbine for which it received a BERR (now Department for Business, Innovation and Skills) grant which it had not been able to do leverage a prototype. “We recently entered into an agreement with a company called Atlantis Resources Corporation to build their design tidal turbine, a twin-prop system. It was agreed with BIS to transfer the grant to Atlantis in a working partnership to build their device, which has just been installed at the EMEC [test centre] in Orkney. We have the right skills to take that type of equipment and put it in a subsea environment.
“The one-offs are still very important, interesting, and they maintain the design engineering focus in the company, which was founded on sound engineering principles.”
Diversification – Subsea mining
SMD nearly got its fingers badly burnt by the telecoms sector in the late 1990s. It realised that over-dependence on one market sector was too risky and that, as with many engineering companies today, diversification is essential.
A recent new area for SMD is subsea mining, a brand new application of ROV technology. Northwest Mining in Australia has pioneered the technique for mining offshore deposits in Papua New Guinea and SMD has a contract with them to supply three machines, deployed off the same vessel, where each performs different parts of the mining operation.
“It’s based on mining copper but there are a lot of other minerals in deposits which can add upside to the process,” Imlah says. “It’s a huge technical challenge – the first site is in 1,700m of water, and the economics depend on getting a certain amount of output. The deposit is created by smokers, small volcanoes, so its a hostile environment, with high temperatures, and corrosive chemicals .” Water pressure, however, is not an issue for the machines.
Workclass ROVs are routinely rated to a depth of 3,000m.
“We’re building two at the moment rated at 4,000m.” The recent Deepwater Horizon oil spill in the Gulf of Mexico broadcast footage showing most of the main ROV operators, including SMD’s machines. The company has never had such mainstream publicity, while sadly in a such an unfortunate context.
The scale of some of the one-off machines makes onsite testing impractical.. Over the years SMD has made a number of prototype vehicles to prove trenching equipment concepts and developments. The mining machinery has few options for operational tests. “We will do some sub-assembly testing and have conducted analysis and cutting trials on the mineral material that will be encountered at the mine site,” says Imlah. “Our approach is to look at the established land-based technology out there and adapt it for our purposes.” So SMD has gone to the mining industry and looked to make technology work in a different environment.
Imlah says there will be a bigger, worldwide move into subsea mining. The company has talked to Joy Mining, a US mining machinery group with UK operations, and Sandvik.
Caterpillar too has been very helpful. “They’re interested in this application and they may see us as a potential partner.
It’s a fascinating project to be involved with. The advantage could go either way but we’re obviously going to learn a huge amount on this development.” Delivery of the three mining machines for NorthWest Mining is to Singapore in February 2012.
Headcount and growth
John Reece, the son of co-founder Alan Reece, was the majority shareholder but in 2008 sold a 60% stake to Inflexion Private Equity in a management buy-out involving new chief executive Andrew Hodgson. Mr Reece retains 25% and management own the remaining 15%. While its chairman is interested in the engineering activity, Inflexion’s primary interest is financial. New ownership, says Peter Imlah, has galvanised a more professional focus on productivity.
With 100 new staff joining in 2010, is SMD’s story unique for a company of this size and type in the North East? “It’s partly come about because of private ownership, “ he says.
“We’ve always been a successful, profitable company but we only needed to meet the needs of the owner. Clearly under private equity ownership growth and diversification is of huge importance. That has been a catalyst for some very good changes in the company.”
The manufacturing process – sea change needed
Through the 1980s and early 1990s, the company employed mainly graduate engineers who did everything; sales, design, build, test and in some cases operation of the equipment. Fabrication was outsourced to local company, Pearson Engineering.
Some field testing would be done in-house. Peter Imlah says: “We grew beyond the ability to do it that way for all units but we retained the function – it became a very good training ground for graduate engineers to operate the machinery in the field and solve problems.
The management of the company were in favour of this approach – to use bright engineers to do everything, meaning at any point you could make key decisions – you could modify it, adapt and fix it. It could be very flexible but at the same time less controlled than a routine production environment.” Today, to deliver the high throughput demanded, the manufacturing process has needed to become more standardised. Manufacturing staff are now skilled fitters and electricians, and while the engineers come into the factory to consult on assembly, they are based mainly in the design offices.
Making more standard ROVs plays to a more ‘process- flow’ manufacturing operation. When all the products were bespoke, the focus was primarily on the function of the machine – achieving critical trenching criteria. “Moving into the ROV market, the function of the machine is taken as a given. The focus is different – they’re used by people throughout the world often operating multiple systems, so they need to have consistency across the fleet,” Imlah says.
The basic operational movements of ROVs, while not accredited, are established industry norms. These are hard machines to differentiate technically. All this makes for a more standardised, cell based manufacturing operation.
Now SMD’s factory is organised, a little crudely while in transition, into cells. Factory manager Tom Turnbull shows how the factory will eventually look, with designated zones for ROV build and flexible areas for trenching machines and the one-off heavy projects. “This is gearing up for true production line type assembly,” says Turnbull. “We plan to have specific teams doing specific tasks – a chassis build team, a hydraulics team, piping and cable team. Each ROV will be manufactured in exactly the same way.”
Logistical gains Factory and supplier delivery organisation is key to the next phase of growth, and the 20 vehicle order from Subsea 7 is a big driver of this. “It’s the biggest batch of identical machines that we’ve ever built. This is a real opportunity to explore some of our supply chain options, to reorganise the logistics to make that as efficient as possible,” says Imlah.
SMD has started line side delivery on its electrical systems. It is now using one supplier for 90% of its control systems’ electrical components. “Rather than placing purchase orders for all components individually, we buy a number of kits from one supplier and they’re delivered directly to our assembly site,” Imlah says.
“These are not handled in our stores, we’re not booking them in and out, these are delivered in four different kits through the build process. The system has been developed both internally and with Routeco, the supplier. They looked at our bills of materials and told us the proportion of it they could deliver. It’s mainly an advantage in logistics, but it’s significant.”
There is a modest price advantage because Routeco will buy in slightly bigger bulk than SMD. “We’ve tried to deploy this new system to parts where its most appropriate. If it works well, we may apply it to our hydraulics components. We’ve had to restructure our bills of materials to facilitate that kind of production, which has required an education process to focus on attention to detail.”
In the past, the engineers and technicians building the equipment and would just resolve assembly problems at point of discovery, placing ad hoc parts orders. “We could not apply this methodology to multiple unit assembly and we now use a range of production technicians, electricians and wiring specialists – so we must try and present the information accurately so they can build efficiently, without having to refer back to engineering all the time.”
The old way – making several one-offs – meant that correcting mistakes was done per unit, because they were probably never going to have to build that same unit again.
Volume orders for serial build means that this approach is redundant – the process now requires the manufacture of 20 or 30 systems identical across all machines.
“We’ve had to develop a system of capturing build standard faults and rectifying them, and if necessary making sure this is delivered across fleets of already delivered equipment,” says Imlah.
“That type of diligence and version control is essential. Before it wasn’t so critical for the type of equipment we were building.”
Procurement used to be done on a project by project basis, controlled by individual project managers. SMD saw that it didn’t make sense to purchase for each project individually. And scheduling has also improved. Tom Turnbull adds: “We now have a formal schedule rather than ordering all components in one go and delivering to the shop floor in one hit, which has the potential to damage or lose components. Forward planning, we have longer lead times but we also kit certain assemblies, where we pre-order that for Week 3 of Build A we need kit X for a specific bay and we’re at that point now.”
Availability of key parts is key to efficient production, so cross-project, joined up procurement was essential to the new production system. “It’s worked well on the control cabins, where kits come in from a single third party supplier who provides a whole kit. We used to stock them all on our shelves, then restock them all again for production. Now they arrive in three to four kits direct to the production area.” Better scheduling is essential for the new way, not least because the lead time on some parts are several weeks. Typically the delivery time on an umbilical cable, which connects the ROV to the ship, is 16-18 weeks.
“Our delivery schedule on the first of the new Subsea 7 units is 19 weeks from contract; that puts scheduling in perspective.
You can’t do anything without the umbilical.” These parts come from Nexans, a Norwegian company, but the vast majority of components are sourced locally, says Turnbull. “We try to keep the supply chain very local, partly to support local industry, and also to control supply chain risk and keep delivery costs down.”
Engineering principles, not software
Well established designs form the basis of SMD’s intellectual property. The company has no simulation software. Instead, Mr Imlah and the team prefer to rely on fundamental engineering principles. “Although we have Inventor and Ansys CAD packages we want to engineer something fundamentally correctly to begin with,” he says.
“I don’t believe that the packages can do that for you; you have to put the right information in. If you don’t design a structure correctly and then use a analysis package to make it strong enough, rather than taking good design and optimising it you’re taking a poor design and making it heavier. If the fundamental structure of what you’re designing is not correct, the analysis package will tell you where to strengthen it, but it will really just cover up the flaw.”
North East subsea cluster
The North East region has developed a specialisation for subsea engineering and offshore oil and gas companies. Wellstream, Duco, oil and gas construction group CTC and SMD are all local and all occupy different parts of the subsea engineering chain. SMD has one direct competitor in the region, Engineering Business, a business formed by two ex-SMD founder directors. “They were taken over by IHC, a Dutch shipping and engineering company, and their focus has changed though they do still compete with us in some market sectors ” says Imlah.
Another potential business link is taking shape a few miles up the Tyne. The North East’s links with offshore wind are well known, with the NaREC national renewable test centre at Blyth and the proximity to the Greater Gabbard wind farm. US firm ClipperWind has built a factory at the old Neptune yard and will be installing plant soon. Wind turbines need cables to connect them. The SMD team may have to find room for more orders soon, this time from customers in their own back yard.