Changing the Game in Industrial Goods Through Digital Services

Changing the Game in Industrial Goods Through Digital Services

          
Title image

Changing the Game in Industrial Goods Through Digital Services

  • Add To Interests
  • SAVE CONTENT
  • PRINT
  • PDF

  • Ops-Bundle-2016-Promo
    Related Articles
    New Business Models

    Digitization is eroding the fundamental distinction between products and services. Building on a deep understanding of a machine’s life cycle and customers’ typical usage patterns, some OEMs are offering their equipment not for sale but as an ongoing service. (See Exhibit 4.)

    exhibit

    A large tire manufacturer offers tires as a service for which customers pay on a per kilometer basis. The customers agree to put telematics and sensors in a large part of their fleets to enable remote management. A customer’s immediate costs are higher than if it purchased the tires outright, but the total cost of ownership is lower. That’s partly because the customer is no longer responsible for monitoring and replacing its tires. But the management and overall costs are also lower because the manufacturer guarantees the customer’s fuel savings. Having tracked tire-deployment data in the past, the OEM has learned the kinds of savings that are likely from optimizing it. Shifting the customer from a product-centric model to a service-centric one gives the OEM full control over how those tires will be deployed. (See Exhibit 5.) The more customers the manufacturer signs up, the richer its accumulated data set becomes, giving it a leg up on any rivals that appear later.

    exhibit

    Jet engine manufacturers have been offering a similar arrangement for years with their power-by-the-hour packages. In the pulp and paper industry, one service provider has gone so far as to take full control of a customer’s manufacturing assets, assuming responsibility for the operation and maintenance costs through extensive service-level agreements for plant management.

    Besides creating new business models around equipment and operations, service providers can also offer to host platforms. A leading equipment manufacturer has created a cloud service that enables customers to connect its equipment and third-party equipment. The platform sends, receives, stores, and processes information in a secure and reliable way, with a pay-per-use pricing model. Similarly, in the transportation industry, carriers and logistics companies can upload their availability to a Web-based marketplace. By filling empty spaces with partial shipments from other customers, they can reduce both costs and emissions.

    We expect that such business models will soon become the “new normal” in many sectors of industrial goods. Failing to deliver such services may well mean losing out not only on service contracts but also on new-equipment sales.