Original equipment manufacturers (OEMs) are no strangers to boom or bust sales cycles. Traditionally, they’re either ramping up production to meet demand or seeking ways to slash costs when sales are down.
But Industry 4.0, or the Industrial Internet of Things (IIoT), is enabling new sales models that generate more consistent revenue streams for OEMs. There are considerable benefits for forward-thinking manufacturers that transition from selling a product to offering, “machines as a service.” Rather than relying on a one-time sale, they’re charging customers based on machine use and service.
Machines as a service is revolutionizing the way OEMs design, sell and service products. It’s a win-win for OEMs and their customers, as both partners benefit from increased predictability.
Selling uptime as a differentiator
It’s a business model that’s becoming more prominent across a wide range of industrial products, including Rolls-Royce’s aircraft and marine engines. The U.K. company is an example of a manufacturer that’s leveraged IoT to turn a high-value asset into a continuous source of revenue.
Rolls-Royce offers “power-by-the-hour” service agreements that allow customers to pay a fixed rate per hour of operation rather than purchasing the engine outright. The company assumes responsibility for ongoing maintenance and provides predictive maintenance services based on insights from their IoT-enabled engines that wirelessly send machine data to four Rolls-Royce centers for monitoring.
Now compare that service model to the more common fail-and-fix approaches in which OEMs sell the equipment outright and only provide service when a machine breaks down. OEMs that adopt machines as a service differentiate themselves from competitors by guaranteeing 100% uptime and only charging for actual usage.
The benefits to performing an ongoing service are staggering. OEMs form tighter relationships with their buyers, customer satisfaction and loyalty increases, and the OEM has an ongoing stream of income, which is especially critical during down business cycles.
How Industry 4.0 enables new service models
Industry 4.0 software provides analytical tools that help OEMs understand the mechanical factors and environmental conditions that lead to machine failures. Whether it’s vibration, temperature, pressure or other performance indicators, OEMs can use this software to analyze the machine data gathered from their IIoT-enabled machines to perform predictive maintenance.
Traditional maintenance programs are typically based on machine hours or predetermined service intervals. It’s a process that’s often wasteful because the maintenance team has little visibility as to what parts of the machine actually need servicing, if any at all, resulting in wasted man-hours. Additionally, it requires companies to have more inventory for equipment repairs on hand than necessary.
Predictive analytics helps manufacturers plan for repairs, so they have parts on hand only when and where they need it. In turn, they minimize the cost of carrying excess equipment inventory and can accurately schedule repairs around customer production schedules to avoid any disruptions.
The future of IoT-enabled service models
For OEMs, machines as a service will have additional benefits beyond service agreements. By leveraging IoT technology, they will be able to analyze how customers are using their machines in the field to improve product designs.
Data from the equipment will feed directly to the product development process so OEMs can improve designs of existing products or create entirely new machines based on the information. In some cases, they may be able to use the information to customize products based on usage patterns or other factors observed in the field.
To get there, OEMs need to take more proactive steps. Many have started incorporating some form of Industry 4.0 into their marketing and sales pitches, but many companies have not integrated the technology into their products. Many early-stage IoT initiatives are not bringing truly smart, connected machines to the factory floor. In many cases, OEMs are simply installing plug-ins that offer some level of connectivity but don’t provide the analytics needed to make machines as a service a reality.
As more OEMs integrate smart technologies into their machines, they’ll have the information they need to accurately predict equipment failures. The new, service-based business models fostered by IIoT will drive ongoing revenue, enhanced customer service and future-ready products.
It’s a winning formula that secures forward-thinking OEMs the competitive advantage through differentiated products based on customer usage and improved services.
Research services provided by Jon Katz. This article was written by Willem Sundblad from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.
