Manufacturers are shifting their focus from selling physical equipment to value-added services based on their equipment’s core capabilities. This trend has given rise to a new type of business model called Equipment-as-a-Service (EaaS). There are a lot of advantages for original equipment manufacturers (OEMs) who offer a service-based model. An important competitive advantage of offering equipment in service-based models is that it helps to tap into a new market of customers who shift from CapEx (capital expenditure) to OpEx (operating expenditure). By addressing the needs of consumers manufacturers can increase their market share.
The changing world of OEMs
For OEMs, blending services into manufacturing strategy will be a challenge. It requires a major transformational change and change can be uncomfortable. It also changes the interaction with the customer from single transactions to ongoing relationships. The EaaS model will fundamentally change the way industrial equipment manufacturers do business. It cannot be implemented quickly and requires sustained effort over a period. OEMs must secure resources and infrastructure today so they will be set up for future success. They must also invest in technology that will allow them to scale as their needs mature over time. Through EaaS, a manufacturer can maximize the value proposition of its offerings and provide a service that offers unique benefits. It can become an opportunity to partner with customers around shared goals and outcomes.
Requirements for EaaS
Some key practices and functions must be tackled for an OEM to enter the EaaS market.
Different types of service can be considered.
- Base services – goods and spare parts
- Intermediates services – product repairs, maintenance, overhauls, helpdesks, training, condition monitoring
- Advanced services – customer support agreements, outcome contracts
Offering warranties and spare parts is typically the entry-level for an EaaS offering. Although these steps may seem simple, without software to enable them, success in this area may be threatened. It also requires a change in thinking where assets and parts are manufactured with aftermarket service in mind.
The next step is annual maintenance or service contracts, which generate more stable, predictable revenue. This provides customers with the security that their asset purchase is a safe investment. Manufacturers can offer a reactive service, performing repair work either in the field or in a factory, but customers usually prefer a technician to come and work on something before its breaks.
The next step is to structure contracts around what a customer wants as an outcome or SLA. This allows manufacturers to price in the value they can create rather than billing for service calls performed. Manufacturers need to learn how to structure contracts according to customer-specific requirements and to adapt them to meet new business needs or competitive realities.
An OEM cannot make the EaaS change without supporting software to manage service SLAs and inventories, monitor the supply chain for parts, and give customers a portal to order products and services. The use of an ERP platform can help kick start the EaaS journey, even if the focus initially is just on warranties and selling parts. It will lay the foundation for additional services and generate data that enables manufacturers to understand their customers’ needs.
An ERP system ensures contracts are profitable by pricing contracts using historical or projected costs. Contract management functionality allows manufacturers to deliver multiple contract types, from base to advanced services.
Technologies like IoT, cloud, big data and AI, which did not exist ten years ago, now enable digital service solutions that EaaS requires. IoT sensors collect large volumes of data on the status of components, potential maintenance issues, and other relevant performance indicators. They can provide the OEM with the information to detect potential issues and to dispatch the necessary items and personnel when required. This needs to be done at a minimum when an equipment problem occurs as customers don’t like waiting for a scheduled repair to occur.
EaaS requires a manufacturing-oriented ERP solution that can address the full product lifecycle, including aftermarket operations. The ERP system will also manage the inflow of data from IoT sensors and provide the analytical and predictive capabilities required to offer services.
None of the elements that make EaaS a success will be found if manual efforts are relied upon. OEMs need to invest in the right technologies that will help them take service to a new level.
Products need to be designed with the new technologies in mind to improve reliability and maximize uptime. In the past, OEMs may have profited from selling expensive spare parts, but now it is important that the equipment works and deliver its output. Products should therefore be designed with ‘profit by hour’ in mind, rather than unit cost.
The success of an EaaS solution will partly depend on the customer. This is because the customer must be an active participant rather than a passive recipient. The OEMs role is to be a facilitator of a new solution.
EaaS is heavily focused on getting information on customer activities and behaviour. The best way to deliver outcomes that customers want is to understand a customer from the data collected.
There also needs to be a focus on the customer’s top priorities, such as maximizing OEE through appropriate maintenance, and ensuring the availability of parts and service technicians when needed.
OEMs that want to improve their performance in services need to define their service strategy and establish a clear vision of how services can create value for themselves and their customers.