Beyond the machine: creating new value streams from services

Posted on 3 May 2019 by The Manufacturer

Digitalisation is redefining the relationship between OEMs and their customers by transforming industrial machines from standalone hardware into software-enabled, intelligent machines operating within an integrated and connected digital ecosystem.

Creating new value streams - Supplier of pneumatic products to the UK rail industry has spent £150,000 on new CNC machine - image courtesy of Depositphotos.
Machines are becoming more than the sum of their parts – image courtesy of Depositphotos.

By capturing, analysing and understanding data, OEMs are creating new value streams and service-based business models in which customers are charged not for a one-off product sale but according to machine use and performance.

This enables OEMs to generate ongoing and consistent revenues at the same time as improving customer satisfaction.

Adopting a service-based (machines-as-a-service) model will revolutionise the way in which OEMs profit from designing, selling and servicing their products.

Machines become more than the sum of their parts because they are sold on the basis that they’ll be customised, adapted and updated to meet changing customer requirements.

As a result, what was previously a single source of revenue becomes an infinitely flexible source of value streams combining ongoing service and support with up-selling opportunities via software updates, expansion capabilities and enhancements.

For OEMs accustomed to dealing with the boom and relative bust of product buying cycles, a service-based business model offers a much-needed source of regular income.

It can also be a powerful inducement for a customer to remain loyal given that the more an OEM knows and understands about the customer and their needs, the quicker the OEM can provide a satisfactory and cost-effective response.

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The reality is that digital technology is going to create the most significant and long term productivity improvements that will allow this transformation to unfold.

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Profiting from reduced risk

Historically, OEMs had no access to the real-time insights they would need to justify including services, such as repairs and routine maintenance, in a fixed-price ‘package’.

Things are different in 2019. It now makes good financial and business sense to create an offering based on a scalable product with an extended working life by adding a package of services and support.

Manufacturing Automation - Industrial Automation - Beverages Factory - Stock - image courtesy of Depositphotos.
Historically, OEMs had no access to the real-time insights they would need to justify including services – image courtesy of Depositphotos.

Using performance and usage data to generate predictive analytics gives OEMs unprecedented insight into ongoing machine usage and performance. This offers all the information one needs to identify, predict and resolve potential problems before there’s any danger of equipment failure.

All of which, when added together, means OEMs feel comfortable taking on more ‘risk’ and have the financial information they need to calculate an appropriate pricing structure.

Some OEMs are already offering warranties that, depending on maintenance history, can be extended beyond the initial period.

Creating value from meeting customer need

As digitalisation becomes more prevalent, OEMs must develop business models and services that deliver value for customers from captured data. For now, the priority for OEMs must be gearing up to compete in a market in which customers look for support in their digital transition.

Customers are looking to OEMs for help in managing a digital transformation process that might involve hundreds, if not thousands, of machines. Wherever they are on their digital journey, many companies will already have a network of connected machines generating huge amounts of data – all of which need to be analysed and factored into operations and planning.

However, integrating new machines and technologies into a changing operational infrastructure without affecting productivity and performance is just the first element in a multi-faceted and long-term challenge for end users.

Creating competitive advantage

OEMs must be prepared to respond to customer demands for more advanced services that use the learning gained from captured data to enable continuous improvement and, increasingly, steal a march on their competitors by doing things better, faster and cheaper.

TrakRap, is a small but highly ambitious packaging solutions OEM based in Skelmersdale, Lancashire. Working in partnership with Siemens, TrakRap created a revolutionary new packaging system that is reducing the consumption of energy and material by food producers in the UK.

Chicken and Beef at the Market - image courtesy of Depositphotos.
The new approach offered an alternative to secondary wrapping that uses fewer materials and requires no heat – image courtesy of Depositphotos.

The new approach offered an alternative to secondary wrapping – that is shrink-wrapping individual products, such as tubs of yoghurt in batches for transit to the supermarket shelf or chiller cabinet – that uses fewer materials so reduces waste and requires no heat.

Siemens has subsequently supported TrakRap in developing new versions of the machine capable of wrapping different products.

Siemens technology has been used to virtually develop, test and commission TrakRap’s adaptations of the machine using a digital twin, a fully functioning 3D virtual model of the machine.

By using Siemens digital twin technology, rather than a physical prototype, has reduced time-to-market by 40% and development costs cut by 30%. However, digitalisation is doing more

than enabling the continuing expansion and success of the TrakRap product offering. Digitalisation is changing everything about TrakRap, transforming the way it provides and monitors machinery and the way in which it supports customers.

“We now think of our machine not so much as a physical entity but as a flexible software platform that can adapt to different types of environment, product and set up, enabling us to predict quality, throughput and timescales,” Martin Leeming, CEO TrakRap

Giving customers what they want

Digitalisation will allow OEMs to become partners with customers; sharing skills, expertise and experience and, in the most successful relationships, collaborating on product and service development.

But an OEM must be at the heart of the customer’s operation, to profit. Getting there is the first challenge for many, particularly those slow to adapt to the new digitalised world.

We’ve heard of OEMs adding plug-ins to their machines that offer some level of connectivity but don’t provide support for analytics. That’s an approach that will work for as long as it takes the customer to know they’ve made the wrong decision.

Budget Annual Investment Allowance Finance Money Cash Growth - image courtesy of Depositphotos.
There’s no point being the cheapest when what you offer doesn’t match the prospect’s operational priorities – image courtesy of Depositphotos.

The same goes for selling on price. There’s no point being the cheapest when what you offer doesn’t match the prospect’s operational and strategic priorities as far as digitalisation is concerned.

Together on the road

For many OEMs, getting ready to profit from Industry 4.0 is still a work in progress. The “to do list” includes building intelligent systems, services and supply chains plus, in many cases, fundamental change to the OEM’s business strategy and operational approach. Then there’s technology and skills.

Some OEMs are making headway in acquiring the people and the skills they need, not just in their own areas of expertise but in related areas such as software, analytics and robotics. But for even the best-equipped OEMS with budget to spare, it will be a long haul.

Siemens offers a holistic approach to digitalisation combined with a deep understanding of the challenges facing industrial OEMs. Siemens works closely with OEMs, helping them plan a step-by-step route to digitalisation which builds on success and, ultimately, embeds digitalisation into their business strategy, manufacturing operations and customer offering.

The key is collaboration.