This article is an excerpt from the reportThe Value of Foresight: Generating Value Through Integrated Predictive Maintenance.
A copy of the full report can bedownloaded here.
In Part Three of this series we look at how asset-owning organizations are using PdM to drive value in extractive industries (e.g. mining systems, oil platforms), manufacturing plants, warehouses, transportation fleets, and facilities. Here in the fourth and final installment of this series, we examine how PdM can be used to transform manufacturer’s business models and service offerings.
Driving Business Model Evolution for Product Manufacturers
Since the latter part of the twentieth century, we have been witnessing an evolution towards an ‘outcome economy’ in which people and companies don’t buy things, but rather they buy outcomes. They buy the end results they are looking for. When a manufacturer sells a product-as-a-service, it is a sizeable step towards an outcome-based business model. Additional value-add services are wrapped around many of these programs.
There are many intermediate offerings or business models between “Make Only” and pure “Selling Outcomes” which most manufacturers keep providing, even as they start to offer more sophisticated services and product-as-a-service. This evolution represents ever-increasing servitization within a manufacturer’s portfolio of offerings. This change shifts the cost of maintenance and repairs from the customer to the manufacturer, incentivizing manufacturers to make more reliable products that cost less to service. It can also deepen the relationship because manufacturers are forced to better understand exactly what their customer is trying to achieve. Additionally, manufacturers are able to offer higher value services, such as taking on related outsourced processes from the customer, which demand deeper organizational and technical integration into B2B customers’ systems, processes, and functions.
Figure 1 – Evolution to an Outcome Business Model
The Role of PdM in Manufacturers’ Business Model Evolution
PdM plays a critical role in this evolution. It helps reduce the cost of providing service and enables higher SLA (service level agreement) guarantees to be offered and met. PdM enables higher uptime, which many customers are willing to pay a premium for. PdM often entails designing in sensors and connectivity to the products being sold and/or better leveraging existing sensors on those products.
As such, PdM-enabled products are generating a lot of high value data that can be used to create insights and high-value services for customers. For example, truck manufacturers can offer services to help their fleet-owning customers reduce fuel consumption and increase safety. The same infrastructure used for PdM enables product-as-a-service business models and differentiated services, thereby generating more value for the customers, more differentiated offerings, higher margins, and more stable and predictable revenue streams.1
Furthermore, this new data provides insights into how customers are using the products. This helps marketing professionals and product managers understand the relative value of the various product features and functionality, as well as uncover uses of the product that may not have been previously known. Product managers can remove costly features that no one uses while adding functionality or ease-of-use to help people better do what they are actually doing (or trying to do) with the product. The data lets engineers better understand the most frequent failure modes, enabling them to design for actual usage, conditions, and wear, rather than the theorized ones. They can thereby ‘right size’ the durability and reliability of components. All of this is enabled, at little extra cost, once an investment has been made in the PdM infrastructure.
The Predictive Maintenance Advantage
Predictive Maintenance can help asset-owning organizations reduce maintenance and service costs while simultaneously improving uptime. It enables product manufacturers to move up the path of increased servitization to realize deeper customer loyalty and satisfaction, higher margins, and more reliable revenue streams.
1 Subscription revenue streams are generally more stable than the one-time revenue from sale of products. Product-as-a-Service and other servitization offerings can also help smooth out seasonal revenue peaks and valleys. — Return to article text above
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