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Over the last decade, the subscription economy has become synonymous with how we consume everything from music to beauty products and videos. Could the same type of customer-driven model work for Original Equipment Manufacturers (OEMs) to rent or provide access to their machinery and industrial equipment to users for a recurring fee? The rise of devices connected by the Internet of Things (IoT) and sensors might make this the right time for Equipment-as-a-Service (EaaS) to take off but let’s look at the obstacles that first need to be overcome.
Subscription-based e-commerce has been the biggest gainer in recent years, with firms like Birchbox providing monthly beauty samples and Spotify providing access to millions of songs at one go. The winners of this phenomenon have been Netflix which forced giants like Blockbuster to close shop and led Disney to change its operating model.
The subscription model demand has been resonating with manufacturers around the world who would like to shed their capital expenditure (Capex) heavy model of acquiring assets instead of directly purchasing outcomes. OEMs typically ramp up production to meet demand or look to slash costs when sales are down.
With the pandemic onslaught, OEMs specifically catering to the travel and hospitality industry as well as certain sectors in manufacturing saw a steady decline in production. This makes the case for creating new sales models that generate more consistent revenue streams for OEMs – and EaaS could provide a needed solution.
EaaS represents a business model that aims to reduce the Capex for enterprise customers while the OEM retains ownership of the asset and charges the customer subscription rates. This helps the OEM create a recurring revenue stream while ensuring the asset ownership remains in-house. EaaS was pioneered by Rolls Royce when it trademarked “power by the hour” as a notion to sell power jets based on performance. This model further allows airlines to pay for their engines based on their usage, such as the number of flight hours.
IT has witnessed this model with firms like Dell, Hewlett Packard Enterprise, and Cisco selling IT equipment through an “as a service” model. Hyperscalers like Amazon Web Service, Azure, and Google Cloud Platform have also been selling their infrastructure services on a pay-as-you-go model where these data center operators continue to own the physical servers. However, IoT-enabled solutions in manufacturing would not be as easy of a transition as seen in IT.
With the onset of the Internet of Things (IoT) across the manufacturing landscape, it has become easier for any manufacturer to measure equipment usage or performance, which can then be used to compensate in the EaaS model. While giants like Caterpillar have initiated EaaS, more time is needed for industry-wide adoption.
IoT devices have rapidly grown across the ecosystem, finding applications in the industrial space as well as in our homes in the form of voice-enabled Alexa. IoT in the industrial area generates large volumes of data collected from smart meters, delivery trucks, and equipment. This has given rise to IoT analytics. IoT analytics can help organizations by monitoring and alerting them in case of anomalies, identifying problems, and answering pertinent questions to make better forecasts and future decisions.
IoT also is being used across devices for flexible pricing and billing. As the IoT sensor captures pertinent data, it can help create pricing models based on consumption patterns.
With the success this model has seen on the IT side, EaaS looks attractive and has the potential to be a sure-shot success, or does it? EaaS is plagued with a few fundamental flaws that inhibit its spread across the manufacturing industry, with only a few large players opting for it.
OEMs need to figure out these two key issues before jumping on the EaaS bandwagon:
Of course, no enterprise can shift overnight from a product selling model to services. Some companies have found success in making this change. For example, German-based manufacturer Heller offers HELLER4USE, which provides customers with pay-per-use of their machinery and insurance during equipment downtime. Companies specifically focused on coffee vending machines and 3D printing have moved significantly towards the services space.
As OEMs move into this space, it would open a completely different revenue stream in the form of IoT integration, data analytics, and system design. These high-value add-on services would ensure OEMs maintain a constant stream of recurring revenue rather than a one-shot sale of equipment. OEMs initiating the EaaS model would gain a first-mover advantage in making close relationships with buyers as they get entrenched into the data ecosystem generated from the industrial unit, making them much more valuable partners. We predict these first movers will become key players in grabbing the full-service models that will float in the future.
If you have any questions about how an enterprise can go ahead with EaaS, or if you would like to share how your organization has used EaaS or any other innovative business model, please write to me at [email protected]
Imagine a utopia where minimum human intervention is needed to run an entire shop floor. In this world, manufacturers have total control and visibility of all products, machines predict equipment failures and correct them, shelves count inventory, and customers check themselves out. While such a supply chain model seems improbable and far into the future, the likes of Amazon, Walmart, and Toyota, are already on their way to achieving this vision. At the center of their supply chain initiatives making this possible is the Internet of Things (IoT.)
The supply chain is considered the backbone of a successful enterprise. However, firms find it increasingly challenging to establish a robust supply chain model. The disruptions caused by COVID-19 have further made matters worse as ‘disconnected enterprises’ struggle to gain complete supply chain visibility. The pandemic has established that supply chain disruptions and uncertainties will become more frequent going forward.
The current supply chain landscape faces numerous challenges that need to be addressed. These issues are illustrated below:
As enterprises strive to develop a resilient supply chain, IoT will occupy the center stage. An interconnected supply chain will bring together suppliers/vendors, logistic providers, manufacturers, wholesalers and retailers, and customers dispersed by geography. The technology ensures improved efficiency, better risk management, end-to-end visibility, and enhanced stakeholder experience.
A seamlessly connected supply chain provides advantages at every stage of the value chain for each of the stakeholders. The exhibit below showcases a connected supply chain ecosystem:
Let’s look at how some companies are capturing the benefits IoT:
Using real-time data (captured from GPS coordinates) tracking the movement of raw materials/finished goods, IoT technology aids firms in determining where and when products get delayed. This helps managers ensure route optimization and better plan the delivery schedule. IoT, in combination with blockchain, helps secure the products against fraud. For example, Novo Surgical leverages IoT for optimally tracking and tracing its ‘smart surgical instruments.’ This has reduced errors, decreased surgical instrument loss, increased visibility and efficiency, and improved forecasting of demand for the firm.
Sensors on machines constantly collect information around the functioning of the machine, enabling managers to monitor them in real time. By analyzing parameters such as machine temperature, vibration, etc., manufacturers can better predict machine downtime and take necessary actions to mitigate this. For instance, Toyota partnered with Hitachi to leverage the vendor’s IoT platform and use the data collected to reduce unexpected machine failures and improve the reliability and efficiency of equipment.
IoT sensors in the warehouse assist in tracking the movement of individual items, providing an efficient way to monitor inventory levels and prevent pilferage. Smart shelves contain weight sensors that monitor the product weight to determine when products are out of stock. Walmart has been leveraging smart shelves in its retail stores to manage its products more efficiently and improve the shopping experience.
IoT technology uses sensors that can monitor and adjust warehouse parameters such as humidity, temperature, pressure, and avoiding spoiling of items. Leading e-commerce players like Amazon and Alibaba have been pioneers in leveraging IoT to optimize warehouse management.
As enterprises aim to future-proof their supply chain, they will need a structured path following these five steps below:
Since IoT is an interplay of multiple devices and machines, a successful IoT implementation requires firms to invest in sensors, cloud/edge infrastructure, IoT connectivity networks, data management and analytics solutions, and application development and management. Enterprises can accelerate their IoT supply chain journeys by partnering with solution providers with strong expertise in IoT products and services capabilities in the supply chain arena.
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