Subscription Knowledge Series #9 – How Industrial Machinery Manufactures Can Unlock Value From Data

Industrial machinery manufacturers are increasingly evaluating how they can improve the customer value of their products, which goes beyond the physical goods themselves. According to a recent IDC survey, digitally enhancing products, services, and customer experience is a top goal for 58% of manufacturers worldwide. But it’s not just about digitally enhancing physical products to increase customer value and gain a competitive edge; it’s also about increasing profit. So, exploring ways to generate additional revenue streams as well as recurring revenues has become a board-level topic for industrial machinery manufacturers. In both cases, data plays a key role.

Emerging data monetization models in manufacturing

We currently see the following approaches to monetizing data in the industrial machinery market:

• Cloud-based apps (SaaS): In addition to physical and connected production assets or equipment, industrial machinery OEMs sell data-driven services to customers (e.g., plant operators). These data-driven services, such as remote condition monitoring, are typically provided as cloud-based apps. Customers pay for the usage of those apps on-demand or on a subscription basis (e.g., Software-as-a-Service).

• Servitization models: Industrial machinery OEMs provide physical assets or equipment as-a-service and customers pay for the use of industrial machinery “by outcome.” Currently, the most common examples are in the market for turbines, compressors, and printers, but as-a-service models also work in other industries, such as the industrial robotics market (e.g., KUKA) or sheet metal cutting market (e.g., Trumpf). Whether this business model works for both the industrial machinery OEM and its customers depends partly on the need for customization of the production equipment. But, it depends to a greater extent on the OEM’s ability to take on the financial investment to keep machinery on its books and manage SLAs and performance guarantees.

• Digital sales channels: To generate additional revenue streams, industrial machinery OEMs can also use a cloud-based platform as a digital sales channel. This applies not only to their own products, such as spare parts, but also to third-party providers with a channel to sell other components to joint customers. For example, INDEX Group, a leading manufacturer of CNC turning machines, operates an online store (iXshop) that markets its own parts and components, as well as those of third-party providers. Opening these digital sales channels to third parties generates revenue streams from commissions (the fees that third-party providers pay the OEM). In addition, offering a convenient “one-stop-shop” for all spare parts, irrespective of provider, creates higher customer value and therefore better customer experience.

Why tech architecture is key

Digital platform solutions play a central role in monetizing data and need to meet the following requirements:

• Solutions that enable usage-based or outcome-based business models such as equipment-as-a-service require the highest grade of reliability when transmitting data (e.g., usage or outcome data, performance/operating data from machines or production assets.)
• Solutions need to ensure secure data transmission and data encryption to accommodate plant operators’ data security requirements.
• They need to be scalable to keep up with increasingly connected production assets and rising use of data-driven services on top. The higher the number of transactions the higher the need for scalable solutions.
• Solutions need to provide appropriate APIs to ensure the availability of applications, including from partners and third-party suppliers. The higher the number of available and relevant applications, the higher the customer value and experience (assuming that applications are delivering a high customer value, of course).
• Solutions need to support the billing and revenue management of various monetization and business models (e.g., subscription-based, pay-per-usage, pay-per-outcome), in particular when solutions include products or services from third parties. The latter require procedures to settle and commission these partners accordingly.

How to succeed and unlock value

Accommodating the platform and solution requirements of new data-driven services and business models will be key. But, it will be even more important to integrate new order-to-cash processes into existing processes for the traditional business and monetizing models, which will likely be the largest share of the business for quite a while.

Finally, however, besides building up a digital platform that is reliable, scalable, and secure and has various order-to-cash processes integrated, it is key to understand the needs of the customer. They will only be willing to pay for new data-driven services or business models if they can see value add in, and only this will generate additional revenue streams or give the industrial machinery OEM a competitive edge.

Want to discover new trends, challenges, customer stories and order-to-cash key functionalities to adopt for yoru business model transformation? Have a look at this webinar series

If you want to learn more about SAP Billing and Revenue Innovation Management, visit us at https://www.sap.com/brim.

Want to discover new trends, challenges, customer stories and order-to-cash key functionalities to adopt for your business model transformation?

• This blog, co-written with IDC to be based on their market insights, is part of a blogs series;
• We do have also a set of webinars

If you want to learn more about SAP Billing and Revenue Innovation Management, visit us at https://www.sap.com/brim.