Asset-centric Service – Data-driven Models

In this third blog of our series on industry cloud solutions for industrial manufacturers we are going to discuss how industrial manufacturers gain competitive advantage through new service- and outcome-based offerings.

I am Ulf Guttmann and responsible for after market services in the global industrial manufacturing team.

Move to Servitization

As was discussed in the previous blog – industrial equipment manufacturers are putting more focus on their service business.  They are bundling products, services, subscriptions and offering new types of service contracts to their customers.  And they are taking more responsibility for the Overall Equipment Effectiveness (OEE = availability x performance x quality) of their customers’ equipment. Also, they are starting to provide outcome-based services, where a business outcome is promised, and the customer pays based upon the achievement of this outcome. This business outcome could be the realized OEE or one of its elements, but also other outcomes like an increase in profitability or energy savings.

To effectively deliver on these service and outcome contracts, industrial manufacturers need to provide the technical services that keep the customers’ machines up and running. And as customers no longer pay for a single service like maintenance, it is crucial that these services are provided with the best possible (cost) efficiency.

Delivering Outcomes

One of our customers has invented a new, outcome-based offering, where the end customer doesn’t need to buy the machines. The manufacturer provides the machines as part of an outcome-based contract, and their customers just pay for the usage of the machines, measured by the output. As part of the outcome contract, the industrial equipment manufacturer guarantees a high availability and performance of these machines. This is a very convenient model for the end customer who has passed the responsibility for the machine’s performance to the manufacturer.

To achieve theses contractual obligations, the industrial equipment manufacturer has connected their customers’ machines via the Internet of Things (IoT). Employees from the manufacturer’s service department remotely monitor the machine conditions and perform predictive analytics to identify any potential issues. Based upon these data-driven insights, the service department plan and schedule the right maintenance activities, as needed, to keep the machines up and running.

Data As A Product

The huge amount of data collected from the smart equipment, intelligent business processes, and other sensors and sources can provide industrial equipment manufacturers competitive advantage.  Analyzing the data is important for industrial manufacturers to be able to accurately set price points to ensure solutions profitability, and to manage risk when companies are paid based on performance or outcomes. The data can also be used to provide additional services, such as equipment optimization and customer’s business process optimization, benchmarking, monitoring and predictive maintenance. Also, industrial manufacturers develop and offer apps for their customers. These apps leverage this data and help the customers to better operate the equipment.

Technologies as Enablers

Technologies like IoT, Cloud, 5G networks, and Artificial Intelligence have become mature and affordable and open new opportunities. Especially, when these new technologies are integrated with the business applications that manufacturers use to run their enterprise processes. The combination of new technologies and innovative business applications is the secret sauce for success in the business – enabling optimized business processes, new business models and offerings, and leveraging data from sources that haven’t been available before.

Outcome Business and the Circular Economy

As manufacturers assume responsibility for managing equipment as part of outcome base models –  they have added incentive to focus on a more circular approach (embodied in the emerging Circular Economy), whereby materials, products or waste are recycled or repurposed, then returned to the value chain for reuse. Opportunities for manufacturers to find markets for those products and materials are beginning to expand along with the Circular Economy.  This is something that consumers are increasingly paying attention to.

How does SAP help?

So, how does SAP help industrial manufacturers on their journey to new, service- and outcome-based business models?

The solutions from the SAP Intelligent Suite are the basis to run end-to-end business processes in an efficient way. The SAP Business Network solutions help to collaborate and do business with external partners, like customers, suppliers, or service partners.

The new SAP Industry Cloud portfolio includes industry-specific solutions from SAP and SAP partners. These solutions are intended to help companies innovating their business processes and their business models. If you look at the SAP Industry Cloud portfolio for the Industrial Machinery & Components industry, you will find – amongst others – solutions that pave the way for the new, service- and outcome-based business models.

In the following blogs we will explain how this works all together.