Equipment as a Service: Extending the Subscription Model to Industrial Equipment
Equipment as a Service (EaaS) is a relatively new concept similar to the widely used Software as a Service (Saas). SaaS allows customers to use cloud-based software on a subscription basis.
THE INDUSTRIAL INTERNET OF THINGS (IIOT) MAKES EAAS POSSIBLE
To make this EaaS model workable, on the equipment side the supplier must be able to monitor the equipment and its usage remotely and know when to perform maintenance or repair before the equipment fails and causes a shutdown. On the business side, the model must provide the supplier with adequate cash flow, the necessary warranty and insurance safeguards, and a way to implement billing based on usage.
Though this approach is not yet widespread, some companies are taking the plunge and offering equipment of various kinds by subscription, charging based on time, usage or other measures.
CARS AS A SERVICE
A Porsche Passport subscription includes maintenance and insurance and allows subscribers to drive any of the available cars for as long or as short a period as they wish. If a car is due for service, the subscription service picks it up and replaces it with a similar car.
Polestar, part of the Volvo Car Group, is rolling out its hybrid and all-electric cars to offer a car-as-a-service subscription model, which includes maintenance and insurance as part of the monthly payment.
HEAT TREATMENT AS A SERVICE
The webinar showed a system that heat treats aluminum parts used in the automotive industry. The supplier provides the heat treating system in a container for deployment where needed. The charge for the service is by the tonnage of aluminum parts heat treated. This company’s experience showed over a period of five years up to four times higher revenue than it would have received from selling the equipment outright. At the same time, customers experienced 16% higher up time.
ROTATING EQUIPMENT AS A SERVICE
A white paper from Relayr describes an approach to providing rotating equipment as a service. Pumps, motors and generators are fitted with sensors to monitor their operation and condition. As with other EaaS subscriptions, remotely monitoring these sensors allows the rotating equipment supplier to maintain the equipment to keep it running smoothly. The customer pays for use of the equipment without having a large initial outlay.
LOADING DOCK EQUIPMENT AS A SERVICE
Webinar co-presenter, Phillip Dailey, senior vice president at DuraServ Corp., described his company’s approach to EaaS. The company provides overhead doors and other equipment for loading docks. Because customers pay as they go for use of the doors or other equipment, they can afford higher quality and/or higher performance equipment than they could if buying it directly. Since the supplier, Dailey’s company, automatically monitors and provides timely, ongoing maintenance of the equipment, customers experience less downtime.
Dailey explained how IIoT and the subscription model make for more uptime. He gave the example of a forklift running into and damaging a door. Because his company monitors vibration and other parameters on the doors or other equipment, it would immediately know there had been an impact and would be able to determine some detail about the damage. The repair technicians could be on their way with replacement parts quickly, minimizing the time the door was out of service.
ADDITIONAL BENEFITS TO CUSTOMERS
The pay-as-you-go subscription model brings stability and predictability to customers’ cash flow. For example, if they are paying for use of the equipment, the outlay varies with production, so in a downturn, the cost is less. Also, EaaS can replace high capital expenditures with subscriptions that can be managed as operating expenses.
AN ATTRACTIVE OPTION FOR SUPPLIERS AND MANUFACTURERS
Quoted in the webinar, Ulf Gutman of SAP, said that the purchase price of an asset represents only about 20% of the lifetime cost of the asset. The rest is operating expense. Thus, product sales represent only about 20% of the potential revenue for a given asset if its use can be offered as a service. “By offering and providing services, manufacturers increase their revenue,” Gutman said.
In addition to increased revenue, the EaaS model can help build strong relationships with customers, Bedi said. The supplier has contact with the end-user customer throughout the life of the equipment, not just at the time of purchase, as supplier staff is on site, performing maintenance when it is needed, year after year.
Setting up such an EaaS business model is not simple and has many aspects that need to be in place, including the IIoT sensing and remote monitoring technology, delivery, financing, billing and insurance. However, some companies are making it work to their advantage and to the advantage of their customers, as well.
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