From Capex to Opex - new business models for the machinery industry
While customer demand for increased flexibility has been growing for years, one specific business model has recently become a priority for many industrial products manufacturers: Equipment-as-a-Service (EaaS). Having been piloted in individual industries almost a decade ago, new technologies and a shift in customer requirements are finally putting the topic on top of the agenda in many board rooms. But while the “why” and the “what” have been addressed in many studies and leadership journals, one question remains unanswered: How can industrial products manufactures quickly pilot and effectively scale Equipment-as-a-Service models? The new Deloitte whitepaper is providing answers to this question across different functional domains.
Why EaaS models are moving from a theoretical option to a strategic imperative
Over the past 24 months, many asset sales teams were confronted with requests from their customers for a more flexible business model – namely Equipment-as-a-Service (EaaS). Internal business development teams, on the other hand, also have increasingly focused their attention on this area as successful implementations have been outlined in numerous published case studies. In essence, three core drivers have led to the pursuit of a large number of EaaS pilot projects in the industrial products sector:
- Decline in equipment sales and margin
In the industrial products sector, it’s no secret that the majority of profits is no longer earned in the new equipment business. In fact, after sales offerings such as spare parts or technician support have become the number one profit driver. But with an increasing trend towards lower margins of new equipment, many OEMs have also identified EaaS models to enable a reliable source of steady high-profit income streams.
- Customer demand
Industrial equipment manufacturers are increasingly pressured by their customers to offer more flexibility. Of course, this requirement is then passed on to OEMs. As a result, we have seen a growing focus on operating expenditures instead of capital expenditures to enable more operational agility. Instead of purchasing five machines, customers are now looking to purchase 3-4, but would like to use capacity on the remaining 1-2 machines on an on-demand basis.
- IIoT technology advances
Many technologies that are basic enablers for Equipment-as-a-Service models simply did not exist 10 years ago. Among others, this includes IIoT, 5G, cloud infrastructure or big data analytics. Today, companies want to leverage the investments in digitization they have made over the last few years – and EaaS models are often in focus.
Definition of Equipment-as-a-Service
How industrial equipment manufacturers can kick-start their transformation and take it to scale
Essentially, there are four core areas in which machinery OEMs have to fulfill specific requirements in order to build and scale Equipment-as-a-Service models:
- Service offering (e.g. which specific services should be part of the value package?)
- Leasing & financial model (e.g. how should assets be refinanced if no upfront payment of the equipment price is charged?)
- Operations & IT (e.g. how are the different technologies such as predictive maintenance integrated to optimally steer operations and maintenance?)
- Billing & invoicing (e.g. which changes are required to move the current billing system from an asset-focussed to a solution-focussed business?)
The specific configurations of these four dimensions depend on the respective organization and whether the current focus in on a) piloting an EaaS model or b) scaling an existing EaaS business.
To support industrial products manufacturers on their journey, the Deloitte whitepaper outlines which specific measures need to be prioritized across the four areas.
The Monitor Deloitte approach: EaaS X-ray based on target customer journey
While the measures outlined in the whitepaper can be applied for the vast majority of equipment OEMs, their detailed configuration will depend upon one factor: specific customer requirement in the respective segment. To set these very requirements as the “true north” of the EaaS transformation, Monitor Deloitte has developed a pragmatic model that allows companies to answer three questions:
- What exactly are customer requirements for an EaaS model in our specific case?
- How mature is our organization with respect to these requirements?
- Which immediate actions are required to achieve the target state of each requirement to enable successfully offering and scaling an Equipment-as-a-Service model?