The traditional CapEx sales process is, if “not fire and forget” then certainly sell and move on to the next thing. In the absence of ongoing revenue, it is inevitable that equipment manufacturers will look for the next opportunity.
The OpEx approach can generate reliable and predictable revenue; the challenge for suppliers is to provide EaaS (equipment as a service) a reliable way.
Among the factors that hold back revenue growth are reduced uptime, through breakdowns or faults. Improving machine uptime makes for more productive assets – and better asset management; use can be optimized, possibly leading to less need for increased capacity or extra shifts.
From the suppliers’ perspective, longer-term OpEx EaaS relationships develop service and warranty revenue opportunities; reduce costs associated with unexpected repair and inventory costs; and greatly improve visibility of the condition of end customers’ assets – lessons that can be profitably applied across the whole equipment portfolio, anywhere in the customer base.
As well as improving cost control, IACP helps to drive revenue growth, in several ways.
Instead of selling capital equipment outright, the equipment manufacturer offering IACP retains effective ownership of the asset but sells a comprehensive service agreement.
Better monitoring leads to better performance, better detection of out-of-specification running – leading to lower support costs. As well as the certainty of revenue flow from regular monthly payments – and higher inflows, because a fuller service is being provided – the equipment supplier stands to greatly improve profit margins.
Consider a supplier of conveyor systems. They are complicated and made up of many thousands of individual assets. Whether it's an airport baggage handling system, an automotive plant or a food manufacturer with straightforward automated packaging and palletizing systems, they have thousands of individual assets – any one of which could go wrong.
If each of those thousands of assets in a baggage handling system, for example, is paid for by a monthly fee of $50, the manufacturer will receive thousands of $50s, every month. It can be relied upon and budgeted for.
The IACP business model will guarantee certain outcomes, such as hours of uptime or units outputted. It will specify the maintenance and repair services the equipment manufacturer will provide. The financial potential is huge.
“We have a client company who has the potential to boost their revenues from $70 million to $100 million, in just one year, using IACP,” said Rob Hienekamp, CEO of Endowance.
It is a strong differentiator in highly competitive marketplaces, a step up from SLAs, and the equipment manufacturer can offer it without fear of loss.
“SLAs are better than nothing and they can help to improve machine availability but they are still reactive and they cannot be 100%. For that $50 a month we talked about earlier, the manufacturer offers the customer a guarantee that the equipment will not fail,” said Klaus Kruppel, VP Alliances at Senseye.
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To download a copy of the Integrated Asset Condition Performance report, please click on the image below.