It’s Time To Adopt the Servitization Business Model

At first glance it seems obvious that OEMs should make maximizing hardware sales their central business strategy. But equipment sales is a tough business, with tight margins at the best of times and potential customers even more wary of investing in new hardware when the business climate is uncertain. Swapping a strategy centered on hardware sales to a servitization business model can be an effective way to boost margins and grow business whatever the economic outlook.

Worries over Brexit or trade disputes between the US and China may force manufacturers and process operators to think twice about making new capital investments. In contrast, they can’t afford to neglect their existing assets, or they may end up being unable to do business at all.

This presents a real opportunity for OEMs who are willing to adapt their business strategy to focus more on services.  Shifting efforts into delivering ongoing services helps OEMs to draw customers into a closer relationship for the longer term and prevents problems such as spares ‘leakage’, creating a more predictable revenue stream and building stronger relationships with customers. Overall, the servitization model is a way for companies to differentiate themselves in crowded markets, retain customers, and increase profitability.

But full servitization is about more than just offering traditional post-sales service contracts, such as a few scheduled maintenance visits or emergency callouts, consulting or training. Servitization means committing to deliver a function, rather than simply providing assets. So a robotics supplier might commit to delivering a certain number of welds per hour for a car maker, or an aircraft supplier might promise an airline a certain number of flying hours per month.

Of course, Servitization Business Model  also transfers a higher level of risk away from end users and onto the shoulders of OEMs. If suppliers commit to delivering a certain level of service, they’re also signing up to potential penalties if things go wrong. Thankfully, the recent arrival of new remote condition monitoring and Predictive Maintenance technologies mitigates that risk by enabling OEMs to spot any problems early and fix them before they impact on the customer. By offering predictive maintenance as a service, companies can provide added value to their customers by helping them to reduce downtime and prolong the lifespan of their equipment.

Condition monitoring systems that use the latest advanced machine learning algorithms can take machine data and turn it into valuable information about the state of assets across the customer’s organization. This enables the OEM to monitor assets remotely and predict when maintenance is needed. Ideally, the system will provide an alert in time for the OEM to act and avert any problems before the end user is even aware that there’s an issue.

Effective condition monitoring solutions used to be extremely resource-hungry and difficult to scale, but the recent wave of Industry 4.0 innovations have swept these obstacles away. Condition monitoring is now a practical, cost-effective proposition across a wide range of industries.

Senseye’s Predictive Maintenance solution, Senseye PdM, is a great example. This cloud-based, fully scalable system can monitor a single machine or thousands. Its unique algorithms can turn data into an accurate prediction of the Remaining Useful Life (RUL) of manufacturing assets – a technique known as prognostics. Senseye PdM deployments typically reduce unplanned machine downtime by 50%, increase maintenance staff productivity by 55% and boost the accuracy of forecasting downtime by 85%.

While challenging politics and choppy economic waters come and go, making the shift to the Servitization Business Model is an excellent strategy for OEMs looking to ride out coming storms, as well as helping to maximize returns when calm is eventually restored. Effective condition monitoring is an important component of any servitization offer. 

Find out more by downloading our white paper Servitization helps OEMs overcome the squeeze on margins.


New call-to-action