One of the major trends of Industry 4.0 is the shift of industrial machine and equipment manufacturers towards service-focused businesses. A study by the Business Innovation Observatory of European Commission illustrates that 70% of machine manufacturers consider services to be a key competitive differentiator. Machine manufacturers who shifted towards service-based business models have seen 5% to 10% annual business growth, with services generating 50% of their revenues (source).
A study by Bain & Company confirms the value of servitization for industrial manufacturers. It shows that service businesses have seen an annual growth rate of 9% between 2010 and 2013 and expect service revenues to double by 2020 (source).
An important competitive advantage of offering industrial equipment in service-based models is that it helps to tap into a new market of customers who shift from CapEx (capital expenditure) to OpEx (operating expenditure). By addressing the needs of customers who aim for cash flow optimization, the manufacturers can increase their market share.
The value of shifting towards offering service-based business models is not just theoretical. Let’s dive into some use cases of industrial manufacturers implementing service models.
Jet-Engines-as-a-Service | Rolls Royce
- Shifted to offering engines-as-a-service over 55 years ago
- More than one half of its £11.3 billion in revenue came from usage-based payments and services
- Earned four times more revenue with selling engines-as-a-service than the traditional sales model
Arguably the most prominent example of a manufacturing company offering its products in a service-based model is Rolls-Royce. The British luxury automobile maker celebrated the 50th anniversary of its Power-by-the-Hour business model in 2012. Power-by-Hour is an engine and accessory replacement service offered on a cost-per-flying-hour basis. In 2012, more than one than half of Rolls Royce’s £11.3 billion in revenue came from the provision of services, such as offering engines-as-a-service (source). It’s also remarkable that Rolls-Royce generates over 400% more revenue (source) with services compared to the original equipment sales.
Car-tires-as-a-Service | Michelin
- 500,000 vehicles under contract
- Provides customers with better financial planning and cash flow optimization
Michelin created a separate service division in 2013 , Michelin Solutions. Michelin Solutions offers EFFITIRES for 500,000 vehicles on contract (source). EFFITIRES is an optimized tire management system that offers a combination of outsourced tire procurement on price-per-kilometer payment models. This service is appreciated by Michelin’s customers, such as Go-Ahead Group (source) and HE Payne (source).
“The major benefit to us is financial planning. We now know exactly what we’ll be spending each month on our tyres as usage is tied directly to the distance the fleet travels. This allows us to free up cash flow to invest in developing and expanding our business without the worry of unplanned expenditure.
Michelin has also taken away the headache of carrying out our own detailed tyre checks. Our fleet will now be inspected every month by tyre technicians who can advise us on tread wear and any need for imminent replacements.”
- Richard Payne, Transport Managing Director
Industrial-printer-as-a-Service | Heidelberger Druckmaschinen
- €200 million in estimated revenue potential
- Earned 70% more revenue through selling printers-as-a-service than selling the machines in one go
German manufacturer of industrial printers Heidelberger Druckmaschinen presented its progress usage-based payment during its press briefing in 2018. With its pay-per-use model for industrial printers, it has achieved a revenue increase of 70% and expects a potential revenue of € 200 million in the coming years (source).
Power-Tools-as-a-Service | Hilti
- Cash flow optimization for the customer
- Over 1,000,000 tools under contract
- Helped increase Hilti’s sales by 26% and operating profit by 12% during 2008’s financial crisis
German power tool manufacturer Hilti offers a tool fleet through a usage-based model. Hilti has one million tools under contract (source) and minimizes the construction downtime of its customers by providing the right amount of well-maintained tools for every project. This service model reportedly helped Hilti increase its sales by 26% and operating profit by 12% during 2008’s financial crisis (source).
Tunnel-Drilling-Machinery-as-a-Service | Atlas Copco and EPOS
- Tunnel drilling machinery offered for a usage rate per cubic meter
- Allows for the highest equipment availability and total control over the costs for the contractors
Portuguese construction specialist EPOS and Swedish manufacturing company Atlas Copco are working together on a government-funded project to use drilling machinery for a fixed rate per cubic meter.
“This is how it works: machines are running, EPOS is paying. If the machines are not running, EPOS pays nothing. Simple as that.”
Hugo Dias, Business Manager Portugal
To develop this business model, the companies first calculated all overhead expenses, such as spare parts, drilling consumables, and service spending. This solution helped to solve two contractor’s problems: getting equipment with the highest availability and getting total control over the costs.
Of course, the potential of the equipment-as-a-service model is not limited to the use cases above. It doesn’t matter if the industrial equipment is expensive or not — offering service-based business models helps address customers aimed at cash flow optimization and reducing the downtime of their equipment.
Do you want to explore the potential of equipment-as-a-service for your business? Request a free consultation via our request form.
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