Moving towards pay-as-you-go production

21 September 2019

Paul Hingley believes that servitisation is set to transform every aspect of modern manufacturing.

One of the main themes running through Siemens’ Digital Talks conference earlier this year in the UK was how the concept of servitisation was permeating through many layers of the manufacturing sector.

Driven by the power of increasing digitalisation, servitisation is based around the idea of moving from a one-off transactional relationship to an ongoing service-based one. For example, a traditional machine builder would build and deliver a machine to order. Beyond some fairly basic maintenance support, the commercial relationship would usually end there. 

Potentially 20 years later and the client may want a replacement or an upgrade, but by then they could also require a different specification or a new configuration which might see them go to a competitor. 

In other words, engagement with the core customer base is primarily time-limited, with no guarantee of any repeat business or any meaningful additional income coming from them.

A quiet revolution
Digitalisation and the advent of the digital twin in particular is quietly revolutionising this business model. Machine builders are now empowered to supply machinery bundled with an ongoing service offer which is linked to continuous improvement, ongoing optimisation and tangible KPIs. 

This process sees ‘machine maker’ evolve into ‘machine manager’, with the end-user customers generating significant savings through the use of predictive maintenance, energy efficiencies, increased throughput, improved logistics and other productivity benefits.

An example of this machine-as-a-service (MaaS) approach was demonstrated at the Digital Talks event by TrakRap, a UK-based secondary packaging business. The company demonstrated how it is now able to sell a ‘pay-per-wrap’ solution to end-users based on them having access to powerful production data via Siemens’ Mindsphere cloud-based operating system. 

This is possible without TrakRap needing to wrestle with terabytes of raw, unqualified information. Instead it can utilise data which has already been processed on the factory floor via Edge processing before being uploaded to Mindsphere for analysis.   

The move from machine maker to machine manager has had a transformational impact on TrakRap’s business model. Through remote diagnostics and predictive maintenance it can reduce call-out times by over 50%. In terms of the cost to its clients, this equates to a reduction of 70% in downtime.

This means that TrakRap is no longer in the machine selling-business; it is now a service provider that is remunerated each month by clients who are happy to enter into a pay-as-you-go arrangement linked to agreed KPIs and efficiency targets.

Servitisation now also determines how TrakRap finances its business. Working with Siemens Financial Services, Siemens provides investment in advance, based on a five-year period, which is repaid via TrakRap’s new servitisation business model.

This arrangement is not unique to TrakRap, and servitisation as the basis for a different approach to financial investment and capital expenditure within manufacturing is another emerging trend.  

For example, Siemens has been tasked by Pilkington PLC to look into cutting its energy costs. We calculated that to deliver the efficiencies demanded would cost several millions.

Pilkington was not minded to invest in such a large sum up front at that time, so Siemens agreed to provide the technology on the guarantee that Pilkington would pay a fee each year based on the outcome of achieving the energy savings it was seeking. 

Elegantly simple
It is an elegantly simple solution – the energy savings Pilkington made from our interventions translates into financial savings, which in turn is used to pay us back in annual instalments. 

Admittedly we were taking a risk, but we were confident that the energy recovery and digitalised solutions being deployed on behalf of Pilkington would generate the energy efficiencies we were being targeted on.    

Siemens took a similar approach to a recent contract secured with malt manufacturer, Boortmalt, which tasked it with reducing production costs by up to 30% by optimising utility consumption, raw material usage, machine performance and general production processes.

Like Pilkington, Siemens has agreed to work towards a range of outcomes, and the deal was underpinned by a commercial model which sees us being rewarded for the outcomes or performance metrics we achieve and not simply for the hardware and software we install.

Peter Nallen, chief operating officer from Boortmalt, described this arrangement as a “de-risked financing capital investment model” for the business which would “achieve Boortmalt’s sustainability strategy with confidence”.  

So, from TrakRap moving from being a machine builder specialising in packaging machines to a ‘pay-per-wrap’ vendor, and the likes of Boortmalt and Pilkington remunerating us annually based on performance and not on the cost of equipment,  you start to see how the evolution of Industry 4.0 technologies and the concept of servitisation are inextricably linked.  

Siemens welcomes this disruptive business model. We envisage entire pay-as-you-go factories on the horizon, and more manufacturers migrating to a service-based model through the power of digital twins, Edge processing and secure cloud-based analytics. 

In addition, we believe that ‘service’, in all its forms, will emerge as one of the most powerful drivers with regards to increasing a manufacturer’s competitiveness, and that servitisation will very soon become the new normal within all manufacturing disciplines.

Paul Hingley is data services business manager at Siemens Digital Industries.

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