The Uptime Blog
Global manufacturers of complex equipment know their products well. They know how to manage their products from concept to design, through production, distribution and sale. They know how to bring their products to market. They are experts in commanding the resources to produce highly complicated, highly valued equipment to meet specific and exacting demands and customer preferences.
Although manufacturers take great pride in the craftsmanship of the product itself, they have often left the servicing of that aircraft, medical equipment, car, or piece of construction equipment to others. That paradigm is changing. Manufacturers are now looking to ‘service after the sale’ as the next logical place to uncover hidden pockets of revenue that are proving to be lucrative.
What’s motivating them?
Earnings and stiff competition. Aberdeen Research, in their State of Service Management, Outlook for 2013, reports that “margins on service are 10.7% higher than those on products”. So while all other manufacturers squeeze earnings from low product profit margins, best-in-class manufacturers are realigning their business structures to include service as part of their revenue stream.
External competitive market conditions are also pushing manufacturers toward service. Aberdeen points out that in tight economic conditions, improved service and support can serve as a strategic differentiator. “Fifty-four percent (54%) of organizations see service as a means to fend off competitive pressures from other manufacturing or service organizations”.
Who are some of these product and service giants?
Recognizing that service plays a vital role in the total customer solution, many global manufacturing firms are re-examining the value of service revenue and are including service as part of the entire customer experience rather than just providing a product. Others have understood the value of service for a long while.
BMW – the ultimate driving machine. BMW is introducing a new electric vehicle for urban mobility, the i3. Designed with eco sleek design, great gas millage and BMW’s trademark driving comfort, the car introduces the BMW i Remote App, an iPhone application that continues the drivers experience outside the car. Using the app, drivers get direction to their destination on foot, bike or public transit, encouraging the use of alternative modes of transportation. Millennials will love this feature.
In a recent Popular Mechanics article, BMWi's Manuel Sattig was quoted as saying:
"We used to say we wanted to be the most successful manufacturer of premium cars," Sattig says. "That was our strategy, and we changed it to say we want to be the most successful provider of premium products and premium services, which means you put the product and the services on the same level." That's a pretty big statement from the maker of "the ultimate driving machine."
BMW has made a decision to rewrite their definition of premium to include not just the ‘driving machine’ but the service surrounding the experience of the drive.
Rolls Royce – Trusted to Deliver Excellence. Enigma customer Rolls Royce has long known what others are just learning – that service is part of the overall product experience, provides solid value, and is a powerful revenue generator.
Last year they celebrated 50 years of one of their most successful programs – “Power-by-the-Hour”. According to their website, “Power-by-the-Hour” is a complete engine and accessory replacement service offered on a fixed-cost-per-flying-hour basis. This aligns the interests of the manufacturer with the operator, who only pays for engines that perform well. It is core to their CorporateCare® program that also includes engine health monitoring and a global network of authorized maintenance centers to ensure that world-class support is readily available to customers.
As a global power systems company their pioneering approach to engine maintenance has become common industry practice with many others following suit.
Despite opportunities for manufacturers to reap service revenue by providing service throughout the life cycle of their products (or service lifecycle), shifting to a service for revenue model is a daunting challenge that not everyone can master, nor is willing to try. A study by Xerox and Aston University revealed that servitization – the process of adding services to a product – has a low adoption rate among manufacturers. For those best-in-class-organizations that are able to make the leap however, there is a lucrative reward, with early adopters achieving an annual growth rate of up to 10 percent.
According to University of Cambridge Professer and servitization expert Andy Nealy
, “[s]ervitization is the innovation of organisation’s capabilities and processes to better create mutual value through a shift from selling product to selling Product-Service Systems. A Product-Service System is an integrated product and service offering that delivers value in use. A Servitized Organisation designs, builds and delivers an integrated product and service offering that delivers value in use.”
Simply put, it is the process of adding services to a product. Especially important for complex equipment, servitization extends the value of a product throughout its entire life cycle, not just its initial purchase. It redefines the provider and customer relationship by transforming the traditional short-term transactional exchange of a product into a long-term relationship with service over the life of the product. Is servitization something new or was it here all along?
There are differing opinions when it comes to the emergence of servitization on the manufacturing scene. While some argue that servitization has long been part of manufacturing, others maintain it has been a recently observed phenomenon.
Indiana University Operations Management Professor Roger W. Schmenner
suggests that servitization has antecedents that go back 150 years but simply wasn’t an attractive revenue stream for some manufacturers with high production capabilities. It wasn’t their core competency. Schmenner says that “[t]he bundling of manufactured goods to downstream-available services was led by companies with new products but with no great manufacturing strengths, as a way to establish barriers to entry. Companies with significant manufacturing capabilities were not as quick or as complete in their integration of manufacturing and service.”
In a research paper, Baines, Lightfoot, Benedettini and Kay
say that “[i]n management related literature, servitization development is commonly traced back to the early 1990s. However, Davies et al. (2007) point out that the industrial marketing literature suggests that pioneering applications originated in the 1960s with the introduction of ‘systems selling’ strategies”.
Whichever theory you believe, long established practice or recent arrival, servitization is a topic that is spurring lively debate in the search for additional sources of revenue in the highly competitive manufacturing landscape. Is service revenue growing?
Much has been written about the growing aftermarket parts and service industry as it relates to complex equipment, including posts on our own blog (Complex Equipment and Aftermarket Support Are Like Peas and Carrots
). But is the idea of boundless service revenue fact or fiction?
According to a University of Cambridge research paper The Servitization of Manufacturing: Further Evidence
by Neely, Benedetinni and Visnjic, the scale of servitization is less remarkable than one might think. Their initial worldwide 2007 and subsequent 2011 estimates reveal that the number of “servitized” manufacturing firms stands unchanged at roughly 30%. The United States experiences the highest level of servitization with 58% in 2007 and 55% in 2011. China saw the most significant increase from less than 1% to 19%. With the exception of China, servitization worldwide doesn’t appear to be vastly or immediately reshaping the world.
While they report that “there have been widespread efforts to servitize,” they go on to describe the “servitization paradox” – that “some firms that have decided to servitize achieve superior financial results, while others achieve superior financial results remaining as a pure manufacturing firm.” Schmenner’s theory that highly proficient manufacturers don’t experience success in servitization may be one explanation for low adoption, but there’s more to the equation than is being considered. And that is the application of technology.Servitization at the center of convergence
Products, services, technology and manufacturing don’t operate in a vacuum. They are becoming increasingly connected at an amazing rate. It is at this point of convergence where servitization is poised to redefine how we structure the business models of manufacturing and aftermarket services. Manufacturers not willing to embrace and incorporate technology will find themselves at the shallow end of the servitization revenue pool.
Unlike traditional manufacturing, which has learned best production practices since the days of the industrial revolution, clear cut paths to successful servitization have not been as easy to find or follow. Big Data
, Performance Dashboards
, and Mobility
are just now emerging, establishing themselves as valuable tools in navigating the route to servitization success. Enigma's InService MRO
and InService EPC
have been leaders in defining that road map. We have developed tools that complex equipment manufacturers use to successfully extend, manage, and capitalize on aftermarket services. It’s the path that manufacturing has been searching for.
As PTC president and chief executive officer James Heppelmann relayed to customers at the company’s annual PTC Live Global
meeting, “The world of building stuff is being transformed into a world of building services tied to stuff.” Complex products, by their very nature will also contribute to the servitization of manufacturing. Complex equipment and the data they generate, collect and share through the Internet of Things
will become part of the service history that manufacturers will use to service their products through their full life cycle. This concept is bigger than us all individually. It is life altering.
Technology is the change agent in connecting the manufacturer of complex products with the aftermarket service of those products. As forward looking organizations like Enigma and PTC combine their expertise
, servitization will become more widely attainable, pushing the scale higher and opening new avenues of revenue for manufacturers.
A new production method is shaking up the manufacturing industry for good. MIT Technology Review calls it one of the top 10 Breakthrough Technologies of 2013. Additive Manufacturing – the latest breakthrough technology – is redefining how producers compete in a global industrialized economy.
A Brief History of Additive Manufacturing
At its core, Additive Manufacturing is based on 3D printing technology. And while it all seems to be shiny and new, 3D printing has actually been around for a while – since the late 1980’s. “… [I]n fact, 3-D printing has been slowly evolving in labs and in the market since Chuck Hall invented stereolithography back in 1986 with his company, 3D Systems” says Tim Hessman, Industry Week Associate Editor in a slide show titled “The History of 3D Printing”. It was a short step from there to the concept of laser additive manufacturing in 1997 by Aeromet (an MTS Systems company). According to a 2005 Aeromet press release, laser additive manufacturing (LAM) was the “process for the direct, rapid fabrication of three-dimensional titanium components, directly from computer-based solid models without the use of molds or dies”.
The beginning of commercial 3D printing for manufacturing had become a reality. Aeromet’s radically new technology gave them a competitive advantage in the production of laser formed titanium components to the worldwide aerospace industry that both reduced costs and accelerated time to market across aircraft manufacturing.
Although the idea of 3D printing has been with us for a while and research continues, the broader concept of Additive Manufacturing as a viable production process in manufacturing is relatively new. It also consists of far more than 3D print technology alone. The Additive Manufacturer Users Group (AMUG), which has been in existence since the early 1990s, educates and supports users of all additive manufacturing technologies including:
- 3D Printing (3DP)
- Direct Metal Deposition (DMD)
- Direct Metal Laser Sintering (DMLS)
- Electron Beam Melting (EBM)
- Fused Deposition Modeling (FDM)
- Laser Consolidation (LC)
- Laser Sintering (LS)
- Multi-Jet Modeling (MJM)
- Selective Laser Melting (SLM)
- Selective Laser Sintering (SLS)
- Stereolithography (SL)
Benefits of Additive Manufacturing
Most would agree that Additive Manufacturing reduces raw material use and provides a fast production, low cost method of delivery. Ed Morris, director of the National Additive Manufacturing Innovation Institute, in a recent presentation to the AMUG conference, was more specific in what he believes are the benefits of the process as it relates to the Department of Defense (DoD).
- Efficient use of Resources
- Small-Lot Production
- Rapid Manufacturing
- Agile Manufacturing
- Reverse Engineering
- Lightweight Structures
Manufacturing news and insight website Manufacturing.net sites five more top benefits of Additive Manufacturing that you might not have considered:
- Freedom to design and innovate without penalties
- Increased supply chain proficiency with ‘3D faxing’
- Support of green manufacturing initiatives
- Bottom line improvements through factory physics
- Get parts – fast
Additive Manufacturing and the Role of Parts Management
The last benefit on the Manufacturing.net list of top benefits really caught our attention. “Get parts – fast”. While the technology exists for rapid manufacture, not everyone will have at their disposal a 3D printer (or other additive manufacturing method) and detailed CAD drawings for easy reproduction of parts.
So, even though the methodology of manufacturing production may undergo a radical paradigm shift in how things are actually produced, the one constant is that complex equipment will still be constructed of individual parts. And parts (identification, ordering, payment, installation instructions, assemblies and service related bulletins) must be managed regardless of whether the parts are pulled from the warehouse stocking shelves or picked fresh from the 3D printer.
Integration with a manufacturer’s business systems has long been a key benefit of Enigma’s InService EPC software. It builds the bridge between the company’s enterprise resource planning (ERP) and product life management (PLM) that includes the critical aftermarket parts and service component of complex equipment maintenance.
Looking forward, Enigma is perfectly positioned to adapt to the new manufacturing paradigm that Additive Manufacturing is sure to introduce to the world. We’ll be helping to redefine how producers compete in a global industrialized economy.
Tags: service technicians, field service, medical equipment, InService EPC, dvautier, diane vautier, field technician, medical devices, manufacturing, InService MRO, electronic parts catalog
Medical equipment maintenance managers and technicians carry a hefty responsibility. Their jobs are to maximize equipment uptime so patients – people like you and me – can receive the diagnostic care and treatment needed to stay healthy. Our lives can depend on the success of their work.
That’s no small task given the ever-changing operational requirements and complex nature of equipment like ultra-sound machines, MRIs, x-ray machines, ventilators, and CT scanners. According to the World Health Organization, there are more than 1.5 million types of medical device products on the market (WHO factsheet No. 346). Countless parts, exacting calibration requirements, and the latest technology incorporated into over a million device types make ongoing maintenance a monumental challenge.
Luckily for medical equipment maintenance managers, all new medical equipment starts its life with a high degree of quality. The US Food and Drug Administration (FDA) has strict standards when it comes to the manufacture of medical devices. Their most current publication, the Medical Device Quality Systems Manual – A Small Entity Compliance Guide, First Edition specifies quality assurance methodology for every aspect of production, ensuring a high degree of operational excellence and top notch equipment.
Once medical equipment is operational, however, the ongoing maintenance and repair is demanding. Aftermarket maintenance and repair regulations are also stringent. According to the FDA’s postmarket requirements for medical devices:
“Medical device manufacturers as well as other firms involved in the distribution of devices must follow certain requirements and regulations once devices are on the market. These include such things as tracking systems, reporting of device malfunctions, serious injuries or deaths, and registering the establishments where devices are produced or distributed. Postmarket requirements also include postmarket surveillance studies required under section 522 of the act as well as post-approval studies required at the time of approval of a premarket approval (PMA), humanitarian device exemption (HDE), or product development protocol (PDP) application.”
Additionally, the FDA is proposing new regulation requiring a unique device identification (UDI) system to manage medical devices. The new regulation is intended to improve equipment safety and effectiveness, postmarket surveillance, quality of care and patient safety. The UDI project is being coordinated internationally through the Global Harmonization Care Task Force (GHTF) – now the International Medical Device Regulators Forum. Although generally supported by the medical device community, the resulting regulation may mean some scrambling on the part of maintenance and repair managers and service providers as they seek to accommodate the new bar coding system. New draft guidelines could be released as early as February 2013.
Medical Device and Diagnostic Industry’s (MD & DIs) Heather Thompson adds some insight on the topic in her post, “Unique Device IDs ‘A Single Source of Truth’ Says FDA Jay Crowley.” According to Thompson, the “FDA wants industry to start planning now for unique device identification—and the Agency is eager to help.”
Enigma is watching carefully as the new regulation takes shape. We see some striking similarities between the highly regulated, individually tracked aviation industry where we have created solutions for many years, and the evolving medical equipment industry also headed toward individual identification. For years, Enigma’s InService MRO software has helped aviation maintenance and repair organizations (MROs) individually track, manage and service aircraft in a highly regulated industry.
Our InService EPC software has also brought our expertise to the medical equipment industry, tracking and supporting the maintenance and repair of medical equipment. Customers like Toshiba America Medical Systems (TAMS) have already incorporated InService EPC to manage service and parts information on their magnetic resonance imaging machines (MRI) MRIs and CT scanners.
Although the challenges of medical equipment maintenance and repair may appear daunting, guidance from the FDA, the medical device community and software developers like Enigma will help to smooth the regulatory transition, enabling medical equipment managers and technicians to maintain and service the machines that deliver the diagnostic care and treatment we all need.
Tags: Electronic parts catalogs, Bobcat, Dallas Area Rapid Transit, InService EPC, Enigma, dvautier, diane vautier, manufacturing, missing middle, OEM, midsize manufacturing, Ditch Witch, Toshiba America Medical Systems
If you’re a manufacturing company with over 500 employees, you’re not the middle. If you’re a single man shop with local customers only, you’re probably not the middle either. But if you’re somewhere in between, then you’re one of many that makeup the supply chain backbone that feeds the large OEMs. Collectively you represent more than twice the global employment of big name manufacturers. This bulging mid-section of the manufacturing world is what has been dubbed the missing middle.
“Being in the middle”, as the phrase suggests, comes with its own set of unique challenges and pressures. There is a gap between what is expected from this group of manufacturers and what they’re capable of delivering. They’ve become overlooked and under-resourced.
The Manufacturing Institute website says, “The United States funds and conducts extensive basic research and possesses the manufacturing base to commercialize products, but lacks the development, engineering, and prototyping assets that enables ideas to move from mind to market.”
Changing R&D Responsibility – pushing innovation downward
Big manufacturers used to lead innovation. They were idea generators, research and developers (R&D) and leaders of change. In the early 1980’s big companies contributed vast amounts to R&D investments. Today, their contribution appears paltry by comparison. “In the past 30 years, R&D investment in the larger companies has plummeted — from 72 percent of total in 1981 to 40 percent in 2007” cites Jon Riley & Matt Sakey of National Center for Manufacturing Sciences (NCMS) in a joint report by Digital Manufacturing Report and NCMS.
So where did innovation go? The middle.
More and more mid-size manufacturers have taken on the responsibility that big OEMs used to own. “Developmentally, 60 percent of R&D investment comes from the missing middle — up more than 40 percent since 1983” say Riley and Sakey. That’s a huge shift of time, resources and investment, and one that only the most fiscally sound manufacturers are poised to support. As many mid-size manufacturers are struggling with their new ‘innovation’ job description, they’re still contending with other more day-to-day economic pressures in order to survive.
Economic Challenges – first to get hit, last to recover
The missing middle of manufacturing is getting uncomfortably squeezed from all sides. Over and above shifting innovation responsibilities, a faltering economy has added even more pressure.
“Small to midsize manufacturers are often hurt early during economic downturn because they tend to have limited resilience: limited cash reserves and access to credit, few customers, and limited product portfolios and inventory. For the same reasons, small to midsize manufacturers also take longer to recover” says Joe Barkai, Analyst and Practice Director for Product Lifecycle Strategies for IDC Manufacturing Insights.
Is Technology the Answer?
Technology shines like a bright spot in a dismal sky. It can help midsize manufacturers find sure footing in an otherwise rocky middle landscape. NCMS’s Riley and Sakey believe that digital manufacturing – a computer based system of integrated manufacturing, modeling & simulation is the path to success. “Those companies that do not leverage this technology [digital manufacturing] will take longer to design more at greater cost and with less guarantee of success.” From Enigma’s perspective, we agree but on a much broader scale. Any integration of technology that improves an OEM’s manufacture, service and support leads to healthy competitive advantage.
As a software developer of an electronic parts catalog (EPC), Enigma has seen the impact first-hand, of technology on our own ‘middle’ OEM customers. As the demands of midsize manufacturing become more stringent, the power of software to maximize operational efficiency as well as aftermarket parts, service and repair becomes a fundamental imperative. InService EPC is a textbook case of how midsize OEMs can leverage their existing product, parts and service information to improve aftermarket efficiency and profits.
Enigma InService EPC has proven itself across industries. We’ve helped construction equipment manufacturers like DitchWitch and Bobcat as well as medical equipment manufacturers Toshiba America Medical Systems and public transportation like Dallas Area Rapid Transit (DART) leverage their parts and service content and integrate with in-house business systems to reduce cost and improve customer support.
We believe InService EPC is the best first step for the “missing middle” to apply technology because it uses information that already exists to enhance the most profitable part of a company’s business—the aftermarket. By extracting new value from existing resources, the missing middle will make room for more innovation and accelerate response to ongoing customer demands.