Original Equipment Manufacturers (OEMs) have voiced their intention to push more heavily into the aftermarket—setting forward to obtain a higher market share in a much quicker timeframe. Many have cashed in on the chance to deepen their aftermarket presence and witnessed significant growth in product and spare part sales. But plans are now seeing some changes as, according to a Deloitte analysis, industry players “[seek] new opportunities to gain market share with offerings other than pure asset sales.” Already, industrial OEMs are fast moving in the direction of EaaS adoption to pursue such opportunities.
A sudden rise in EaaS migration brought about primarily by technological progress, fierce competition, and customer demand is pushing OEMs to work harder to expand their business models beyond “make it and sell it.” The shift to service-based offerings appears imminent for those making increased revenue and market share a focal point of their business mission.
In a continuation of the series on influential manufacturing trends, this article sets out to explore how strong an impact EaaS will have on the industrial sector. Additionally, it shares insights on why Industrial Internet of Things (IIoT) technology is crucial to building successful “as-a-service” offerings and what manufacturers can expect next.
Industrial Manufacturers Shift Gears to Adopt EaaS Models
EaaS adoption is becoming a popular trend among industrial OEMs. Firms operating under this business model have the possibility of providing industrial equipment in return for recurring payments rather than putting machinery up for a one-off purchase. Those who invest in EaaS offerings retain ownership of all machinery and typically charge on a subscription or pay-per-use basis. As EaaS-driven firms build new equipment offerings under more flexible contracts, they can develop long-term customer relationships and generate more predictable and stable revenue growth. But manufacturers are not only committed to providing the machinery itself to collect monthly or per-usage payments; they are also aiming to keep operations up and running smoothly by regularly:
- Inspecting and performing functional checks on all equipment
- Conducting maintenance and repair services for machinery
- Optimizing the availability of original spare parts and materials for maintenance and repair work
- Making post-purchase improvements to machinery as needed
The pandemic intensified interest in “as-a-service” models as it quickly became clearer that services offer much greater revenue potential. Now, with EaaS adoption picking up pace, a whole host of manufacturers are starting to see service-focused aftermarket models as part of their everyday future. Most industry players put forward plans for EaaS investments knowing that machinery must be delivered as-a-service moving forward.
These are some of the early signals that EaaS will continue to impact the manufacturing industry profoundly. Triggered by recent technological developments, the widespread adoption of EaaS is highly feasible and well underway in many industrial environments. Transitioning to EaaS from a product-oriented mindset is not necessarily easy, but the result is positive growth. As it happens, the EaaS market is presumed to “witness stunning growth” between the forecast period of 2021-2027, analysts note.
OEMs Build Successful EaaS Offerings in a Giant Step Towards Growth and Stability
The potential of EaaS is clear. At the moment, this business model is a huge source of faster growth and stability amid global economic turmoil. It is all possible thanks to advances in IIoT.
A lucrative EaaS model is heavily reliant on technological progress for a few simple reasons:
“[Technology] advancements have given rise to many digital service solutions that are either improving EaaS models—or enabling them in the first place. A good example is the range of IIoT solutions that enable equipment to automatically share asset performance data and provide transparency on asset usage.” — Deloitte, Equipment-as-a-Service | From Capex to Opex—New Business Models for the Machinery Industry
IIoT is, perhaps, the most important pillar in developing and operating a successful EaaS-focused strategy. Those who employ smart IIoT technology capitalize on the ability to collect real-time and in-depth:
Machinery performance information to establish timely maintenance interventions and improve the customer’s equipment uptime
Equipment utilization data to improve service and minimize rental costs
Details about the supply of spare parts and transiting materials to identify possible bottlenecks throughout the chain and prevent storages
For equipment manufacturers, this information is vital—and not just to cleverly expand and deliver aftermarket services. “Without this data,” as Deloitte experts explain in a new publication, “[industrial firms] would not be able to charge customers based on actual usage or production output.” Properly connecting data points derived from IIoT sensors is paramount to accurately match EaaS payments with usage and maintain the predictability of recurring revenue.
What Happens Next
Undoubtedly, there is a lot of opportunity for industrial OEMs sprinting to adopt EaaS. This emerging business model is a driving force for consistent and predictable revenue growth in the global aftermarket sector. It also is an anchor for innovation that opens up new avenues for improved market share. However, more might be potentially on the table for growth-focused manufacturers who positively respond to fast-rising industry trends on their path to fully recovering from COVID-19’s disruptive impact.
Read up on the latest trends in manufacturing to find out how:
- The merging of physical and digital into premium aftermarket offerings provides a unique chance to meet shifting buyer expectations
- Investing in the total company experience helps deliver exceptional service despite persistent supply chain woes
- A trusted and reliable ecosystem of partners spurs aftermarket innovation and growth in developing markets
- Monetizing data aids manufacturers in maximizing their chances of full recovery from pandemic shocks even as headwinds rise
At the end of the fifth and last article in a series about major manufacturing trends, one thing is blatantly evident: a new era of innovation is upon manufacturers.