Arrive with an idea, leave with a 3-year plan. Achieve reliability.

TRC gives you access to cutting-edge knowledge & technology

Sign Up

Please use your business email address if applicable

Asset Management and Servitization

by Rejeesh Gopalan and Sajit Kumar

Manufacturing has gone through myriad transformations over the last few decades and it is predicted that this trend is going to continue with more rigor. The road map for the future of the manufacturing industry, also referred to as the fourth industrial revolution, indicates a total revamp of the manufacturing business model through disruptive transformations. One area that has been emphasized a lot in this regard is the way manufacturing companies would manage their service offerings. Organizations have already started moving away from a pure product offering focus to what is known as servitization, a business model integrating product and services in an optimal mix.

IBM, rebranding itself as a service company as opposed to a pure computer manufacturer, and Syngenta, which now offers a wider range of business solutions to its farming customers rather than just supplying seeds and fertilizers, have clearly reinforced this trend. Servitization has strong potential to influence the way asset management functions would be carried out in the future. This is largely due to the existence of its inherent synergies with asset management functions. Fundamentally, two aspects of the servitization-related transformation of asset management are worth discussing. These are the evolving asset management model in the context of servitization and a parallel advancement in technology developments to support the servitization philosophy.

article image

Evolution of a New Asset Management Business Model with Servitization

Servitization will be more profound and will influence multiple elements of the manufacturing value chain. Manufacturing organizations, in the pursuit of servitization, will move from a pure, capital expenditure-based transactional model to a revenue, expense-based relationship model. Servitization is causing the fine divide of services and product offerings to fade off to form an integrated offering intended to deliver value to the customers. Manufacturers will have to help customers define and acquire value instead of just selling them products.They just cannot afford to sell features of a product that doesn't address the desired functional value anymore. So, what does all this mean for asset management functions?

With servitization, asset management as a domain is expected to go much beyond the traditional concept of maintenance and optimization of a company's own assets. For a manufacturer, as the focus of organization shifts more towards total cost of ownership, the enterprise asset management (EAM) system as a function would be responsible for keeping track of performance, even for equipment that is already sold, throughout its lifecycle. This paradigm shift in the way products are being servitized will result in organizations beginning to view asset lifecycle management as a service provided by the original equipment manufacturer (OEM). For example, Caterpillar may no longer be interested in selling earth moving equipment, but would be interested in providing the service of earth moving using equipment owned and maintained by Caterpillar.

Traditionally, asset management for a manufacturing organization had been more inward looking, dealing with programs and functions purely in the context of products. It had little deliberation on the business process or the final business value to which the products were associated. However, with increased focus on creating service-based value differentiators, the purview of asset management will change. It will be pushed further to deliver to the context, which means the goals now will be closer to the realizable business goals of the customer. Asset management will demonstrate a clear move from just being a cost centric model targeted to reducing equipment breakdowns to one related to reducing business risks and improving value creation. This will allow manufacturers to engage in evaluating dimensions of such value, adding activities targeted to the ultimate profit for the company. If reliable business operations are what is required from equipment being sold, then manufacturers will have to channelize their energies to ensure uptime of the equipment. Services, such as annual maintenance contracts that included packages for routine maintenance and repairs, would be replaced with more focused programs, such as predictive maintenance, to ensure corrective actions are performed judiciously. The responsibility and upkeep of the system would shift hands. The onus will be with manufacturing firms to design the right maintenance programs and align the supporting systems,such as the IT infrastructure and the principle software packages governing the customer's processes for optimal performance.

The Technology Enablers for Servitization

In the pursuit of servitization of asset management, the contribution of a parallel advancement of technology will be predominant. Without it, the asset management transformation will be incomplete. The asset management stream has certainly been influenced by digitization and this will definitely have a remarkable impact on the way the day-to-day asset management functions are carried out. A caveat to this is, while these advancements are happening at a faster rate, there will be premium costs to avail technological enhancements. Further aggravating the problem is that fast-changing technology comes with even faster and higher depreciation rates of such high capital investments. This can make these transformations less favorable among early adopters.

However, the concept of servitization, which emphasizes converting the upfront capital expenditure to a continuous operational or revenue, expense-based pricing, will be a savior for customers.

This has a potential to attract customers of manufacturers to leverage the latest technologies, while ensuring their funds are invested at their best bets and where their capabilities actually reside.

In the context of servitization, there are some predominant technological interventions that hold the potential to catapult asset management functions to newer heights. These are enabling cloud-based asset management; analytics; and smart asset monitoring systems.

1. Opening Up for a Cloud-Based Model

Who understands the nerves of the equipment better than the manufacturer? And who better than the manufacturer knows the best design applicable for a maintenance program? If the answer is a resounding "NONE," then you will certainly appreciate the role of a manufacturer in maintaining the assets at the customer's facility. The Cloud model can bridge the infrastructural gaps to align with the asset management's requirements in the context of the customer's business requirements. With the advent of the Cloud, the servitization of the asset management process would be further streamlined by packaging the chosen service with cloud-based enabled EAM information technology. Consolidated programs also can be hosted and accessed by the customers, wherein they would pay a lump sum for engaging the service of the manufacturers. This do-it-yourself kind of maintenance, whereas the in-house maintenance team would be guided with maintenance methods or directions from a geographically remote manufacturing location, would be a realizable option using cloud-based technologies. The Cloud would also enable manufacturing companies to support common maintenance tasks for its manufactured equipment operating at different customer locations. It will enable faster relaying of a service manual or a video log (vlog) in an effective manner. This social media, coupled with cloud-based technology, will further boost the connectivity between manufacturer and customer to create a comprehensive asset knowledge bank.

2. Data Analytics - Big Data

In the past, there had been a conscious effort by companies to gather operational information, however, this exercise lacked objectivity in terms of analyzing the information and drawing meaningful conclusions from it. This information seldom moved up the value chain and fell short of its actual objective of reviving and optimizing the maintenance program or aligning with the business goals. Also, the expertise to perform such high-end analysis and program revival techniques was limited among the customer base, given the limited understanding of actual asset potential. Manufacturing organizations, by virtue of being connected to the end customers and the affordability of high-end analytical tools, such as big data, can fill this gap a great deal. Access to real-time and historical data can be sliced and diced and extrapolated against multiple business scenarios being observed at different clients' facilities and different processes. This can then help in formulating a robust asset management program. While servitization would partially or completely shift the capital cost of expensive instrumentation controls associated to the equipment operating in the customer's premise, it will present manufacturers with an opportunity to monitor the vital parameters and a chance to reconfigure or reprogram a maintenance operation designed for the equipment. And what do manufacturers get in return? A constant source of revenue through a pay and use model that could include well-informed consultant services being offered to customers, an extended contract and, more importantly, customer loyalty.

3. Smart Monitoring for Intelligent Assets

Assets are getting smarter. The instrumentation controls tethered to these assets further help in relaying meaningful information on asset performance, operations and health. This information has become essential in channelizing maintenance programs and, more importantly, providing feedback on how these assets are faring on operational parameters in the context of a business process. With close proximity of manufacturers to their customers and their business processes as an inherent nature of a servitized business framework, assets would naturally lose their generality. Manufacturers could receive quick feedback on the operational equipment in the context of business processes. The resultant outcome is a cease of mass production of general equipment to open up for specific, custom and to context equipment designs. Remote monitoring technologies will play a vital role in creating a robust platform to feed important operational information of equipment back to the manufacturer while being cost effective. This will be of great relevance to manufacturer's producing high value capital equipment, enabling them to analyze performance of the equipment and feed the R&D department with useful design inputs like never before. Such real-time operational data will be invaluable in the designing process of equipment and help in cutting the overall manufacturing cycle time.

The Way Forward

The transformation envisioned by servitization and its relation with asset management is real. The change in mind-set to encourage a move to a revenue, expense-based model of servitization is going to place asset management into an altogether new perspective. Manufacturers will strive to deliver services that will directly address the business process needs, rather than simply packaging a product. While servitization of asset management talks volumes about a transformation in the asset management business process, the success will largely depend upon the convergence of technology for enabling the implementation of the servitization framework. Companies of the future would follow a pay and use model that includes process implementation and technological support with virtually no implementation cost component involved. While this would shift customers from a capital investment model to a revenue, expense-based model, it will entrust manufacturers to constantly innovate in the pursuit of delivering the best value to the customer.

A competitive market of this kind with minimal exit barriers for the customer is waiting for you to explore.

Rejeesh Gopalan is a lead consultant in digital enterprise services for Infosys Limited. He is responsible for providing leadership in multiple enterprise
asset management projects involving end-to-end implementation, upgrades and application support. He is an avid blogger for Infosys Supply Chain Management and writes on topics like asset management and business process optimization.

Sajit Kumar, C.N., is a principal consultant in digital enterprise services for Infosys Limited. He has several years of diversified experience in the supply chain management and manufacturing domains. Prior to Infosys, he handled functional leadership roles at various IT products and services companies, including end-to-end conceptualization and development of the manufacturing module for a leading ERP product. A postgraduate in industrial management from the National Institute of Industrial Engineering, he is a mechanical engineer and holds multiple certifications.

ChatGPT with
Find Your Answers Fast