How To Make Industrial Machinery More Profitable With IoT

Lori Jaeger

Across many industries, it has become a trend for manufacturers that make products to add services and aftermarket part sales to their offerings. Industrial machinery companies make up one sector that takes part in this strategy. This is a way for these companies to keep their businesses alive, gain healthy profits and compete within the industry.

How can new offerings work within manufacturing companies? Also, how can IoT improve a company’s ability to adopt a new business model?

A business model of expanding offerings to customers

Including services and aftermarket part sales is especially effective to an industrial machinery business model. An IDC white paper, The IoT Imperative for Discrete Manufacturers: Automotive, Aerospace and Defense, High Tech, and Industrial Machinery, pointed out that industrial machines tend to be long-lasting, working for at least 20 years and often far longer. Since old original equipment lasts so long, industrial machinery companies have a harder time selling new original equipment. It’s not the same as business models that allow a company to sell the same type of product to the customer over and over. The industrial machinery companies can improve their businesses by increasing their offerings to include aftermarket parts and services.

It seems natural for a manufacturer to get into other aspects of the same business. The manufacturer can maintain and fix the same machines that it created. It can also sell official aftermarket parts for the machines it creates. There are many opportunities in services and aftermarket offerings, providing many ways to make extra money. They can sell parts for maintenance, service, operations, repair, and replacement. Beyond parts, maintenance, and repairs, companies can offer services such as upgrades, inspections, tech support, training, financing, consulting, and reconditioning of equipment.

A Harvard Business Review (HBR) article pointed out that the industrial machinery industry makes up part of the companies that “have sold so many units over the years that their aftermarkets have become four to five times larger than the original equipment businesses.”

While this type of business model benefits the manufacturer, it is also beneficial to the consumer. If the original equipment manufacturer can anticipate maintenance and repairs, provide a better customer experience and create other benefits, it can improve satisfaction and create loyalty. According to the white paper, “Our research shows that manufacturers that can deliver customer-centric experiences have two times the revenue growth compared with the overall market.”

How to integrate expanded offerings

While it has commonly been accepted that manufacturers need to add services to stay in the game, the article in HBR explained, “Most companies either don’t know how or don’t care to provide after-sales services effectively.” Certain companies, such as ABB and Caterpillar, act as shining examples of doing after-sales services right. But many companies treat these offerings as an afterthought or a chore. Also, ongoing support is tough to carry out and has to be done right to actually make a profit. And third-party companies often steal this business by providing better service as their specialty.

Therefore, manufacturers are missing potential revenue streams. How can that be fixed? The answer is to use the Internet of Things, or IoT. This technology makes it easier for companies to include aftermarket products and services within their business models. Manufacturers can add sensors to new machines or retrofit them to previously manufactured models. These sensors can be used together with other capabilities, such as analytics.

Industrial machinery companies can use IoT to monitor machines remotely. This allows them to determine when maintenance, a repair or an upgrade is needed so they can provide that service. Manufacturers can currently use IoT-enabled remote monitoring, while the future could bring built-in advancements that allow the machine itself to know when it needs a fix. Overall, IoT can make sure that customers’ machines maintain their optimal productivity and uptime.

IoT-enabled machines could let the manufacturer know when a part is needed. To provide better service for a combination of old and new machines, it is anticipated that manufacturers will be able to increasingly rely on 3D printing. This will allow them to quickly create customized, complex and out-of-production parts.

Companies can include continuous service packages with their products, ensuring that they keep their customers for ongoing and predictable sales. The original equipment manufacturers could even sell subscriptions for continuous updates and upgrades. Also, an article in Machine Design suggests offering customers a leasing option for continuing revenue. This method would benefit end users who don’t need to or can’t afford to purchase the machines, or those who would prefer to always trade in for the latest model when that is applicable. In these cases, IoT streamlines the subscription process to make it easier for the company to manage.

Overall, offering services and aftermarket parts can help industrial manufacturers create better and more stable revenue. It can also improve customer satisfaction. IoT currently provides methods of creating this new business model and is expected to offer more capabilities in the future. Is your manufacturing company trying to figure out how to incorporate parts and services into your offerings?

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading “Accelerating Digital Transformation in Industrial Machinery and Components.” Explore how to bring Industry 4.0 insights into your business today by reading “Industry 4.0: What’s Next?

 


Lori Jaeger

About Lori Jaeger

Lori Jaeger is a solution manager with the Industrial Machinery & Components (IM&C) global industry solution management team at SAP. Based in Green Bay, WI, she has been with SAP for 14+ years, all focused on IM&C.