In this article, Jon Herbert asks — why design and manufacture a good product only to see much of its value seep away through the supply chain if you can convert it into a continuously-updated service instead, with the potential to grow your bottom line over an extended lifespan?
The answer is a concept that is not necessarily new but is becoming increasingly important for a number of contemporary reasons. Servitisation is the idea of linking a traditional, mainly physical product, with a value-adding business service that can also allow suppliers to play an integral role in their clients’ own offerings to customers.
There could be further advantages too. As many major brands are discovering, supplying a product as a service can create opportunities to differentiate what you do very clearly from your competitors and provide unique solutions. The other bonus can be the ability to generate the additional income stream needed to fund continuous product/service improvements.
One way of understanding the concept is to see it as the end of conventional end-user ownership. Instead, the product remains the property of the supplier/manufacturer who, if things go well, at the end of life has an asset with a positive disposal value. A tall order perhaps but one that is becoming realisable.
New business model
The traditional way of making and selling equipment, components and vehicles is to make a small profit on each unit and let the remaining value be picked apart down the supply chain. Profitability depends on selling more units quickly in the hope that new designs, fashions and cultures will continuously boost refreshed demand for the latest model. In many cases, a repair or component market creates a secondary revenue stream.
For a variety of reasons, this standard model is changing quickly as expectations, including environmental performance, are becoming much more stringent. Vehicles are a good example. The transport sector is under intense pressure to reduce its carbon impact radically with fuel efficiency as a priority. In tandem, the low-carbon transition is moving towards electrification based on renewables. That introduces scope for innovation.
However, another force is also at work. Digitisation and data sharing mean that components are increasingly “talking” to each other, revealing stress patterns and allowing the working life of units and subunits to be extended depending upon actual wear and fatigue. All this creates new possibilities for manufacturers and suppliers to show themselves in a new light and convert what they do into a service as well as a product. As a simple example, runners no longer buy running shoes for comfort alone; they buy attributes such as gait analysis to make sure footwear matches their own personal running style. What is good for shoes also applies widely to industry.
End of ownership
This has important implications for original equipment manufacturers (OEMs). The costs of funding continuous improvement can be high. It has been estimated that a car realises something like 40% of its lifetime value for the manufacturer. The rest is taken up by secondary suppliers and downstream service providers, plus end-of-life disposers.
One option is moving from ownership to leasing, in which the end user never actually owns the vehicle or production unit. If this sounds scary when a great deal of demand is based on “want”, it is not new. Rolls-Royce for example, makes leading-edge jet engines, despite current difficulties with the Trent 1000 engine. As well as selling straightforward engines, for nearly half a century, it has sold Power-by-the-Hour in which airlines only pay for a fixed cost per flying hour.
As far as major airlines are concerned, what happens on their wings is none of their business unless things go seriously wrong. Rolls-Royce makes all decisions about maintenance, upgrades, the introduction of new technologies, models and complete engine replacements.
What the system also does however, is allow for the viability of research, development and design needed to continuously extend operational life, plus any modifications needed to comply with new regulations. And it also puts OEMs, in this case Rolls-Royce, into a competitive position by having overall control. Designers can think ahead and plan for the long term, matching the interests of suppliers and users.
The car industry is moving towards this model for several reasons. These include autonomous self-drive technology, a legislation driven move away from fossil fuels, emission data scandals perpetrated by hitherto some of the world’s most respected and trusted marques, plus increasing user awareness of environmental impact. The result is that the traditional characteristics of ownership are changing. With high-fuel process and social awareness, drivers and companies are now said to be more interested in the efficiencies of how they, their employees and families travel from A to B than style alone.
OEM opportunity and challenge
The dilemma this poses for vehicle OEMs could be relevant to many other suppliers and manufacturers. Conventionally, vehicles have been designed for a circa 13-year life. In the future, they could be on the road for 30–40 years with constant upgradings and a mileage expectancy of up to 500,000 miles and beyond as standard. Cars that meet with society’s expectation of them will simply have to last for longer. Engineering designers are beginning to look at how a product is going to behave throughout its complete life cycle, plus how that life expectancy can be increased in line with expectation of the future that is not yet fully apparent.
This means a considerable drop in the number of new cars going onto the roads. The volume model no longer applies. Ownership, based on fashion, one-upmanship and carefully-fostered ego-driven desirability will diminish. Instead, the concept of “mobility-as-a-service” (MaaS) is being introduced.
This is similar to the shift already being made by Microsoft, and other IT providers, away from Windows packages sold by the million towards subscriptions to software-as-a-service (SaaS). Ditto Xerox which has moved away from selling printers and toners in favour of managed print services and document management solutions.
This is a considerable mind change but one that is almost inevitable. “Commodities” such as cars are likely to stay with “owners” for far longer, during which time they will change considerably. This echoes the apocryphal case of the axe which has remained in the ownership of one family through six generations, during which time it has received three new heads and seven new handles!
Service on demand
The Wales-based start-up company Riversimple is taking the MaaS concept to market as a radical alternative to conventional car ownership with its two-seater Rasa model. The Rasa is powered by a hydrogen fuel cell and designed never to leave the company’s balance sheet. To make it viable, the chassis is a 40kg-carbon fibre monocoque integral to the overall vehicle. At the end of a long life, it should still have a positive recovery value.
By careful intent, the vehicle is engineered to have no moving parts other than wheels; there is said to be no metal-on-metal wear, lubricants or corrosion. Unlike the mainstream auto industry, the manufacturer has the second, third, fourth and even fifth owner in mind from the outset. The idea is to produce and maintain an attractive and efficient vehicle system where the term “new” no longer applies.
The longevity of these vehicles is also designed to support investment in a neighbourhood hydrogen infrastructure within an assured local travel radius. A growing matrix of such local networks could then expand across the UK; some 300 are seen as necessary to support a motorway-ready future car. The company also plans to produce an extremely light and “very, very efficient” vehicle to cater for fabled “last-mile” deliveries between distribution networks to individual doorsteps.
Winds of change
The new focus on intrinsic values and gains that can be made at an early stage, with profound long-term efficiency impacts, is not dissimilar to the design for life extension (LE) concept that is moving rapidly into the offshore wind industry lexicon.
To date, design has tended to concentrate on making it easy to manufacture and transport huge offshore wind turbine components into position in increasingly large and remote offshore wind farms. Now, the emphasis is changing to recognise and take into account at an early stage, factors such as corrosion and structure stress that can cause problems later in the lifespan which can be designed out economically at the start of the process with greater knowledge and understanding.
LE doesn’t automatically mean extending the life of renewable energy assets in tough offshore environments. But it does open up opportunities to streamline aspects of design known to cause future problems. Importantly, LE introduces a more strategic approach to whole life cycle costs, maintainability and retrofitting needs.
Crucially, design for LE capitalises on evolving monitoring and operational data analysis technologies that make it possible to identify substantial revenue gaps between the theoretical life of structures and the real stresses, strains, and fatigue damage they may have suffered during service.
This is turning what used to be seen as the twilight years of ageing offshore wind farms structures into extremely cost-effective, productive periods of extended operation. At the very least, expensive assets can be fully optimised to meet changing conditions. The watchword is versatility.
A recent survey indicated that more than 80% of companies would like to switch to a servitisation approach, with nearly two-thirds planning a transition in the next three years. One of the core principles and benefits is said to be a much closer relationship between users and product/service providers to help improve end-user/consumer efficiency, productivity and penetration into new markets.
- The long-established supplier/owner market model is changing.
- An increasing number of industries are seeing products as an extended and continuously-updated value-added service with the innate flexibility needed to adapt to rapidly evolving business and environmental demands.
- Digitisation is creating servitisation opportunities whereby supply chain companies differentiate themselves through enhanced product-based services that consistently add technical and financial benefits for everyone involved.
Published by Croneri on 26 June 2018