Equipment-as-a-Service (EaaS) as a business model can facilitate the transition to the Industry 4.0 era for many companies. After all, not every player on the market finds it easy to develop a strategy for their own digital future.
Equipment-as-a-Service is a business model in which customers no longer purchase machines from the supplier. Instead, the equipment remains the property of the manufacturer, who is also responsible for maintenance, service, repairs and the supply of spare parts. The customer then pays a rental fee or even only pays for the output generated.
Usage can be billed on a monthly basis or according to the "pay-per-use model". In the latter case, payment is only made according to the number of units produced, per operating hour or another suitable output parameter. Such EaaS business models are becoming increasingly attractive due to technical developments in the field of artificial intelligence and the Internet of Things.
Through Condition monitoring and digital twin, the operation of machines and systems can be increasingly monitored remotely. This enables the step from product provider to solution provider for many OEMs. This results in enormous benefits for both suppliers and customers.
EaaS integrates the solution provider directly into the customer's production process
The difference to models from the Leasing The difference between leasing and EaaS is that a predetermined sum is paid, whereas with EaaS the costs are calculated according to the frequency of use or the output achieved. This means that the service provider also has an interest in getting the machines up and running again as quickly as possible in the event of a breakdown.
The provider must therefore have its service area under absolute control. As he is paid according to the output achieved, he must Maintenance, repair and Spare parts supply can be provided optimally and cost-efficiently. After all, if production is at the customer's premises, the provider also loses its income from the deal. If he then also has processes in the area of service provision that are far too expensive, this quickly becomes a problem for him.
Into the Industry 4.0 age with Equipment-as-a-Service
EaaS strategies offer customers the opportunity to enter the digitalization era with low risk. The main reason for this is that the otherwise high initial investment is eliminated and part of the operational risk can be transferred to the manufacturer. This turns investment costs into operating costs (CapEx to OpEx). Short-term bottlenecks in the financing of maintenance costs are eliminated. Customers no longer have to raise large sums of money to invest in assets that will only lose value in the long term.
The service life of the systems is guaranteed to the customer. Instead of having to deal with system failures and malfunctions, this task is taken over by the provider. This allows the customer to concentrate on implementing effective production processes, business models and digital strategies, for example. Companies can better focus on their own core tasks and strengths and thus gain advantages over their competitors.
More stable income for providers
On the provider side, EaaS business models are convincing because they can guarantee permanent and crisis-proof income. In difficult economic times, investments in machinery and other assets are usually drastically reduced. However, these investment costs are eliminated with Equipment-as-a-Service, which is why the business does not collapse so comprehensively in an economic downturn. In addition, revenue is not just generated once through the sale, but is earned in the long term by making products available.
Another advantage for providers is the close customer loyalty that results from EaaS business models. Instead of a one-off trade, there is a long-term customer relationship. As a result, the manufacturer is in constant contact and can offer additional services or products in a targeted manner. Value Added Servicessell. The service component is also generally higher in an EaaS business model and usually has a better margin. For example, all spare parts are guaranteed to be sourced from the provider and the services required to ensure performance are included in the price as part of the deal.
What are the hurdles on the way to Equipment-as-a-Service?
In general, Equipment-as-a-Service has yet to make a major breakthrough in mechanical engineering. It has been discussed for a long time, but the necessary implementation is still lacking in practice. One of the main problems is that many companies have not set up their service sufficiently well.
There are also many uncertainties regarding the financing of the business model. This is because until now, revenue has been generated through the sale of products. With the transition to Equipment-as-a-Service, revenue from product sales suddenly disappears and is replaced by long-term revenue streams. Not every company can cope with this so easily and, of course, it doesn't look good in the annual report.
That's why you often can't do without a financing partner. But then the step is not as big as it seems at first glance. New processes are also required to ensure implementation. For example, many ERP systems are not suitable for individual billing per month instead of flat-rate billing per sale. There will also be a strong Service orientation and the pure sales focus is becoming less important.
Horse-as-a-Service: an old idea is revived!
Incidentally, even the ancient Romans used methods that are similar to the concept of equipment-as-a-service. Due to the sheer size of the Roman Empire, the ancient Latins were faced with the problem of ensuring communication even to the remotest provinces in a reasonable amount of time.
Horses were only of minor help. Horses are no more enduring on long journeys than humans. If you wanted to send a messenger with an urgent message from Rome to Londinium (today: London), he would have arrived there far sooner on foot than on horseback.
In 1878, for example, U.S. Colonal William B. Hazen noticed from his experience during the Indian wars that his cavalry was no longer able to advance faster than the infantry after the fourth day of travel, and from the seventh day onwards the foot soldiers had to slow down the pace of the march even further to enable the mounted soldiers to follow at all.
The Romans solved the problem with the very same approach that we also refer to in the context of Equipment-as-a-Service. They turned the product "horse" (apologies to all horse lovers!) into a service with a guaranteed and optimal output performance. They achieved this by regularly organizing so-called Mutationeshorse changing stations.
There, the messengers could change their mounts and thus continue their journey at top speed while our ancient service colleagues took care of the "maintenance" of the mounts. In this way, a message could travel up to 300 km a day in extreme cases. Normally, however, the average would be 150 km in normal cases and just over 200 km a day in urgent cases. This service was offered as part of the Cursus Publicus and was, however, a state service that could only be used in part for commercial or private purposes.
As part of the switch to electromobility, consideration was also given to using comparable methods again. This is because electric cars have a similar problem to horses: they require longer resting and charging times. That's why the idea of changing the batteries when traveling instead of charging them is an obvious one.
The Chinese company NIO and Tesla have at least ever thought about it. However, Tesla at least has distanced itself somewhat from this idea. They are probably still looking for a technically sensible implementation and are waiting for a SERVICE PROFESSIONAL with the right business model for the implementation. (Maybe someone has the time 😉 )
The future of Equipment-as-a-Service
Even 2000 years ago, it was an advantage to be able to concentrate optimally on one's core business instead of having to spend time maintaining the necessary equipment. This need will also shape the future of the industry and drive the trend towards equipment-as-a-service business models.
Customers want to become more flexible and tie up less capital in investments in order to be able to react quickly to market changes. Equipment-as-a-Service is the logical consequence of this desire. That is why there will be no way around it at some point. Unfortunately, many things are currently still failing due to the initial hurdles mentioned above. However, this must change in the long term in order to meet customer needs and opportunities in the age of Industry 4.0.
