Maintenance as a Strategy
Table of Contents
It is an important starting point to make a great device. But it is the service that turns great products into great business.
For reasons yet unknown, high-tech device manufacturers seem to significantly undervalue the great business potential they have in maintenance. This article aims to counter this problem.
This article provides you with fresh viewpoints on ‘maintenance’ that might not be that obvious at first hand. We take a strategic perspective on the impact that preventive maintenance can have to the entire business of device manufacturers.
The article has fulfilled its purpose if it can provoke device makers to think differently about ‘maintenance’. Perhaps, to plant the idea that modern digitalized maintenance strategy could even be the biggest business opportunity they have…
Maintenance Cost – Traditional vs. Modern View
Sure, it would be nice to implement a modern digitalized predictive maintenance program and prevent all major failures from happening. But is it feasible cost-wise?
Your ‘total cost of maintenance’ is calculated as the sum of ‘repair costs’ and ‘prevention costs’. The logic is simple. The more you try to prevent failures, the more the prevention costs rise. At the same time, the more you prevent failures, the less are your repair costs.
Traditionally the discussion around maintenance strategies has been about finding the optimal prevention level, where the repair costs are low enough without the prevention costs climbing too high.
This traditional view on finding the best maintenance strategy assumes that 100 % prevention has an extremely high cost. In the past, this was true. Preventing every failure resulted in a considerably high amount of over-maintenance, such as replacing spare parts for security, and performing constant inspections. In the past, only safety-critical devices in highly regulated industries could afford this.
Today it is different. IoT, data networks and cloud computing has changed the game. You do not need to perform constant manual inspections and replace well-functioning parts to prevent failures. You can monitor the condition of your devices in real time and do maintenance when it is needed.
Today you can reach a 100 % prevention level with a fraction of the cost, compared to the traditional view.
Many successful device makers have applied digital solutions for predictive maintenance and reached a 100 % prevention level while lowering their total maintenance cost.
When thinking of which approach you take to your maintenance strategy, it is highly recommended to consider the difference between the traditional view and the modern view on total maintenance cost.
Customer Value of Maintenance – Cost Modeling of Consequences
In business, you need to understand your costs, sure. But if minimizing costs becomes your main driver for building your maintenance strategy, you have already lost the game.
Sales is what you should be looking at, also in maintenance. Or especially in maintenance.
Sales is about customer value. The more you can provide value, the more your customer is willing to pay. So, what is the value that your maintenance program can bring to your customer?
Preventive maintenance eliminates failures in your devices. Each failure causes some consequences in your customer’s process. These consequences have a cost to your customer. Simple way to increase customer value with your maintenance program is to minimize these consequence costs. Customer value should the starting point of building your maintenance strategy.
But where to start?
Start where the value happens: at your customer’s. Have a discussion to understand what is important for his business. List three or five failures around your devices which have an impact to these customer goals. Estimate a probability for each failure to happen. Finally, give each consequence a cost.
Summing these costs together will give you the average annual consequence cost. Eliminating these consequence costs means directly more profits to your customer. This is customer value, which is easy to sell.
In the example below your preventive maintenance service saves your customer 68 300 € per year per device. This allows you to price your predictive maintenance service between 10 k€ and 30 k€ per year per device.
When you learn more from your customer’s process, you can add more lines and find bigger numbers. More of this customer value you can show, higher your service price can be.
|
FAILURE What can happen in your device? |
CONSEQUENCE What will it cause to your customer? |
COST Cost to your customer? |
PROBABILITY How often per year? |
ANNUAL COST Average consequence cost? |
|
Power supply damage |
Process stops, 3-hour downtime |
30 000 € |
0.6 |
18 000 € |
|
Safety sensor malfunction |
Operator accident, 2-day downtime |
320 000 € |
0.04 |
12 800 € |
|
Laser cooling malfunction |
Wrong values, end-customer penalties |
100 000 € |
0.2 |
20 000 € |
|
Gluing head misplacement |
Market recall of bad safety component |
3 500 000 € |
0.005 |
17 500 € |
|
CUSTOMER’S AVERAGE ANNUAL CONSEQUENCE COSTS |
68 300 € |
|||
Maintenance as the Core of Your Strategy
An unfortunately common way to think of ‘maintenance’ is that it is a mandatory nuisance. This is especially common amongst device manufacturer’s, who would prefer to focus on developing their devices.
This thinking leads to a vicious circle. While you try to minimize your role in the maintenance and push it to the customer’s responsibility, you start losing grip to the most important thing: how your customer uses your device.
But there is another way to think of maintenance.
What if you would put maintenance into the very core of your business? Let’s take the well-known example of Rolls Royce to explain this.
Already in the sixties, Rolls Royce realized three revolutionary thoughts that apply ever better in today’s complex world.
First, the aircraft engine is not the value they make. The value is the power that the engine creates.
Second, to create long term customer success, their interests need to be aligned with the customer’s interests, who only want to pay for engines that perform well.
Third, maintenance is crucial for engines to perform well. They wanted to make sure that all maintenance tasks were done correctly. Instead of pushing it to the customer’s responsibility, they took full ownership of the maintenance.
Since 1962, Rolls Royce has sold ‘Power-by-the-Hour’, a complete engine and accessory replacement service on a fixed cost per flying hour. Rolls Royce takes responsibility of the maintenance, ensuring that their engines perform as well as they possibly can.
Nowadays over half of their sales comes from services, including maintenance work, real-time engine health monitoring as well as the ability to swap engines for ‘off-the-wing-maintenance’ which reduces downtime for airliners.
Rolls Royce has put predictive maintenance into the core of their business. The big question is: has it been a successful strategy?
64 % market share in wide-body aircraft and a full order book for the next 10 years answers the question.
Impact of Three Maintenance Strategies
There are three different mindsets that device manufacturers can have on their business, let’s call them ‘maintenance strategies’. The most common and obvious thought a device maker can have is that ‘we sell devices’.
After the device manufacturer realizes that they need to support their customer in using the device, they start entering the ‘we sell also services’ -strategy.
Rolls Royce figured out that the customer value is the power that the customer uses, not the engine itself. If you engage in similar thinking, you are getting close to the ‘we sell performance’ -strategy.
These different approaches have a significant impact across your entire business. The way how you think of your maintenance reflects how you think of your entire business strategy, as seen in table below.
| WE SELL DEVICES | WE SELL ALSO SERVICES | WE SELL PERFORMANCE |
ROLLS ROYCE EXAMPLE What is sold to the customer? | DEVICE Aircraft engines | DEVICE + SERVICES Aircraft engines and maintenance services | PERFORMANCE Power-by-the-hour |
RESPONSIBILITY Who takes care of the maintenance? | CUSTOMER You help when needed | CUSTOMER You do maintenance on an agreed plan | YOU You make sure everything works |
CUSTOMER VALUE What is the value that customer sees? | LOW Well-designed and manufactured devices | MEDIUM Great devices and easy-access maintenance | HIGH The outcome and value your device enables |
REVENUE STREAM How does your sales look like? | UNPREDICTABLE Revenue comes from new device sales | SOME PREDICTABILITY Continuing services create some revenue | VERY PREDICTABLE Long term agreements with stable revenue |
PROFITABILITY How profitable your maintenance work is? | LOW Maintenance hours have a price limit | MEDIUM Maintenance program allows some profits | HIGH Maintenance as a part of total offering |
BUSINESS MODEL How do you price your business? | PRICE PER DEVICE Services priced based on actual work | PRICE PER DEVICE Continuing services with fixed annual price | PRICE PER UPTIME Simple price includes everything |
Impact of Three Maintenance Strategies
The more you can provide value to your customer, the more your customer is willing to pay. Thus, the more you take responsibility of the performance of your devices, the better profits you can make. And maintenance is a crucial part of the performance or your device.
But there is even a better business motivation for rethinking the role of your maintenance than profitability. If you can transform your business from selling devices towards selling the performance of your devices, you will get a more predictable business.
How so?
If you sell devices, your business relies on the next closed sale. You are prone to cyclic changes, market disturbances and short-term sales success. Continuing services will provide stable revenue and predictability, which is why maintenance agreements are a good idea. The highest level of predictability is achieved when you do what Rolls Royce does: sell performance-as-a-service rather than the device.
But why is predictability important?
Predictable business with long-term agreements leads to a positive loop where, where you do not have to jump around to find new customers. Instead, your predictable business allows you to constantly invest in strengthening your existing customer relationships and developing new ways to improve your performance. Your customers get constantly more value and are satisfied with the performance, which makes them even more committed to you and sign even longer agreements.
This positive loop is the reason why Rolls Royce has a 64 % market share and a full order book for the next 10 years.
Whether you agree or not, we hope that we have been able to convince you to spend some time on re-thinking the role of your maintenance.
We argue, that when you understand the role of maintenance as Rolls Royce does, your understanding of customer-oriented business has taken a giant leap forward. And that already is a big win.
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