ABB: Service partnerships evolve to deliver outcomes
Manufacturers rely on the support of service organizations to keep their processes running smoothly, reliably and cost-effectively. However, they could get much better value, and more sustainable operations, by shifting their focus from looking for maintenance, repair and replace services to a model that delivers outcomes, such as guaranteed uptime. That’s my conclusion drawn from the experience of running a global service team covering a broad portfolio of industrial motors, generators and drives.
This model of “buying an outcome,” such as uptime or energy savings, for manufacturing processes can evolve only through a radical rethink of the traditional customer and service vendor relationship. That means adopting a truly collaborative partnership in which customers share their objectives, needs and risks so that their service partner can develop the optimum regime.
The time is right for change
Providing the essential infrastructure for the shift to guaranteed uptime is connectivity. The time is right to make this sort of change as the pandemic has already created something of a seismic shift in the way that services are provided. This trend is sure to continue as every device on the factory floor becomes part of a connected world for better decision making that reduces costs and achieves greater productivity.
We have seen a lot of interest from customers who want to make their manufacturing operations even more robust and reliable so that they are prepared to meet any similar crisis in the future. This is a further driver for the move from the traditional service business to remote services, where activities such as the repair of existing equipment and installation and commissioning could be supported remotely, not only in reducing travel time but also in reducing health and safety risks.
We also expect to see even more developments in augmented reality (AR) and virtual reality (VR) that enables service engineers to have an effective telepresence.
New outcome-based business models ensuring guaranteed uptime
Replacing the old run-to-failure business models and price-driven, win-lose procurement exercises with trust-based relationships can deliver several key benefits for customers. These include optimized operations, lower total cost of ownership (TCO) and reduced risk, as well as fostering innovation. A trust-based relationship will also enable holistic optimization of performance, increasing the impact of sustainability improvements by reducing waste through circularity and lowering carbon emissions.
The result is that manufacturing companies can move towards an outcomes-based business model. Rather than the focus being on how quickly we can get people to site and how long it takes to find a solution, it is now about avoiding risk. For example, Statkraft, Europe’s largest generator of renewable energy, has awarded us a major turnkey contract to design, manufacture and install two high-inertia synchronous condenser systems for the Lister Drive Greener Grid project.
To ensure around-the-clock availability for this vital system, we have signed a 10-year services contract with them. In effect, Statkraft is purchasing a guaranteed level of availability or uptime – with maintenance included from ABB. To guarantee uptime, we need to monitor our customer’s equipment and then take proactive maintenance actions to ensure that breakdowns never happen.
The economic benefit of this is that OEMs, like ABB, have the in-depth knowledge and expertise in their products. They have the knowhow to optimize the performance and lifecycle of their products. It therefore makes sense for them to take the responsibility for these aspects, rather than the asset owner as it is today.
These new business models, also known as XaaS (everything as a service), are already well-established in other sectors. The manufacturing industry is just a few steps away from a transformation and early movers will gain a competitive advantage.
IMF: Variants Can Still Hurt Manufacturing Recovery
After a year of on-and-off manufacturing in the US, UK, and the eurozone, demand for goods surged early last week. Factories set growth records in April and May, suppliers started to recover, and US crude hit its highest price point since pre-COVID. As vaccination efforts immunise much of the US and UK populations, manufacturers are now able to fully ramp up their supply chains. In fact, GDP growth could approach double-digits by 2022.
Now, the ISM productivity measure has surpassed the 50-point mark that separates industry expansion from contraction. Since U.S. president Biden passed his US$1.9tn stimulus package and the UK purchasing managers index (PMI) increased to 65.6, both sides of the Atlantic are facing a much-welcomed manufacturing recovery.
Lingering Concerns Over COVID
Even as Spain, France, Italy, and Germany race to catch up, and mining companies pushed the FTSE 100 index of list shares to a monthly high of 7,129, some say that UK and US markets still suffer from a lack of confidence in raw material supplies. Yes, the Dow Jones has made up its 19,173-point crash of March 2020, and MSCI’s global stock index is at an all-time high.
Yet manufacturers around the world realise that these wins will be short-lived until pandemic supply chain bottlenecks are solved. If we keep the status quo, consumers will pay the price. In April, inflation in Germany reached 2.4%, and across the EU’s 19 member countries, overall prices have increased at an unusual pace. Some ask: Is this true recovery?
IMF: Current Boom Could Falter
Even as Elon Musk tweeted about chip shortages forcing Tesla to raise its prices, UK mining demand skyrocketed; housing markets lifted; and the pound sterling gained value. The International Monetary Fund (IMF), however, cautioned that manufacturing recovery won’t last long if COVID mutates into forms our vaccinations can’t touch. Kristalina Georgieva, Washington’s IMF director, noted that fewer than 1% of African citizens have been vaccinated: “Worldwide access to vaccines offers the best hope for stopping the coronavirus pandemic, saving lives, and securing a broad-based economic recovery”.
Across the globe, manufacturing companies are keeping a watchful eye on new developments in the spread of COVID. Though US FDA officials don’t think we’ll have to “start at square one” with new vaccines, the March 2021 World Economic Outlook states that “high uncertainty” surrounds the projected 6% global growth. Continued manufacturing success will in large part depend on “the path of the pandemic, the effectiveness of policy support, and the evolution of financial conditions”.
Mathias Cormann, secretary-general of the Organisation for Economic Co-Operation and Development (OECD) concurred—without global immunisation, the estimated economic boom expected by 2025 could go kaput. “We need to...pursue an all-out effort to reach the entire world population”, Australia’s finance minister added. US$50bn to end COVID across the world, they imply, is a small investment to restart our economies.