June 8, 2023
OEMs can offer subscription-based productivity instead of selling capital equipment

Why does maintenance matter? According to a 2023 report from McKinsey, aftermarket services provide three benefits to original equipment manufacturers (OEMs):

• Maintenance and spare parts extend the life and performance of machinery.

• Post-sales interactions nurture relationships with end users.

• Aftermarket services and parts generate cash flows for OEMs.

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The margins on after-sales service and support are more than double those on capital-equipment sales, according to McKinsey. And aggressive models that are built into the sales contract can lead to margins that are as much as 10 times higher.

One of the more popular business-model buzzwords is the as-a-service, subscription-based revenue stream.

After-sales service has been around for decades, but even as recently as the turn of the 21st century that model was transactional and reactive, according to McKinsey.

The ability to monitor equipment remotely has changed what's possible. I’ve even heard the term “maintenance-as-a-service” thrown around, which obviously makes no sense. Maintenance already is a service. It has been for decades. But guaranteeing and optimizing the throughput that comes from predictive maintenance and equipment reliability is a blue-ocean strategy that continues to gain momentum.

A few OEMs are testing the waters of partnering with plants and factories by offering production-based subscriptions that put machinery on the floor without an upfront capital investment. The factory or plant pays for the output of the equipment, and the OEM can monitor machine health, service it based on predictive analytics and even optimize production and energy usage by connecting with the sensors it has integrated into the equipment.

Who knows and understands the machinery better than the manufacturer that built it?

Maintaining that equipment is a service that many factories and plants handle in-house by a maintenance-and-reliability department that monitors machines manually or through some form of automation and then schedules work with computerized maintenance management system (CMMS) or enterprise asset management (EAM) software.

But the OEM’s knowledge of the equipment can allow for a more intimate relationship with the factory or plant. However, whether to offer aftermarket services and spare-parts support as an add-on expense or to sell production as a subscription-based service will depend on the OEM’s desired cash flow.

Maintenance of industrial-manufacturing machinery is inevitable. Optimizing production and energy efficiency are optional but highly valuable.

It’s time for OEMs to design equipment with an aftermarket plan in mind.

About the Author

Mike Bacidore | Editor in Chief

Mike Bacidore is chief editor of Control Design and has been an integral part of the Endeavor Business Media editorial team since 2007. Previously, he was editorial director at Hughes Communications and a portfolio manager of the human resources and labor law areas at Wolters Kluwer. Bacidore holds a BA from the University of Illinois and an MBA from Lake Forest Graduate School of Management. He is an award-winning columnist, earning multiple regional and national awards from the American Society of Business Publication Editors. He may be reached at [email protected]