Waves of digitization, innovative technology, and an astounding rate of change are transforming aerospace and defense (A&D). As organizations strive to keep pace and take advantage of new concepts, one trend gaining attention is servitization – instead of selling products, the manufacturer or contractor provides service-based offerings billed to customers based on usage. Rather than a defense contractor selling hardware, the contractor sells availability and bills only for the hours when the hardware is operating and available for deployment. Often called performance- based logistics (PBLs), the system tracks when the asset is well-serviced, fully operational, and available. If the system is out of commission for maintenance or repairs, the customer is not billed. For the customer, paying for the as-needed service is more economical and eliminates the worry of maintenance.

The manufacturer assumes the risks associated with downtime, a value added that provides an important differentiator, additional revenue, and a way to build an intimate relationship with the customer – rather than simply selling a product. The advent of the Internet of Things (IoT) has made this concept feasible and the risk acceptable.

Sensors embedded in the machinery monitor and collect data concerning physical conditions, such as temperature or vibration. Cloud-based systems store and analyze data, looking for anomalies or early warning signs of a potential part failure. The system uncovers issues early, so the manufacturer can be proactive about maintenance and confident that the equipment will be available when needed. Without IoT technology, servitization would be a high-stakes gamble.

As more servitization business models are deployed, four common stumbling points are coming into focus.

Who assumes the risk?

Consider, as an example, a battle tank-supplying contractor. Rather than selling the tank, it now offers tank availability. Assembling such a complex vehicle requires many components. Many factors influence its availability, some beyond the control of the contractor offering the service. If the tank requires extensive maintenance because of a faulty component, how is the risk and financial impact shared with the supplier at fault? Contributing suppliers should share some of the risk and cost burden, but how can that be calculated? What if the tank is not available because of conditions beyond the contractor’s control? For example, a tank could be damaged when dropped from a plane, or a sandstorm could close intake systems, forcing unscheduled maintenance. In such cases, how is the billing adjusted?

Aging equipment risk

Tracking parts and components of new machinery to monitor performance and impact on availability is realistic. But, what about older equipment that has been in the field for extended periods? Some defense assets, such as the C-130 cargo plane and Bradley fighting vehicle, have been so durable they have surpassed life expectancies.

Can the same kind of servitization offer be extended for those assets which are already high-risk because of their length of service? Are the individual parts logged for the asset, including service history? An overhaul may need to catalog the components and add sensors so that IoT technology can monitor performance. Often, contractors avoid these questions by deciding that servitization contracts only apply to new or recently overhauled products.

Who owns the data?

As in any IoT application, the servitization business model opens the conversation about who owns the data being collected. The contractor needs the data to ensure the asset is serviced and maintained and for billing, but what other data rights does the contractor keep? Can the data about predictive trends and performance insights be aggregated and used to create benchmark reports, service guidelines, or white papers with advice about asset investments – products that could be sold to third parties? Or, does the customer paying for the rights to the asset own the generated data and for how long? These issues should be discussed early in planning and thoroughly defined as part of the agreement. Often, customers will be willing to relinquish rights to the data if it is anonymous and if use of the data benefits them.

ISTOCK PHOTOS

Cybersecurity

Since the servitization model relies on sharing, transmitting, and storing data by a third-party cloud provider, the possibility of a cyber breach requires the scrutiny and expertise of skilled professionals. Is it possible to protect the assets, system, and devices being used? Safeguards and backups can provide the confidence needed. In many cases, cloud security, when managed by providers with advanced systems, are more secure than the average on-premises solution.

When planning a servitization offering, it is important to begin with open eyes, looking for issues that may cause problems and address them early. For each issue mentioned, available technology can solve common hurdles. IoT solutions with built-in business intelligence tools help the manufacturer/contractor access data and draw insights concerning performance logistics and trends. Data leads to confidence and equitable solutions for all stakeholders.

Take-aways

As A&D companies seek ways to differentiate themselves from the competition and create lasting customer relationships, servitization is gaining more attention. It offers advantages for the contractor and customer, allowing the customer to pay only for time and services consumed. Early adopters have encountered some stumbling blocks, but these issues should not prevent moving forward with implementing a servitization business model. The solution is often in the data and use of business intelligence tools. Knowing how to deploy the technology may be the biggest challenge, but experts are available. So, get started. Those who wait or opt to sit on the sidelines observing, run the risk of becoming obsolete to customers.

Infor
https://infor.com

About the author: Ed Talerico A&D industry director at Infor, can be reached at 800.260.2640.