Brad Parsons, Founder and Chief Executive Officer at MOVUS, explains why the move towards ‘pump-as-a-service’ is a win-win for industry and the environment.
The need to ensure that Australia has an effective and reliable energy system is not just political lip service; Australian industry demands it in order to survive and thrive where other industries, such as resources and mining, are in decline.
Indeed, the National Energy Guarantee (NEG) – whatever its future may be – highlights that energy security is on the minds of many. And it’s not just in Australia that the matter is at the top of the agenda – energy across the globe is in transition and there is motivation for change.
Motivation is all well and good, but it needs to be directed towards longer term outcomes. More efficient ways to do the same things are short termist in the grand scheme. We need to turn conventional thinking and concepts on their head for true transformation.
Here, we explore one example, the reality (and inevitability) of an industry model where pumps are ‘consumed’ and not owned, creating a range of operational and strategic implications. And it will disrupt the business and operational models of pumps as we know today.
Inevitable transition towards new business models
Last century, global industries were built of the back off the consumption of fossil fuels. In this century, we are already seeing rapid deployment and adoption of renewable energy.
This shift, while still in its infancy, is driving consumer demand and industry’s awareness and appetite to transition to more efficient and reliable industrial systems.
As energy costs continue to escalate, the pressure to adopt new business models for asset ownership are evolving in an attempt to control quality, productivity, speed and flexibility.
Of course, cost plays a significant role in how those systems evolve, and we’re seeing great opportunity for innovation. MOVUS is among a handful of organisations driving the evolution of new business models, and specifically, we are driving the transition from pump ownership to ‘pump-as-a-service’.
Sustainability as a component of change
While costs are one dimension driving the demand for change in pumping systems, pressures such as environmental impact via greenhouse gas emissions are increasingly becoming part of the dialogue.
Sustainability Victoria, a Victorian Government initiative, specifically calls out that “improving the efficiency of pumping systems is one way to reduce greenhouse gas emissions and preserve natural resources”.1
While these initiatives are important in driving more efficiency from pumping systems, and reduce greenhouse gas emissions, there are even more radical changes on the horizon. These changes will rapidly drive the transition of industry towards intelligent or smarter machines.
The main act: asset lifecycle costs
As we know, however, environmental benefits alone are rarely, if ever, what gets a business case over the line, or even on the agenda at the C-level. While environmental benefits are a consideration, they are not the consideration. But if we look at some topline statistics behind the reality of expanding a product’s lifecycle and reducing costs to produce, manage, run and maintain assets, then it’s a powerful combination.
The International Energy Association identified that global industry uses approximately 64 per cent of all motor related energy, with pumps constituting 19 per cent of global motor electrical demand.2
According to Xylem, the large American water technology provider, energy is the largest cost across the pump lifecycle representing 45 per cent of total lifecycle costs. When combined with maintenance at 25 per cent, operational costs related to efficiency and reliability account for 70 per cent of pump costs. The use of innovative approaches to reduce lifecycle costs becomes attractive and can be positioned as a competitive advantage.
In fact, just consider that if we were to shave even just one per cent off the cost of operating and maintaining what comprises a fifth of electrical demand, then the impact to the environment and the bottom line with that one per cent alone would be game-changing.
Technology and that one per cent
While many organisations have been working hard to reduce these costs, such as the introduction of VSDs and optimisation of maintenance schedules, the largest gains are yet to be had. These gains are achieved by implementing feedback loops into the design of the machine, which creates an upward spiral of improved efficiency and reliability, which doesn’t exist now.
Businesses this century need to be able to compete globally on quality, productivity, speed and flexibility, and the pump industry will need to transition in order to remain competitive. And it’s largely technology, specifically the Internet of Things for the industrial sectors (also known as IIoT) that enables this; and we are just getting started.
IIoT enables unconnected pumps to be digitally enabled. This enablement flows along the value chain from the OEM to the asset owner. Digitally enabled pumps enable new services such as predictive maintenance, whereby manual physical inspections turn to digital inspections and remote analysis.
As has happened in the consumer space, as seen with ‘Ring’ the internet enabled doorbell and ‘Nest’ the internet enabled thermostat, a raft of new services and business models follow. A good example of this is Bundles, a Dutch sustainable subscription service for washing machines, tumble dryers and dishwashers which delivers financial benefits and reduces wastage by prolonging appliance lifecycle through regular proactive maintenance.
From pump ownership to pump usage…
Disruption enables the transfer of accountability of the lifecycle reliability and efficiency from the pump owner to the OEM (original equipment manufacturer). However, OEMs aren’t the only stakeholders that will be disrupted in this upcoming future.
Service groups will be engaged via digital platforms and their performance will be far more visible than it is today. Asset services and consulting groups will also have far more information on which to make their analysis and recommendations. Insurance firms will be more informed about risk and we are likely to see this reflected in premiums and service offerings. Capital equipment finance groups want to understand the risk of the pump loan being repaid (through running hours and quality of maintenance). Pump owners will become pump ‘users’, as ownership turns to usage. ‘Machine-as-a-service’ model will evolve, which puts pressure on OEMs to drive higher reliability. Operational costs such as energy will have a much higher visibility also. This in turn drives increased competition.
Consumer tech giants Amazon, Uber and AirBnB have no bookstores, cars or hotels but they command multibillion dollar valuations. This ‘asset light’ trend is likely to play out across the pump industry as the blend between ‘digital and physical’ propagates. Physical pumps characteristics become less significant when compared to the value of digitised data and services around those pumps. The concept of ‘machine-as-a-service3’ is now very real according to Boston Consulting Group (BCG).
The ‘asset light’ model has more dramatic impacts for operations, maintenance and risk management teams, in terms of their ability to manage pump performance and service costs.
Optimise performance – Digitally enabled pumps allow stakeholders (internal and external to the organisation) to be able to view real-time health, degradation, utilisation and energy performance, which were previously segregated internally across a range of departments within the organisation.
Improve risk management – Reactive maintenance practices increase risk across financial, safety, environment and regulatory aspects. Knowing that a machine will fail in advance provides the ability to measure, plan and forecast in order to minimise and mitigate these risks.
Reduce product and service costs – Forewarning also results in proactive services, limited warranty costs (for supplier and asset owner) and the ability to feed back into product design. Built in warranty can be reduced as OEMs understand the risk of failure.
If you think this discourse is contained to the plant floor, then think again and read on because for sales, marketing, product teams and OEM manufacturers, this digital disruption has more reaching implications. The battleground surrounding digitally enabled products has only just begun. New revenue streams, enhanced relationships and offerings will result, and if you’re not on board or ahead, then you’re already playing catch up.
New revenue streams – Digitally enabled pumps through IoT result in new revenue opportunities, such as the introduction of predictive maintenance service offerings for OEMs and service organisations. IoT technology provides real-time health and diagnostics to enable greater reliability and higher availability of pumps.
Elevate customer relationships – OEMs and service providers can now engage pump users armed with more real-time information about the operating condition and performance but it also affords the opportunity to understand their customer’s business. This new knowledge creates opportunities for high levels of trust and intimacy.
Differentiated offerings – With this new found trust and intimacy comes the opportunity to provide unique and tailored solutions such as consulting on operational best-practice and improved production processes.
Finally the disruption reaches its pinnacle for those responsible for the very nature of the business. Digitally enabled pumps, ‘smarter pumps’, enable the cannibalisation of existing business models and substitute of existing offerings.
New business models – Some MOVUS customers have already transitioned from selling machinery to selling services. Their equipment sales are no longer the primary part of their business as they provide machinery-as-a-service. New service capabilities must be built when powered by digitally enabled smart pumps; real customer feedback can alter the very design and manufacture of the pump, once visibility of the pump beyond the factory floor is attained.
Substitute offerings – With these new service capabilities operating, the business can transition from pure manufacturing and sales to digitally enabled services. This will require completely new skillsets, reward systems, operating hours and digital capabilities. However, it will enable greater market expansion, higher profit margins and greater customer insights and intimacy.
Among this disruption there are three areas specific segments need to address:
OEMs should look to build partnerships to grow digital capabilities, notably with groups that can complement existing skills to help enable the transition. Look to understand your core competencies and how you add value to customers, and don’t strengthen your service skills, you will need them to harness this new found intimacy.
Equipment service groups (consultants, insurance, capital finance) need to establish dedicated groups that sit outside of your organisation. These groups need dedicated focus to understand and model the implications of this transition without the rigors and reporting of the core business. These new digital services will likely cannibalise existing revenue, therefore strong executive support is required.
Digital transitions can be challenging for Asset Owners if ran as large costly projects, so start small and adopt the startup mantra ‘fail fast and fail often’. Identify parts of your organisation that embrace change and are able to transition. Understand the use cases that generate the most value and start there. Measuring financial ROI is only part of the picture. In the end, those organisations that can harness the power of digital technology across their entire organisation will gain the most competitive advantage.
Embrace the inevitable, early
If we are to deliver efficiency and reliability in the pump industry, then wholesale changes are required, and realistically, they are inevitable.
Right now, Australian pump manufacturers and services groups need to recognise the opportunity for transitioning from pure hardware sales towards digital services. A report in 2015 stated that only 28 per cent of Australian manufacturers with more than 100 employees derived value from services related to their products, compared with the US and Finland, where the figure was closer to 55 per cent of manufacturers4. CapGemini recently published a report5 looking at Digital Engineering, the size of the opportunity and the skills and mindset needed to excel.
Industry 4.0 is upon us, IIoT is here to stay, and nuances to new processes and relationships create amended business models every day.
These changes will have far reaching implications with positive effects across many industries. Digital disruption is shaking us out of our last century complacency, and may well save many businesses, as well as the environment, into the next century.
About the author
Brad Parsons is the CEO and Founder of MOVUS. Brad spent 25 years in a corporate career which spanned national and global positions. These included Aurizon, Flight Centre, News Limited and Multiplex. Prior to starting MOVUS he worked on automation projects for BHP and Aurizon where he worked on their automation blueprints. His inspiration for MOVUS came from a strategic condition monitoring program which he worked on for Sydney Trains.
1 Sustainability Victoria Best Practice Guide for Pumping Systems
2 Energy-Efficiency Policy Opportunities for Electric Motor-Driven Systems 2011
3 Man and Machine in Industry 4.0, September 2015
4 Australia’s Comparative Advantage, Acola, August 2015
5 Digital Engineering: the opportunity for discrete manufacturers, Capgemini June 2018