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Time to change your mind about paying for outcomes

13 April 2020

Servitisation has the potential to reduce capital expenditure while also elevating performance in the food and beverage processing industry. However, the first step must be a change of mindset at both management and operational levels. Suzanne Gill reports. 

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Food and beverage manufacturers are always looking for ways to improve their productivity or add value to their product offerings. An increased use of automation technology – and particularly the enhancements from digitalisation/Industry 4.0 – can offer many benefits in this regard. However, this is often a costly exercise and that is where the idea of servitisation can reap benefits for both the users and providers of equipment and solutions. 

For machine builders serving the food and beverage processing industry, servitisation can offer a way to add value to their product offerings, by monetising services instead of, or as well as, the provision of products. Indeed, according to Andrew MacPherson, food & beverage industry manager at Festo, this is becoming an increasingly important revenue stream for businesses. He pointed out that, as we move from traditional manufacturing models to a more customer-focussed way of working. In 2019, 71% of GDP in Great Britain was generated by services. 

So, in practical terms, servitisation is a shift towards addressing the customer need and supplying a solution to match that need, rather than simplying providing a product that can help address a need. “The psychology is quite simple,” said MacPherson. “People don’t want to buy a quarter-inch drill, they want a quarter-inch hole. An early successful example of servitisation is Rolls Royce’s ‘Power-by-the-hour’, where airlines only pay for uptime and use.”

Examples of servitisation for the food and beverage processing sector could include an after-the-sale contract from an equipment provider which offers support for the equipment via remote Internet connected services, and remote machine optimisation based on collective data across many end users. Services such as this will rely on smart sensors being embedded into machinery to enable performance data to then be uploaded to a cloud server for analysis and monitoring. The ultimate outcome of this for the end user of the equipment could be reduced downtime and optimised throughput. 

According to MacPherson, Festo is already offering services that enable food manufacturers and packaging companies to improve their businesses. “Benefits of this include energy savings, predictive maintenance for increased customer value, training and consultancy,” he said. 

Condition monitoring
“Condition monitoring is another area where servitisation is key,” continued MacPherson. “The analysis of real-time data is already making maintenance far more predictive and is also enhancing understanding of the factors that lead to failure, so these problems can be designed out, over time. We are also exploring the potential of virtual reality and artificial intelligence in the servitisation model: for example, to improve product quality and time to market, as well as reducing waste.

“In the future, it is likely that food manufacturers and retailers may also be able to offer new services such as the selling of customised products, or product mixes profiled for individual customers: not only taking into account their taste preferences, but also to avoid particular allergens, or to support a particular dietary requirement.”

However, a key barrier to the introduction of successful servitisation models is the need to first gain access to consistent and relevant data – particularly on legacy or mixed sites of old and new machinery from many different manufacturers. Very often this means the data is difficult to read, aggregate, analyse and interpret. “A key enabler here will be the standardisation of data using Industry 4.0 standards, making it consistent and machine readable.   The on-going work on Administration Shells and Digital Twins will be a big step forward,” said MacPherson.

As an equipment provider for the food and beverage industry Neil Giles, product inspection specialist at Mettler Toledo, defines servitisation as the process of expanding the capabilities of a company to deliver an improved experience. 

Today, the increasing ability for equipment providers to gather and interpret valuable data from their products while in-situ, provides a huge opportunity to push these servitisation principles.

Giles agrees with MacPherson that the main barrier to unlocking the true potential of servitisation comes down to the data. “Who owns it, how it is shared and how we make it secure is a huge challenge,” he said. “This is not something that any single manufacturer can resolve on their own. However, many equipment providers are already developing transitional solutions that mean food manufacturers are able to access the benefits of servitisation now, while we wait for a truly universal solution to become  available. One such example from Mettler Toledo is InTouch Remote Services, which has been developed to enable our Smart Connected product inspection equipment to be serviced remotely via the Internet, without changes to an existing IT infrastructure. InTouch allows any number of devices to be connected to the cloud, so our technicians can monitor, diagnose, and fix issues in real-time. This frees food processors and packagers to focus on their core production tasks.”

Slow adoption
According to Keith Thornhill, Siemens Digital Industries Head of Food & Beverage Industry UK, servitisation has been infiltrating the manufacturing world over the past few years and some businesses have already successfully adopted this new model, leading to significantly higher return on investment (ROI). However, among food manufacturers, he says that the pace of adoption has been rather slow. “Automation and technology are not being deployed to the optimum level in the food manufacturing industry due to high capital expenditure. In such a scenario, the idea of leasing would be more attractive,” he said.

With so many new technologies – such as digital twin and robotics –  driving automation today, Thornhill believes that culturally the food industry is struggling to fully understand the outcome of digitalising factories. However, he says that it is only a matter of time before this changes.

Under the servitisation model, customers are able to lease the machines from OEM manufacturers and could benefit from the pay-as-you-go or pay per wrap/fill. The benefits of this option are manifold. There is no huge capital investment required and all the maintenance would be carried out by the supplier throughout the life cycle of the machine.

“Using technologies such as digital twinning and cloud-based software solutions, Siemens is looking at mapping out customers’ factories, highlighting the benefits and performance of the output,” continued Thornhill. “When you buy a machine, you get a certain potential output based on the specification of the individual machine. But, if you could build a digital production line with all of the individual machines connected together and simulate the performance, this will allow greater accuracy of the ROI. Our offering is based on data, research and digitalisation, allowing us to predict production performance.  So, buying an outcome as opposed to a physical asset for traditional procurement processes is an option to increase the installation of productive manufacturing.”

“Working with our OEM partners we are able to create new business models and this is possible due to our product portfolio, the breadth of our technology and digital offering, which allow us to create solutions that can link the machines to the whole enterprise,” continued Thornhill. 

As the pace of the servitisation model speeds up, more it is likely that ever more companies will take this route as a valid way to increase productivity without the risks associated with procuring the hardware. This could well be the key to elevating the performance in the food industry and bring about a transformation in the mindset of both management and operations.

A change of mindset
Martin Leeming, CEO of low carbon packaging company TrakRap, absolutely believes that food and beverage manufacturers would benefit from the adoption of servitisation business models but he cautions that it will first require a change of mindset. Explaining further, he said: “Food manufacturers want exceptional performance from their equipment in order to drive productivity and servitisation models deliver just that. Once service levels have been agreed, such as Overall Equipment Effectiveness (OEE) and Total Cost of Ownership (TCO), the food manufacturer could then hold the machinery supplier accountable for delivering it. There are no extra charges for parts, labour or call outs; instead there are penalties for non-delivery. The objectives of both manufacturer and equipment supplier are therefore completely aligned.

“One of the other key benefits that a servitisation business model can deliver the ability for end users to purchase innovative new technology without the need for any capital expenditure, making new innovations that would otherwise be prohibitively expensive – available to many more businesses. In the operational expenditure area of energy reduction, performance contracts are already well established as energy saving is binary – you save energy, or you don’t! Machines, however, are traditionally procured via capital expenditure, so having a performance contract on machinery and offer of a servitised model is often met with scepticism. 

Trakrap already offers a service-based solution with its ‘pay per wrap’ model which allows customers to acquire secondary packaging machinery without the need for capital expenditure. The digital technology it has developed means that each pack costs less than traditional packaging methods so the machine is essentially paid for out of the savings it makes.

“The digital twinning capability that is embedded into our machinery enables us to modify and upgrade equipment to continually drive up productivity, reduce ongoing maintenance costs – such as call out times – and reduce equipment downtime by as much as 70%,” continued Leeming.

According to Leeming, servitisation or ‘pay for outcomes’ models are still a relatively new development in the food and drink industry. He blames this on outdated views around equipment ownership, depreciation and lack of investment which have led to the industry being dominated by old machinery, particularly where end of line packaging is concerned. “Traditional accounting methods do not include the huge productivity benefits that are enabled by digitalisation and I firmly believe that servitisation models are the way for food manufacturers to unlock them,” concludes Leeming.

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