It is not a secret today that the profitability coming from hardware is a problem. Figuring out how to make more profit is to enroll in the service business. With IoT becoming a reality, test equipment manufacturers need to act now to avoid the Kodak moment. Some leading test equipment companies and distributors are looking to explore new potential opportunities on combining their business model of selling hardware with increasing service-based offerings.  There is a need to a new design to be more flexible to constant change. It is not test equipment vs. test equipment anymore. No longer can test equipment focus on hardware alone. Instead, there is a potential focus on platform and ecosystem. There is a need to develop a platform-centric business model that effectively integrates hardware, software analytics, and services. Companies are focused on redesigning the customer experience across the entire life cycle of test equipment by considering all of the interactions that users have around the test product.

Frost & Sullivan has started an independent research initiative analyzing the concept of migration from selling products to selling the value of product-as-a-service. The research will include a deep dive into key trends as well as an analysis of the market’s key stakeholders shifting their business model from selling hardware to service-based offerings. There are a number of possible services business models from other industries including Product as a Service (PaaS), Data as a Service (DaaS), Platform as a Service, Pay Per Use, Software as a Service (SaaS) that could potentially impact the test & measurement (T&M) industry, moving forward.  One growing area is asset management services.

Asset management is an important growing area for service offerings in the T&M industry in the next 10 years. Customers are willing to adopt asset management services due to the clear savings, cost of test, and operational improvements. Leading companies are taking initiatives to continue investing in the tools to deliver these services. However, most of the companies are adopting  a “wait and see” approach for service-based models expecting to replicate successful companies. Asset management is projected to create disruptive new business models, and deliver customer value in new ways changing the revenue model. End users are demanding less expensive pieces of hardware. The time is coming for service-based business models.

Business Implications of Adopting Asset Management Services

Users are becoming increasingly aware of the cost of test equipment. Labs have no real visibility into maintenance and disposal of unused equipment with potential hidden costs (depreciation, insurance,  space, and so on).  Asset management as a service model provides significant opportunities for operations improvement and efficiency.

Customers typically work in silos, often purchasing the same test instruments multiple times for different engineers, laboratories, or locations, yet these instruments are not used to their full extent, leading to low asset utilization. While optimal asset utilization for test equipment is in the range of 85% due to calibration and repair needs, the typical utilization of test assets at many companies is in the 30% range.

The following business implications of outsourcing an asset management services is summarized as follows:

  • Integration with Engineering and Planning Teams: There is need to have a working engagement with engineering and planning teams to have better control of changing project timelines and determine optimal time for the purchase of new test equipment. There is a need for a service focused on handling the possibility of acquiring equipment before the procurement group get involves for buying new equipment and adjusting time from a capital deployment perspective.  Users do not have the ability to manage an analytical software internally.
  • Automatic Reallocation of Used Test Equipment: Cost avoidance can come from the reuse of existing test assets. There is a need for handling an efficient process and data coming from the field and redeployment of assets. The system demands one central data source with automated reallocation of used equipment and inventory based on projects demand and timeline.
  • Manage Virtual Inventory of Test Equipment: Users can lose visibility into capital purchase of test equipment. There is a need for services focused on inventory tracking that could help on warehouse design and lab space management. Services can easily track whether test equipment have been on service, delivered, or in transit. This helps in setting rules for updates reports and root cause analysis for failure of equipment and make sure test equipment are used for existing projects. Services are looking to track PO receipts, installed base, and test equipment by project allocation.
  • Configuration of Assets for Deployment: Services are focused on tracking configuration of assets requirements for deployment and installation so engineers can quickly allocate the equipment to specific assigned projects.
  • Operational Efficiency: Using the asset management service tools can improve operational efficiency in warehouse environments. Users need to avoid intensive manually field work and tracking of equipment that small teams in organizations would not like to take on. Companies do not have the internal capabilities for tracking existing assets and focused on reuse decision of test equipment. Companies usually have one process to buy new equipment.  However, users have not taken real advantage into how to manage more effectively the existing assets and improve the supply chain. There are companies that fully outsource all operations to service-based providers and there are some users that do it for a particular line of business or geographic region.

Integrated Service Delivery Business Model

The growth opportunity comes from a user definable workflow to increase the repair and calibration, improve project scheduling, user assignments, measurement data collection, and future supplies of test equipment.

Delivery Business Model

Last Thoughts

Disruption does not necessarily mean avoid what T&M companies made to be successful. Instead, it involves challenging the assumptions to deliver new value to customers and generate new revenue streams beyond the constraints of an existing operating model.  Winners in the future T&M landscape will be those organizations agile enough to innovate rapidly under a data platform centric value.

Supply chain management and Capex optimization need to be refined. Decreasing test equipment tracking inventory complexity across the supply chain reduces costs. There is a need to ensure cooperation and remove organizational silos connecting cross functional divisions including R&D, manufacturing, and field in the value chain.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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