#retrofit Archives - Sales DNA and a Service heart

When we buy a product, we have an expectation of how long we’ll be able to use it and how much value we’ll be able to extract from it. The length of this period is traditionally governed by terms like technical and economic lifecycle. How much more value could we derive from a product with modern asset centric service lifecycle management tools? Let’s show you how to monetize the end-of-life phase of a product.

In 2010 I worked for a global OEM, selling mission critical equipment. In my first conversation with the product sales leader, I asked what value promise we made to our buyers concerning the operational and service lifecycle of our products. In short: “If product owners use the product in line with the use cases anticipated by our design and engineering team, if product owners practice good husbandry and execute all preventive maintenance instructions as laid forward in the user manuals, then our product will operate at nominal performance for the duration of the technical lifecycle.”

Wow, read that response again and spot the “ifs” and assumptions in that sentence.

There was a time when the OEM was the only one knowledgeable about the product and the owner/user wasn’t. The OEM determined the length of the technical lifecycle and the conditions for good husbandry. Today, customers are more informed and certainly more vocal. The OEM will need a better story to contextualize maintenance prescriptions and underpin replacement, retrofit, and decommissioning decisions.

Contextual maintenance prescriptions

In 2020 I wrote a blog based on a question from a product owner who wanted to reduce its maintenance cost. “What happens to the performance of my product when I skip a preventive maintenance cycle or increase it from 12 to 18 months?”

Representing the OEM, this was a tough one. I could repeat the prescribed maintenance instructions, but I had neither carrot nor stick to convince the customer to adhere to these instructions and buy my maintenance services. If I gave in, I would certainly lose preventive maintenance revenue; if I held my ground, I might win in the short term, to lose the bigger picture. What I needed was a mechanism to consider the age of the product as well as the wear-and-tear.

Managing aging products

Creating such a mechanism and developing a contextual rationale for maintaining aging products is relevant for both OEMs and product owners. To underpin the answer to the question is: “What is the tipping point where to continue to invest in the current product versus going for a newer product?”

During the warranty period, asset owners expect their products to work without any substantial maintenance cost. As the product ages towards mid- and end-of-life, those expectations shift. To monetize those shifting expectations, an OEM will need an asset centric service model. Meaning, knowing where the products are, in what state and how they are being used.

What does this look like? If each touchpoint with an asset during its service lifecycle represents an activity. If each activity requires an effort. If each effort has both a cost and revenue component, then you can paint a picture of the cost-to-serve that product over its lifecycle. When you start comparing actual cost/revenue against planned cost/revenue, then you will have the data points for decision-making. In a full transparency mode, customers will have the same information, leading to balanced buyer-seller investment decisions.

Informed investment decisions

To understand how an OEM can monetize end-of-life situations, it is necessary to flip the point-of-view to the asset owner.

Suppose a customer purchased a product a couple of years back, to fulfill specific use cases. The buyer made certain choices to maintain the product to protect that investment. At any point in the lifecycle of the product, the owner needs to decide:

Do I continue using the current product in gradually degrading mode?
Do I retrofit or upgrade the product boosting performance and/or lifespan?
Do I decommission the old product and buy a new one?

To make an informed decision, one considers:

The product is getting older in calendar years
Product output/ performance is dropping below a certain clip level
The cost to maintain the product is higher than the value it generates
The use cases for the product may change over time

Ideally, one would have tools to make a forward-looking statement. A tool answering the question: “Considering all of the above, how much opex and capex do I need to spend on my product to keep it in working order?” Such a tool exists!

Multi-year maintenance plan

In the 1970s a method called the “House Condition Survey” was created in the UK to determine the technical state of buildings and to derive subsequent maintenance plans. Not based on abstract/generic, OEM-sourced maintenance prescriptions, but based on the actual state of the equipment in the context of its use, wear, and tear.

In the Netherlands this methodology has been refined in a norm NEN 2767, with a so-called Multi-Year Maintenance Plan (MYMP) as primary output. The asset owner can ask a service provider to execute ‘textbook’ preventive maintenance and contract an additional MYMP. The MYMP will serve a forward-looking opex/capex statement for budget planning and risk mitigation purposes. For the service provider the MYMP serves as input to defining sales strategies monetizing end-of-life.

Monetizing end-of-life

Now we have the data points to construct a forward-looking statement and we understand the interest of the product owner, the OEM can build an end-of-life services portfolio:

Upscaling textbook preventive maintenance to condition-based maintenance
Selling retrofits and performance booster packages
Subscription offerings to keep the product on latest engineering revision and software level
Buy-back of older products and sell them as refurbished units
Cannibalize decommissioned products for component and precious-metal recovery

With the above services portfolio, both OEM and asset owner have a toolbox to monetize the end-of-life of a product. Deployment of the tool is not a one-size-fits-all but is contextual to the actual behaviour of a product in the field. Knowing where those products are, in what state and how they are being used, is at the foundation of lifecycle monetization.

Published on PTC Blog.

Engineering changes extend into the operational life cycle of a product

I once believed every product was 100% engineered before it found its way onto the markets. Having run service organisations for more than 25 years I’ve reduced my confidence in this percentage year over year. Don’t get me wrong, I don’t mean to say that is a bad thing, but I do want to emphasise that acknowledging that anything less than 100% puts a burden on the service organisation to build mitigating processes.

I’ve seen organisations introduce 80% engineered products by business model design, as they need the usage feedback to finalise the engineering. Other organisations aim at a near 100% engineered product, only to discover their products are used in unforeseen contexts leading to post-GA modifications. And in the digital age I see more and more organisations enhancing product capabilities of physical products by ‘selling’ software upgrade options.

Where is my Installed Base?

All variants share a common premise: you need to have installed base visibility as well as an accurate as-maintained BoM to be able to manage your engineering changes effectively.

To illustrate this, I’ll give an example on the other end of the spectrum. If you don’t know where the affected products are, and you have a compliance obligation to reach out to the product/ asset owners, you can only go public … and that is not good for your brand image … as many car manufacturers and food companies will confirm.

In our Global Customer Transformation (GCT) practice we often see a hybrid. Some units sold have an associated warranty and/ or service contract, other units are not visible because they are sold via an indirect channel and/or the owner does not want to be visible. What engineering change managers need is a ‘workbench’ to create a near-complete installed base from multiple data sources.

Now we have a near-complete installed base, we can filter on model ABC with a commissioning date between 2011 – 2013.

Spread the Wealth

A common characteristic of engineering changes is that they tend to come at an inconvenient time, on top of the existing workload. What potentially complicates things is the combination of a) the availability of replacement parts and b) the customer expectation to be first in line.

Let me give you an illustration that reveals my age. In 1989 Intel launched the 80486 processor. High-end customers upped the specs of their PC’s with the 80487 co-processor. Then a researcher detected a mathematical flaw in the co-processor. Immediately people wanted a replacement. The supply chain was stocked with the flawed 80487 revision 1, whilst Intel had to ramp the production and shipments of revision 2. In analogy to Covid-19 vaccinations you can imagine this became a puzzle of priorities and constant shifting plans.

In our GCT practice we talk to Engineering Change Managers. They receive so called product bulletins on a regular basis. And each time they need to make decisions on when to launch an engineering change campaign while weighing brand image, quality and cost. And once they have launched a campaign, they want to know the progress. But the most asked ‘feature’ by Engineering Change Managers is the ability to adapt the priorities in a campaign based on progress, the amount of ‘wealth’, the voice of the customer and the impact on existing SLA & Contract commitments. Regarding the latter, I’ll dedicate my next blog on Engineering Change prioritisation strategies.

Digital EC’s and Retrofit Kits as Upsell and Lock-in instrument

I’d like to change the ‘energy level’ of the conversation. Engineering changes are not always negative from a quality, financial or brand image perspective.

There is a limit to the number of mechanical and electrical changes you can make to a product post commissioning using Retrofit Kits, but more modern products have an ever-growing digital component. Digital engineering maturity continues post commissioning.Do you own a Sonos sound system, a Tesla, a digital press? The physical product you bought remains the same, while over-the-air digital EC’s deliver a steady stream of new features and enhancements. Whether your organisation uses this EC-stream for lock-in purposes or upsell revenue, at the core you need an asset centric infrastructure with comprehensive engineering change capabilities.

Tag: #retrofit

Monetizing End-of-Life Assets