Pump manufacturers face a “tectonic shift”

Notes from Bain's “Thinking Outside the Machine: Global Machinery & Equipment Report 2022”

In the inaugural edition of their report, Bain argues that the success of industrial machinery and equipment makers primarily depends on how well their businesses adapt to the impending commoditization of their products. Maintaining profitable growth and differentiating their business based on machine performance alone has become more difficult due to increased competition and a slowdown in device-centric innovation. Today, a company's competitive advantage increasingly lies outside the machine. Pump manufacturers are no exception.

• Industry 4.0 technologies are reshaping the business from one built around machines to one focused on services and integrated solutions.?
• In some sectors, individual companies already generate more than 50% of revenues and 100% of profits with services.?
• That trend is accelerating and will become the norm across the industry over the next few years.?

Turning a threat into a competitive advantage—In response to the decline of revenue from devices, equipment manufacturers are developing comprehensive solutions that integrate hardware, software, and services. Essentially, they turn their devices into conduits for value-adding, digital-enabled services that help customers increase the lifetime value of their equipment. Examples include integrating remote monitoring tools to provide condition-based maintenance services, and energy monitoring tools to optimise energy consumption. That strategy is paying off: Machinery companies with a more mature portfolio of integrated solutions have outperformed their rivals: The average annualized total shareholder return for the machinery and equipment market leaders between 2019 and 2021 was 32%, compared to 4% for the laggards.

Sustainability as a driver of value—As these comprehensive offerings evolve, Bain expects that?“more machinery and equipment companies will wield sustainability as a commercial differentiator. They have an opportunity to not only improve the sustainability of their own organizations and supply chains, but also to play a critical role in helping customers achieve their sustainability goals.”

Four key steps—To develop these integrated solutions, Bain suggests that equipment manufacturers take four steps:

1. Digitize and connect the installed base?to collect valuable information, manage customer support remotely, and provide customers and service teams with operational data.?
2. Develop digital service solutions, such as optimized service schedules, remote monitoring capabilities, and offerings that link performance to pay.?
3. Sell equipment as a service, a subscription-based model in which the OEM takes care of maintenance and performance optimization in return for an annual fee.
4. Share the risk. The businesses providing these services receive a fee based on the delivered output, aligning the incentives of the client and the manufacturer: Better performance equals better pay, and vice versa.

Water as a Service—Grundfos is an example of a pump manufacturer that embraces the shift: By connecting its pumps and integrating sensors and AI-powered analytical tools, Grundfos* uses its pumps as a platform for value-adding services and an outcome-based business model. They sell flow, rather than pumps. Their clients benefit from lower upfront costs and improved uptime, while Grundfos benefits from securing after-market service revenues and a continuous stream of data that helps shape tomorrow's products.?

Fredrik ?stbye, Grundfos' Head of FutureLab, echoes Bain's views in an interview with Zuora: “Our customers ... want to use new technologies such as sensors to monitor the condition of their pumps so they can act on time and take better care of their pumps—increasing their longevity. As a result, they may buy fewer pumps from us. Now, if we were to continue with the old product-based business model, this could become a problem and impact our sales. Or we could look at this as an opportunity to innovate and provide value to our customers in new ways. Today, we are driving two major transformations—digital solutions and sustainability. We see digital transformation as an enabler for our much larger transformation to become a sustainability company.”

How we can help—Like in the Grundfos example above, Samotics’ SAM4 solutions provide manufacturers with plug & play monitoring systems that turn rotating equipment into smart, connected devices. For example, Samotics partners with Schneider Electric, where SAM4 technology is integrated into the EcoStruxure Asset Advisor platform to implement an optimal condition-based maintenance strategy for critical motors. Here’s how SAM4 technologies can turn pumps into connected devices:

• SAM4 ENERGY continuously monitors energy consumption and efficiency to show where and how energy can be saved. In addition to these insights, SAM4 ENERGY includes reporting features and enables data-driven consultancy services that deliver actionable plans to turn insights into savings.
• SAM4 HEALTH?detects upcoming mechanical and electrical faults up to months before failure, and sends an alert when that happens. This allows service teams to schedule maintenance at an optimal time: Before downtime happens or when performance decreases, but not before.

A scalable solution available across the globe—SAM4 is based on electrical signature analysis (ESA), the general term for asset monitoring techniques that analyse current and voltage sine waves. Because sensors are installed inside the motor control cabinet, SAM4 is easy to install and highly scalable. It is suitable to monitor most types of pumps, including borehole pumps, ESPs, and cryogenic pumps that operate in extreme conditions. SAM4 is available across the globe and quickly integrates into existing asset management systems. Collectively, these characteristics make SAM4 an ideal monitoring system for pump manufacturers that aim to develop integrated solutions and deliver them at scale.

Getting started—In their report, Bain & Company addresses several key areas, besides technology, that are fundamentally changing in the “Machinery as a Service”-paradigm: Implications for the workforce, developing and managing a network of partners, ensuring reliable and sustainable supply chains, and the implications for sales processes are among the topics covered in the report. According to Bain, OEMs that navigate these changes successfully are well-positioned to increase their market share.?They also warn that for machinery firms to maintain their competitive edge in a shifting market, the coming years will be crucial as service innovations and new business models quickly proliferate throughout worldwide markets. In other words: the time to act, innovate, and develop integrated services is now.

*For full measure: Grundfos does not use Samotics' technology in their product offerings.