Why should CFO’s in industrial companies be all over edge computing?

Part 1. - Decreasing Maintenance Costs

New technologies and tools such as digitalization open up radical and concrete new ways for industrial asset owners to totally revamp the financials around industrial assets. These new technologies give asset owners tools to impact both the balance sheet and the P&L with substantial benefits, be they OEM’s or Service and Maintenance Organizations. 

In Part 1. of this blog series we will look at decreasing maintenance costs and in Part 2 take a look at a more holistic view.

Digitalization touches on financial elements on both sides of the Balance Sheet as well as both income- and cost sides on the P&L. The impact on the bottom line can be significant. Or, what would you say about payback times measured in the best case in days? Though we have witnessed these cases too at our portfolio company Distence, not all customer cases are that good, but I venture to say, under 12 months in most cases anyway.

We can look at the framework through a very basic but common example. Rotating machines, such as pumps, gears and motors are the basic components of many industrial processes. This is by no means a small asset category. There are an estimated 4 billion rotating machines in service globally with a market value of some €68 trillion. The processes they are part of, be they energy production, oil and gas, manufacturing, food processing or any other, depend on these components to function. Should they fail, the process stops – and we all know, that is what really costs. In most cases there are tens if not hundreds of them in one single plant, so lots of potential failure points. In one case in Finland, one power plant that has some 20 units, pumps and motors, under constant online monitoring, prevented thanks to the monitoring and warning system the shutdown of the plant twice in one year, resulting in savings of over €200.000.

Now, if we take just the asset under scrutiny, a pump as an example, some 80-90% of the life cycle cost accumulate after the asset has been commissioned. Not only do these direct costs play a significant role in the LCC but as the life of these assets is very long, 20-30 years, any inefficiencies in any of the cost components compound. Maintenance, spare parts, downtime, energy etc. account for the bulk of the cost. The biggest component in maintenance is labor. Not only is labor expensive, the efficiency is low as well. How much of a workday goes to actual efficient maintenance work and how much into supporting processes? There is a lot that can be done here.

On the cost side, some examples of reducing manual work significantly include

• moving from on-site spot checks to online continuous metering and analysis
•  catching anomalies very early on with the help of 24/7 tools such as vibration measurement before they turn into downtime for the process
• optimizing spare parts inventories
• eliminating driving time impacting both the carbon footprint as well as labor hours
• turning scheduled maintenance to need based maintenance

Maintenance today is mostly manual, performed by service technicians on site or by crews driving from site to site - spot checks, manual vibration metering, juggling spare parts, troubleshooting. Most of the time of a technician goes into driving to sites, organizing spare parts – anything but the actual fault analysis. According to a study by Distence, assuming that a maintenance engineer uses 30% of his or her time on knowledge-based analysis, leaving the other 70% to collecting samples and general tasks, and of all the monitored machines only 10% are found faulty and require action such as repair, we can deduce that only 4.8 hours (3%) of an engineer’s time is actually effective. This operation has not been disrupted for decades. The 80-90% portion of the life cycle cost can be reduced by 60% with new tools and the engineers effective time increased multifold respectively. Reliability of assets can be increased significantly by moving to online monitoring and predictive maintenance. Not only can we save on direct costs, but with modern tools we get another critical asset on our side – TIME – time to plan. Furthermore, we get knowledge, continuous flow of information, material to learn from, understanding of the customer or user of the asset and subsequently a longer asset life. The technician can focus on value adding tasks and leave the data collection to the system. AI, machine learning tools, algorithms process the data and offer deep analysis on the health of the machine automatically, and in the very near future even suggest solutions. All this at a comparable cost of a few visits from a maintenance crew to a site some 30km away.

Cutting costs by rolling out new ways of condition monitoring is easy and fast with new cloud-based solutions that are integrated closely with edge computing, smart terminals, and sensors and are purpose built. New solutions can be commissioned in days – that’s how close the CFO’s dream is from coming true.

Here are some benefits to think about and to map back to the P&L

1.     Transparency. Establishing an 24/7 “umbilical cord” to assets. A source of information to facilitate design and innovation both in technology and business modeling.

2.     Continuous Improvement. Through direct access to the assets, how they perform and how they are being used, continuous adjustments are possible.

3.     Asset Management. Managing the life cycle of each asset. Knowing what you own and what shape it is in. Extending the life.

4.     Utilization. Optimizing the performance and uptime of assets.

5.     Maintenance. Enabling the evolution from reactive to preventive to predictive maintenance. Reducing direct labor, driving times of mobile crews, simplifying logistics, knowing what spare parts are needed etc.

6.     Safety and Training. By learning from how the machines are used, serviced and handled, the operator can benefit from focusing training on the relevant areas in order to increase productivity, safety and the life span of the machines.

7.     Performance. Thanks to continuous and comparable data - relevant key performance indicators can be built for each asset and process.

8.     Modernization. Turning “dumb” machines into intelligent by retrofitting them with intelligent devices.

9.     Customer centric design. By understanding how the asset is really used in the customers environment, the R&D organization can better design products from the customer perspective.

10.  Data availability. Today the data is trapped in the head of the service engineers or their laptops. Modern tools and the architectures they are built with, make data available for everyone in the organization to benefit from, from O&M to sales to finance.

11.  Sustainability and Circularity. Understand the carbon footprint, emissions, energy use and life of an asset.

In the next blog, I will discuss a somewhat more holistic view and benefits that go beyond cost cutting.