Three Important Trends That Alter Machine OEM Business Models

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Today, three core trends are reshaping the future of the OEM business: the proliferation of artificial intelligence (AI), a change in the nature of global OEM competition, and the significant increase in acquisitions within the OEM community. As changes to OEM business models are unfolding across the globe, a new reality is emerging: Those who fail to adapt to key business trends will be left behind. Recognition of these key trends represents a critical success factor for maintaining competitiveness. Listed below are some noteworthy trend characteristics:

  • Artificial intelligence – AI is part of the bigger digital transformation wave that is shaking businesses across industries. AI capabilities will enter into machine design parameters and into the core of the machine, step by step. The first step will be a change in human machine interface. AI applications like voice recognition, image recognition, and augmented reality will alter how machines are operated and maintained. In order to create machines that can learn, OEMs will require personnel with unique sets of design and programming skills and new tools that enable easy integration of these AI capable functions.
  • Global competition – OEMs in the US and Europe are witnessing the rise of global OEM competition from China and Japan. The Asian players are introducing machines that are cheaper but that closely mirror western machine design parameters. In order to combat this threat, Europe-based OEMs, will have to adapt their traditionally sophisticated, complex and expensive machines, and seek cheaper alternatives to compete in emerging economy markets. And Chinese OEMs will now be pressed to develop their own new technologies to establish a higher level of differentiation.
  • Acquisitions – As OEMs continue to grow through acquisitions, their business models are shifting from a regional to a global business focus. Ironically, this new global focus takes on an aspect of expertise in all things local. For example, as political changes occur in key places across the globe, there is more of an effort to account for trends within the local population. Politics are pushing towards an emphasis on local as a backlash to globalization. For OEMs this means incorporating an element of openness and flexibility in the machines they design and build in order to accommodate fast changing local preferences on a global level.

Innovative business model adjustments are facilitated by new digital technologies

In contrast to the recent past, fewer OEMs focus only on building and delivering machines. Post- delivery services are now representing a bigger and bigger portion of their revenues. Many of these new services are made possible as a result of digitization and cloud computing.

For example, in power generation, rather than just selling the end user a motor to help produce energy, some OEMs, are charging customer on the volume of energy that the motor generates. The machine itself remains the property of the OEM. In the packaging industry, some OEMs only charge for the number of packages that the machine produces. In this way, the customer reduces his CapEx (by not having to purchase the machine), and the OEM builds up a steady, predictable services revenue stream.

Digital tools that offer remote services also impact how OEMs view and maintain their machines in the field. Data can now be gathered in a very affordable manner, concerning how customers are utilizing their machines. This opens the door to optimization. For example, the data might point to the efficiencies of building two smaller machines instead of one very powerful one, based on usage data. This kind of information can help to lower OEM cost while increasing profitability.

Schneider Electric has long supported OEMs in their quest to drive both business growth and competitive advantage. In order to accommodate the digitization of smart machines, Schneider Electric has developed an open architecture framework, EcoStruxure Machine, that integrates both Schneider Electric and third- party products at three levels: connected products, edge control and apps, software and analytics. To learn more about how Schneider Electric digitization solutions enable new OEM business models and revenue sources, register to receive your FREE eguide now!


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