090. Idea – Machine-As-A-Service (MaaS) Transcript
And I think it’s critically important right now that we begin to think about, not just, “Hey, we need to automate,” but how do we make sure that investments in automation are getting the payback they need. That they’re provable outcomes and not just selling another machine and asking the customer to take the risk on advanced automation technology.
Welcome to EECO Asks Why. A podcast that dives into industrial manufacturing topics and spotlights the heroes that keep America running. I’m your host, Chris Grainger. And on this podcast, we do not cover the latest features and benefits on products that come to market. Instead we focused on advice and insight from the top minds of industry because people and ideas will be how America remain number one in manufacturing in the world.
Welcome to EECO Asks Why and today we have an idea episode, and we’re going to be talking about a new topic for many of our listeners. And it’s called what is Machine-As-A-Service (MaaS). So to help us walk through this conversation, we have Mr. Mike Cromheecke, who is the founder and CEO Steamchain. So welcome Mike.
How are you doing today, man?
Yeah, we’re doing great up here in Milwaukee. Got a little winter weather outside, but I’ve heard you guys have the same thing down south.
Yeah, just for some reason down here, it comes down in ice and I don’t like ice and unless it’s sitting in some bourbon, that’s for a different show.
But now I’m glad we were able to connect with you, man. This is a pretty cool topic. And when we were brainstorming on together, you really opened my eyes to what machine as a service is, but there’s probably a lot of listeners out there, Mike, who just don’t know, what that is when he, when they hear that.
Could you break that down? How would you define Machine-As-A-Service(MaaS)?
So Machine-As-A-Service and I think there’s a lot of misinterpretation of it,but really when you boil it down to its fundamentals, it’s any business model that uses the data from the machinery to inform a contractual relationship between the people that are supplying that equipment or technology and the people that are operating it. So the concept of as a service means that some element of that asset you’re paying for as you’re using it, another way to look at it is really performance-based payments or managed service contracts, which are very popular in other industries but are a really new concept in manufacturing.
When you like, think through the traditional concept of manufacturing, what does that really look like right now?
The traditional concept of manufacturing is a classic capital asset sales process. And you generally pay upfront to contract somebody, to build you the equipment that you need and you make progress payments as you move forward through the process of getting that delivered and set up in your facility. And then there’s some kind of final payment at which point the risk is owned by the person that acquired the asset and the capital is transferred to the organization that supplied it. And that is a, that’s an effective way to manage the acquisition of capital assets.
It’s historically been used, but you, as we sit here and 2021 with all this data and information that’s available from these industrial machines nowadays, it seems to not use that information in the contractual relationship between counterparties for these large industrial assets is really a missed opportunity.
No doubt, man, but I’m sure with some of this, you’re trying to overcome some thinking with that traditional model, what is that big shift that you’re trying to get people past when they start exploring machine as a service?
Yeah. The model that’s being used by 99.9% of suppliers of machinery and technology in this industry, it really dates back to the industrial revolution, in industry 1.0. And so there’s a lot of inertia behind it and there’s just the status quo of how we’ve always done it. And people have built their businesses around these concepts, right? It’s how an OEM manages their cashflow, how they manage their investments are all tied into the idea that they get a down payment and that down payment funds the machinery, the cost of goods sold that they’re building.
And then they get progress payments that they, as they go and they deliver. And then. They move on to the next customer. And so it w it’s worked traditionally reasonably well. But we think there’s a lot of room to optimize it. The big issue with it is it’s really a one size fits all solution.
Everybody does it fundamentally the same way everybody’s used to that methodology, and that’s the inertia. But when you start to break that down and really understand the value proposition, People aren’t buying machines because they want an industrial asset. They’re buying those machines because they want some kind of outcome and that outcome takes place over time.
And so the more you, and it’s not just the machine that they need. To produce that outcome, right? They also need the skilled labor to support it. They need the training, they need the maintenance department. They need the operators they need other auxiliary technologies. So there’s this whole kind of package of value that really comes into play to get them the desired outcome. And today the machinery manufacturers are generally supplying one piece of that and it’s up to each individual end user to try and put that all together and in today’s environment, a lot of end-users, they would love to do more automation. They’d love to have more automated equipment.
The problem isn’t buying it, the problem is all the things that come after you buy it. To actually get the results that you’re looking for is where they really struggle and having better partnerships with our OEM to deliver more of that value proposition, we think is a very good idea for both parties.
No doubt. I really, it resonated so much some things you said right there around, what the buyer really needs. They’re not trying to buy the equipment. They just, they want that outcome. We used to do the, be in the motor world and I used to tell people, you really don’t want them a motor.
You just need a shaft turning to, to be able to move your line or wherever that motor’s connected to. It doesn’t matter what moves it. You just need something to be moving. It has to be electric motor that’s moving it, right?
Yeah. It gets back to the old, do you want to drill or do you want to hold? And so at any opportunity to meet your customer where they’re really at and supply a broader scope of services and solutions that encompass both the machinery and the other auxiliary services and technology that’s necessary to get optimized performance out of that we believe is a better value proposition and certainly a stronger business for that OEM.
No doubt. You also mentioned, the business model, the old model versus where things are going now. So if you’re trying to coach leaders in business right now to start trying to utilize some of these technology advancements and adoption, what are you telling them? How well, how are you trying to get them there to start thinking this way?
Yeah, a lot of our OEMs are really forward looking in this space and they understand that the opportunity is to help their customers deliver the results that they’re looking for. And this can be done in a way that’s helpful to the OEM’s business as well. It’s really about increasing your scope of supply, increasing your value to that organization and becoming a partner to them, not just to deliver the big hunk of metal, or the motor in your scenario, but to deliver the results and have accountability. For the results that you’re producing. I spent many years, as Chris working for Rockwell automation and at Rockwell, just like a lot of companies in this space, in the sales organization, there’s lots of discussions about value selling, right?
You don’t want to talk about features and functionality. You want to talk about how those features and functionality support your customer. You want to pitch the value, how this improves their business. And so that’s, Rockwell’s not unique in that. And certainly OEMs tell the same story and it’s about the value that they’re creating.
But at the end of the day, everybody’s still billing for the machine. Not the value the machine provides, right? And so there’s a disconnection between what people are selling and how they’re monetizing that sale. And Machine-As-A-Service is a great mechanism that can be used to align those interests so that when you’re out there selling the ability to help your customer achieve the performance and your margin and financial performance is linked to that. It’s a lot more credible sales process because you can clearly draw the lines between the improvements that you’re making at that customer and the promises that you’ve made to help them. It really puts both those parties on the same side of the table.
Everybody’s most profitable when the machine meets or exceeds its expectations. And there’s so many opportunities to bundle in the service that’s necessary upgrades to that equipment or other equipment that help achieve those performance levels. Over the life of that contract, because there’s a built-in mechanism to monetize that, that’s directly linked to the economics that the end user faces. You’re basically saying, bring all the service people you want, because if you believe you can improve my process, the money is already built into the contract, help me, help you, help us all win together. And of course the flip side of that is we all share the same risks.
We’re all accountable to work together and we’re all better when we work together because we all get paid based on the performance of the asset.
What you just said, that point of risk that brought something to mind. So is this shifting that risk profile with this type of mindset?
Yeah, absolutely. I’d say hidden cost of automation or resistance to automate or is really risk. It’s not the capital. It’s not do I have the money up front? It’s the implied risk that when I give you that money, that there’s a delay between the time I give you that money. At the time I realized the performance and there’s both technical risks.
There’s commercial risks. There’s all sorts of different elements of risk. And working together with a supplier that understands your industry, your business understands the economics and is willing to share in that risk with you. We think is a very effective model, both for the OEM and the end user.
No doubt. We were talking earlier too about data and you mentioned that there’s so much data now available. And sometimes these manufacturers aren’t, capturing that available data or utilizing it the best because they just, they don’t have the resources. So when you think through who gains the most with them from a data standpoint, how would you address that?
What would be the answer to the plant manager out there to really consider this type of business model to help them utilize data better.
Yeah. The data is really the key. And I think everybody’s heard that message for many years. You’ve been in this industry a long time, Chris, as have I, this industrial internet of things, revolution or industry 4.0 revolution is about the slowest revolution I’ve ever seen come down the pipe.
It’s been talked about for many years and of course everybody is investing in the hardware and the technology to collect that data. So there’s been a lot of progress. That’s made it easier, more secure, more available to everybody, but what hasn’t kept pace, Chris is the why. What do you do with it?
And so great dashboards are wonderful and it helps you understand your operation, but what does that drive in terms of response or improvements or performance? And we think the secret sauce is really making sure that everybody in the value chain that contributes to your success has a stake in that success and has clarity that the goal is, X, Y, Z, and we all understand that we’re working together to achieve that goal.
And we all understand our businesses do best when we’re able to work together to achieve that goal. So what we like to use the terminology, managed service contracts which is popular in the IT space, but it’s co managed objectives enabled by the technology so that the organization that has sold you the equipment what, whether you bought it on a traditional sale or not has an economic incentive to help you be successful with it and help you solve problems because if those problems are left unsolved, right? And it impacts obviously the end userseconomics, and their financial situation, but it should also have an impact to the OEM or create an incentive for the OEM to stay engaged. One of the things that we hear most often from end users, lack of engagement, I get the machine, but when I have issues, when I have questions, they want to charge me for service that, it’s hard to get in touch with the right people. And that’s fundamentally a factor of how the economic incentives are set up today.
Those businesses run very lean, margins are very tight, right? And, yes, they’re trying to sell you post-sales service packages and other things, but ultimately without some mechanism to understand what the goals are, that’s just a, give me a bunch of money and when things go wrong, we’ll see what we can do to help solution.
And so that’s not really effective. And in most cases, nobody buys those solutions. If you compare and contrast that with, Hey we’re getting a fraction of the performance of the machine as long as we’re above a certain level or, the availability of the asset can be maintained at XYZ.
Where they’re taking some risk and they’re providing a service and support to, to help them fund those performance initiatives. We think that’s a much healthier opportunity and it’s the transparency that is created. When you gathering that data from the machine real time that enables those kinds of business models to exist.
And it sounds like that’s an opportunity to strengthen partnerships, to levels unheard of from an OEM to a manufacturer and as well, it gives that OEM, if I’m hearing this correctly, there may be some reoccurring, funding coming in on a regular basis that they may not be, capturing right now.
Yeah, I think it helps weed out the OEMs that make promises that struggle to deliver because it changes the model. It’s not just about selling that next machine to that next customer. Which is what drives them today. And so if you’re not getting good response times from your OEMs, it’s because their business is run based on their ability to sell a new machine, not necessarily to support the machines that they have in place. And so if you’re not getting the response times, you’re looking for, there might not be the incentives in place. And so shifting that model to create some post-sales incentives. Based on performance that are objectively measured and distributed, right?
What that does is create that tight relationship where the performance of the OEM’s business and their ability to invest in helping you is increased because they have a reason to do so today they do not, right? OEMs should benefit from the performance of their installed base. Not their ability to sell new machines to new customers.
We believe that OEM’s businesses run best when their financial performance is linked to the performance of their install base. Not just their ability to sell another customer on a new machine.
But for our listener out there to OEM or the machine builder, can you really break down some brass tacks on the process of what entering Machine-As-A-Service would look like? There may be certain things that are common from performance to contracts, payments, things like that. That may help someone to really understand how to walk this forward.
Yeah, absolutely. So fundamentally Machine-As-A-Service implies that you’re gathering data from the industrial asset. And of course, there’s lots of options for doing that today. We have a reference architecture that we use but we’re more than capable of integrating with whatever IOT package or gateway device that you currently have installed on your machine. And so step one is just the acknowledgement that this works very well. If you have some sort of automated way to collect the data off the asset, the second part is the more important part and that is the design, the business model. It, lots of people when they hear machine as a service, they assume that the business model is a pay per use or pay per unit construct.
And it very much is that in a lot of our customers do just that, but it’s not just that, it doesn’t have to be that some of our clients still sell the machine as a capital asset. They may adjust the upfront sales price and then have an ongoing payment based on performance measurements. And so understanding the business model and specifically, what are the KPIs, what are the key performance indices that, that, that really represent the financial performance of your asset?
In many cases, that’s units, right? How many units did the machine produce, but it’s also the availability of that machine. A machine that is highly available is more valuable than a machine that struggles to be available also can be very specific application metrics. So I like to use the orange juice analogy, if I’m producing orange juice and I’m charging, a dollar for every gallon of orange juice that the machine produces. That’s great. I produce a hundred gallons of orange juice. I made a hundred dollars, but is that the entirety of the economics? No. How many pounds of oranges did it take you to produce that orange juice?
And so that’s an example of application specific metric. It’s not how much orange juice did you produce? It’s what is your conversion rate from raw oranges to orange juice? How efficient is that process? And I use that just to illustrate the point for every application. There’s a different set of metrics that really determine the economic performance of the asset.
And of course the end users know what those economics are and the better they partner with their OEM to say, “Hey, what we want to pay for is results. We want to pay for your ability to deliver technology that helps us a technology and service solutions that helps us achieve those results.”
The less risk that an end user is taking, right, when they acquire advanced automation. And if you bundle with that, a support package, so that the expectations are that you’re not just delivering the machine and the services you’re, in some cases, some of our clients actually deliver the operators. Onsite ready to go and they contract with the OEM or the supplier of the technology. So there’s lots of different ways to look at machine as a service. That’s my number one takeaway for you guys. We essentially execute those transactions and set up that business logic. We’re not promoting that one way to do it versus another way to do it is right.
We’re promoting the idea that. Before you only had one way to deliver, and now we can customize that and almost infinite complexity because it’s all software driven, fully automated, able to access any data that’s in your control architecture and set up a performance-based contracts to solve whatever business challenges your end users, or has to make it easier to sell, to create better alignment in terms of the goals of the project. And just a more manageable way to deploy automation faster, more aggressively and with the support of your OEM in a way that’s measured and controllable.
That’s awesome. It just sounds like ultimate flexibility. That’s really what I’m hearing, just there’s so much flexibility and an opportunity for all parties and just, I like the partnerships and ability to improve, but there are people listening to Mike, the are like, tell me the bad. What are some headwinds that people may face when they’re trying to go this way? So anything that you’ve learned, working with the many companies that you have, that you’d like to share here.
Yeah. Yeah. I’d say the biggest thing is that change management, and it’s the complexity. It’s as soon as you start saying, we can do, we can measure anything and we can set up any construct. It gets people thinking but then it’s “Okay, but which one should we choose?And what’s the best for us.” So getting over that change is the hardest thing.
And thinking about how do the economics work? What is the best model for us? What do our customers value? And you’ve got to recognize that yes, you can do anything, but you should probably start with something simple and then expand so that you’re not, measuring 500 variables, at millisecond accuracy, because everything does play a role.
It’s boiling that down to its essence, and really focusing on what we can do to help. And for everybody that’s different. And that’s why we start all of our, we start all of our engagements, really with a consulting and kind of an upfront consulting program, where we talk to, the business leaders first ultimately we get involved with the people that, deploy technology on these assets.
We also we get heavily involved with the sales teams, so what is the value to the customer? How do you sell it and how does that change your sales model? How does that change? Sales compensation? Is that a subject that comes up frequently? These are all things that, we’ve done this for long enough now and work with enough customers that we, you know, the questions and the challenges are becoming fairly predictable for us.
And, every now and again, we see something new or a new twist, but yeah, we’ve been pretty successful helping people make that conversion. Thinking about the financial economics of it. That’s one of the big headwinds is, “Hey Mike, hard to get my head around. I used to get a down payment to cover my costs, so that I could build the machine so I could deliver it. So I could get my margin on the backend. As soon as I, sign off on the machine, installed their facility. How do I do that? If I’m extending that time period out over the life cycle of the asset.” And that’s probably the area of biggest concern, we do have we do have financing partners that work with us that help put together a vendor based financing programs specifically for Machine-As-A-Service.
And so one way we can solve it. The other way is just to get people to understand that it doesn’t necessarily imply that you don’t get paid some of that money up front, right? One, one way to think of that is maybe it’s your margin dollars that instead of a two week site acceptance, you’re extending out over months, if not years.
But the payment is, multiples of what it used to be because it’s inclusive of services, inclusive of break fix it, in some cases it’s inclusive of consumables. Right? Where you’re creating new revenue opportunities, right? Because you’re, again, you’re not just selling the machine, you’re delivering the solutions that they need over the life cycle of the asset.
So the higher revenue opportunities over time and how you bundle that really play a big role in how to get these things off the ground. And that’s what we help with.
No doubt, man. That sounds awesome. I just love, first of all, your passion behind this, definitely I’m sure you’ve helped so many people learn this and get through those hurdles. Cause those headwinds, you just went through a real. I can only imagine that culture and just trying to work through some management and then getting alignment with all those teams on what’s important and where we want to measure, man. That’s gotta be tough.
It’s, yeah it’s a complex business to lead.
There’s no roadmap, right? This is very novel in our industry. It’s not a new idea. It certainly has impacted other industries very dramatically in recent memory, right? Whether that’s IT hardware or the jet engine business, or, going back a little ways, office printers there’s a long track reord of these being very successful business models. It’s more complex in manufacturing, which is why it’s probably showed up here later than others because the environment is so much more complex. The diversity of machinery types and styles and suppliers is so much more complex than jet engines or office printers or IT hardware for that matter.
It requires a significant amount of automation. It turns out that’s what we’re good at in this industry. And so we’re really extending the automation from the machine itself, into the business model and how those machines are managed. And in order to solve for that complexity and be able to deploy this at scale, but understand that it’s not a one size fits all solution.
Not every machine is the same, even if it’s the same industry, even if it’s the same style of machine for every end user, there might be a different contract and there needs to be a way to manage that complexity. And that’s what Steamchain provides.
That is awesome. That’s awesome. Well Mike, so if you’re talking to someone right now and you’re trying to give them the why, why do you feel this machine as a service could be that game changer concept as you look into the future for manufacturing?
Yeah. I’m pretty passionate about this, Chris, because I actually believe this is how we accelerate the adoption of advanced manufacturing technology across the entire industry. And I think it’s critically important right now. That we begin to think about, not just, “Hey, we need to automate, “but how do we make sure that investments in automation are getting the payback they need that they’re provable outcomes and not just selling another machine and asking the customer to take the risk on advanced automation technology.
This is good for suppliers of automation technology, right? It’s probably the best thing for them because you’re beginning to put your money where your mouth is and saying we’re selling you a result. Everybody needs these results. I don’t think it’s any surprise to anybody that manufacturing has been a sector of the U.S. Economy that seen dramatic underinvestment over the last 20 to 30 years. And the answer to thatisn’t, everybody needs to start throwing down big piles of cash and putting new machines out there. That’s the old model. If you want people to take risks on advanced manufacturing technology, you need to offer them a value proposition where they feel like you’ve got skin in the game, that they’ve got a partner that’s going to stand by it, that it’s a long-term relationship where everybody is invested and you need a business model that supports that concept. And we believe machine as a service is that business model and can manage the complexity of these things in a way that helps make it easier and more efficient to take those risks on advanced automation technology in a way that it’s supported. And you’re not just solving the problem of how to sell more machines. You’re solving the problem of how to produce more results for your customers.
That’s it, Mike, this has been great now for people that want to connect with you and understand more or learn more about Steamchain, what’s the best way for them to do that?
You can find us at Steamchain.io on the web, of course. We’re very active on LinkedIn. Anybody out there that’s listening, feel free to to send me a LinkedIn invitation. You can always find me there and hit me up there. And my telephone number and our corporate numbers are all on the website as well. If you’re not seeing us out there, you’re not looking very hard, we’re very easy to get ahold of.
Absolutely. And we’ll put in the show notes for our listeners direct links to Steamchain and to Mike as well and other resources that he mentioned that we can find helpful and just make sure it’s super easy for you listeners to get in touch with Mike.
Man, this has been, it’s been great. I’ve learned a lot about Machine-As-A-Service. I love what you’re doing and wish the best to Steamchain in the future, sir.
Thank you, Chris. Appreciate it. Thanks for having me on your show.