TOKYO -- The makers are not just making these days. Manufacturers are moving to cultivate lifetime ties to customers that pay for good service.
An Asian airline recently received an email from British manufacturer Rolls-Royce recommending early maintenance due to slightly high hydraulic pressure in engine bearings.
Rolls-Royce constantly monitors about 4,000 passenger aircraft powered by its engines from its office in the U.K. offices in the city of Derby. It keeps tabs on factors such as temperature, hydraulic power and vibration, through sensors attached to the aircraft.
It is hard for airlines to predict when their aircraft need maintenance. Rolls-Royce offers to keep track of engine maintenance issues for an hourly charge of less than $100. Other monitoring services are available for additional fees.
The services, which were launched about 10 years ago, are winning over major airlines across the globe. They keep maintenance expenses down, make it easy to plan budgets and cut fixed costs. The fact that Rolls-Royce generates about 70% of revenue in its civil aircraft engine business from maintenance services highlights its new role as not merely manufacturer, but also service provider.
Building a future
General Electric of the U.S. is also working to step up its after-sales services in power generation and medical equipment. Chairman and CEO Jeffrey Immelt recently said in a letter to shareholders that the company will invest more on software development to become an advanced manufacturing service provider.
European and U.S. companies have a track record in offering charge-based services. Daimler, a German automaker, in the early 1990s marketed commercial vehicles through leases and fees based on cargo weight and travelling distance.
Daimler came up with the idea of combining financial and maintenance services to avoid intense competition with rivals. Back then, market integration was taking shape in Europe.
Recently, manufacturers are becoming more service-oriented as the so-called "Internet of Things" takes shape. Machines and devices are connecting to the Internet to monitor operations, bringing about a staggering pace of industry evolution. The U.K. and German governments are extending full backing to development in this field.
"Lifetime management will become an essential element in forging the future of the manufacturing sector," said Naoki Ota, a senior partner at Boston Consulting Group. The approach allows companies to stay connected with customers after products are sold and charge fees for services. "That can increase revenue 1.5 to 3 times compared with traditional manufacturers, which only focus on selling products."
In Japan, Hitachi is concentrating more management resources in businesses that connect with customers since integrating its thermal power operations with Mitsubishi Heavy Industries in February. The same month, it launched a building management services project overseas that aims to improve energy efficiency. A U.S. air conditioning maker works with Hitachi on the project.
The global market for building management is estimated to generate more than 50 trillion yen ($485 billion) a year. Hitachi uses information technology to cut building maintenance costs and generate profits through service charges. It is looking for high returns from the business.
Hitachi aims to generate 40% of sales from its service operations in the medium term. "We will change our client list," said Hiroaki Nakanishi, chairman and CEO of the company. Currently, its major clients include automakers and telecommunication companies, to which it has long supplied products. It hopes to win new clients, such as global resource developers, and generate profits through deeper connections with customers.