Opinion, the commercial vehicle industry is up for major disruption, driven by business and service delivery model change
In the coming years there will be major shifts in how the the commercial vehicles business is being executed. Today OEMs sells products, these products are supported by dealers and the business model is driven by sales of products and of support for these products through parts and service. The business model and distribution of products/service to the customers is up for major change.
Suppliers (OEMS or other players) that can break this model and instead offer customers value driven products/services that is uptime based will change the game. In an uptime based offering the customers only pays when a bus runs with passenger or a truck transports material in a mine. The suppliers’ revenue is not based on products, parts or service hours, but instead tied to value delivered to the customer. The supplier will charge for km produced or kg moved (a bit simplified).
This move has been talked about in the industry for a long time without the change happening, why will it happen now? Main reason is technology and information availability.
- The same way as how Uber has become possible due to technology and information (smartphones, apps, mapping, gps, etc), there is similarities on the commercial vehicle side. Today vehicles are maintained according to general service plans with predefined maintenance and general repairs specified by vehicle type. Information is kept in silos from customers and OEMs point of view and not used to drive efficiency and overall customer value. With telematics and big data (with merged information from both customers and OEMs) this will change dramatically where each vehicle can be monitored and serviced based on its specific needs, which will drive down cost dramatically. Usage and maintenance can be optimized towards the need for capacity from customer’s point of view. Main issue here today is that currently OEMs do not push this hard since it will undermine their current business and revenue streams.
- Customers are getting more and more professional; they have realized that they can save cost by taking on much of the service part themselves including sourcing of parts from different parts of the world. Which breaks the setup of the traditional OEMS which typically runs its business as a local business (market or region driven). Most large customers have large fleets of multiple brand of products at many locations. They will seek for business partners that can support them whatever product they have and where ever they are.
- New players will emerge to take this business on if the OEMs do not move in this direction. Legislation and standardization has opened up for service delivery by other parties than the typical OEMs making most of this service data available for 3rd parties.
High level you can compare the coming move to the computer industry before and after the introduction of cloud computing. Before the cloud arrived enterprise companies bought hardware from IBM, HP and Dell, they signed service agreements and got service and parts from the same suppliers. Compare with the traditional business model outlined above. With the arrival of the cloud new players arrived, we now see Amazon and Microsoft leading the charge within enterprise cloud offerings. In this new cloud based model companies only pay for the capacity they use, this is a huge difference compared to having idle hardware with service agreements sitting in their data centers. A direct comparison to transport companies having trucks or buses sitting waiting idle if vehicles would break down or if there is a sudden increase of transport needs.
With the new cloud service delivery, the business model changed, since the customer only pays for capacity used it become a priority for the suppliers to ensure the service is available, and that the cost for that service is minimized. This goes in total contradiction to the traditional model where customers would pay for hardware and service of said hardware. This is the main reason why the traditional hardware computer companies have not been successful in moving to the cloud and that Amazon and Microsoft is now the market leaders.
Will the same thing happen in the commercial vehicle industry? If the OEMs do not start to go in this new direction and start to offer uptime based products/services someone else will come in and do it for them. If the OEMs can start to learn and find a balance how to get from the traditional model to the new value driven model they might be able to hang on to the customer interface otherwise they will most definitely be disrupted and end up being a supplier of products and parts to service delivery companies that will instead serve the customers and support their need of service. These new products and services will be directly tied to their source of revenue that is typically goods or passengers moved.
It will be an interesting future since it is not clear who will emerge as the disrupters in this very traditional business. It sounds like this would be an obvious change for any company to do but as history has told us over and over again traditional companies always struggle when their source of revenue needs to change from products sold to services delivered with changed business model and service delivery model.
My name is Martin Jerresand and I am working for a global, large commercial vehicles OEM since 15+ years and have experience all the way from being CIO to now working on the commercial aftermarket side directly towards our customers. The similarities between what happened in the IT area and is now looking to happen in the commercial vehicle industry is apparent.
This is a high level opinion piece and if you have views please share them so we can get discussions going. If there is interest, I will share more pieces detailing may parts of this change and how it will happen. Over and out!