The internet of things (IoT) has brought about numerous changes in the manufacturing sector. Perpetually connected devices within a firm's operations enable greater security, expanded automation, insights into efficiency and safety, as well as a greater degree of planning and organization than in the age of paper. But that's not the only change that the IoT is causing. It's also leading to changes in the way that firms model themselves, particularly in how they manage important assets, like construction equipment and tools.
Historically, businesses would either buy capital assets up-front or pay through financing options, such as bank loans, which would allow a firm to purchase an asset over time. These days, however, more and more businesses are opting for an asset-light model--a business model wherein firms do not own many of the assets necessary to produce their products. Instead, they outsource their ownership and pay a fee to use the asset. Many equipment providers of this kind charge pay-to-use fees, which rely on data collected by special IoT sensors attached to the assets themselves. Others use a subscription-based fee structure. But what are the benefits of these novel business strategies, and are there any drawbacks?
Like many devices in the IoT for manufacturing, assets in this new kind of business model collect reams and reams of data as they're being used. Owners use this data to create accurate billing statements for firms that make use of their assets. Craig Guillot, writing for Financial Management, a publication for the Association of International Certified Professional Accountants (AICPA), sums up the benefits of this model in his recent article, "These strategies, when carefully planned and executed, can reduce complexity, create new revenue streams, enhance innovation, and help drive a higher return on capital." That last one is the most important: fewer up-front expenditures for purchasing equipment will lead to greater rates of return in the long run.
Guillot spends much of his article touting the benefits of the asset-light model, as well as some strategies for implementing it. Other writers; like Philipp Sander for Forbes and this team of writers from EY, a independent business research organization; are also quick to wax poetic about asset-light business models. However, there are some things to consider before deciding to divest yourself of large assets. For one thing, if your company already owns many of their core assets--and they're have already been paid for--transitioning to this type of business model may not be beneficial in the short run, at least not financially.
In addition, relying on data sensors and IoT hardware could remove power from the users and place it squarely in the owners' hands. While this has not yet been an issue for manufacturers, ever-connected consumer goods, like Tesla products, have drawn criticism for charging exorbitant fees for people who wish to use their cars' data-driven features, like self-driving. In order for a Tesla customer to use these features they must pay for a hardware install and then pay a monthly fee in order to access these features. This essentially blocks users from employing hardware that's already installed in their own vehicles, unless they pay a fee to the manufacturer. Even though this doesn't appear to a problem currently, IoT hardware could be used to needlessly restrict usage in a similar way. Owners, by contrast, have more freedom to repair and modify their equipment as they see fit.
Only time will tell if the asset-light model will become the way of future or one of many ways to structure your business. In any case, such a data-driven model will require direction and guidance from experienced professionals, like the experts at Titan Tech. What's more, Titan Tech can help advise on greater digitization and efficiency, even if you're not interested in divesting your assets. Reach out to them today to learn how they can help you.
And for all your tech news, stay tuned for our next post later this week.