That's product is a service with a couple of examples, and that shift is happening today and it's increasingly happening and it's all down to digitisation of the manufacturing process, the design process, the whole thing. Good morning, good afternoon or good evening, wherever you are in the world, this is the Digital Supply chain podcast, the number one podcast focussing on the digitisation of Supply chain. And I'm your host, Global vice president of SAP. Tom Raftery. Hi, everyone, welcome to the digital Supply chain podcast, My name is Tom Raftery with SAP. And before I start the show today, I just want to let you know that I have started a new podcast. I've mentioned it in the last two episodes. I just wanted to mention it again for anyone who is coming new to the podcast if you are new to the podcast. Thank you so much for for dropping in we'll all scoot over a little bit and make room for you. The new podcast I've started is called Climate 21. It's it's available in all good podcast applications. Just search climate to anyone. And there it is. And it's about SAP's Climate 21 initiative. But it's also got a much broader remit than that. The podcast is about the sharing of successful climate emission reduction strategies and stories from everyone in the industry, from as SAP, from our customers, from partners, from our competitors. If their game. Anyone who's willing to come on and share this information to help inspire other companies to do the right thing are to give people ideas on ways to do it. I've got some really interesting guests on the podcast I published this week at our executive board member of Thomas Saueressig talking about our own Climate 21 initiative. Next week I will have on an executive board member from Shell the week after. I love the chief environmental officer from Microsoft and I have several more lots more really interesting guests coming up. So do tune into that, as I say, called Climate 21. It's Climate 21 podcast dot com or as I say, climate 21 in your podcast, Application of choice. OK, plug for a podcast over onto today's podcast. And my special guest on the podcast today is me. And so, Tom, would you like to introduce yourself? Yes, thank you. Yes. My name is Tom Raftery with SAP and many of you will know that at this point. Uh, for those who don't know about me, my background is I have worked for a long time in technology. Uh, my interests are varied because I'm a little bit, um. I like stuff that's new and shiny. If I'm in the same thing the whole time, I get very bored very quickly. And so, you know, when I was in college, the new and shiny was science. I got into a science degree in biology. I did postgrad and I was learning about biological control. I did a four year PhD project on biological control, which I didn't finish because I got distracted by technology, which was the new and shiny Chinese. I got into technology, set up a software company, did more stuff, etc, etc. ended up many years later working as a an innovation evangelist for SAP'. And here we are. So because of that, I like to be where disruption is happening, where things are changing quickly. And, you know, I go I research haveli things that are happening in places like energy generation, in places like transportation, in places like health care, in places like food production, because these ones are being heavily disrupted at the moment. And I got to talk about a little bit about that. Manufacturing, for example, is seeing three huge trends happening right there right now. And, you know, one of those trends is the shift to mass customisation, which is being enabled by digitisation of manufacturing. It used to be that it was big ticket items only that were mass customised, you know, things like automobiles. So know, when you went to order your or your car, you were able to tick off the different things that you wanted on your version of that car. And that was possible because mass customisation, lot sizes of one. And now because the digitisation, the cost of that is coming down and down and down. Now, smaller ticket items like sneakers can be customised. You know, you can go to your Nike website and choose your Nike design that you want the type that you want. You can completely design yourself. And it's made to order because the costs of digitising, digitising manufacturing is dropping all the time. The other big shift we're seeing or one of the other big shift we're seeing in manufacturing, of course, is the shift to 3D printing or distributed manufacturing. They did a podcast about that a couple of weeks ago. It was really interesting. And we're seeing lots of things happening there. Airbus are a big user of 3D printing technologies, for example, their big customer of ours. These are a platform and they use it for the manufacturing of airframes. And that's hugely important for them because 3D printed components use 50 percent less raw materials and we're 90 percent less. And because of that, it makes them very attractive for air frames because weight is a huge component of the cost of air frames and the cost of operating planes and not just the. Cost of operating planes, but the emissions from those planes, because the big cost of operating planes are one of the big cost of operating planes, is obviously the fuel and the fuel is what causes the emissions. So if you can reduce the amount of fuel required, then ergo you're reducing the amount of emissions coming out to the back of those planes. So 3D printing helps with that. But the really big shift we're seeing in manufacturing is the shift to product as a service. And if I talk about that, one of the great examples that we've seen there, I mean, in SAP', we talk a lot about one of our customers called a Kaiser compressor's. And I won't I won't talk about them because I think we've talked about them too much. But if we talk about, you know, lighting manufacturers, manufacturers of light bulbs, they in the lighting industry faced a huge existential threat to their business about 10 years ago. It was around that time around 2008, 2010, globally, laws were passed requiring the phasing out of incandescent bulbs and the introduction of CPFL and LEDs particularly. And. This why was this a threat to the lighting industry? Well, incandescent light bulbs typically lasted one to 2000 hours, whereas LEDs last 25000 to 50000 and more. So you're looking at about a 25 x increase in the lifetime, the working life of the bulb. But the cost of the lead is only about five times the cost of the incandescent bulb. So the customer is paying five times more, but getting 25 times the lifetime from the bulb. So that's a huge loss to the lighting company. Great for the consumer, but terrible for the lighting company. So they had to quickly switch to start up a product as a service business. And, you know, they're all doing that now at industrial scale. So if we think of things like the city of Los Angeles, it doesn't own any streetlights. All of the streetlights in Los Angeles are owned by Signify. Signify are the new name for Philips lighting. And in fact, a couple of episodes a few months back, I had a an executive on from signify talking about their life product. And that's a whole other episode that should go and check out. If you're interested in life, if you're not familiar with lo fi, lo fi is similar to wi fi as the name would suggest its data communications. But instead of using radio waves like Wi-Fi does, it uses light. So really, really interesting. They're a fascinating episode, but I digress. I come back to the city of Los Angeles using light bulbs, LED light bulbs supplied by signify where they're supplied free of charge. And what happens is the city of Los Angeles pays per lewman of light delivered. In other words, the light bulbs stay the property of signify and they charge per of delivered. Now, this is a huge, huge win for the city of Los Angeles because they don't have to buy any light bulbs. And it's a huge, huge win for signify because they get guaranteed revenue from each of those light bulbs as long as they are delivering lumens when they're supposed to. So these light bulbs, they are smart, connected light bulbs. So they're sending a stream of data back to signify about their use. And this signifies able to use and it's able to take that data from each light bulb and use it for billing purposes so they know how much lumens were delivered. So they know how much to build. But it's not just useful for billing purposes. They can also tell the status of those light bulbs. And if one of them is going to fail, they can see that in the data coming from the light bulb. Or if it's if it fails, suddenly they get notified immediately that it isn't working. And so they send an engineer to site to swap out the light bulbs so the lights are out of commission for the minimum possible time. So the city of Los Angeles rarely has street lights that are not working, which is a big win for the city of Los Angeles and the citizens. But it's a big win for Philips, too, because it means their guaranteed revenue from L.A. each light bulb for the maximum possible time. One other thing to take into account in this, when Phillips or any lighting company were selling light bulbs. The incandescent light bulbs that lasted one or two thousand hours, that kind of ballpark, it wasn't in their interest to make sure that the light bulbs lasted a long time. Quite the opposite. Whereas now, because they maintain ownership of these light bulbs, it is absolutely in their interest to design these light bulbs to have the longest lifetime possible. There is absolutely zero inbuilt obsolescence in these light bulbs because they don't want to have to send an engineer out to replace them because that costs money. They want them to be working as long as possible. So the shift to product is a service in general, not just in the case of lighting companies. The shift to product as a service in general is a win for the consumer and it's a win for the manufacturing company as well. Another industry where this is happening, not as obviously because we're just at the very beginning of this, but is the automotive industry and this is an industry I have a big interest in, I've written quite a bit about the automotive industry is headed to the vehicle as a service model. There's massive disruption happening right now in the automotive industry, which is one of the reasons I like being involved in it, because it's changing all the time. The automotive industry is being hit by four huge trends right now. The Ivaldi case megatrends case stands for and what case a S.A.C. and stands for connected, autonomous, shared and electric. So cars are being connected. Most cars now ship with the SIM card built in autonomous. We are seeing that more and more autonomy is being built into vehicles that still kind of level one level two levels, but still its cars are getting more intelligent shared. We're seeing shared services like Uber and Lyft, etc. and things like wammo, which is kind of a combination of the autonomous and the shared. And then we're seeing the shift to electrification of vehicles and that's happening big time. That that's not the future. That's actually the present. If we if we are honest about it, depending on the region, it's happening more now in Europe than it is in most places or China. But these these four trends are causing a shift to the products as a service model in the automotive industry. And why is that happening? Well, if you think back to the traditional car sales model that we've had for decades. Car manufacturers don't make their money from the sale of the vehicle, they make all their money from the after sales that comes after the sale of the vehicle. By definition, they make the money from. Service from parts, from repairs, and typically over the lifetime of a vehicle, an automotive manufacturer could expect to earn around thirty thousand dollars or euros over the lifetime of the vehicle from the sale or from the after sales. Of that vehicle. But, of course, not going away. Why is it going away? It's going away because we're seeing a shift to electric vehicles and electric vehicles have far fewer components than internal combustion engine vehicles. A an electric vehicle drive train has in the order of 20 moving parts, whereas an internal combustion engine vehicle has around 2000 to two orders of magnitude more parts moving parts. So two orders of magnitude more bits that can fail and that require careful management and that require lubrication and so on and so on. So it's far more expensive to maintain an electric vehicle. And it's it needs more maintenance that needs to go to the shop regularly to get to be maintained. And it requires a lot of replacement parts. But of course, as we see a move to the electrification of vehicles, that goes away and that's a huge loss of revenue to vehicle manufacturers, which is why they have for so long resisted the requirement to shift to electric vehicles. But now they're being required to do so. The shift in electrification is one reason why car manufacturers are starting to lose revenue on the individual vehicles after sales. Then there's the cars becoming more intelligent with the automotive sorry, the autonomy being built into them, things like intelligent lane assist and things like that, which means cars are crashing less, which means there are fewer repairs required and fewer spare parts. And then there is the generational shift where, you know, younger people are buying fewer cars. So in fact, car sales globally peaked in 2019 and started to fall thereafter. So we're seeing a shift away from ownership happening anyway. And so car manufacturers are facing the same kind of existential threat to their business, which the lighting companies faced 10 years ago. And they are seeing the shift to the as a service model, as an attractive or alternative model to roll out from the consumer side. Well. Cars are now. Computers, their iPhone like devices, they're, you know, bristling, increasingly bristling with technology. And particularly if you're talking electric cars and electric cars are getting cheaper all the time. They are also getting longer range all the time. Your typical new car, new electric car, now has a range of 200 to 300 or even higher miles, slash four to five hundred kilometres in range. They are able to charge faster. And the battery life of them is enormous. And this is counterintuitive. Most of us are used to the batteries in our phones or the batteries in our laptops or the batteries in our tablets or whatever it is dying after, you know, two or three years. And so there is this impression that that's the same in cars. It's absolutely not. The batteries in electric vehicles are pampered, absolutely pampered, because they're such a huge component of the vehicle. There's they have BM's battery management systems built into the vehicles. And for most electric vehicles, they have temperature control systems, often liquid surrounding the battery to cool it down or to heat it up in winter. And because of that, the currently the life of batteries in electric vehicles is in the order of let's see, in kilometres, it's around five hundred thousand kilometres. So you're talking three hundred and fifty thousand miles, which is today about twice the average length of the average expected lifetime of the body of the vehicle. In fact, Nissan have said that the batteries in their in their electric vehicles, they expect them to last to 22 years, whereas the body of the car that they make, they expect to last 12 years. So, you know, 10 years longer. And that's today a Tesla had their battery day in September of this year. And their new batteries, which they announced at their battery day, are expected to have a battery life of three and a half million kilometres, so well over two million miles. Now, this is 10 times the life of the body of the vehicle. So when you get batteries that can last three and a half million kilometres, two million miles. Then you're talking. A completely different model of car sales and you're talking move away from car sales. You're talking to automotive manufacturers, heading to a model where they do vehicle as a service. They rent you a vehicle for four months to four years, whatever it is. And at the end of that rental period, they take the vehicle back, swap out a few components on it, maybe put in new electrics, maybe put in maybe we've gone from USB, AC to USB, DB or, you know, faster Wi-Fi or, you know, the latest sensors swap those into the vehicle and send it back out, renting it out again as a nearly new vehicle and rent it out for another, you know, three or four years, take it back to another few swaps, send it back out again. It's the same battery, the same everything else. Maybe a new coat of paint. And you can do this 10 times or more over the lifetime of the vehicle. So now this same battery and vehicle and drivetrain lasts 20, 30, 40, 50 years. And all you're doing is swapping in a couple of new parts each time. This is a sustainability win for the planet because you're able to push out new nearly new vehicles every three or four years, having only swapped a few parts in the customer gets what appears to be a new car. It couldn't be sold as new. Obviously, it would be rented as nearly new, but it's new for all intents and purposes. It's got all the latest technology in it and it's for a rental. So it's a set monthly fee today. If you go here in Spain, I live in Spain. Here in Spain, if you go to the Volkswagen website, for example, they're giving out the they're renting out the Eighty-three, which is their first fully electric vehicle on their new platform. They're renting it out for I think it's 350 euro a month. So for that 350 or a month, you get to do I think it's 12000 kilometres a year, you can negotiate higher. That'll cost more. But you get 12000 kilometres a year. You get insurance, you get maintenance, you get road tax, you get road tolls and fines managed. So if you go through tolls, you know, you'll have to pay for each toll you go through. But they'll manage the payment and just be added onto your rental bill. So you've got one bill for all these things, tax insurance. The whole thing's all covered in that one guaranteed bill every month. And so it's hugely attractive for the consumer to do that. Just one bill, you get the vehicle, you get a guaranteed new vehicle, you know, at the end of your three year period, through your rental period or whatever it is for the automotive manufacturer, it's guaranteed income. So very attractive for them as well. It's similar, similar to the lighting company. And of course, there will be predictive maintenance built into it as well. So they'll know if it's going to feel that contact you ahead of time. It's their vehicle. They want it again, not to have obsolescence. They want it to not to fail. And of course, the other huge component of this is the data. These vehicles are bristling with sensors, increasingly generating loads of data. And today with the traditional sales model. There's a question about who owns the data, and that'll depend from region to region and whatever the regulations are in that region about who owns the data. But, of course, if the automotive manufacturers never sell the vehicle and maintain ownership of it, then they also own the data from that vehicle. And so that makes the product as a service, the vehicle as a service or ability as a service, whatever we're calling it, that makes that model hugely attractive to the automotive manufacturers because the data from the vehicle is almost as valuable to them as the vehicle itself. It's a win for the on of manufacturers because they get guaranteed revenue coming from the vehicle and they get to own the data. It's a win for the consumer because they get a. Lovely vehicle, new all the time. Maintenance tax covered single bill every month, and it's a win for the planet because it's a more sustainable way of producing new vehicles using a fraction of the parts required in the past. So that's product as a service with a couple of examples, and that shift is happening today and it's increasingly happening and it's all down to digitisation of the manufacturing process, the design process, the whole thing. OK, Tom. Tom, that was great. Is there anything, Tom, that I haven't asked you? No, I think we've covered it all. And if people want to know more, I have written a blog post about this called The iPhonification of Automotive. It's on Forbes. I'll draw up a link in the show notes. You can also connect with me on Twitter and LinkedIn. If you're not already there, drop me messages there. I'm always happy to respond to those. And if you listen in in the outro part of this podcast, you'll get my email address. So feel free to grab that and drop me an email. Say hi, ok. Thank you everyone for listening. Thanks, Tom, for coming on the show. Thanks, Tom, for having me. OK, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chain to head on over to SAP dot com slash digital supply chain or or simply drop me an email to Tom Dot Raftery at SAP dot com if you'd like to show, please don't forget to subscribe to it on your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. Catch you all next time.