Inside Logistics

Automation coming with high service pricetag

Research shows that aftermarket service contracts will be worth as much as the automation itself


June 3, 2021
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Soaring growth in the warehouse automation equipment market is causing parallel growth in the market for service contracts. With a value of US$4.3bn in 2020, they are projected to grow to $8.7bn by 2025.

Interact Analysis’s research predicts that the global market for servicing installed automation equipment will see year-on-year double-digit growth up to 2025, when revenues will top $8.7bn.

This will be a stable and lucrative market for OEMs and integrators, affording higher profit margins than equipment sales.

Currently, a significant number of end-users carry out service and maintenance in-house or use a third party. And there are also customers who consider it cost-effective to leave their machinery un-serviced.

Growing complexity

However, Interact Analysis’s work shows that the growing complexity of equipment and rising pressure to avoid machinery down time will mean that OEMs and integrators will significantly expand their share of the services market in the next five years.

“So critical is the provision of ongoing troubleshooting, repair services, and spare parts, that virtually all OEMs/and integrators offer some form of lifecycle service,” said Jason dePreaux, principal analyst at Interact Analysis.

“The development of that service capability beyond the basics depends on the maturity of a vendor’s installed base as well as a significant investment in manpower, training, and organization. Each step in the evolution provides additional revenue opportunity commensurate with elevated financial risks and human resource challenges.”

The research shows that the potential revenue generated from offering a lifetime service contract to an automation project is roughly equivalent to the original cost of the project. So, in broad brush terms, a whole-life service contract could double the original revenue from the sale of the machinery.

Peaks and troughs

Furthermore, the research shows peaks and troughs in the service cycle, with the highs coming around the five-, 10- and 15-year marks, corresponding to times when parts are likely to require replacement, and computers and control equipment to need upgrading.

In 2020, on-site service in various incarnations – site visits to identify and repair problems, preventive maintenance visits, and the deployment by OEMs of technicians to sites on a full- or part-time basis – accounted for 40 percent of service revenues. Upgrade services (modernization or alteration of existing systems, not replacement) accounted for 22 percent, and remote services, where customers have telephone hotline access to support, 19 percent. That figure of 19 percent belies the fact that basic hotline service packages have a very high take-up among end-users, some 80 to 90 percent. Additionally, on-site services will become more prevalent as automation solutions get more sophisticated.

In 2020, 80 percent of the revenues from automation machinery service contracts were generated in the Americas and in the EMEA (Europe, the Middle East, and Africa) region,

“Historically, there has always been a much higher adoption rate of service arrangements in those two regions than there has been in the Asia Pacific (APAC) region – due to lower labour costs in Asia, expectations for maintenance to be included in the project sale, and robust in-house service capabilities by large e-commerce companies,” said dePreaux.

“But this situation is set to change. As worker expectations rise and wages level up in APAC, and other factors come into play, such as recent experiences with social distancing and the pandemic, we expect the region to be setting the pace where warehouse automation installations are concerned. Indeed we forecast that, by 2024, the rate of growth in the APAC service market will be faster than in the Americas or EMEA.”

The statistics and forecasts in the report are based on the results from three estimation techniques – bottom-up estimates, a top-down demand model, and an installed base model. For bottom-up estimates, Interact Analysis used detailed estimates for 2020 from over 30 warehouse automation equipment vendors. For the top-down demand model, they used data from previous reports to examine historic market sizes by region, back to the year 2000. Using historic market sizes, they calculated the size of the current installed base, and a running total of projects, taking in project retirement rates.