Servitization in Agriculture

Part of the AGCO family Servitization in agriculture Servitization has been helping companies across a variety of industries thrive. Now you can use it to free up more time to focus on what’s important and spend less time worrying about maintaining equipment. How could your farm benefit from more flexible payment schedules and less operational risk due to equipment breakdowns? This paper can help you to find out how to benefit from this trend – so that you can focus on your field and growing your future. Contents What is Servitization and how does it benefit you? 3 Servitization in other industries 5 How does Servitization address farming challenges? 6 How can Servitization help farmers move forward? 7 Practical benefits and use cases of Servitization for farmers 9 How to take advantage of Servitization 12 November, 2019 2 Servitization in agriculture What is Servitization and how does it benefit you? Helps you focus on your field As a farmer, you spend a lot of time these days dealing with new regulations, environmental concerns and quality issues – which all distract you from what you do best, producing great crops. We can’t fix issues around new regulations, but we can help free up more time for the things that are important. How? Through Servitization. It reduces the time and worry involved in purchasing and maintaining your agricultural equipment, so you can focus on your core business. Servitization provides: • More business flexibility • Access to state-of-the-art equipment and services • No financial and planning surprises • Focus on your field Servitization meets changing needs The idea of Servitization is not new. In essence, Servitization is a way to get equipment and services easily and economically by combining both into a single contract. You use a Servitization approach every time you stream a TV show, movie or song. Or using independent contractors for services like spraying, baling or plowing. What is new is that Servitization is about to become the next big thing in agricultural equipment. This approach is already making a splash across a wide range of industries, including automotive, materials handling and entertainment. Why is it so popular? Because it meets changing needs. In the past, a farmer might have bought equipment from a company. If it needed repairs, they fixed it themselves, or they went to a local mechanic or dealer. Today, many farmers are choosing to get all of the parts and services they need from one source – and sometimes through one payment. This lowers risk and operational hassles. It results in easy maintenance. And it makes everything more predictable. Huge potential for agriculture That’s why this model is moving into the farming business. Even though things are changing, the use of Servitization in agriculture is still quite low. But it has huge potential– it can help farmers spend their time and money more wisely. These days, some farmers don’t want to invest in and own expensive equipment. Instead, they want ‘just in time’ access to equipment when and where they need it. Therefore, in close cooperation with dealers and manufacturers, financial solution providers are starting to offer just that. This paper has been produced by AGCO Finance, an experienced global financial solutions partner in the agricultural sector, to share the knowledge we have gathered from our daily business as a strategic finance provider with our partners, dealers, manufacturers and – of course – farmers. Let’s look at some examples from other industries. How have customers benefitted from this trend? 3 Servitization in agriculture Servitization in agriculture More business flexibility Servitization makes it easier to change machinery, select services and customize payment schedules to meet your business needs. Access to state-of-the-art equipment and services Servitization makes innovation, like state-of-the-art equipment and Smart Farming services, affordable by reducing investment barriers and shortening payback cycles through all-in-one, long-term rental or leasing contracts. No financial and planning surprises Servitization can combine equipment and service for one fixed fee, with defined service levels and payment intervals to eliminate financial and planning surprises and increase your peace of mind. Focus on your field Servitization frees up more time to focus on producing great crops, while spending less time worrying about maintaining equipment. 4 Servitization in agriculture Servitization in other industries Materials handling: flexible forklift access1 Let’s say a company needs forklift trucks. They don’t want to invest in their own fleet, but they also don’t want to jump from rental to rental. This is where a servitized solution can meet their needs: companies like Jungheinrich rent forklift access for a 12-month period. The customer tells Jungheinrich how many hours of forklift use they want, and Jungheinrich only charges them for the hours they use it. This brings many benefits. They get a full-service contract. They can change the number of hours they want to use the forklift. And they even get a phone app with GPS locations and information about how and when they use each forklift. In other words, this servitized approach gives them cost-effective and reliable access to equipment. They don’t have to make a major investment, and it is even cheaper than a short-term rental, with almost the same flexibility. Warehousing: pay-per-pick2 Swisslog – a global warehousing company – is another example. They now offer picking robots that transport goods by themselves across large warehouses. They also offer a pay- per-pick solution –warehouse operators are charged the same amount for every robot pick- up. This charge includes costs for equipment, service, maintenance and repair. It also includes extra services like warehouse management systems and installation fees. The company gets access to state-of-the-art equipment and all the support needed to keep it running, making their operations more efficient, all for a fixed fee. Construction: pay-per-cubic metre3 Imagine you run a government agency that is digging a new highway tunnel. Costs are important, especially as the project moves along. You might turn to Epiroc, who could provide you with a budget-friendly, servitized solution. For instance, a famous tunnelling project in Portugal paid Epiroc a fixed charge for every cubic metre they dug. This charge included equipment, service, maintenance and repair, as well as spare parts such as drilling heads. This way, total costs for the project were fixed and transparent. The agency could also make their payments as the project progressed, and only had to pay when machines were actually running – in other words, when the tunnel was being dug. These examples are from areas that have used Servitization longer than the agricultural sector, and they describe solutions that combine equipment and additional services into a single package. They meet specific customer demands. And they provide more value than a mix of stand-alone solutions. The same can be true for farmers and agricultural equipment. Let’s explore the idea in more detail. 1 https://www.jungheinrich.co.uk/products/forklift-hire/power-buy-the-hour-144016 2 https://www.swisslog.com/en-us/warehouse-logistics-distribution-center-automation/products-systems-solutions/ asrs-automated-storage-,-a-,-retrieval-systems/boxes-cartons-small-parts-items/carrypick-storage-and-picking-system 3 https://www.epiroc.com/en-au/customer-stories/2016/pay-per-use-portugal 5 Servitization in agriculture How does Servitization address farming challenges? Servitization is not a one-size-fits-all idea. In agriculture, it focuses on helping farmers meet some of the most important trends and issues they face. On this page, we will first discuss some of these issues you might face in your business. On the next page, we will then show you how Servitization can help you overcome some of these challenges. Accessing new innovations Digitalization4 is a global mega-trend that affects all industries – new digital equipment, products and solutions are entering the market faster than ever. You can see this in agriculture in the form of ‘Smart Farming’ and ‘Precision Farming’. However, the equipment and technologies farmers need for this are costly. This makes it hard for smaller farms to keep up with large, professional farms that have bigger budgets to work with. Fewer skilled employees Farms are often closely tied to family, passed on from generation to generation. In recent years however, younger people are not as interested in taking over the family business. This isn’t just an issue for farmers – it affects all of us who depend on farmers and their work5. At the same time, other workforce changes mean that many farms find it harder to get skilled employees. Can they keep running their farms the way they used to? Financial pressure On top of regulatory changes and the rising cost of skilled labor, every farmer needs to manage their day-to-day production dynamics. While financial pressure in the agricultural business is nothing new, it’s becoming more complex and riskier. This puts an extra burden on how farmers operate and manage their business. How does it affect small and medium farms? On the one hand, their budgets are tied up in assets such as farm inputs (fertilizers, seeds, etc). On the other hand, they need to consider spending additional money to comply with many new rules, like the ones for manure management. And, of course, they face pressure from larger operations with efficiency advantages. This makes it harder to free up capital to invest in new equipment, which in turn is critical to protect their farm’s future. And many farms are afraid of investing in the wrong expensive technology, especially with its long pay-back cycles.

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