You are likely hearing, reading, and thinking a lot about the digitalization of field service and the movement of the entire industry toward outcomes-based service. Some of you may be further down the path than others, but regardless of your current state if these topics are at all on your mind, Sasha Ilyukhin is someone you’d find immense value in learning from. Ilyukhin is the VP Industry 4.0 Solutions and Customer Success at Tetra Pak. As a member of the global senior leadership team for Tetra Pak Services, Ilyukhin is responsible for the creation and delivery of customer value through digitalization and outcome-based services in North, Central and South America.
As its product-based business evolved, Tetra Pak recognized the need for a services-based approach. The company’s focus on delivering outcomes-based service has grown leaps and bounds over the past couple of years and Ilyukhin joins us here to discuss the company’s experiences and give his advice for any organization on the path to an outcomes-based model.
Nicastro: How did Tetra Pak identify the need to go down the path of outcomes-based services, and what type of services do you have today in this area?
Ilyukhin: Very simple, we listened to our customers. Their business is under continuous pressure from changing consumer demands and increased market competition. With such pressure comes the need to relentlessly increase productivity and reduce operational costs.
At the same time, we believe that Tetra Pak is uniquely positioned to help our customers make their business more efficient and profitable. We have more than 65 years of accumulated knowledge and know-how in the food and beverage industry. We also have vast experience and commendable achievements in the area of Total Productive Maintenance, where our own packaging material factories have received highest recognition from Japan Institute of Plant Maintenance. In addition, we have unparalleled presence in the field, where our service engineers are based in close proximity to our customers. Combined with our growing appetite for digitalization technologies and risk-reward business models, all of the above enables us to grow outcome-based agreements as the future foundation of our services business.
Our business model and service offering for the outcome-based agreements is very different from a typical consulting engagement, where a fixed fee is charged to identify future improvement opportunities that over-compensate the consulting fee. We would charge our customers only when the actual savings are realized and confirmed in their P&L statement, and our fee is always considerably smaller than the overall customer financial gain.
We are also expanding our offer beyond just Tetra Pak equipment installed base, since significantly larger savings can be found on a factory-level scope.
Nicastro: What technological foundation had to be put in place to enable this approach?
Ilyukhin: There is a saying that “Data is the new oil;” it all starts with the ability to collect, process and analyze production data. We were well prepared in this area, with around 70 percent of our processing and packaging equipment connected in real-time. We are now tackling the challenge of connecting other OEM equipment and integrating it into our models of predictive analytics and data visualization.
Another important consideration is how to use the data you collect. We have partnered with Microsoft and Azure Cloud Services to enable us to build models for predictive maintenance and generation of data-driven business insights.
In parallel to our digital infrastructure, our field force capabilities are also rapidly evolving. In the past few years, we have invested in the development of mobile apps and tools to enable our service engineers to have the information they need when they need it. We have also pioneered the use of augmented reality with Microsoft Hololens for applications such as remote support assistance, training and certification, and virtualization of equipment placement during installations.
Nicastro: What internal changes did this shift force on Tetra Pak?
Ilyukhin: Our services business had to undergo through considerable change of business mindset, the way we work and the velocity of change itself. Many years ago we transformed from a pure cost center to a successful service operation. Going to outcome-based service model brought new requirements for the business: being able to make high quality decisions in a very short time, taking significantly higher risk vis-à-vis traditional “cost plus” models, enabling our field force to use the latest digital technologies and apps to monitor production and predict equipment failures. Implementing these changes would be impossible without high quality data analytics, and a mindset change to be able to act quickly on these data-driven insights.
With the speed of change in the digital era, we can’t allow ourselves to be complacent. So as an organization, we are learning what other technologies are rapidly developing for the future use in food and beverage manufacturing, such as advanced robotics, using simulation and digital twins, additive manufacturing and the increased use of artificial intelligence applications among others. We have also employed a team of data scientists to help us improve the quality of data-driven business decisions.
It’s worth mentioning that we have also changed our approach to service solution development. In partnership with the university in Germany, we have organized a few hackathons where a cross-functional group of our employees, university students and external consultants develops a minimum viable product in a matter of days. We believe having such agility is very important to address our customers’ specific needs.
Nicastro: How did you approach your customers on this, and what was key to success?
Ilyukhin: In my experience, outcome-based service discussions are best received at the top management levels. While plant managers and operational executives are equally concerned about their productivity and cost management, they are often constrained by annual budgets and KPIs, which are set for the current state of their business.
The key to success with the outcome-based services is to be able to approach the C-level leaders and to be prepared to quickly deliver a comprehensive opportunity analysis supported by robust and high-quality information, which is impossible to get without having access production and operational cost data. I believe that outcome-based models are the future of the service business, where long term partnerships can be forged with stronger commitments on productivity and cost reduction gains.
Nicastro: How had Tetra Pak progressed on this path and what’s next?
Ilyukhin: We started with outcome-based services a few years ago with a couple of pilots, where we had very good existing relationships with the customer across all levels, good availability of data and full willingness from the customer to explore this business model together. Our first result was beyond expectations when we were able to deliver almost 3x committed operational cost benefits over the course of one year.
Since then we also had cases where we could not deliver full potential saving due to various circumstances. With such cases, we were able to learn and perfect our model of delivery. For example, we quickly realized that with such complex contracts, a contract manager role is required to ensure all deliverables go as planned and all necessary roadblocks are removed in the process.
As we continue to expand the number of customers where we deliver based on outcome, our next challenge is what should we deliver to those customers where we already implemented these programs. We are expanding our offer to facilities that don’t have any Tetra Pak equipment installed. We are also looking at the benefits of new technologies, such as industrial social platforms for collaboration, issue resolution and daily management, and what these can bring to expand the productivity savings potential.
Nicastro: What’s your top piece of advice for a service organization that has yet to embrace the outcomes-based model?
Ilyukhin: Don’t wait for someone else to approach your customers with the outcome-based solutions and start building your own organizational capabilities to sell and deliver these. When done right, you would see higher levels of customer engagement and much stronger partnerships with your customers that enable mutual and sustainable business growth for the future.