Robots as a Service: How to Lessen Upfront Costs

WHITEPAPER

Credit: Rochelle Williams, ETC-USC, via Flickr

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TABLE OF CONTENTS

WHAT IS ROBOTICS AS A SERVICE?

RAAS LEADS TO A WIN-WIN FOR USERS AND VENDORS

THE CAPEX BUYING CYCLE

OPERATING EXPENSES

CREATING AN SLA

COMPARING ROBOTICS TCO

REQUIREMENTS FOR RAAS DEPLOYMENT

SYSTEM MONITORING AND REMOTE MAINTENANCE

NETWORKING AND IIOT

SECURING ROBOT SWARMS

SUPPLIER RELATIONSHIP

ROBOTIC SERVICE PROVIDERS

HIREBOTICS

READY ROBOTICS

FINANCING AND TAKEAWAYS

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ROBOTS AS A SERVICE: HOW TO LESSEN UPFRONT COSTSCompanies comfortable with renting robot products and services can save money and get more support.By Mike Oitzman

WHAT IS ROBOTICS AS A SERVICE?Robot vendors are beginning to innovate their business models by offering a pay-as-you-go subscription model for their solutions. Your organization is likely already using many enterprise software products through service contracts with application vendors. This is commonly known as software as a service (SaaS), and it replaces the prior software sales model of enterprise seat licensing.

The evolution of cloud-based solutions for IT infrastructure is now influencing the production floor, where many automation suppliers are offering hardware and software using a model similar to SaaS. This sales model is known as robotics as a service, or RaaS.

In this whitepaper, we are going to introduce you to RaaS, explore how RaaS works operationally, and provide you with some tips for the process of buying robots or drones as a service.

By 2019, robot adoption will have increased by one-third. Up to 60% of G2000 high-tech manufacturers will have deployed industrial robots in manufacturing operations, according to the analyst report “IDC FutureScape: Worldwide Robotics 2018 Predictions.”

Also, by 2021, 45% of mobile robot deployments will be by way of RaaS, enabling facilities to rapidly scale up and down during periods of demand volatility and enabling robotic deployments to shift from capital expenditures (capex) to operational expenditures (opex).

You’ll learn three things in this report:• The advantages of RaaS for your business and how to procure automation

through it• The advantages of working with a RaaS provider• How to structure a successful RaaS deal with your vendor

Robots and artificial intelligence for hospitality, manufacturing, warehouses, and security have been provided through RaaS by suppliers such as Savioke,

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Tend.ai, Locus Robotics, InVia Robotics, and Knightscope. Many other robot vendors are now beginning to offer robots for rental at an hourly or annual rate.

In addition, there are several new robot service providers (RSP) such as Hirebotics and Ready Robotics that are offering automation in a pay-as-you-go service model. RSPs purchase the equipment from the original manufacturer and then resell a complete robotic solution as a service to the end user.

RAAS LEADS TO A WIN-WIN FOR USERS AND VENDORSRobots as a service is now a viable way to consume the capabilities of smart automation. There are many advantages for both the buyer and the vendor in an “as-a-service” business relationship.

For the buyer, there is no requirement for a large capital outlay at the beginning of the system deployment. The solution is offered as a service and paid for as the service is consumed, based on the delivery of the specified key performance indicators (KPIs) by the vendor.

In many cases, service delivery can be scaled up or down to deliver against elastic production requirements. As an ongoing contract, services are paid for out of your operational budget. As a result, the purchasing cycle for a RaaS solution can be significantly shortened.

Furthermore, since the vendor continues to own the equipment, it is incentivized to maintain the equipment in prime working order and to optimize its operation. Innovation can occur more quickly because the vendor has direct feedback on product and software changes.

In RaaS, vendors bear all of the burden of replacing or repairing equipment when it fails. Therefore, they should be more inclined to design and build a much more robust solution than might be sold in a capital equipment deal.

The RaaS market is expected to exceed more than $20 Billion (U.S.) by 2023, experiencing a compound annual growth rate of of 21% from 2017-2023, predicts Market Research Engine.

Overall, as the customer, you will pay more in the total cost of ownership (TCO) when using a service-based model over an ownership-based model. However, operational risk is shifted back to the vendor to deliver a higher quality solution and to achieve the agreed service levels.

If a particular robot isn’t perfect for your needs, you can return it (or swap it out) without the pain of liquidating a capital asset. The advantage for vendors is that RaaS provides them more intimate relationships with their customers.

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These relationships encourage them to evolve their hardware and software faster and more precisely, providing them with a competitive advantage. Robot rentals can be a win-win for both customer and supplier.

THE CAPEX BUYING CYCLEA capital expenditure buying cycle is one in which costly equipment must be capitalized and depreciated on the company’s books. To acquire the equipment this way, it has to be financed either internally or externally.

The impact to your business is that every capex purchase has multiple checkpoints, including finance department analysis and executive management approval. As a result, the approval and financing process inevitably slows down the purchasing cycle.

The length of a typical capex buying cycle can add friction to an agile organization. This makes it difficult to respond quickly to market changes, production challenges and competitive threats.

In addition, the annual nature of capital asset purchasing imposes a cycle that can vary anywhere from three to 18 months, making it difficult to create and manage project schedules.

“RaaS is simply to understand, be innovative, and you get to leave the worries for those who know.” —Mark Webb, Jones Plastic and Engineering, a Hirebotics customer

ADVANTAGES OF RAASRaaS has many potential benefits for the customer/buyer:• Simplified return on investment (ROI) criteria• Elastic consumption -- pay for what you use and scale to meet production peaks

and valleys• Ongoing software upgrades and support• Higher-quality equipment• More intimate vendor support• Consumption costs competitive with manual labor rates• The advantages of RaaS for the equipment manufacturer include:• More predictable cash flow• Shortened product sales cycle• Better sales funnel visibility• Higher-touch support interaction• More precise innovation cycles

Source: Market Spec Research

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For large organizations, there may only be certain times in the year when capital equipment can be approved for purchase, regardless of the business need. The checkpoints in this process exist to manage the cash flow and solvency of the organization.

Bottom line: Any large capital investment will impact the cash flow of an organization. As a result, organizations are cautious with the decisions that require a large capital outlay.

OPERATING EXPENSESOn the other hand, operational budgets are typically discretionary for managers and directors. As long as business goals are achieved and budget is spent in the pursuit of business goals, there are often fewer constraints on how opex is dispersed.

In addition, operational budgets are allocated to reflect the seasonal changes in manufacturing schedules. More money is thus available to be spent during periods of increased production. The ability to respond to elastic production schedules is an inherent feature of the operating budget.

The RaaS business model is designed to make it quick and easy for a customer to set up and deploy robots. After the initial deployment, the solution should easily scale to meet production demands.

From a financial perspective, RaaS ensures that you get what you pay for and that you can easily scale the system up or down to meet your production needs.

Another benefit is that you can swap out equipment as your needs change.

THE CAPITAL ASSET PURCHASING CYCLE

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For instance, you may need a larger robot for a greater reach or payload, or different end effectors for a collaborative robot arm.

Robot service providers such as Hirebotics and Ready Robotics are now blurring the lines between robot vendors and integrators to deliver complete solutions in a pay-as-you-go contract.

CREATING AN SLAA service-level agreement (SLA) is a contract between a service provider and a customer. The SLA defines the level of service expected by the end-user and a good SLA will be measurable and specific in each of the following areas:

• System reliability — uptime, throughput, quality, precision, accuracy• Vendor responsiveness — mean time to repair, support availability• System monitoring — requirements for remote monitoring, tele-operation

and system access by vendor• Consequences of failure — recourse and penalties for both vendor and

end-user• Escape clauses — specific circumstances where the SLA does not apply

With a properly defined agreement, the business relationship with a robotics supplier can effectively reduce the time to acquire and deploy a robotic solution.

The SLA must define key performance indicators that are measurable and that will be reported on throughout the life of the system. The economic value of a robot will likely be tied to one or more KPIs.

A simple example of a KPI might be hours in operation, simply measurable by

THE OPERATING EXPENSE PURCHASING CYCLE

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the time that the system is in production. A different KPI might be throughput of the system in terms of amount of product assembled (for a fixed robot) or deliveries made (for a mobile robot).

COMPARING ROBOTICS TCOA key difference in capex versus opex purchases is seen in the TCO expense curve for the equipment.

Elements to be considered as you compare a capex purchase to an opex expenditure include the following:

• Upfront investment• Monthly/quarterly operational expenses• Support and maintenance contract/costs• End-of-life/asset disposal• Tax implications

A capex contract requires an upfront investment to purchase the equipment. The buyer owns the equipment after the purchase and is wholly responsible for its upkeep and maintenance.

The depreciation of the purchase investment will be broken down and depreciated on the company books over a three- to five-year period.

In addition, there will likely be an ongoing support and maintenance contract with the vendor/integrator to keep the equipment operational during its working life. See next page for a view of a typical capex purchase versus a RaaS investment model.

“That was also another decision factor; it’s great to have a product that obviously needs to be constantly maintained in perfect working condition and Savioke is always on top of it all and we have a great relationship.” —Claudio Bono, general manager at The Grand Hotel, a Savioke Relay customer

TYPICAL KPIsTypical KPIs might include:• Hours in operation per week (for security robots, for instance)• Deliveries (for materials-handling robots)• Throughput (for process equipment)• Parts assembled (for assembly robots)• Miles/km driven (for mobile robots)

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By comparison, a RaaS or opex contract will have only a minimal startup investment (including installation or integration costs) and an ongoing SLA commitment.

There will likely be a minimum period of one to two years to the contract. Failure of the equipment to deliver against the SLA will provide an exit for the buyer.

Note that there will be a crossover point between the two investment curves at the point at which the cumulative operating expenses of a RaaS contract exceeds the fixed costs of the capex model. RaaS providers are typically setting their prices to put this crossover point between years three and four since they are trying to get a reasonable return on their investment.

Over a longer period, the total cost of investment for an opex contact will be more expensive. However, the return on that investment should be measured in better service and greater utility from the equipment.

In addition, the equipment may be swapped out or upgraded at the vendors’ discretion at any point during the contract and replaced with a functionally new piece of equipment. This is the real -- and hidden -- advantage of a RaaS model for the end user.

The immeasurable elements of an opex contract may also include a consumption model that is elastic and able to track production needs (although this isn’t illustrated above).

Bottom line: A RaaS solution will cost more in the long term, but the costs

THE TCO CURVES FOR OPEX AND CAPEX COMPARED

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will be more predictable and can scale with elastic production needs. Also, you’ll likely have a higher-quality system and more uptime, since the vendor is actively maintaining and upgrading the equipment to meet SLAs.

REQUIREMENTS FOR RAAS DEPLOYMENTThere are several key requirements to be aware of if you are considering procuring robots through RaaS. In this section, we’ll outline the items that are necessary to deploy an effective RaaS solution.• Allow remote monitoring of the equipment by the supplier• Networking infrastructure within your facility• Secure connection to the Internet

SYSTEM MONITORING AND REMOTE MAINTENANCEA cornerstone feature of RaaS is remote monitoring and remote support of the deployed system. Every RaaS vendor now has some form of remote support capability for their system. For instance, Vecna Robotics has a central command center for its materials handling and hospital robots.

The remote support lets the vendor be alerted to any performance problems so it can troubleshoot and repair systems and meet SLAs.

Remote monitoring also allows the service provider to track system wear and to cost-effectively perform preventative maintenance on the system. After all, the vendor owns the robots, so this will be a core requirement of a RaaS contract.

If your facility does not allow real-time equipment monitoring of the system, then expect to negotiate on SLAs with your vendor. Several companies have developed “store and forward” software that can queue alerts and e-mail them back to the vendor, using technology that doesn’t require a live network connection.

TIP: Be sure to verify how your vendor expects to monitor its equipment.

NETWORKING AND IIOTThe robustness of the network within a robot’s work area is the biggest prerequisite for deploying RaaS that supports remote monitoring. The contract with your supplier should include remote monitoring.

With it, the vendor can track system usage and wear and be able to remotely troubleshoot the automation. If the robot will be deployed on the manufacturing floor, then it must be networked with a gateway to the Internet.

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If you are deploying RaaS-based mobile robots, then your facility must have Wi-Fi with enough coverage to blanket their operational area.

Be sure to review the networking requirements with your vendor and then evaluate internal policies with your IT group. Ready Robotics offers a cellular data connection option that allows it to securely connect directly to its equipment without having to be on the customer’s internal data network.

In addition, the process, product, and any environmental data gathered by sensors in robots or drones can feed into the industrial Internet of Things, or IIoT. With IIoT, enterprise systems are combined with big data and deep learning to provide insights for human managers.

RaaS and IIoT are leading to data as a service. For instance, Aquatic Drones is providing inspection data as a service to port authorities in the Netherlands.

Tip: Additional investment may be required to build out networking infrastructure prior to the RaaS system deployment. Be sure to scope out any additional facility requirements.

SECURING ROBOT SWARMSSecurity should be the No. 1 consideration in evaluating networking requirements with RaaS vendors. You must thoroughly review their software security practices and system architecture to ensure that they meet your network security policies.

At a minimum, their control systems will require a virtual private network (VPN) connection between the vendor’s support operation and your facility. If done correctly, it is entirely possible to setup a secure and hack-proof connection between the vendor and the equipment onsite.

You should review the security practices of the vendor on an annual basis and make sure that penalty clauses for failure to comply are built into the contract with the vendor.

Some mobile and service robots use cameras for navigation as well as tele-operation. The same may be true for some fixed robot solutions. Be sure to review the vendor policies on how images are acquired, stored, and transmitted outside of your facility.

You might want to add legal language to the contract to control the use and storage of these images. However, know that restricting video imaging may reduce the functionality of the system and affect the SLA with your vendor.

Tip: Be sure to include your IT department and networking security team in the vendor evaluation process.

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SUPPLIER RELATIONSHIPIn robotics-as-a-service relationships, the facts that the equipment is owned by the supplier and that the SLA is tied to its ongoing performance should ensure that the supplier stays committed. Every customer-support situation provides

the supplier with valuable performance data and helps it to continually improve its products and services.

The supplier is no longer isolated from the customer support relationship, as might have happened with channel relationships in the past. You should expect RaaS-based solutions to evolve more quickly than was possible in the past. As a RaaS end user, you’re not tied to long equipment depreciation cycles and you can stay on the technology adoption curve.

The key to a strong supplier relationship starts with a concise and specific SLA and an open and ongoing conversation with your vendor about the system performance.

Make time to provide feedback on about where improvements can be made. Protect yourself by ensuring that penalties (or exit clauses) are built into the SLA.

ROBOTIC SERVICE PROVIDERSSeveral new options are emerging to support the idea of robots as a service. These robot service providers (RSP) share several characteristics:

1. Offer automation solutions in a pay-as-you-go model2. Deliver full-service, 24/7 support with remote monitoring of equipment3. Provide a complete turnkey solution

HIREBOTICSHirebotics is an example of an RSP that offers complete turnkey robotic solutions based on Universal Robots’ collaborative robotic arms. Typical applications include machine tending, pick-and-place, and assembly operations.

“We are backed up by a company that is responsive if there are any issues with technology or anything that needs to be replaced. They do care about their products, and they are helping us as well.” —Claudio Bono, general manager at The Grand Hotel, a Savioke Relay customer

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Hirebotics offer “robotic employees” with contracts that are based on an hourly wage, similar to any other full-time employee. Hirebotics also does not have a long-term commitment. It has essentially a “robotics hire at will” element in its contracts.

As you would expect, Hirebotics include a cloud-based, remote monitoring solution that enables Hirebotics to help production managers view the throughput of the robot stations.

READY ROBOTICSReady Robotics is another RSP offering turnkey offerings based on cobots from Universal Robots. Ready Robotics has a developed a unique robot programming solution called Forge.

With Forge, the user can program the robot operation in a flowchart-like interface, making it easy to learn and simple to modify. The commands in Forge are robot-agnostic, so any robot supported by Ready Robotics can be swapped into a workcell.

Ready Robotics has a unique workcell calibration process that enables collaborative robots to be quickly moved into or out of a workstation and temporarily replace human workers as needed. This enables companies to run manual operations on one shift and fully robotic operations on another shift (e.g. third shift). Ready Robotics offers contract lengths with three months, as well as one- and three-year options. The longer the contract, the lower average cost of the solution.

FINANCING AND TAKEAWAYSRobotics as a service should be familiar to companies that already rent equipment, such as in construction, utilities, customer-service, or supply chain operations. Fortunately, numerous robotics vendors are providing RaaS offerings. More are exploring this option, and new financing options are emerging.

If you prefer to explore third-party options, then RaaS-based financing is also available from lending organizations such Winthrop Resources.

Third-party financing organizations can help provide the opex financial benefits of RaaS for any automation project. This market is evolving rapidly, as more financial organizations begin to understand the economics and ROI of robotic automation, along with the equipment-depreciation schedules. Note, however, that choosing a third-party option may not include the RaaS benefits

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of remote monitoring or support.For organizations getting started with RaaS, here are some things to

remember:• Automation provided as a service can scale to meet an elastic production

demand.• RaaS provides a predictable cost model, with less risk than capital

expenditure.• Deploying robots in a RaaS model requires less capital upfront, but the

total system cost might be higher by the time you retire the equipment.• RaaS provides more flexibility in how you can acquire robots.• With RaaS, your production line can remain on the technology curve for

longer because of constant, remote support.