KOMTRAX – Use of data analytics in construction machine industry

Komatsu is the world second largest construction machine company behind Caterpillar. The company has focused on the use of data long before the notion of “Big Data” became prevalent. Since 2001, Komatsu has not only sold its products but also provided Komatsu Machine Tracking System (KOMTRAX), the system incorporates censors and GPS into Komatsu products and provides users real time information including location, utilization, maintenance condition, and fuel consumption etc.

KOMTRAX

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Value Creation

As you can see from the chart, by gathering and visualizing all data of the machine, Komatsu provides the following benefits to users:

 Real time monitoring of utilization for optimal machine deployment
 Prompt repair and preemptive maintenance
 Higher resale value with transparent work and repair history
 Engine lock system to prevent from theft
 Free consultation for further cost reduction opportunity by real time machine deployment and maintenance etc.

Regarding its consultation service, for example, if the machine turned on engine for 100 hours but only worked 60 hours, KOMTRAX visualizes the data and advises customers to either change numbers of machines for the construction site (and allocate the machine to some other site) or advise the driver or superintendent to change work flow which Komatsu has built its expertise through collecting and analyzing vast datasets.

Value Capture

Komatsu does not aim to monetize KOMTRAX directly from customers. By providing the system almost for free, Komatsu uses the system as an effective marketing tool. However, beyond marketing, Komatsu also captures the following values through KOMTRAX:

 Asset seizure in case of users’ default (Komatsu provides installment sale with pledge of the products)
 Utilization of data gathered from all machines for precise demand prediction

As Komatsu sells its products with KOMTRAX, it enhances data collection sources. By gathering real time data of the all machines around the world, Komatsu can use the real time data to predict the demand trend and utilize the prediction to achieve lean production and minimize working capital and product lead time.

As a result, its revenue growth rate and profitability has improved drastically since 2003, surpassing those of Caterpillar, the market leader of the industry (due to the initial CAPEX and free installment of KOMTRAX to users, its profit margin did not improve for the first 2 years after the launch of KOMTRAX).

Financial performance

Source: Capital IQ

Future prospect and challenge

KOMTRAX has contributed to the improvement of financial performance of Komatsu. It provides win-win value proposition to both Komatsu and users. However, due to the fierce competition against Caterpillar, it fails to monetize data analytics and consultancy service from customers. Going forward, one question would be whether Komatsu should monetize its data analytics service, as its customer value proposition has been already proved. In my opinion, its benefits to customers are huge and they can adopt subscription model and obtain fee from customers without sacrificing retention. Then Komatsu can use the proceed for further R&D. Since competitors would emulate innovative products or services, Komatsu cannot sit still and need to invest in further development of its products and services in order to remain competitive in the business.

 
Source
http://www.komatsuamerica.com/komtrax
https://www.salesforce.com/jp/blog/2013/12/vol3-bigdata.html
http://business.nikkeibp.co.jp/article/bigdata/20140208/259472/
http://www.komatsu.com/CompanyInfo/press/2016092705594127458.html