Welcome to the subscription era
A paradigm shift is upon us. More and more companies are moving away from the traditional linear “take-make-dispose” business model, which encourages companies to maximise profits by selling large quantities of products that are manufactured at minimal cost. In most cases, each item is used by a single customer then thrown away.
Instead, many businesses are embracing subscriptions. For instance:
Subscriptions have become the go-to in the media industry, with consumers opting to access everything from news to music through monthly subscriptions.
Rather than selling licenses or equipment outright, more and more tech and non-tech companies are pivoting to as-a-service models, particularly companies in the software-as-a-service (SaaS) sector.
Subscriptions are increasingly common in fast-moving consumer goods; for example, you can buy subscriptions with regular deliveries of groceries, laundry detergent, razor blades, pet food and alcoholic drinks.
There are services linked directly to consumption – for instance, printing services that monitor the number of pages printed then send a new ink cartridge when the old one is running low.
In these arrangements, customers benefit from:
No or limited upfront cost
Flexible pricing and more finance options
Predictable, regular operating expenses
Getting items quickly
Consumption-driven inventory
In most cases with durable goods, responsibility for maintenance and repairs remains with the asset owner.
The companies providing subscriptions benefit too, because:
They generate ongoing, predictable revenue
They can earn additional income through interest
They can make data-driven decisions to provide better customer service; for instance, with consumption-driven models like the printing one (above), or with data-driven pricing
They can increase customer engagement and loyalty
They can gain a competitive advantage over other players in the market
In most use cases with durable goods, they still own the item, and they can resell it at the end of the contract.
The challenge, however, remains with the subscription provider because subscription business models can be complex and hard to manage. At PwC, we often hear from enterprise leaders across industries who have adopted this approach, and they describe how this lucrative business model can pose operational challenges.
Oracle provides a full suite of applications to manage the quote, order and billing process. Yet, simply having all the right individual applications is not enough. To enable seamless, end-to-end customer experiences, these Oracle applications need to be tightly integrated with other solutions like Oracle Fusion Cloud Supply Chain Management (SCM) and Oracle Fusion Cloud Enterprise Resource Planning (ERP).
Companies that offer multi-year contracts to their customers will find immense value in the Oracle Configure, Price & Quote (CPQ) cloud application. The Oracle CPQ system is designed to facilitate easy to configure integration mechanism with surrounding downstream applications, enabling businesses to utilize these connections to meet their specific operational and financial requirements. By leveraging the Oracle ability to integrate smoothly, it enables companies to implement updates or changes to subscriptions automatically and flawlessly across all connected systems. This reduces the need for manual processes and significantly boosts operational efficiency. Oracle's robust and flexible integration options allow businesses to not only streamline their workflows, but also enhance the accuracy and reliability of their data across various platforms.
PwC works to configure and integrate individual Oracle modules in a way that provides companies the connectivity they need to create a top-notch customer experience.
Change once, updated everywhere
PwC's Oracle subscription model system methodology is engineered to support various billing frameworks, including subscription-based, usage-based, and lease-based models. It seamlessly integrates with the diverse Oracle solutions commonly utilized by businesses.
Consider a scenario where a medical equipment manufacturing company that needs to perform maintenance on a leased machine or has a customer requesting changes to their contract. With our system, any modifications to the subscription need only be made once in Oracle CPQ. These adjustments are then seamlessly relayed to other integrated Oracle applications, including Oracle Sales Cloud, Oracle Fusion ERP, and Oracle Supply Chain and Manufacturing Cloud. This efficient process guarantees uniformity and enhances productivity across all linked systems, thereby simplifying the management of subscriptions and improving overall business operations.
In other words, PwC Oracle leasing capabilities creates an end-to-end integrated platform for subscriptions that streamlines collaboration across organisational departments, such as sales, supply chain management and finance.
Our integrated approach empowers companies across a range of industries, including telecommunication, industrial manufacturing, medical equipment, and the printing industry to manage their subscription models more effectively. For example, we helped Sakura, a global provider of cancer diagnostics solutions, to integrate Oracle CPQ with Oracle Subscription ManagementOpens in a new window. Now, once contracts are signed, the company can seamlessly manage renewals, upgrades, billing and revenue, all while gaining a clearer view of customers throughout their lifecycle.
Pay-as-you-go model powered by subscriptions
The subscription model enables the provider to track each component of a subscription at a granular level. It helps to generate billing periodically as per the agreement with the customer. When it comes to usage-based billing, it can provide a fixed or tiered cost depending on real consumption data and the agreed-upon rate.
Subscriptions within PwC's Oracle subscription model system are closely linked to fixed assets, meaning that the principles of revenue and expense matching are always met. The customer receives a single subscription invoice that includes details on usage, services and rent.
Unlocking full visibility of leased equipment
In the case of durable goods, leases typically run for three to five years, and the same machine is often leased out multiple times to different customers. Our solution helps businesses manage this complexity by tracking where each machine is, what type it is, what maintenance has been done on it, which spare parts it has, how much revenue has been made from it, and how much the up front and repairs costs are. This provides accurate data for revenue and margin analysis.
Taking the headaches out of accounting and compliance
That’s just the start. On the accounting side, PwC Oracle leasing capabilities enables operational and financial leases to be classified and managed correctly, in compliance with accounting requirements such as ASC 842, a lease accounting standard issued by the Financial Accounting Standards Board (FASB), IFRS 16 (PDF) (file size: 0.01 MB) and multi-GAAPOpens in a new window . This is a common challenge, because financial leases are managed different ways in different ledgers, and auditors are eager to see that they’re handled appropriately.
Furthermore, our solution automatically calculates how customer payments on financial leases impact the principal on the loan as well as the interest accrued. And it automatically recognises all the transactions relating to each lease or subscription, avoiding the need for manual reconciliation.
The bottom line
Subscription business models are increasingly popular across industries, but they can be tricky and costly to manage. If you’d like to discuss how we can help you better manage a subscription business model using Oracle solutions, please get in touch.
