One striking number in GE’s third quarter results released today is the size of the company’s record backlog. It stands at $229 billion dollars, up $6 billion from the second quarter. “We have the biggest backlog in the company’s history,” GE Chairman and CEO told Barron’s recently.
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Accountants define backlog as orders committed, but not yet delivered. It’s like ordering an iPhone 5s online now, but actually getting it in mid-November.
Hardware like jet engines and turbines accounts for just a one-quarter share of the backlog. The bulk of the backlog, about three quarters, does not involve big iron at all but services designed to make customers more efficient and productive.
GE has started connecting machines to the Industrial Internet and using software and big data analytics to improve their performance and minimize unplanned downtime. The Barron’s story noted that GE was “transforming itself into a seller of services rather than just equipment.”
“Airlines can use data from hundreds of GE sensors to reduce fuel costs and plan maintenance,” Barron’s wrote. “Railroads can do the same to optimize trips. Software now contributes $4 billion a year to GE’s revenue. And service contracts create a stream of high-margin income that can last for the life of the equipment the company sells—in some cases, three or four decades.”
Bob Judge, director of product management at GE Oil & Gas, says that GE needs to “move from the ‘break-fix’ model to a maintenance model where we can advise customers to service a component based on measurements of its performance.”
“Telling a customer what to fix after it has failed is relatively easy,” he says. “Telling them to fix something before it costs them money is the magic.”
We have visualized GE’s backlog in our infographic. Take a look.