With markets becoming even more competitive and boundaries blurring further, being a manufacturer is no longer as simple as making things. The industry as a whole is in the midst of a servitization transformation, as manufacturers venture into the services field — a space that was traditionally reserved for specialist service providers.
Servitization isn’t a passing trend; it’s shaking up the industry hugely. So what is it, and why does it matter? In this blog post, I explain more about servitization in manufacturing and how it is changing the face of the industry forever.
What is servitization?
Servitization in manufacturing is the process of expanding the capabilities of a company to deliver a greater experience for the end consumer. In the past, some manufacturers were guilty of neglecting the final customers; their main priority was creating the product, leaving third parties to deal with customer service.
However, this process opened up a market for third party companies to capitalise where manufacturers were falling short. For example, manufacturers that did not offer aftersales support or repair services were essentially handing over potential revenue to an external company.
Servitization now means reclaiming supplementary services for a product and offering them through the manufacturer directly — essential if manufacturers are to meet their ambitious growth plans.
While the services may be supplementary to the core products, implementing the servitization process dramatically impacts a manufacturing company. It involves overhauling not just your company’s organisational structure, but also rethinking business processes — a potential reason why some manufacturers have been slow in implementing the changes.
Levels of servitization in manufacturing
According to research, there are different levels of servitization within manufacturing — and the greater the level, the better companies are servicing the end customer. The three levels are:
- Level 1: Product provision only — all manufacturers are currently doing this, as it is the basics of manufacturing.
- Level 2: Aftersales services — this can include everything from field service to product repairs and condition monitoring.
- Level 3: Advanced services — building on level 2, these advanced services can include pay-per-use contracts and integrated solutions.
As you’d expect, the associated risk increases as the levels advance. After all, there’s a lot more at stake when a customer is paying a monthly fee for a service than if they are simply buying a product on a one-off occasion.
IoT & servitization
The new services demanded by the servitization transformation process hinges on a manufacturer’s successful adoption of technology. Given the advent of industry 4.0, this is naturally intrinsically linked to the Internet of Things (IoT).
By using monitors to track a product’s performance, manufacturers can effectively analyse behaviour and gain a greater insight into usage trends and future difficulties that may arise. The data captured then informs the manufacturer’s actions, whether it’s contacting the customer, arranging a repair or replacement or even modifying the product to ensure greater performance.
To make a success of servitization, manufacturers need to have technology in place that will allow for the effective scheduling of resources and enable visibility of all services and activities. Implementing an effective ERP software solution is the first step in being able to do this.
What are the benefits of the servitization of manufacturing?
With the correct structures and processes in place, manufacturers can reap the numerous benefits of servitization within manufacturing. One of the main benefits is the development of longer-term relationships between manufacturer and customer. In the past, manufacturers were simply the product provider; now, they play an intrinsic part throughout the whole product life and beyond.
Naturally, the greater the length of a customer relationship, the more profitable it will be for the manufacturer. Throw in the fact that businesses in general are keen to streamline the number of service providers they have to minimise disruption to processes, and it’s clear that servitization is a wise choice for manufacturers.
As we’ve already mentioned, some manufacturers are falling behind and haven’t implemented servitization within their business yet. According to the Barclays 2016 Annual Manufacturing Report, 70% of manufacturers are holding back due to a lack of availability of staff, materials and finances.
However, this doesn’t mean that these manufacturers don’t want to; the report found that 74% of manufacturers wanted to create a closer relationship with their customers, labelling it a key motivator in determining the services they provide. 46% — almost half — of those surveyed said they wished to expand their service offering to increase profitability.
Manufacturers are craving the two main benefits provided by servitization. Rather than fruitlessly exploring other avenues, adjusting their business structure and freeing up finances can make their servitization transformation hopes a reality.
In the future, we can expect to see an increasing number of manufacturers integrate additional services to their portfolio in-line with their growth plans. If you fail to keep up, you risk being left behind…