Servitization: adapt to succeed

Charles Clayton says times may be tough for manufacturers, but hope for the future lies in the provision of services.

There is no doubt that the manufacturing landscape in the UK is tricky.

  • The cost base for UK manufactures is at an all-time high
  • International competition has never been more acute
  • Production operations have never been easier to transfer overseas
Charles Clayton, global customer advocate, Epicor Software.
Charles Clayton, global customer advocate, Epicor Software.

With the pace of change accelerating fast, the outlook for large chunks of UK manufacturing is far from rosy. Fundamentally, the basic business model for large numbers of factories up and down the country cannot be sustainable in the long term.

Yes, there will always be some products made locally, such as items produced in low numbers, items with a short shelf-life, heavy items like bricks and those that need to be changed quickly to adapt to market needs.

However, in general, if businesses want to continue to manufacture products in the UK then they are having a difficult time finding how they can build revenue, stay competitive and continue to prosper.

Many UK manufacturers rely on their technical expertise to keep them at the bleeding edge of innovation. Others do everything they can to provide a higher quality product. These companies can often stay one step ahead of their competition, but this isn’t always possible for everyone. Is there another way?

Servitization is the way

Manufacturers providing services is not new. Manufacturers have been supporting their product offering with spare parts for generations.

Epicor Servitization PQ - Oct 2016The next step in the servitization model is to offer intermediate services such as a helpdesk, repair and overhaul.

Many of these are standard fare and have been for a long time; even so, these intermediate services present a fantastic opportunity for businesses to strengthen relationships with customers and provide ways to generate additional revenue streams.

Ownership v. Pay-for-use

But it’s advanced services that offer even greater opportunities for business growth. With an advanced service offering, the customer receives an outcome, or capability, rather than purchasing a product.

For example, an office manager might sign up for the provision of ‘document management solutions’ rather than buying a photocopier. Similarly, an airline might enter into an agreement for a number of flying hours rather than ordering a jet engine.

In northern Europe, consumers have already been offered a ‘pay per wash’ option as part of a trial run by their domestic washing machine manufacturer, and this trend will surely continue.

To learn more about servitization, join the Servitization 2016 Conference on October 18 in Birmingham or The Manufacturer’s Annual Leaders Conference held at the Birmingham’s NEC on November 2-3.

If you are not able to attend one of these events, visit themanufacturertln.com and join the Servitization Thought Leadership Network for free.

The advantages of advanced services are numerous for both customer and producer: the customer benefits from a ‘pay-per-use’ model, which spreads costs. The customer also benefits from a guaranteed product performance as well as commitments regarding product development and enhancements over time.

In return, the customer agrees to a longer term contract over several years and a stronger partnership between manufacturer and customer forms, which improves long-term cash flow and customer lifetime value.

The manufacturer, instead of selling products is now selling outcomes, bundling together a range of products and services tailored to individual customers’ requirements.

If carried out correctly, the business transformation through servitization should allow for a new lease of life for UK manufacturers up and down the country.

Who said British factories were an endangered species?