Servitization: changing the face of the manufacturing future

Posted on 27 Feb 2016 by The Manufacturer

With sustainable growth increasingly the focus for businesses, manufacturers are increasingly having to review their strategic approach. Fabrizio Battaglia – head of manufacturing, HSO – explores the benefits servitization offers.

One trend that has brought manufacturers significant benefits is servitization – which the Aston Business School defines as “the process by which a manufacturer changes its business model to provide a holistic solution to the customer, helping the customer to improve its competitiveness, rather than just engaging in a single transaction through the sale of a physical product.”

Fabrizio Battaglia, head of manufacturing, HSO.
Fabrizio Battaglia, head of manufacturing, HSO.

Servitisation is a process that increasingly shapes today’s manufacturing landscape. It appeals to manufacturers as a way to get themselves out of the commoditisation trap.

The latest technology is making it easier for businesses large and small to manufacture products more quickly and cost-effectively in smaller batches at the point of demand.

Even the longest-established organisations need to be careful that their customers and consumers don’t start to treat their once highly valued products as commodity goods that could just as easily be bought elsewhere.

It’s important, though, to highlight the role of the customer in driving this paradigm shift. Today’s consumers may not always want to own products, but they are looking increasingly for a better service and are actively seeking out providers who are able to deliver this.

As Phil Wood – group IT director of Rotork, leading actuator manufacturer and flow control firm – puts it: “One of the big challenges driving servitization is the fact technology is moving on so quickly, customers simply can’t get their head round the changes that are happening.

“They simply don’t understand the more complex technology or what they need to do with it.  That’s why we see servitization as far more than just a sales activity, it’s really more about how can we help them to exploit the value out of what they have got.”

Delivering edge

Today, service has become the biggest differentiator for manufacturers as they look to build a clear competitive edge on their rivals. Increasingly manufacturers are moving over to the model.

Rolls-Royce Trent 700 Engine
Aston Business School highlighted Rolls-Royce’s ‘fixed dollar per flying hour’ offering.

Aston Business School identified some of the early pace-setters in this field in its 2013 Servitization impact study: How UK based manufacturing organisations are transforming themselves to compete through advanced services; calling out, “Rolls-Royce offering TotalCare on gas turbines for their airline customers based on a ‘fixed dollar per flying hour’; Xerox delivering ‘pay-per-click’ scanning, copying and printing of documents; and Alstom Train-Life Services supporting Virgin by assuring the availability, reliability and performance of their Pendolino trains on the West Coast Mainline.”

These kinds of models help manufacturers to get closer to their customers and that’s important because servitization can provide a great opportunity to drive through new revenue streams.

Servitisation can be a financial driver, helping manufacturers achieve healthy margins by developing long-term relationships with customers that enhance loyalty, reduce churn, and yield incremental sources of revenue. It’s a big shift in mind-set and some companies may not be ready yet to make that leap.

MRO Costs Finance Growth Economy Investment
Servitisation can be a financial driver, helping firms achieve healthy margins by developing long-term relationships with customers

As Wood states: “It’s gone from a case of – here’s the product, here’s the warranty, thanks a lot; to more of a focus on the customer needing the manufacturer to provide detailed information on how the product was made; its service record and whether it could be quickly repaired if something were to go wrong with it.

“That puts huge demands on manufacturers internally and they need to ensure that they have the right tools and solutions in place to sift through all the data they have and extract the intelligence from it.”

Big data

Big data is another active driver of servitization. Its advent has led many businesses to collect more data, but so far too few organisations know what to do with it.

“One of the biggest challenges organisations face is that they often have huge volumes of data at their disposal, but it’s rarely served up to them in a way that is easily digestible,” says Jamie Hall, UK Lead – Manufacturing, Distribution & Retail, Microsoft.

Datawright Internet of Things Blog Image
Organisations often have huge volumes of data at their disposal, but rarely is it served up to them in a way that is easily digestible.

“A raft of different customers may have bought one of your products, for example. Big data, when implemented and applied properly, could potentially reveal that a large proportion of these are only using 50% of the functionality, for example, giving the manufacturer the option to remove some of the unwanted functionality.

“For the manufacturer, it may well be about using this enhanced insight to redesign the product or even introduce a new product to fit demand over a different customer demographic?

“Key questions are likely to include:  how can we enhance our product to meet customer needs better and ensure they buy into the concept over the long term? How can we cut the costs of production?”

From challenge to solution

Servitization provides the potential solution but how can it be made to work? Technology and specifically the latest enterprise resource planning (ERP) software can play a key role in addressing many of the issues and challenges.

Connect ERP

With pressure on businesses to increase efficiency and streamline processes, procuring the correct ERP system is a decision you cannot afford to get wrong.

Blending together a unique combination of case studies, peer-to-peer networking and pre-briefed and scheduled vendor meetings; Connect ERP will maximise your opportunity to fine tune your short listing process with unrestricted exposure to both peers and the vendor community.

Make sure you make the right choice first time and attend the event on March 10 to kick start your shortlisting process.

Connect ERP provides:

  • Pre-purchase evaluation and vendor assessment
  • Strategies for implementation and project role out including technical capability and site needs
  • Practical, expert advice to manage change across the business and gain stakeholder buy-in
  • Information on how to quantify benefit analysis and ROI from the project outset

The great benefit of ERP in this context is its ability to integrate and connect. Not only can it help to link different kinds of information – from customers, suppliers and partners, both in real-time and historically to drive decision-making, it can all provide a critical link between all the previously siloed departments within manufacturing, including production, marketing IT and customer service, and use that to deliver operational efficiencies and a better response to customer needs.

According to Rotork’s Wood, by making the move to ERP, manufacturers have the opportunity to effectively redesign their business.

“When you sign up for ERP, you are taking everything that works today and challenging its existence,” he says.

“As part of that process, you have the opportunity to formally redesign the whole way your business works from ‘the front door to the back’ and that creates an opportunity to look at and migrate to a best practice approach, which for many manufacturers today equates to a move to a service model. “

Embrace the new

To maximise the benefits of ERP as an enabler for servitization, manufacturers also need to consider how it can be applied in conjunction with other emerging technologies.

We’ve already discussed the importance of big data. Today, the proliferation of connected devices that drives the internet of things (IoT) is growing in significance, serving to extend the potential for organisations to gather information and use it to deliver business benefits.

An engineering company producing wind turbines, for example, might well deploy a series of sensors on those turbines that detect temperatures and make qualitative measurements of component wear and tear.

That information can then be fed back into ERP systems like Microsoft Dynamics AX. Specific parameters related to product lifecycle management, or service and maintenance, can then be set up, alerting businesses to problems – sometimes before they have happened – and proactively triggering maintenance.

Organisations can take this a step further by coupling this kind of information with information from social media or other data sitting in the cloud to achieve both a relationship and technically-focused real-time view of customers, suppliers and stakeholders.

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Organisations can take this a step further by coupling ERP information with information from social media.

This enables the business to make more informed decisions about enhancing innovation and efficiencies, to optimise products for consumption, usage, service and maintenance and to improve the overall customer experience.

Wood claims: “For the past ten years, we have been able to get information on what is going on with our products in the field but what IoT does is increase the quantity and the granularity of that information and the frequency with which you can use it. That adds a huge increase in the decision-making capability of any service organisation.

“When you combine it with ERP, there is a huge opportunity to bring engineering, production and service departments together on the same platform; effectively drive business change and redesign the whole future of manufacturing, ultimately making the whole sector stronger and more competitive while enabling servitization to happen. We are no longer just on the cusp of a manufacturing revolution – today we are actively in its midst.”