Servitization offers a viable method of boosting growth for manufacturers’ businesses and the industrial sector overall. Antony Bourne, global manufacturing industry director for IFS, explains how.
The UK is currently the ninth largest manufacturing nation in the world and the sector has increased by 1.4% a year since 1948.
However, it’s a hugely competitive industry and those working in the sector are seeing their product margins being constantly squeezed. With many products becoming commoditised, manufacturers are always on the lookout for ways to differentiate themselves.
One way we are seeing this being done is in the aftermarket through “servitization,” where manufacturers adapt their business models to offer their customers services on top of the physical product, thereby creating a holistic solution.
In some cases the services even replace the physical product.
What does servitization mean to manufacturers today?
As with any of these industry terms, it’s critical for those working in the relevant sector to understand exactly how they can use servitization to their advantage and make the most of what it has to offer.
Prior to embarking on this journey, manufacturers need to ensure they have the relevant processes in place to deliver on the servitization model, including:
- An enterprise solution that can handle what they are delivering to customers
- The ability to record and control the type of service that they are offering
- The ability to schedule people (including subcontractors) to perform jobs in the field
- The ability to record what has happened in the field so that an accurate service contract is maintained (this is often done using mobile devices)
There is a variety of ways that manufacturers can incorporate servitization into their business model and it’s really about moving from a ‘product-centric’ to a ‘service-centric; model.
Each customer will have different requirements from manufacturers, however the more broad the offering, the more likely customers are to select a wider range of services.
Manufacturers need to remember that it’s not just about the maintenance of products because soon, the disposal of products will also become an important option.
There are a number of areas that manufacturers need to pay close attention to as they look to expand their service offerings, such as:
What are the benefits?
There are a number of key benefits of servitization for manufacturers, including the development of longer-term relationships between vendor and customer and the creation of long-term revenue streams that can be more reliable than new product sales.
Barclays’ 2016 Annual Manufacturing Report found that 74% of respondents said that a closer relationship with their customer was the principle motivator behind their service offerings.
Antony’s other thought leadership articles include:
The report also showed that nearly half (46%) of respondents are looking to improve profitability through added-value services.
It’s clear to see that the value associated with adding useful services can result in higher profits as manufacturers get closer to their customers and encourage a degree of customer loyalty that can effectively lock out the competition.
Why aren’t all manufacturers doing it?
The answer is that some manufacturers simply aren’t ready. They either don’t have the systems in place to do it or they don’t have the people or skills associated.
The Barclays’ report referred to earlier found that nearly 70% of manufacturers saw “availability of resources (people, materials, financial)” as the principal hurdle to increasing their service portfolio.
Moving forward, we’re hoping to see more manufacturers truly integrate value added services into their full portfolio offerings and they will require a greater focus on the resources that are needed to do this.
We’re looking forward to seeing how this develops and hopefully it will further boost the growth of the UK’s manufacturing sector.