Servitization – what’s it all about?

Servitization is the innovation of an organisations capabilities and processes to shift from purely selling products, to selling integrated products and services that deliver real value in their use.

However, servitization is much more than simply adding services to existing products within a few large multi-national companies.

It’s about viewing your company as a service provider which aims to improve the process for your customers through a business model – rather than a product-based – innovation.

Traditional business models are being disrupted and transformed to better exploit design and production competencies in order to deliver improvements in efficiency and value to customers. Something that requires planning, cash flow and, most importantly, an open attitude.

For established OEMs, with Rolls-Royce very much the poster child for this change towards manufacturing services, the transition can be relatively straightforward and easy to achieve.

For SMEs on a significantly smaller budget, the prospect of changing your business model can be a daunting one.

But adopted correctly, servitization provides an opportunity for SMEs to move up the value chain and exploit higher value business activities to differentiate from rivals in competitive markets.

So you want to adopt this manufacturing services business model, but need to convince yourself and/or your management team of the cultural shift needed to embrace such a new process.

The key themes that you need to consider before making a business case are:

• Internet of Things – understand how to use data to improve efficiency, forecasting and inventory management. Take a look at your current systems and see how they connect with one another. Do they transmit data easily? Do they work independently? If so, you may need to review your backend systems, as you will be responsible for monitoring your products performance after the point of sale.

• Cash flow – explore the financial benefits and implications of providing a holistic solution. There are high margins that can be derived from this process that vary across different sectors. You need to take the time to understand how this will affect your bottom line from month to month, and how the flow of assets will affect your profit overall.

• Supply chain management – examine the efficiencies associated with service models and how to tap into new markets alongside strengthening existing ones. Look at your current supply chain and your suppliers, identify opportunities and risks associated with entering new markets, and consider what changes will have to be embedded in order for you to move up the supply chain.

• Sustainability – consider how you can build stronger relationships with your customers that continue past the sale of a physical product. What changes will you need to make? What alternative production materials could you employ? How can you make your operational processes more sustainable?

Advantages of servitization include:

• Greater environmental sustainability
• Efficient servicing habits
• Extended life cycle of products
• Locked in value and potential to generate higher margins
• Longer term relationship with customers
• Enhanced competitive edge

Risks associated with servitization include:

• Entering a new market which could have been served by suppliers previously
• Re-training staff or buying in new advanced equipment
• Cash flow is spread over a longer period of time
• Responsible for ensuring asset availability and reliability, condition and performance

The UK Government’s Foresight Report on the Future of Manufacturing identified servitization as a core element in its vision for the future of manufacturing.

Now ask yourself, do you want to be left behind?