The importance of servitization in manufacturing

As markets continually shift and competition continues to rise, the role of a manufacturer has changed drastically in the past few years. With a growing number of businesses stepping into the services field, manufacturing is clearly in the midst of an industry-wide servitization transformation.

Andy Gough – general manger of manufacturing and field service software specialist, Datawright – discusses servitization in manufacturing and how it is changing the face of the industry.

There are numerous benefits manufacturers can enjoy as a result of servitization, which can be achieved with the correct structures and processes in place.
There are numerous benefits manufacturers can enjoy as a result of servitization, which can be achieved with the correct structures and processes in place.

Manufacturers are stepping into a space that was traditionally reserved for specialist service providers and it’s having a huge impact on our industry.

What is it?

Servitization is expanding the capabilities of a manufacturing company to improve the experience of the end consumer. Previously, supporting consumers has traditionally been left to third-party companies rather than the manufacturers themselves.

Essentially, this meant that manufacturers were shutting themselves out of a lucrative market, handing over potential revenue to external companies who could take care of after-sales support, repairs and other services.

Servitization is changing this, helping manufacturers reclaim control of all of the services surrounding their products and offer them directly to consumers.

As you’d expect, side-stepping into another market means organisational structure and business processes need to change for manufacturers. Given the scale of this transformation, it’s no wonder that some manufacturers have been slow on the uptake.

Manufacturing servitization levels

Research into servitization has found that different levels are present within manufacturing. The greater the level of servitisation provided, the better serviced the end consumer is. The levels are as follows:

  • 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.

Of course, as the level of service increases, so does the associated risk. There is more pressure on manufacturers to meet demands when a customer is paying a monthly fee for a service rather than a one-off purchase.

How is servitization and IoT intertwined?

IIoT has transforming the traditional face of the factory through streamlining processes and maximising production yields - image courtesy of Datawright.
To deliver servitization, it is crucial that manufacturers successfully adapt to the Internet of Things (IoT).

To deliver servitization, it is crucial that manufacturers successfully adapt to the Internet of Things (IoT).

Using IoT allows manufacturers to gain a greater insight into a product’s performance. The data captured can then be used to drive servitization, whether it’s modifying the product to ensure greater performance or arranging a replacement for the customer.

Of course, an Enterprise Resource Planning (ERP) system is intrinsic to this, ensuring greater visibility of resources, services and activities.

The benefits for manufacturers

There are numerous benefits manufacturers can enjoy as a result of servitization, which can be achieved with the correct structures and processes in place. A key benefit is the ability to develop a longer-term relationship between manufacturer and customers. In essence, a customer is reliant on the manufacturer for far more than just the supply of the project.

For manufacturers, this lengthened relationship means greater profitability. This is further strengthened by the recent business trend to streamline the total number of providers a company has in order to minimise potential disruption. It’s clear that industry trends are currently in a manufacturer’s favour when it comes to servitization.

Despite this, Barclays 2016 Annual Manufacturing Report found that 70% are not implementing servitization due to a lack of staff, materials and resources. However, 74% wanted to develop closer customer relationships, while 46% wanted to increase productivity by expanding their services.

Clearly, manufacturers want what servitization can deliver. By adjusting their business structure and reassessing finances, manufacturers can incorporate servitization and reap the benefits both now and in the future.

For more manufacturing insights and trends, read Andy Gough’s blog: https://blog.datawright.com/author/andy-gough