It is becoming increasingly important for manufacturing companies to integrate service provision into their business operations. According to ABN AMRO’s Insights report, ‘Servitisation: the future of the manufacturing industry’, both large and small manufacturers would do well to position themselves (also) as service providers.
Servitisation is the term (first used in 1988) that designates the process by which services are taking on an increasingly important role in the business model of manufacturing companies. Services such as maintenance and logistics are linked to the manufacturing product. The business model thus places more emphasis on the relationship with customers than purely on selling products.
Abroad, servizitation is already more common, in the Netherlands it is mainly the large manufacturers that are working on it.
Proactive services
Servitisation in manufacturing may involve companies proactively offering repair and overhaul services, spare parts and training in addition to their core products. But it also includes broader services such as consultancy, financing, insurance and logistics services.
Examples include Philips' Lights as a Service concept, a printer manufacturer that proactively sends its customers new ink cartridges or carpet manufacturer Desso that not only lays carpet but also maintains and replaces it.
Experts argue that servitisation is more relevant than ever, in part because the value of manufacturing activities is declining and because customers are making increasing demands on their suppliers and products. There is a need for customisation. It also allows companies to focus on their core business. As the report says: "The more companies divest and outsource in-house services, the more opportunities arise for other companies to take over these services. Many machine users already expect their supplier to provide services such as installation, maintenance, repair and replacement. The demand for asset management, financing, training and consultancy is also growing."
Although large companies may find it easier to make the transition to servitisation (because of their budgets and network), there are also certainly opportunities in this area for small and medium-sized companies. In particular, new technologies can help them do so: The Internet of Things makes it possible to use data to visualise when a machine or production line needs maintenance.
Benefits in four areas
A UK study by Xerox and Aston University found that companies that link useful services to their existing products manage to achieve annual growth of 5-10 per cent. UK website Manufacturing Global listed areas where there are immediate benefits to be gained from a service-based business model:
Customer demands: Customer expectations are getting higher, and in many cases product innovation alone is not enough to meet them. By implementing servitisation, manufacturing companies are able to offer their customers a 'pay per use' model instead of customers paying a lot of money upfront. With this approach, the customer also benefits from guaranteed product performance and long-term product development and improvement commitments.
Financial sustainability and security: Service agreements are often intended for the longer term. This gives companies a certain level of security and sustainability and the flexibility to scale up as the business grows. When customers opt for a pay-per-use contract, they indirectly agree to a long-term relationship that strengthens the relationship between producer and consumer. That automatically means long-term cash-flow.
Product development: Continuous monitoring and servicing of a product after it has gone to the customer can help manufacturers with product development. This makes it easier to do additional bespoke improvements and may even create opportunities for new products or add-ons. The manufacturer is also aware of how its products perform and are applied.
Customer experience: By having a long-term relationship with a customer, it enables the company to anticipate its customer's changing needs. By offering certain services, such as maintenance and replacements, companies also become more aware of the need for these services.
Made in NL is organising a breakfast session on servitisation. It is on 21 April at the headquarters of office furnisher Ahrend.
By: Kelly Bakker
