Servitization: What Is It and What Value Can It Offer to Manufacturers?


In today’s rich product landscape, manufacturers must be capable of exploring every opportunity to increase their market value. The current strategic shift throughout the manufacturing sector offers a rich portrait on key challenges occurring throughout the sector – particularly, the rise in competitive pricing and cost drivers.

As more manufacturers compete with an integrated portfolio of products and services, it is imperative that they adopt a more service-centric business model to provide a differentiating factor in the industry’s marketplace.

Placing a greater emphasis on product-centric services rather than making products creates a conscious strategy for organizational structure, performance and processes.

One way to necessitate this transformation is through servitization.

The importance of servitization to manufacturers

In essence, servitization enables manufacturers to redevelop aspects of their manufacturing processes, supplementing current revenue streams with product-centric services to match the increasing needs of customers.

Employing servitization across manufacturing processes benefits manufacturers by improving customer satisfaction while creating a more stable revenue forecast.

With the commoditization of products and growing competition on both the local and global scale, manufacturers must look beyond products to offer total solutions that cater to new revenue streams. Creating new streams of service-based revenue enables manufacturers to evolve their business models, creating new services and offerings to their portfolio.

Servitization transforms manufacturing approaches and software used in the manufacturing industry, prioritizing a complete lifecycle support platform over a “make it and sell it” method.

But making the move from selling services and solutions rather than products is no small shift. It requires significant changes. Risks associated with this approach will impact organizational structures and processes. Job roles may evolve, departments may experience diverging compartmentalization, and investments are necessary for further skills training.

C-suite executives and top-level management will need to be fully invested in this transformation. Reimagining business operations and performance to enable servitization must be driven by a top-down approach. Any changes in operational structures and processes can only be fully adopted through a shift in mindset and strategy.

Embracing the opportunities of servitization

Manufacturers that can transform themselves into total service providers, offering complete customer-centric solutions rather than just products, can take advantage of the opportunities servitization contributes to their firm.

Servitization offers the following business advantages:

  • Selling all-inclusive solutions in addition to products to customers enables stronger customer retention rates.
  • Encouraging manufacturing processes to be service-focused rather than product-oriented ensures a greater emphasis on comprehensive customer knowledge and operational excellence.
  • Aligning the needs of manufacturer and customer leads to improvements in efficiencies.
  • Improved efficiencies lead to increased financial advantages through up-sell opportunities and steadily recurring revenue streams.

By using the right manufacturing ERP solution to complement products with total service solutions, manufacturers can derive value from servitization. Value gained from employing servitization in operational structures and processes results in:

  • 5% to 10% annual increase in service revenue for OEMs
  • Maintenance cost reductions of 25% to 30%
  • At least 10% reduction in fuel consumption
  • CO2 emissions down by 10% to 15%

In a changing manufacturing terrain, the transition to smart manufacturing facilitates accelerated growth, compressing time to market and product ideation to saleable items.
Servitization equips manufacturers with the necessary tools to provide for future needs, enabling manufacturers to remain competitive and innovative.

Preparing your business for servitization

Technology lies at the heart of a successful servitization strategy. Digital advancements in technology, such as those found in cloud services, the Internet of Things (IoT) and connected technology, is ushering in higher levels of service solutions. A servitized organization can derive more value from its manufacturing processes, offering customers a tailored solution to their individual product needs.

These technologies can increase the efficiency and quality of products through predictive analytics that can forecast future breakdowns and continuous remote monitoring which employs data to diagnose and analyze future product usage trends and behavior.

This empowers manufacturing processes to apply the appropriate intervention (i.e., modifications to product design, repair/replacement, drafting a contingency plan, etc.) that creates the best service solution for the customer.

With the necessary investments in place, both in terms of personnel and technology, manufacturers can begin deriving value through differentiated offerings and services provided by servitization.

You can compare manufacturing execution systems here.

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