While not new, the concept of servitisation is set to play a significant role in the manufacturing industry, especially in today’s cloud-driven environment.
By Esenthren Govender, solutions executive at Technodyn
The term has been in use for over three decades, referring to introducing services in manufacturing. For instance, paying for air conditioning instead of purchasing the equipment. In many ways, this can be seen as the forerunner to the software-as-a-service approach.
But why is it becoming such an influencing force, especially now?
The short answer is that servitisation plays into the global push for manufacturers to decarbonise and adopt more efficient processes to meet stakeholder expectations. With worldwide energy consumption expected to almost double by 2050, manufacturers have a critical part to play in helping reduce this. Another report shows that end-use energy efficiency can deliver 35% of the cumulative CO2 savings required to meet the climate goals of the Paris Agreement.
Given the challenges of the past two years and the volatile supply chain environment, building new revenue streams and improving productivity are things that can no longer be considered nice to have. Rather, these are absolute necessities for manufacturers to remain relevant and operational to an increasingly environmentally aware stakeholder base. For local manufacturers, servitisation provides another way to add value to customers while still reaching their growth targets.
Delivering value
When manufacturers focus on growing their service business through servitisation and expanding on their existing capabilities, a shift happens that sees customer business-related services becoming the bulk of total service revenue.
The predictability of these recurring revenues means manufacturers can proactively manage the services they deliver. Invariably, this results in greater profitability which leads to increased productivity of employees and factory workers. Linking everything together in the cloud further strengthens the value proposition by giving much-needed control and insights over customer implementations.
Ongoing process
The transition from a traditional, reactive manufacturing model to a more predictive, service-led one is not without its challenges. For instance, a manufacturer with a strong product service background may find it difficult to change its practices. For example, pricing is usually done on a cost-plus basis instead of a value-based approach. Many manufacturers also reduce maintenance charges during negotiations to win business.
These customer acquisition strategies can cannibalise service revenue. But going with the servitisation pricing model, based on added value and outcomes, manufacturers can refocus efforts on higher availability of services and improving the performance levels of the machinery and other equipment provided to customers.
Ideally, the result will be a service that customers will be willing to pay a premium for as the focus turns to optimised delivery of equipment and support.
By going the servitisation route, manufacturers can ensure they align their value propositions more closely to what the customers want. Furthermore, because the approach results in increased efficiencies, reducing the manufacturing process can improve decarbonisation efforts.
The manufacturer and its customer will be more aligned to efficiencies and sustainability than ever before. As everyone will be focused on delivering the same outcome, manufacturers will have the opportunity to enter more long-lasting and intimate partnerships with customers. The increased understanding of each customer’s unique requirements will see manufacturers positioning themselves more on an outcome basis. The traditional way of competing on a product-versus-product basis will no longer be necessary as the spotlight falls on the value servitisation can provide.
Managing the assets
Of course, servitisation models require manufacturers to conduct enterprise asset management (EAM) more effectively. This can spur new investments in equipment and warehouse enhancements.
The adoption of digital technologies and more cloud-based services geared towards EAM optimisation will be critical to realising a servitised full asset lifecycle value proposition. In this environment, manufacturers will require real-time access to the financial control of customer projects. This can help minimise risk and manage maintenance in more optimised ways.
Admittedly, local manufacturers must show a willingness to change and adapt to having servitisation more tightly interwoven into their systems and processes. But once their fundamental approach changes, the growth opportunities will become virtually limitless. It comes down to leveraging the best of cloud-based manufacturing with EAM to unlock business value through servitisation.