'Servitisation' - how it is changing the face of manufacturing

By Gavin Oberholzer, Strategic Account Manager, HSO Enterprise Solutions.

We are seeing a new spring in the step of UK manufacturers and with it a renewed focus on sustainable development as the sector looks to exit a long period of decline and develop an edge over its counterparts in low-cost economies like China.

Today's manufacturers, therefore, are focusing much more on developing high-value innovative products that are intelligent, intuitive and responsive to their environments, and targeting them at premium markets. In tandem, we are witnessing the growth of servitisation, with manufacturers reviewing their business processes and increasingly offering services and solutions that supplement and add value to their core product offerings.

Servitisation is a complex phenomenon with two distinct but inter-connected elements. The first relates to how the products are consumed and used, the second to how they are serviced and maintained.

With regards to the former, we are increasingly seeing car rental companies offering deals based around the customer picking up a car at a certain point and dropping it off at another when their trip is complete. From a commercial point of view, they are effectively consuming or 'using' a journey rather than a vehicle. In contrast, examples of the latter can range from white goods manufacturers 'wrapping in' service and maintenance as part of a rental-based contract, to engine producers selling thrust power by the hour and packaging up items like in-use monitoring, repair and replacement as part of the agreement.

No matter the specific approach, the benefits of servitisation to manufacturers can be extensive and far-reaching. By using the approach to engage more closely with customers, organisations can reduce churn; develop more valuable supplier-customer relationships and drive recurring and incremental revenue streams.

However, the model also comes with its own inherent challenges. In a service-based economy, margins are likely to diminish markedly over time. When businesses add a strong service element to their solutions offering, they also have to take on the burden of developing service centres and man them with multiple, high-cost resources.

In this model, senior operations managers are inevitably required to develop customer service teams and ensure calls are dealt with promptly, expert level diagnosis provided and customer issues rapidly resolved to meet service level agreements. While all of this is positive, executing it is inevitably expensive and ends up putting heightened pressure on business margins.

How ERP Overcomes Challenges

So what's the solution? Technology and specifically the latest enterprise resource planning (ERP) software can be instrumental in addressing these issues.

The key is capturing the knowledge and understanding of the relevant operational head or senior manager, and then integrating this knowledge as part of an algorithm that allows the call centre operator to take the customer through a logical workflow. It's effectively a case of the ERP solution guiding the agent through the process, telling them that for this type of call you ask the following set of questions, for example, and then providing a future course of action depending on the customer's response.

Leveraging the knowledge of experts and adding it into the ERP software in this way allows businesses to focus senior staff on developing algorithms and workflows and deploying lower cost resources to man the call centre. For many organisations, this relieves the pressure on margins and makes flexibility, scalability and business agility easier to achieve whilst improving responsiveness and sustaining or even improving first time fix KPIs.

The proliferation of connected devices extends the potential for organisations to gather information and use it to deliver business benefits.

An engineering company producing wind turbines, for example, might well deploy a series of sensors on those turbines that detect temperatures and make qualitative measurements of component wear and tear. That information can then be fed back into ERP systems like Microsoft Dynamics AX. Specific parameters related to product lifecycle management, or service and maintenance, can then be set up, alerting businesses to problems, sometimes before they have happened, and proactively triggering maintenance even before an incident occurs.

Organisations can take this a step further by coupling this kind of information with information from social media or other data sitting in the cloud to achieve both a relationship and technically-focused real-time view of customers, suppliers and stakeholders. This enables the business to make more informed decisions about enhancing innovation and efficiencies, to optimise products for consumption, usage, service and maintenance and to improve the overall customer experience.

Why Servitisation is Here to Stay

Today, we are seeing a growing understanding and acceptance of the benefits of servitisation among manufacturers. Somewhat counter-intuitively, it is often the smaller businesses that have been fastest to adopt the model as they are invariably more agile and have less reason to worry about the impact of technological change, or about modifying the approach in multiple territories worldwide.

The benefits of servitisation are proving increasingly difficult for manufacturers to ignore, not least in terms of the better harnessing and management of data to support efficient service delivery across new business models. The new approach offers them the opportunity to achieve the combination of enhanced customer service and customer loyalty together with incremental revenue growth that will enable businesses to compete on a level playing field with competitors from low-cost economies like China. It is a message manufacturers understand and the vision is clear. Now, with the latest ERP software in place and offering a potent combination of rich functionality, versatility and flexibility, organisations have the tools to deliver on the vision and move the industry forward into the new servitisation age.

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