An essay by Eleanor Musson 

Eleanor Musson is a servitization and advanced services specialist in the Advanced Services Group at Aston Business School in the U.K.. She manages a research partnership of global manufacturing companies who are transforming to compete through advanced services. The partnership provides research and practical support to help these companies to transform.

Rising costs of raw materials, skills shortages, competition from cheaper suppliers, changing consumer habits and expectations are among the many factors affecting the competitiveness and sustainability of manufacturing businesses.  

A recent study by KPMG found that 77 percent of surveyed U.K. CEOs are worried about the relevance of their products or services three years from now. The study highlights that, of these CEOs, many of those who are leading manufacturing businesses have recognized the need to think about how technological innovations, big data and the internet of things are providing opportunities to develop new business models.

“By the year 2000, some two billion gigabytes of data had been accumulated worldwide. Today, the same volume of information is generated in a single day. […] Siemens was one of the first companies to identify the opportunities provided by the megatrends […] and to rigorously align its business activities accordingly,” says Joe Kaeser, President and CEO, Siemens 

Manufacturers are realizing that to develop sustainable revenue streams and exploit their advantage as innovators of complex products in order to fend off the threat of disruptors entering their markets, they need to harness technology and data to enable them to become much more responsive to customer demand, understand the “job to be done” and provide a combination of products and services that meet this need. 

These services are designed to improve the efficiency and effectiveness of the customer’s use of the product, their wider business processes or their entire value network. MAN Truck & Bus UK, for example, focuses on the customer’s “job to be done,” which is moving goods from A to B, and provides services to help them do this with minimum hassle and most efficiently, such as managed repair and maintenance, driver behavior assessment and training (using data capture), and route optimization. The transformation of a manufacturing company to become a provider of product-enabled services is known as servitization.

The organizational transformation needed for a manufacturing company to successfully compete in this way is extensive. To change from being a provider of transactional product sales to being a provider of long-term services that are highly integrated into the customer’s operations touches on many aspects of the organization.

The key attributes of a manufacturer that competes successfully through services are:

Facilities that are co-located and distributed

Proximity aids responsiveness: localized facilities enable quicker fault diagnosis and speed of repair, impacting on product availability.

Proximity also increases reliability: stronger relationships are built between the manufacturer and customer at the level of day-to-day operations, enabling the manufacturer to witness and improve their understanding of how the user operates the product. This knowledge can be used to modify the design or make recommendations about product operation.

Airbus, for example, has installed a final assembly line in Mobile, Alabama, to be closer and more responsive to its customers in North America. This is in addition to the 11 production plants, four engineering centers, five training centers, 10 materials and logistics centers and three other final assembly lines that it already has distributed around the world.

 

Vertical integration within the value chain

Availability and distribution of stock becomes even more critical under an advanced services contract. If a manufacturer is guaranteeing product availability (and potentially has financial penalty clauses in its contract if the product is not operational), then they need a responsive and reliable logistics infrastructure to ensure they can carry out repairs as quickly as possible.

Manufacturers competing in this way need significant logistical support from a responsive partner who understands the business model they are operating to ensure all these decentralized facilities are supplied with the parts they need.

Exploitation of ICTs for remote asset management

Data is used to monitor the performance of products, predict and schedule maintenance and identify unexpected failures likely to lead to breakdown. Moreover, manufacturers who successfully provide services use data to assess the customer’s operations and identify opportunities to help the customer to improve efficiency, or even identify opportunities for new offerings to their own customers.

Processes that are proactive and integrated with customers

The concept at the core of servitization is that manufacturers develop a much closer relationship with the customer in order to understand their operations and how the manufacturer can provide services that help the customer to be more efficient or productive, or to reach new customers or new markets.

This in turn means the manufacturer needs to have staff that are service-centric, adaptable, resilient and skilled in building relationships. These staff need to be responsive to the needs of the customer and focused on their operations and processes rather than on the internal production processes and product features.

Performance measurement systems replicating those of customers

These services arrangements generally have outcome-based contracts with performance measurement and KPIs that reflect the needs of the customer. They often guarantee “uptime” or “mobility” and can be penalized if their products don’t operate to contractual agreements. 

In all, manufacturers are responding to threats from technology-enabled disruptors by changing the way they do business. Manufacturers are becoming more knowledgeable of, ingrained into and responsive to their customers’ businesses.

Published: June 2017

Images: Ralf Nietmann, Aston Business School