The midpoint of the year not only brings new challenges and opportunities, but also provides the chance to reflect and plan for the months ahead. The fast-approaching servitization-centered economy, where companies will no longer sell just products, instead owning the responsibility for the business outcome those products deliver, will encourage a shift to subscription-based businesses where products-as-a-service becomes the norm.
So far, 2019 has seen several key trends that are propelling the manufacturing industry to new levels of change and efficiencies. Some original equipment manufacturers (OEMs) are moving rapidly toward servitization, but most are hyper-focused on managing the complex service needs of large networks of disconnected products. However, the connected nature of new products – combined with customers’ changing expectations – is accelerating the deployment of business models that will allow OEMs to capitalize on the opportunities servitization presents.
Below, I outline key areas where manufacturers should focus as the servitization economy takes hold:
Increase servitization preparedness
An increasing number of OEMs are moving towards a servitization-based business model; however, most are still in the early stages of this transformative journey. And, while they are implementing the strategies and resources necessary to succeed in the future, they also must ensure the foundation of their service organizations is strong.
Large, durable goods – think automobiles, heavy equipment, industrial machinery, etc. – are built to last, with some product lifespans reaching up to three to four decades. Obviously, products that were manufactured and sold years ago are not equipped with IoT-enabled parts, but still need to be repaired and maintained. Customers, however, have acquired an appetite for product-as-a-service that is ahead of manufacturers’ ability to deliver. Ninety-eight percent of end-users indicated they want to see more OEMs provide service agreements that offer maximized product uptime, for example. Therefore, the need to deliver such solutions that support this shift has never been higher. To prepare for the full realization of servitization, OEMs must ramp up their infrastructure and overall readiness to be able to take on these challenges.
Optimizing the break-fix service model
In the second half of 2019, OEMs should prioritize optimizing their existing break-fix service models as servitization approaches, specifically investing in solutions that can optimize both break-fix models and servitization models.
Currently, the break-fix service model many manufacturers use today leads to long customer wait times due to poor part availability, or high inventory costs due to excess stock and part obsolescence. While break-fix service will never completely go away – there will always be unforeseen accidents, for example – this ‘just-in-case’ way of doing business most often creates overhead that negatively impacts both the customer experience and the manufacturer’s bottom line. To succeed in the servitization-centered economy, manufacturers must invest in both human capital and technology to fully optimize the service parts supply chain. Using outdated tools like Excel spreadsheets or ERP systems is no longer enough to meet customers’ needs for maximized product uptime, while simultaneously keeping manufacturers’ costs low.
Service delivery management will become more important
Delivering a superior customer service experience at all touchpoints is a key objective for most OEMs. As the world moves in the direction of servitization – and OEMs take on increased risk and responsibility for equipment uptime – they must control and optimize critical aspects of the service delivery process. This includes parts, technicians, knowledge and any other requirements to deliver superior service. As a result, processes and systems across OEMs’ global networks will become more integrated.
Offering products as services will become a major component of OEMs’ business over the next decade. In the interim, manufacturers must simultaneously optimize break-fix businesses while deploying new product-as-a-service business models.
2019 has already been a busy time for servitization in the manufacturing industry. Much of this can be attributed to the fact that so many customers are demanding it. And as a result, manufacturers are having to adapt and change how they operate to meet these ever-evolving customer expectations.