Servitization is not a buzzword – it’s a promise

Thursday December 07, 2017
Written by Dick Hyatt
Servitization is not a buzzword – it’s a promise
Image: Decisiv
Dec. 7, 2017 - The Fourth Industrial Revolution is under way, and like its three predecessors, it holds the promise of completely upending manufacturing as it’s done today.

The first two revolutions fundamentally changed manufacturing processes by mechanizing manual processes and introducing – then improving – the standardization of parts and finished goods, assembly lines, throughput and efficiencies in order to facilitate mass manufacture.

The third revolution was driven by computers and information technology. It led to advances in quality control, supply chain management, just-in-time inventory, and all the other hallmarks of today’s factory environment.

The revolution that is now facing manufacturers is about fusing technologies in a way that blurs the delineation of physical, digital and biological systems and mechanisms. Historically, manufacturers of commercial industrial assets applied technology to the goal of building the best products possible and delivering them to their customers. But as competition expanded globally and manufacturing costs flattened and inefficiencies have been wrung out of systems, manufacturers must differentiate themselves and their offerings by providing ongoing, reliable services that both strengthen and extend their relationships with their customers well beyond the point of sale.

This is servitization — the act of applying a service to a product in order to add value. For instance, a manufacturer may offer its customers an extended warranty that includes ongoing maintenance and repairs for a longer period of time. Increasingly, products also come with service and support that allows companies to provide training and gain feedback from customers over the course of their relationship. These added services give customers an added level of assurance that the assets they purchase will perform as expected, simultaneously enhancing the manufacturer’s reputation for providing quality products.

But servitization can be taken much farther and offer much more value to both the manufacturer and the customers. A company that focuses on delivering ‘power by the hour’ — a commitment to keeping the asset functioning for a certain number of hours a week, maintaining a high percentage of uptime, or whatever the customer’s own operations goals are — delivers exceptional value for which the customer will pay a premium.

Making the transition from manufacturing alone to servitization of products
Digital transformation and the Industrial Internet of Things (IIoT) can be driving forces behind a servitization approach, but many organizations are not using them to their fullest extent. Connected sensors on machinery provide valuable information that can be used to alert manufacturing teams to potential problems: for instance, an overheating component or manufactured parts that are failing QC inspections at elevated rates. But as useful as those alarms might be, disconnected bits of data don’t diagnose what the underlying problem might be or map out a repair plan.

Compounding the problem, all of these stakeholders receive, store and analyze the constant flow of data in their own siloed systems. A manufacturer may be using eight or 10 different enterprise applications, accrued over time and all operating independently from each other. The equipment provider’s call centre team uses its own software, the service technicians have their own tools, processes and scheduling software, the network of distributors all have their own ERP systems, customers have their own asset management systems, and so on. As such, the technician on the manufacturing line — along with the plant manager, original equipment manufacturer, and the customer — all have a stake in resolving the issue as quickly as possible but often times they do not all have access to the same information.

The commercial asset manufacturer has the opportunity to remedy this and enhance the value it provides to customers by implementing an integrated framework that brings all the disparate data sources together. By connecting sensor data and telematics, service repair systems, call centre applications, asset management systems and more, that asset manufacturer can generate a 360-degree picture of the asset’s components. This includes its schematics, service history, warranty information and other relevant information to much more quickly create a diagnosis of the problem, ascertain the parts needed to fix it, create a schedule for getting repairs accomplished, allocating technicians to make the repairs, and share all of this information with all key stakeholders.

Those stakeholders can more easily connect and collaborate with one another to fuel an efficient and effective repair process. Customers can sign off on plans or share critical information that affects the timeline. Parts and service departments can all weigh in, creating the best possible path toward a ‘fix it right the first time’ solution and ensuing preventative maintenance plans to mitigate the chances of the problem happening again. There goes the traditional, cumbersome method of copious phone calls, emails and paper shuffling. The sharing of data becomes much more automated, leading to expedited repairs and more equipment uptime.

Getting to the four Cs
There are four key benefits that come from investing in a more connected and transparent service and repair process:

• Connectivity is about establishing the common platform that they will use and implementing the shared flow of data.

• Collaboration results from showing teams how much more efficiently they can work together when they all start from a common understanding. Service technicians are like ice cream – they lose their value if you keep them out in the sun. If they aren’t busy for 40 hours, they are under-utilized and the company loses money. The faster the team can collaborate in order to get the right tools and parts into the right hands, the more money the company will make.

• Consistency is a necessity if you want to improve over time – establishing procedures for call centres, response times, performance metrics, and more. Manufacturers and customers alike prize consistency, knowing in advance what expectations are, what resources are available, and how success is measured.

• Control is about manufacturers – with the right data in hand and the right systems in place – having better control over the entire end-to-end process, from maintenance and repair to better equipment performance, all of it coming together to fill orders according to schedule.

This is not an overnight process and must be done in incremental steps. I know of one North American truck manufacturer that invested seven years laying the groundwork for servitization. In the last 22 months alone, it reduced repair time from an average of 10.25 days to 6.89 days, a better than 30-per-cent improvement and increased labour sales more than $8,400 per 100 repair orders, among other measures. The manufacturer devised a plan, rolled it out in phases, and avoided Shiny Object Syndrome – rather than chase the latest new technology each year, it built on a solid foundation that includes the flexibility to add new technologies as it matures.

This servitization model is more common in Europe, where many companies have used it to develop stronger customer relationships and create new revenue streams. In fact, over one-third of the commercial assets now sold in Europe come with a form of enhanced service level contract. That model can easily translate across the pond, if companies are willing to take the time to invest.

Servitization is built on trust as well as profitability
Indeed, it is a worthwhile effort, as the servitization business model benefits both the customer and the manufacturer. The customer gets assurance that its own businesses will operate smoothly, backed by the manufacturer’s commitment to identify, prevent where possible, and repair any problems that may arise. The manufacturer gets a stronger relationship with its customer and sees healthier revenues as a reward for meeting or exceeding expectations.

In other words, servitization moves the concept of partnership from buzzword to a fundamental business principle. If the manufacturer can meet its commitment and responsibilities to that partnership, the customer is very likely to return the favour when it’s time to make another purchase.

Dick Hyatt is the CEO of Decisiv.

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