Servitization refers to the services an enterprise provides to support the optimal functioning of the conven- tional products or goods the enterprise sells to its customers. To bolster flattening revenue growth, due to a reduction in productivity and the Covid-19 pandemic, and to seek other sources of income, equipment manu- facturers within the manufacturing industry are embracing the concept of servitization.
As defined earlier, servitization is the process of gaining multiple revenue streams by providing supporting
services to produced goods. Three main levels of servitization exist:
Basic services – This involves turning basic services such as the provision of spare parts.
Intermediate services – This process involves offering external services such as maintenance and repair tasks.
Advanced service – This option refers to the process of offering produced machines on a contractual basis where the output or use of the machine is focused upon.
The first two levels of servitization options – basic and immediate services, have been applied across the manufacturing industry as a means of generating external revenue for the coming years. Manufacturers consistently offer maintenance and spare part services as subscription-based plans alongside the equipment they sell. Providing advanced services, takes things to the next level for both the equipment manufacturer and the end-user. The end-user gets to utilize expensive equipment through subscription plans while the OEM gains revenue and leverages the insight from machine utilization to improve its business strategies.
The benefits of servitization of machines to the manufacturing industry
Benefits of servitization of machines cover both the equipment manufacturer providing the service and the end-user taking advantage of the offered services. The benefits to the equipment manufacturer offering servitization packages include:
Gain insight into equipment utilization – Gaining insight into how original equipment is used by the end-user provides added information that remote data collection processes or routine maintenance cannot give. Thus, servitization of the machine allows OEMs to visualize the equipment they produce in action and how humans interact with it. This insight helps the manufacturer develop optimized strategies to manage available assets as well as predictive maintenance packages which can also be monetized.
Improve asset management – Servitization of the machine offers OEMs the opportunity to put unsold assets or equipment to use. The servitization process ensures the OEM generates revenue from available equipment while collecting important data sets to develop optimal equipment utilization
New revenue stream – Stakeholders in the equipment manufacturing industry are in the process of expand- ing their portfolio to meet increasing customer demands and to remain viable by generating new income streams. Advanced servitization is a business model that enables OEMs to create new revenue generation models by offering their customer base varying services according to their financial capacities.
The benefits of servitization to the end-user
The benefits of servitization to the end-user focus on ensuring businesses remain financially flexible by not investing too much by purchasing cutting-edge equipment. These financial benefits include:
Cost-savings from reduced or no maintenance charges – The cost of repairing or maintaining manufacturing equipment is a considerable aspect of the total overhead cost of running a manufacturing facility. SMBs who take advantage of servitization of the machine save huge sums from limited maintenance costs allowing them to invest the cost-savings in other areas of the business.
Flexible payment plans – The option of utilizing expensive equipment according to either order rate or avail- able finances enables SMBs to retain some financial flexibility with capital. SMBs which pay for machine time only when processing customer orders can easily integrate production cost into the selling price of their products to make a good profit.
Linking OEMs to end products – Servitization gives OEM access to the data from the final products produced with its equipment. The insight gotten from the link between an OEM and its end products can lead to im- proved equipment design which is developed for the end-user in the form of intuitive, easy-to-use equipment.
Competitive reasons driving servitization adoption rates
The global manufacturing dynamics continue to change as the years go by. Across the globe, Asian countries have leveraged the combination of low wages and an increasing knowledge base as their competitive edge while the west focused on producing high-quality products to generate revenue. Although this arrangement worked for a while, the challengers to western manufacturing dominance have increased their ability to devel- op high-quality goods, leading to more intense competition.
Advanced servitization offers manufacturers in the west a pathway to level the playing field and increase their revenue bases. Thus, manufacturing enterprises across the developed countries are either undertaking servi- tization or are seriously considering it as a means of offering more specialized services to customers that the manufacturers from the developing countries can’t provide.
Government regulations and policies
Large-scale manufacturing processes are human activities that increase emission rates and release volatile organic compounds (VOCs) and other hazardous elements into the environment. Despite the increased use of alternative energy sources domestically, these sources of energy are not yet stable enough to support large-scale industrial manufacturing. Thus, to limit the effect of VOCs on the environment, governments have put specific regulations in place to lower emission rates.
The product-service system associated with servitization supports reducing the carbon footprint associated with manufacturing in multiple ways. One example is reducing the amount of heavy machinery used across shop floors by providing a centralized facility in which industrial activities occur only when necessary. Cen- tralized facilities are also managed by technical experts who monitor equipment to ensure proper usage and limit the emission rate from industrial processes.
OEMs (original equipment manufacturers) can consider advanced servitization as a means to meet govern- ment regulations and policies with respect to implementing green initiatives that do not harm the environ- ment.
Conclusion:
Advance service for servitization is made possible by the digital transformation of traditional processes with- in the manufacturing industry. With digital transformation technologies, an OEM can capture the data needed to provide the extended support that defines servitization. The captured data also serve as the analytical foundation for devising diverse servitization plans to generate considerable revenue for an OEM.
