Manufacturing services might sound like a contradiction in terms, but for most manufacturers of engineered products, they are a missed opportunity.
Watch this video to learn:
- How to overcome the key challenges facing manufacturers of engineered products
- Why relentless cost-cutting won’t sustain your business and what to do instead
- How and why service innovation has become the latest battleground for manufacturers
- How to optimise value for your customers and your business
This is only the first video in a 3-part video series. To watch the 2nd video in the series, click here.
Hello, I’m Adrian Botham of Servispart Consulting and I’d like to welcome you to this video, which is video number 1 in a 3-part series, more of which I’ll talk about later!
In this first video, I’m going to be talking about Manufacturing Services and no, that’s not a contradiction in terms.
In the next few minutes, I’ll be explaining why manufacturing services are more likely to be a missed opportunity for your manufacturing business.
Before I get to that though, as I’ve more than likely not spoken to you before, you’re probably wondering who I am and who Servispart Consulting are.
So before I get into the main content I’d like to take a minute, to address those two areas very quickly if I may.
Servispart Consulting at a glance
Firstly, Servispart Consulting are independent specialists, focused on aftermarket growth for manufacturers and distributors of engineered products
We work across a number of manufacturing sectors and therefore have a strong network of contacts and partners that we are always looking to develop and grow.
All our consultants are experienced senior people, with practical industry knowledge of what works and what doesn’t.
A little about me
As for me, people often tell me that I don’t look old enough, but I’ve actually spent the past 3 decades helping manufacturers and distributors of one kind or another to improve their aftermarket business and help them grow faster.
I’ve worked with large companies such as BAE Systems, Rolls-Royce and Jaguar Land Rover as well as many smaller and medium sized companies as well.
I’m a pure mathematics graduate of Warwick University, a first class MBA and I’m a Fellow of the CILT, member of CIPS and IC.
What does a manufacturer do?
That’s enough background – let’s talk about manufacturing and let’s think for a minute, what does a manufacturer actually do?
What’s the first thought that comes into your head?
We know they make and sell products,of course, but is that all that they do?
Do they design products? Some do.
Do they distribute products? Again, some do.
What else might they do?
Forgive me if you think this is all a bit noddy.
The point I’m trying to make is that the most fundamental thing a manufacturer does is to satisfy its customers.
Designing, making and selling STUFF might be the method of satisfying customers that manufacturers use, but there’s no law that says you have to restrict your business to that.
There are lots of other ways that the leading manufacturers use to satisfy there customers and I want you to bear that in mind whilst I talk through the next few slides.
Summary of challenges facing engineering manufacturers
In recent times, UK manufacturing has been experiencing an upturn – certainly in high-value manufacturing sectors as well as some others.
Lots of new products, growing population of products, more usage of those products and lots of new technologies.
We hear a lot about some of the threats affecting UK manufacturers such as commoditisation, cost down pressure, overseas labour costs, etc.
And we hear about some of the weaknesses or challenges affecting UK manufacturers such as poor leverage with larger customers, cost economics, production capacity, lack of confidence in major customers, etc.
But we don’t hear anywhere near as much about your strengths as a UK manufacturer – what is your strategy for dealing with all this stuff?
In other words, how can a manufacturer create value for customers in ways that your competitors can’t?
3 generic strategies (Michael Porter 1980)
Let’s just remind ourselves how value is created. Are you old enough to remember the 1980s?
No, I’m not going to talk about mullet haircuts or bad pop music, I’m actually talking about Michael Porter.
Because , it was Michael Porter in 1980, who said that there are only 2 fundamental strategic advantages you can have.
You either have to be the lowest cost provider or you need to differentiate your offering.
There is a 3rd way, especially for SMEs.
If you operate in a very small niche market, then you can survive on the basis that there are few suppliers willing to compete in your niche due to the small market.
If you think you’re in one of these niches today, then beware, because that can become a trap if your niche market grows and starts to attract larger competitors.
When that happens, businesses can quickly find themselves stuck in the middle [click] and that’s the one place you don’t want to be.
By definition, in any given market, their can only be one least cost provider and that is not necessarily sustainable in the long run.
So, not surprisingly, most businesses follow the differentiation strategy.
So the challenge now becomes, how can you differentiate your business to create more value than your competitors?
Product innovation phase
As industries mature, the quest for differentiation moves through a number of key phases or waves.
The initial wave is usually dominated by product differentiation.
As rivals compete in a new market place, it’s all about “who offers the best product.”
Competition is primarily between alternative product technologies and product designs/configurations.
Eventually, a dominant technology and design emerges resulting in de-facto standardisation across the industry.
Process innovation phase
As product offerings standardise, the differentiation challenge now becomes that of producing the product at acceptable cost and higher quality.
Technological development therefore shifts from product innovation to process innovation.
We’ve seen this in recent years as manufacturing companies have invested a lot of time and effort in lean initiatives, for example.
Eventually, it again gets tougher to deliver sustainable competitive advantage based solely on the combination of product differentiation and lean, low-cost operations.
As industries mature further and process technologies standardise too, the quest for competitive differentiation moves on again.
Service innovation phase
In recent years, strategic service innovation has come to the fore, helping manufacturers forge closer connections with their customers.
Customer service is now widely recognised as a primary source of revenue growth and profit growth for leading manufacturers.
And what’s more, it’s nothing to do with the product stuff that we talked about manufacturers doing earlier.
It’s all about manufacturing services.
Service lifecycle opportunities
To explore what these manufacturing services might be, let’s examine a typical lifecycle for a piece of equipment.
At the beginning of the product/service lifecycle, a manufacturer is concerned with designing, making and selling products, as we said earlier.
So manufacturing services might include some kind of design service or customisation.
More commonly though, value-added services are provided at the POS such as installation, training or initial spares packs.
After the sale, for most engineered equipment, there are opportunities to provide repair services or, better still, ongoing maintenance services.
There may even be opportunities to perform upgrades or software updates that provide new functionality.
There’s also a third tranche of service opportunity at the end of a product’s life with a given customer as the recycling of engineered products creates more revenue opportunities.
Some people are calling this the circular economy but I prefer to think of it as maximising customer value over the entire serviceable life of your products.
Extracting the maximum share of this revenue for your company involves establishing an ongoing relationship with your customers and taking a holistic view of manufacturing services, coupled to product performance.
Coming up in the next video…
In the next video, I’ll be talking about how you could use manufacturing services to quadruple your annual sales value without having to find any new customers.
Yes, I know that sounds extraordinary, but if you join me next time, I can assure you that I’ll be presenting the evidence to back up this remarkable assertion.
I’ll also be explaining what the service transformation journey looks like in practice so you know what is involved.
And I’ll be providing examples of well-known, manufacturing services champions that are already doing this right now as well as some case histories to show you the kind of benefits that can achieved.