Servitisation of Manufacturing: It's Manufacturing Jim, But Not As We Know It!

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Servitisation of manufacturing is a phrase we are hearing more and more in the modern manufacturing community these days.

But what is it?

If the servitisation of manufacturing businesses is a new concept to you, then this article will be of great interest, especially if you are a leader of a manufacturing company operating in an engineered product sector.

Servitisation Of Manufacturing

Today’s customers don’t want to buy and own your engineered products.

Don’t get me wrong – they like your products.

It’s just that they don’t want to own them.

Or maintain them.

Or buy spare parts for them.

Or insure them.

Or have to bother selling them when they want to access the latest technology.

And they especially don’t like financing the upfront capital purchase of your product, because that can be very expensive.

Come to think of it, they don’t like having to find the extra money to pay for the lumpy maintenance bills either.

Or the breakdown and repair costs.

Or the insurance premiums.

Quite frankly, owning your product is like having a chronic pain in their proverbial!

That’s not good.

Especially if you really care about your customers and want to keep growing your business.

If Customers Don’t Want Products, What Do They Want?

What today’s businesses and consumers do want is the capability that your product gives them.

They also want it available to them when they need it.

And they are happy to pay for having that capability and availability.

They just don’t want the pain, inconvenience and financial commitment that comes with ownership of your product.

In short, the product ownership model is well on it’s way to extinction.

Has Manufacturing Had Its Day?

Not exactly.

Not just yet anyway – I think it’s safe to say that we will always need someone or something to make products for us.

But there’s no law that says a manufacturing business can’t offer services too.

In fact, the leading Original Equipment Manufacturers (OEMs) of today are making more than 50% of their total revenues from services rather than products.

As a result:

Their service revenues and profits are soaring.
Their manufacturing business is more competitive and customers are staying with them for longer
They are enjoying longer term, more stable and more predictable cash flows.
And their equity to earnings multiple has risen as a result.

In short, their customers are happier, their employees are happier and their shareholders are happier too.

So how are they doing this?

Manufacturing Servitisation

If Spock was alive today, he’d tell you that the latest competitive weapon for manufacturers is called “servitisation.”

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Quite simply, it’s the process of taking your product and offering it as part of a service package/solution instead i.e. re-packaging a product as a service.

It’s the opposite of productisation where a service is re-packaged as a product.

Some industries are more advanced in their “servitisation of manufacturing” than others.

For example:

It’s commonplace to get a mobile phone handset included as part of a service contract that includes phone calls, texts and data usage as well.
Most businesses lease their company cars, vans, trucks, etc.; often including servicing, breakdown and insurance within their monthly fees.
Most businesses don’t even own their printers and photocopiers any more – they just pay per print/copy as they use them.
Software packages are delivered as a service too, paid for monthly or annually, including all support costs and all-time upgrades without needing to buy and own the software.
Even Microsoft Office is available as a monthly service – Microsoft 365 – and this is becoming the norm now.

Servitisation of Manufacturing Is The New Norm

My business does not own any software whatsoever – all the software I use for my accounting, CRM, project management, web site, storage, backups, etc. is paid for via annual or monthly service fees.

And that suits me fine as my business doesn’t have an IT department.

My message here is that servitisation of manufacturing is rapidly becoming the norm.

And as a manufacturer, you therefore have the choice of servitising your business or becoming extinct.

Not much of a choice really, is it?

So if you run a manufacturing business and you are looking to beef up your profits, protect your business from lower cost competitors and start giving your customers what they really want, just like the leading manufacturers are doing, you need to start thinking differently.

As Spock might say,

“It’s manufacturing, Jim, but not as we know it!”

How To Servitise Your Manufacturing Business

If servitisation is new to you then you might be surprised to know that it is not new to us.

We’ve been helping leading manufacturers to servitise their manufacturing businesses since 1997 and would be happy to share some of our case studies and how you might achieve something similar with your business.

Here’s a few examples:

Do you have any concerns about the longevity of your manufacturing business?

What strategies are you adopting?

Leave us a comment below…