September 23, 2019 2020 Servitization Prep Guide

Servitiziation hit center stage in 2019, and with only a few months before the year end now is the time for OEMs to prepare.

September 16, 2019

By David Reiling, CCO, Syncron

As we enter the final months of 2019, it is the perfect time to look back at the previous months – reviewing both the challenges and opportunities encountered – to help plan for a successful close to the year while simultaneously preparing for a strong 2020.

2019 has been a pivotal year for manufacturers, as they are undergoing arguably one of the most major transformations they’ve seen in decades. Servitization, where manufacturers will no longer just sell products, instead offering the value or business outcomes those products deliver, is encouraging a shift to subscription-based business models. This shift will completely redefine the way manufacturers operate and serve their customers.

It’s not a matter of if, but when, this shift will happen, and original equipment manufacturers (OEMs) must start optimizing their current business processes, resources, infrastructure and technology to prepare for the inevitable future.

As the servitization-centered economy quickly becomes a reality, below are three things OEMs should keep in mind:

Preparing for servitization.

More and more OEMs are moving towards a servitization-based business model, however, the majority remain in the early stages of this transformation. And, while these companies are exploring strategic paths for the future, they must also ensure the current foundation of their service organizations is strong.

Large, durable goods – think construction equipment, industrial machinery, airplanes and automobiles – oftentimes have product lifespans upwards of three to four decades and the products that were built and sold many years ago are not equipped with today’s ‘smart’ technology like IoT sensors. Today’s customers, however, expect products-as-a-service – and this desire is outpacing manufacturers’ abilities to deliver on it. As a result, manufacturers need to simultaneously optimize their current, break-fix service operations, while also preparing for customers’ ever-increasing expectations for servitization-centered service.

Balancing break-fix and servitization.

As part of the transition to servitization, OEMs should be looking to devote more attention to optimizing their existing break-fix service models, specifically investing in solutions that can optimize for both break-fix and servitization.

The break-fix service model many manufacturers use today often leads to long customer wait times, poor part availability, excess stock and part obsolescence. While break-fix service will never completely vanish – there will always be unforeseen accidents – this ‘just in case’ way of doing business often creates overhead that has a negative impact on both the customer experience and the manufacturer’s bottom line. To be successful, 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, for example, is no longer enough to meet customers’ needs for maximized product uptime, while simultaneously keeping manufacturers’ costs low.
Prioritizing service delivery management.
Delivering an excellent customer service experience at every touchpoint is a key objective for most OEMs. And as the world moves towards servitization – and OEMs take on greater risk and responsibility for equipment uptime – they must control critical aspects of the service delivery process. This includes parts, technicians, knowledge and other requirements to deliver high-quality service to better integrate processes and systems across OEMs’ global networks.

Manufacturers must explore how to best meet the new challenges that a subscription-based business present. They must equip themselves to price subscription models, plan for maintenance preemptively, train existing staff and hire new talent and more. And if teams haven’t done so already, they should begin exploring partnerships with consultancies that will help them navigate the shift to servitization successfully.

So far, 2019 has seen servitization become a top trend throughout the manufacturing industry. Customer demands will continue to increase, and OEMs must adapt to meet these evolving expectations. It is an exciting time for the industry and the coming months and years are sure to usher in a new way of doing business.

David Reiling, CCO, Syncron

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