opening servitization slides jan 2013

Leadership in high-value services: What it takes for manufacturers to compete through servitization and Product-Service SystemsTim BainesProfessor of Operations Strategy Aston Business School

[email protected]

What is the outlook for manufacturers in the

developed economies of Europe and North America?

Country Hourly compensation costs in manufacturing in USD

Increase in output per manufacturing employee (index, 2002 = 100)

2010 % change (USD) since 1997

1997 2010 % change in output since 1997

USA 34.74 3.2 76.1 149.8 197UK 29.44 3.6 83.1 128 154Germany 43.76 3.2 90.5 112.9 125France 40.55 3.8 88.4 120.9 137China* 1.36 2.19 NA NA NAIndia* 2.3 1.44 NA NA NASingapore 19.10 3.5 78.4 143.7 183Taiwan NA NA 78.7 176.9 225PR Korea NA NA 66 160.7 243Japan NA NA 91.5 134.9 147

Unfortunately competitors in emerging economies are just not playing fair…

…and the global markets for mass consumption are changing

Services by manufacturers

For sometime researchers in the USA have studied how manufacturers can build revenue through services (or servitization)

While Scandinavians have advocated the environmental benefits of manufacturers delivering product-service systems.

Profit margin in sales of rail equipment 3 - 6%, profit margin in services 8 – 10%.

Transport accounts for ~70% of C02 emissions, how would this look if the manufacturer paid the

fuel bill?

Key questions

So what does it really mean to compete through services?

Is servitization a new concept?

Does it simply means adding services to products?

Are products only a platform for delivering services?

Does it mean relinquishing manufacturing activities?

Is all about new Information and Communication Technologies (ICTs)?

Can it generate greater revenues and profits for the manufacturer?

MAN

CAT

ALSTOM

XEROX

4 yrs

Knowledge from previous studies

Understand leading practices and technologies

R-R

Su

rvey

of

400

UK

co

mp

anie

s

Going to Gemba!

They are manufacturers

Adopting a services-led competitive

strategy

Focusing on advanced services

Outcome is a capability rooted in

production competences

Coupled with long-term risk and

reward agreements

Delivering high-value

Process of servitization

Intermediate servicesScheduled maintenance, Help-desk, Repair,

Overhaul, Operator training, Condition monitoring, In-field service

Base servicesProduct & spare parts

Advanced servicesCustomer support agreement, Risk and revenue sharing, Revenue-through-use

contact, Rental agreement

Outcome focused on product provision

Outcome focused on product condition

Outcome focused on capability

Services supporting customers

Services supporting products

Services on offer

A document management capability

Use

Cash

Disposal

Cash

Technology

Service

MonitorConsumables

Risks and rewards

Revenue earned by the

manufacturer

Advanced

£

Base Intermediate

+

-

Profit earned

Type of services offered

Relationships between services, revenue and profit

So how do leading adopters view servitization?

So how do leading adopters of

servitization deliver to their customers?

Characteristics of a traditional factory

Centralisation to exploit economies of scale and natural resources

Integrated where needed to control cost and quality

Focused on the planning and control of material flow

Focused on cost, quality and delivery of products

Staff who are technically capable, analytical, and dependable

Reactive to demands for after-sales support and tendency towards ‘heroic recovery’

A technology systems focused on informing and advancing actions on maintenance, repair and use

Remote product sensing

Monitor Transmit Store Analyse Respond

Transducers

Data storage

Fault code generation

Fault code recording

Base data

Fault code data

Satellite, cell phone,

radio, Internet

Hard and soft

storage

system

Exception reporting

&Asset

maintenance

reporting

Get more dataPlan

contingenciesRepair/ replace

Inform customer

Modify design

Modify delivery system

Lin

ks t

o e

nte

rpri

se

pro

cesses a

nd

syste

ms

Facilities that are co-located and distributed throughout customers operations

Practices and technologies key to success

Rolls-Royce pre - TotalCare’ Rolls-Royce post - TotalCare’

Customer facing measures

Macro measures

Local measures & indicators

Demonstration of value

Internal performance measures & indicatorsExternal

Performance measurement and demonstration

Vertically integrated into design and production activities to ensure control over responsiveness and continuous improvement

Production operations

Materials Production Design Service Use

Conventional manufacturer

Service operations

Servitized operations

Production operations

Combined original equipment manufacture

and product-centric services

Exclusive focused on product-centric

services

Conventional service provider

Position and extent of vertical integration within supply chain

Servitized operations



Staff located in a front-end office and who are flexible, relationship builders, service-centric, authentic and

technically adept

I am prepared to work varying hours

or tasks to meet customer demands

I have meaning full conversations with my customers, and great team behind

me

I feel the pain my customer feels if my product fails I only make

commitments against which we can truly deliver?

I understand the technicalities of the product I am

selling?


Formalised to deal proactively with the condition, use and location of assets in the field

Asset fails

Manufacturer Customer

Asset fixed

Negotiation

Asset failing

Manufacturer Customer

Asset in use

Communication

Agreed condition & action

Old world New world

Facilities that are co-located and

distributed

Vertically integrated within supply chains

Exploiting ICTs for remote asset

monitoring

Staff that are service-centric, flexible, skilled in relationships, and

resilient

Performance measurement

systems replicating those of customers

Process that are proactive and integrated with

customers

Service delivery system

A complex integration of practices and technologies.

What we now know

Well established examples of servitization exist

To succeed, the manufacturer views themselves as a services provider

The product platform is critically important

Exploits technical competences firmly rooted in design and production

Information and Communication Technologies are key, but only as a component in a tightly integrated system

It can generate greater profits, though they reduce as a proportion of revenue

...but there are a few things we still don’t know.

Leadership in high-value services: What it takes for manufacturers to compete through servitization and Product-Service SystemsTim BainesProfessor of Operations Strategy Aston Business School

[email protected]

opening servitization slides jan 2013

Documents