How servitisation can benefit your manufacturing business

Servitisation is the practice of providing a service with a product, to add to its value.

Richard Baker

Rolls Royce’s ‘Total Care’ option for aero engines is a good example of servitisation. The aircraft operator pays for use of the engines by flying hours. Ultimately this approach minimises the impact of reliability issues for the aircraft operator and gives them a predictable cost base, which is critical to a business with a traditionally high fixed-cost base.

The basics of servitisation

Manufacturers have traditionally differentiated themselves on capacity and machinery, particularly at the more technical end, such a precision engineering.

For every Original Equipment Manufacturer (OEM) you will find a large supply chain. OEMs have a reputation for using their buying powers to squeeze on price and payment terms, and requirements for ‘cost downs’, particularly for production runs, are common.

Advancements in manufacturing processes have increased the availability of machinery and capacity. At the same time, human expertise, knowledge and experience have become a scarce resource.

It is logical for manufacturers who have that knowledge to sell problem solving to protect themselves against OEM pressures, and to differentiate themselves.

If a customer has a problem, then providing an engineering solution provides added value, which will enable a better negotiation on pricing and payment.

An engineering problem that ‘stops the line’ – for example, at a car assembly plant – or an issue that causes delays to the design programme for a new model, has a significant impact on the OEM. It may also have an impact in the form of penalty clauses for the supply chain.

How to approach servitisation

The key to servitisation is for the manufacturer to understand customers’ needs.

The successful companies are able to tailor their manufacturing and service provision to meet the customers’ needs, and remain flexible for other customers whose needs differ.

Servitisation and Industry 4.0

Industry 4.0 presents the opportunity for smart manufacturers to achieve a highly tailored manufacturing and service provision. Artificial Intelligence (AI) can provide a limitless resource of experience, if knowledge is transferred and the machines learn from the experienced engineers.

3D printing will enable prototype components that traditionally would have needed weeks to be engineered to be manufactured in minutes.

In some cases, 3D technology will enable the manufacture of parts and components that have previously been impossible to manufacture.

The successful manufacturer of the future should have:

  • capability to transfer and enhance its expertise into an AI that can expand problem solving expertise and even advance expertise into the future
  • routines that compartmentalise the service provision so customers feel they are receiving a tailored service even though large elements of the process are generic
  • integrated manufacturing systems that combine traditional manufacturing capability with advanced 3D technology and robotics.

This will require many companies to make significant investments, and for some this just will not be possible.

It is highly likely that we will see more collaboration between companies to provide a clustered solution service, and especially where such alliances prove to be successful, some significant merger and acquisition activity in the future.

Contact us

Richard Baker
Richard Baker
Partner, Audit
Thames Valley