Servitization of Manufacturing

In today’s increasingly competitive marketplace, lasting client relationships and high customer loyalty are becoming a crucial factor to a company’s success. This emphasis on driving for high customer satisfaction and repeat business is highly justifiable since there is a strong correlation between quality client relationships and the company’s ability to remain relevant and, ultimately, profitable.

In the world of manufacturing, one way organizations are making strides in this area is through the strategy of “servitization”. This strategy pushes organizations to adapt their business models to offer customers services on top of the physical product in order to expand their offer and the value they are able to deliver. Apart from forming lasting client relationships, this strategy is also aimed at pushing performance in other key areas such as operational excellence and product leadership as well as opening opportunities for additional revenue streams.

Considering the substantial benefits of manufacturing servitization it would seem reasonable to wonder why there’s not a great many organizations going down this path already. One would struggle immensely to find any manufacturers out there that don’t value lasting customer relationships and the recurring revenue they provide. The truth is that there are considerable logistical challenges to transforming a product-centric organization to a service-centric one. Successful manufacturing organizations are typically great at effectively investing their time and resources into fine-tuning the internal processes and maximizing production output and quality control. What this narrow specialization often leads to is that any sort of data collection, visibility or tracking mechanisms that were employed during the production process itself stop as soon as the product leaves the manufacturing facility.

For a long time manufacturers have known about the value of production visibility. Having the ability to track raw materials and product components from suppliers and along the production line allows for leaner operations, ensuring less downtime due to shortage of components and better cash flow by ensuring less cases of overstocked materials and inventory.

Recently, however, competition has forced manufacturers to look at other areas of improvement and where many have identified a large area for improvement is in achieving better customer visibility. What this means is that manufacturers are trying to gather better insights into the ways their products are being utilized in order to identify ways to improve their value offering and upcoming market shifts they need to adjust to. The servitization strategy allows manufacturers to have more control over the maintenance of their products in the market, ensuring the latest updates/upgrades get implemented while simultaneously managing the recycling of old products. While all of these practices bring considerable value and have a potential to dramatically scale any manufacturing operation and introduce new revenue streams, the business process transformation that needs to take place for this to happen is not a small task.

The main processes that organizations look to transform when looking to implement a servitization business model are things such as financial reporting, pricing and invoicing. These need to be adjusted to accommodate for things like fixed assets instead of inventory on hand, sales orders containing contract duration and alternate pricing models to allow invoicing by utilization.

While any organization would need to invest time and resources into an undertaking like this, choosing the right enterprise solution makes the journey much more predictable and manageable.

That is why, in order to be able to cooperate with the organizations at the forefront of the wave of digital transformation, Microsoft included standard functionalities in Dynamics365 that allow organizations to adapt to market trends in a flexible way and refocus on growing their business as quickly as possible.

At Merit solutions, we pride ourselves on our ability to help companies transform their operations and become digital manufacturers – successfully adopting new workstreams and enabling technologies using our extensive experience in performing a wide array of enterprise transformations.

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