ANNUAL MANUFACTURING REPORT 2016

SERVITIZATION
ANNUAL
MANUFACTURING
REPORT2016
SERVITIZATION
Sponsored by:
Analysis by Dr Ali Ziaee Bigdeli
Senior Research Fellow
Aston Centre for Servitization
Research and Practice, Aston
Business School
In order to remain competitive,
manufacturers have to be relentless in
their search for added value.
This is the first year that the Annual
Manufacturing Report has asked
about servitization. The Aston Centre
for Servitization Research and Practice
and Hennik Research collaborated in
preparing the questions and conducting
the analysis in this section of the survey.
Some manufacturers are moving further
up the value chain and incorporating
activities that may, previously, have
been undertaken by their own
customers. For example, in the auto
industry, a glass supplier will now supply
an entire sunroof system, including
electronics and servomotors, in a single
unit that the OEM can drop cleanly into
the assembly process. The last few years
have also seen the growth of another
business model: servitization.
It appears in various different guises,
from packaged leasing deals for
forklift trucks to ‘power by the hour’
contracts between airlines and their
engine suppliers. Instead of buying a
unit with capital upfront and paying for
maintenance and repairs on an arising
basis, the airline pays the supplier for
keeping the engine running. Money
changes hands only when the unit is
employed, i.e., flying.
Servitization can help manufacturers to
develop long-term, secure relationships
with their customers, even to the extent
of shutting out competition. It can aid
in overcoming low-cost competition.
It also helps to provide manufacturers
with reliable, long-term revenue streams
that are not as reliant on the potential
famine or feast of new product sales.
There are challenges, of course: not
least, and especially for SMEs, financing.
Large companies may well be able to
fund the necessary initial expenditure
out of their reserves but smaller
companies can find that foregoing the
large inflows of money that come with
outright sales can be rather offputting.
Investment in technology is also key.
Equipment has to be monitored closely,
in order to ensure that usage is within
specified parameters and that repairs
and maintenance are undertaken so
as to keep the equipment working. The
Internet of Things (IoT) is looking like an
essential element.
The answers we have received will set
the benchmark for the future, as well
as helping to paint a clearer picture of
the current state of understanding -and
therefore the ‘evangelisation’ work that
remains to be done – and the extent
to which it is being undertaken already.
Our sincere thanks to everyone who
took the time to complete the survey,
and especially those who were unsure of
where they stood and where they were
heading! Your input has been invaluable.