By ‘heavy product’ we mean those in the business of producing turbines, medical imaging devices, HVACs, converged infrastructure, escalators, elevators, mining equipment, oil & gas rigs, and so on.
Have a look at the Servitization section of The Manufacture’s Barclays Annual Manufacturing Report (AMR) 2017, you’ll find a couple of interesting trends emerging. The first thing we noticed is the adoption of a new producer culture: Producers are no longer being considered just sellers of products rather deliverers of services. An HVAC company can longer claim being a seller of air conditioning units rather they are in the business of delivering temperature controlled cooling or heating services.
Servitization is taking center stage
For those catching up on that relativity new jargon, servitization simply means transforming from producer of products to building capabilities to provide services and solutions that supplement the traditional product offerings.
Manufacturers are embracing this new culture with over 80% of the respondents to the report said they benefit from an increase in sales of products as a result of the change. 46% of the respondents are looking to improve profitability through value-added services (in the 2016 AMR edition).
Unprecedented value from new service models
There’s also ample opportunity to leverage service as a means of intensifying revenue. According to Blumberg Advisory Group, service revenue can dwarf new product revenue, with value-added services totaling as much as 10 to 30 times the return from original product sales per year. However, in a study conducted by Accenture, manufacturers are only capturing 25 percent of the total service spend.
Consider a manufacturer’s product margins, which are already razor-thin across the heavy product machinery industries. Comparatively, margins in the aftermarket services do not seem to have a huge impact. Consulting firm Gartner estimates that aftermarket services now account for about 24 percent of total revenues and 40 to 80 percent of product manufacturer’s total profits.
It’s hard to ignore that kind of stats in the face of changes in technology on the factory floor, aftermarket business models, and in the premises of the customers. We are bound to take the heap into the newer ways of customer engagement – Servitization –, if not now, when?
While on your way out, do review our data sheet on how we’re combining field service tech such as SFDC with our Glassbeam IoT Analytics platform to create an environment to power customer service monitoring and technical support in the IoT space.