Thomas Levitt, a former professor at the Harvard Business School, once said: “Everybody is in services.” Today, the trend is even more so. The trend of servicification in manufacturing describes the increase of the purchasing, production and sales aspects of the production chain. In pre-production, for instance, it is increasingly common for manufacturers to use KIBS (Knowledge Intensive Business Services) for product design, research & development and packaging. Other outsourced services could be accounting, legal and IT consulting firms that have professional knowledge to support business processes for companies.
The Services Involved With Servicification
Other services that have been used more and more in the production cycle include maintenance, education, installation, software support and repairs. Customers are increasingly expecting more value-added services, which drives manufacturing towards a more service-driven business model.
The Importance of Servicification
Thomas Levitt also wrote that when a computer hardware manufacturer provides installation, maintenance and training as part of their sales program, the “product” consists of a lot more than what was made in the factory. What happens in the field is just as important to the customer, as there would be no sale without the services that accompany a product.
A Sample Servicification Scenario
Levitt provides an example of a producer of private-label ice cream products for supermarket chains. Over the years, the company has grown to become great at producing a wide line of products at rock-bottom prices, which was important to the supermarkets. The company covered ten states with direct store delivery from its factory and warehouse, and grew rapidly. The continued growth eventually required them to establish plants and distribution centers elsewhere as well.
The original location had an efficient system of telephone ordering and delivery that was designed to meet supermarkets’ stringent needs. Deliveries were required several times a week during uncrowded store hours. The supermarkets needed regular specials for holidays and slow periods. The original location had these processes down so automatically, they became part of the routine.
When a new plant was built, the focus was on getting manufacturing costs down to rock-bottom. The services offered were not considered an integral part of the product because the company was not conscious of the fact that they had created a customer-satisfying, efficient ordering and delivery system. They viewed themselves as just “something else” you do in business.
The lack of understanding of what their product really was became the reason the company went out of business.
How Services Can Help During Your Production Cycle
Manufacturers need to understand how services can help during the production cycle and how they can provide value to the customer even after the sale, in order to differentiate themselves from the competition. Small and medium-sized manufacturers can add service packages to the products they sell, as well as education and training. They can establish 3D capabilities through hardware and skilled workers to provide prototyping services to other companies. Contract manufacturing is a great example of providing manufacturing services. Configure-to-order provides the service of design, rather than mass production, that more customers are seeking. Sensors placed in products during production that monitor activity and can alert to preventative maintenance is also a service that is becoming more prevalent.
The trend will continue in a way that more services will be outsourced beyond just assembly, and that customers will expect more and more services as part of the products they buy. Manufacturers, especially medium-sized, need to conduct an internal assessment on how prepared they are for this trend, as well as determine their weaknesses to know which KIBS to acquire.
Our Series on the 10 Drivers of the Future of Manufacturing
In the World Economic Forum’s white paper, “Manufacturing Our Future, Cases on the Future of Manufacturing,” the Global Agenda Council on the subject determined that manufacturing has become so complex that to ensure its development, the private sector, public sector and civil society may often converge.
They determined what must be done within ten different drivers of the future of manufacturing, including ones specific to capabilities and those specific to policies and trends.
Servicification is the seventh entry in our series covering the ten drivers, our sixth provides an overview on their recommendations concerning Global Value Chains.