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Servitization Featured in Annual Manufacturing Report

Servitization Featured in Annual Manufacturing Report

Hennik Research published their Annual Manufacturing Report, which surveys British manufacturers about their year in review, and found that currently the manufacturing business is experiencing the second-highest positive outlook since 2008 with most manufacturers feeling confident about the future. A wide array of general findings contributed to this conclusion.

Though a lot of manufacturers feel negative about the readiness of young workers entering the workforce, many manufacturing companies are still planning on investing in training young workers, as there are a large number of job opportunities throughout the manufacturing business. Around 50% of companies stated they’ve given young workers their first jobs fresh out of school. And while manufacturers are leaning towards creating new products, upgrading systems, and automating processes, they are currently unsure about technological trends, like IoT.

On the other hand, the servitization trend was highlighted in the survey for the first time thanks to the Aston Centre Service Research and Practice and Hennik Research. Servitization has been gaining popularity, so the survey conductors felt it only right to start asking questions about service-related manufacturing activities. Here are key takeaways from the report:

Product-Based vs. Service-Based Business

The answers to the question on percentage revenue split between servitization/ongoing relationships and merely selling products varied widely. Some businesses said that 100% of their revenue comes from product sales. On the opposite end of the spectrum—even though it’s in the minority-- another business said that 100% of their business comes from service offerings. For now, the revenue percentage balance weighs heavier on the product sales side rather than servitization, even though one respondent said they have integrated their charges for services and product offerings.

Even though it’s forecasted that this balance will shift toward servitization, 69% of manufacturers noted that there is still a big challenge in that more workers and financial resources are needed to offer more services.

Servitization Offerings

In today’s climate, manufacturers can remain competitive and add value through servitization. More and more businesses are beginning to shift to service-based modes of operation. Still, the majority of manufacturers surveyed-- 82% of the respondents--sell products. Another large percentage offer other product-based sales offerings including 33% that offer field services, 41% offer maintenance, 42% offer repairs, and just over half of the respondents, 53%, offer spare parts.

However, despite leaning towards product sales, 41% of companies are offering servitization through customer support agreements. This is a significant percentage since service-based business offerings are still in the minority. Other options manufacturers are giving their customers include pay-for-use contracts and availability contracts, which 12% and 17% of companies offer, respectively.

Servitization Improving Customer Relationships

For 74% of the manufacturers surveyed, the number one reason they offer services was to build closer relationships with their customers. The number two and three reasons were finance-related, as 46% want to improve their profitability and 44% wanted to use service offerings to increase revenue.

Even though close contact and communication is required to improve customer relationships, 44% of manufacturing businesses said they operate separately from their customers, but work together on supply chain issues through IT and EDI. The other large percentage chunk of manufacturers uses KPIs to measure individual customer’s outcomes. Only 5% say that their business operations are integrated with their customer’s operations.

Though most manufacturers still seem to be figuring out how to use servitization within their business, the majority does not have the product sales-based mentality of “sell and move on.” Today, manufacturers want repeat orders and repeat customers. Almost 50% of the manufacturers said that they are collaborating with customers to develop specially tailored solutions to help meet their business needs.

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