Industry 4.0: What is servitisation? Why OEMs should not miss this opportunity

Makula_After Sales Management

Did you know that the development and acquisition of machines account for just 10 percent of the costs during their entire life cycle? The remaining 90 percent is for their maintenance, operation and disposal, according to Accenture. No wonder, because large industrial machines can have running times of up to 40 years. Service is in demand, and this is where servitisation comes in! Especially because the machines are becoming more and more complex and thus require more care.  Wouldn’t it be foolish for machine manufacturers to give away this potential? It makes much more sense to develop after-sales services into a business model of their own. Digital technology and networked products like the Internet of Things make this easier. We explain what is behind the trend of servitisation.

Innovation is key – especially for OEMs. But it is only one aspect of their success. Today, it is also more and more about service offers to bind customers in the long term and to keep them satisfied. The plants must run efficiently and reliably. Unplanned downtimes are expensive and can have devastating effects. This is precisely where the great opportunity for machine builders lies: in servicing.

What is servitisation?

Servitisation means that manufacturers and retailers do not just sell a product, but rather a complete service. The path is thus moving away from the pure product and towards the service. Away from the ownership, towards the result. Servitisation in mechanical engineering shifts industrial value creation from the product perspective to the service perspective. 

The leading packaging machine manufacturers are already demonstrating this: Their largest share of turnover comes from after-sales service and not from the sale of the machine itself.

What types of servitisation are there?

The expansion of services can take place at different levels. In the simplest case, the product is still in the foreground and only an accompanying service is offered. However, this can go so far that the service even completely replaces the product. 

A basic service can therefore be the provision of spare parts. The next service level is reached when maintenance and repair work or training are also offered. Then again, there are models where, so to speak, only the use of the machine is sold – and all other services are provided in the form of a subscription model. 

Your company probably already provides the first two levels. Nevertheless, there may be potential for improvement here. Digitalisation can automate many processes. Customers also benefit from this, because they can rely on smooth processes. 

A well-known example of this is the “power by the hour“ model, which was initially developed by Rolls-Royce. Customers do not buy the aircraft engine, but its operating hours. The engine itself remains the property of the manufacturer, who remains responsible for maintenance and repairs. A guarantee for ongoing revenue!

Philips has developed a similar model. With “pay-per-lux”, customers only pay for the light they actually use – but the costs also include the complete lighting service, i.e. the concept, the luminaires, their installation and maintenance. 

What are the advantages?

Customers are at the centre of servitisation. That is why they also benefit to a special degree:

  • They reduce their fixed costs and pay according to expenditure and according to benefit
  • They minimise their risks, since the manufacturer is responsible for the functioning of the product
  • They have access to better know-how, because: No one knows better about the functioning of a machine than the manufacturer himself.
  • They can rely on high quality and care. The manufacturer himself is interested in a long service life of the machine.
  • They keep maintenance and repair work at a reasonable level and can be sure that they will not be talked into unnecessary services.

Also the advantages for machine manufacturers are convincing:

  • The service offer creates new sources of revenue and increases income.
  • Good service creates loyalty and makes people irreplaceable. They therefore increase customer loyalty and convert buyers into regular customers
  • By working closely with the customer, they gain important insights and suggestions that are valuable for the further development of their products
  • Technologies such as the Internet of Things (IoT) and Artificial Intelligence (AI) provide valuable data that can drive new innovations. However, it is also important that this data is then used. 
  • By providing excellent service offerings, they can differentiate themselves from the competition, can take a leading role and shape their own brand

How can you implement servitisation in your own business?

Now you might be thinking, well, we’re not a big corporation like Rolls Royce or Philips. We don’t have the R&D budgets to expand our after-sales services and develop our own servitisation. And indeed: to build up your own platform, you quickly have to spend between half a million and two million euros. That is simply not affordable for medium-sized companies. 

And here we are again on the subject of servitisation: just as airlines do not need to own the aircraft engine to make their machines fly, you don’t need your own platform. Just get the utility!

We have found a way to digitalise their operations and deliver a complete platform. Learn how you can build and expand your servitisation with Makula, for example by installing an automated ticket generation system or enabling to remotely support customers via a live audio/visual functionality.

Do you want to find out how to use servitisation and develop your own pay-per-use/pay-per-outcome models? Then let us talk. We have the right solution for you.

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