Strategy and Service Boost Manufacturing Growth

Top manufacturing firms stress strategy, planning and service, a new study found.

Oxford Economics, a research firm, surveyed c-level executives and their subordinates at 300 companies around the world about their outlook and found that more than two-thirds of them expect significant business process transformation over the next three years.

The survey found that many executives think their efforts to fine tune and squeeze out costs in the manufacturing process are reaching a point of diminishing returns. In fact, more than half said they “have wrung out almost all savings in their manufacturing operations.”

To achieve growth, they plan to prioritize strategy—including developing new products—and build up services as a profit center. Louis Celi, president of Oxford Americas, which is based in New York, said that for many manufacturers, “service was almost an afterthought.” But it’s increasingly seen as a way to build a long-term value proposition, he said.

He cited jet-engine maker Rolls-Royce, which lets plane owners choose to pay based on the hours its engines are in the air rather than as a one-time product sale. The survey found that aerospace and medical device companies are the leaders among manufacturers in moving to these kinds of services.

Today, less than half the manufacturing companies in the survey offer performance-based service contracts. But in three years about 70 percent will offer them, the survey found.

The companies anticipate expanding innovation as a route to growth. Within three years, 76 percent of the companies surveyed in the Oxford Economics report expect to increase their product strategy and engineering, up 20 percent from today’s levels. Supply-chain innovation and service innovation are also becoming more important.

Many companies are trying to deal with highly fragmented customer bases by placing production closer to their customers and seeking innovation all over the world, Celi said. Some companies have discovered the advantage of “frugal innovation”—developing products for emerging markets and then finding applications in the United States and Europe. For example, General Electric developed a portable EKG tester for emerging markets. Later it found the $1,000 devices sold well to ambulance services in the U.S.

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