This blog series addresses why service is a growth engine for manufacturers and what steps need to be taken to transform the way products are created and serviced.
In our first post we looked into how and why manufacturers can and should use service. This week we’ll discuss the importance of a service strategy to the broader organization.
Why has service become so important?
Firstly, today’s customers are a better-informed group with much higher expectations for how companies support products throughout the entirety of their lifecycle.
Secondly, manufactured goods—be it jumbo jet liners or state-of-the-art household appliances—have gotten more complex, feeding the need for comprehensive service delivery processes.
In this new era, customers can be won or lost and financial targets hit or missed based on a company’s ongoing ability to efficiently and effectively deliver quality service. There’s plenty of evidence to support this statement.
Consider a manufacturer’s product margins, which are already razor-thin across most industries. Comparatively, margins on aftermarket services have not been dealt a similar blow. Consulting firm Gartner estimates that aftermarket services now account for about 24 percent of total revenues and 40 to 80 percent of their total profits.
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, yet a study by Accenture found manufacturers on average are only capturing 25 percent of the total service spend.
It’s hard to ignore that kind of math in the face of mounting global competition.
Are manufacturers ready for the same transformational makeover that product development and supply chain functions have endured?
Much like these two functions, a decentralized operational structure and a fragmented foundation of homegrown systems have kept service organizations from achieving a comprehensive view into their extended networks and across their entire service lifecycle. The mix of information silos, disconnected processes, and inconsistent analysis has proven to be a deadly combination.
Recognizing the obstacles and sensing opportunity, market leaders in fields like aerospace and climate solutions have latched onto the idea of a service-driven business strategy.
While most companies are stuck in the rut of break-fix product service and maintenance contract service, pioneers like GE Aviation, Ingersoll Rand, Whirlpool, and others, are pushing the envelope towards performance-based service where the manufacturer intelligently and proactively manages and maintains optimal system performance over the course of a product’s lifecycle.
Instead of operating service as a cost center or outsourcing it to third parties, these firms are establishing on-going relationships with customers, improving the lifetime experience and engendering loyalty while simultaneously cultivating a healthy, recurring revenue stream.
In the third and final part to this series we’ll take a look at a couple of examples that show the importance of Service Lifecycle Management (SLM) and what manufacturing organizations are doing to implement it.