Service with a smile

There's a new buzzword sweeping manufacturing industry – servitization. It's an ugly word, to be sure, but to a growing number of manufacturers, the profits and sales revenues that it brings in its wake are more than adequate compensation. Nor is this hyperbole, stresses Rue Dilhe, managing director of mid-market ERP vendor Exel Computer Systems – those profits and additional sales are, he insists, very real. "'Servitization' might not always be the word that people use to us, but more and more of our customers are asking how we can support them in their push to add services to their product offering," he says. "Field service maintenance, installation, design, refurbishment – for a manufacturer, there are a lot of opportunities to offer services alongside physical products. And often, the profit margins are much higher." And Exel's customers aren't alone in seeing that opportunity. As a recent study from Aston Business School – Servitization Impact Study: How UK-based manufacturing organisations are transforming themselves to compete through services – points out, those companies that have already pushed to add services to their sales offering are realising an additional business growth of 5-10% a year. Better still, customers buying from a servitized manufacturer tend to view the combined physical product and service offering as a package, helping to foster a sense of 'stickiness' when the time comes to replace or upgrade the original product. Instead of viewing the physical product as a commodity, to be bought as such, they look for a continuation of the overall package. What's more, found the authors of the Aston study, adding services to the mix tends to trigger product and process innovation, boosting the amount of business carried out with both new and existing customers. Over time, the result is a more diversified business, with mature 'servitizers' pointing to a 50-50 split between physical products and services. And also a more resilient business: While demand for physical products can fluctuate through seasonality and the economic cycle, demand for services is more stable. All of which is good news, surely. Well, up to a point, says Dilhe. The problem is that servitization carries risks, too. Because customers don't just want services – they want services performed well and reliably, and to have a commercial relationship that is just as rewarding as the one that they presently have in a purely manufacturing context with a manufacturer, buying physical products. And, without the proper systems in place, that just isn't going to happen, he warns. "We're seeing companies attempting servitization, and then falling flat on their faces because they're trying to manage a service offering with spreadsheets, legacy ERP systems, and niche field service and customer relationship management (CRM) systems," notes Dilhe. "And what their customers want is to be dealing with a provider who has a fully-integrated system – dealing with them in a service context just as professionally as they do in a manufacturing context." Underpinning the whole initiative Indeed, he adds, a proper service-centric solution can do much more than provide a professional transaction engine. Properly thought-through, and looked at from a strategic perspective, a fully-integrated solution can underpin the whole servitization initiative. "Take the starting point – sales. Who are you going to sell services to? CRM will tell you which customers of which physical products you have and haven't sold services to, and when. The 'cross selling' and 'upselling' opportunities are obvious," he points out. "But it goes beyond that: CRM helps you manage the whole service relationship, especially when it comes to regular routines such as periodic maintenance, annual inspections, and so on. You can manage it on a spreadsheet, but you can manage it a lot better, and lot more profitably, on a system that's fit-for-purpose." "And then there's field service. Clearly, a proper field service solution will provide the engineer with up-to-date spare parts availability, upgrade options and prices, and handle paperwork such as on-site invoicing and spare parts billing. But it goes beyond that: To maximise the profit from a field service team, the business wants to look at field service engineer scheduling, to minimise distance travelled, and maximise the number of service visits that can be fitted into a day." And the very best service-centric businesses, says Dilhe, don't stop there. The information that field service engineers pick up on-site can be fed back into product development processes, in order to design products that last longer, perform more efficiently, and are easier to maintain. A veritable gold mine of insights So too with aftersales support, he adds. Captured and categorised properly, support calls to a 'help desk' provide a veritable gold mine of insights into how customers use products, the experiences that they have with them, and the features that they value. And if there isn't a formal way of distilling this information, and integrating it into the product development process, then a valuable resource is being squandered. "You don't even have to be formally selling the aftersales support service," he stresses. "Even if it's being provided free, the value of the information that can potentially be captured can far outstrip the investment made in providing the service." In short, says Dilhe, while servitization offers manufacturers another source of revenue, the overall stream of benefits is much more significant. Better products, 'stickier' customer relationships, improved services and much greater business resilience – these and more make the adding of services to the product mix a very worthwhile strategic goal. And make no mistake, he stresses: servitization is happening. "We see go-ahead companies, already doing well in the physical side of their businesses, coming to us wanting to add or improve a service offering, seeing it as an opportunity to generate income and improve customer care," he says. "And they come to us because we've got what they're looking for: an integrated set of solutions which support servitization from the ground up, not as an afterthought, or an element." As well as a core ERP transaction engine which is 'servitization-friendly', he adds, Exel's EFACS E/8 ERP system offers full servitization modules in the form of a field service module, a CRM module and a help desk module. "Look at EFACS E/8 customer Glen Dimplex Home Appliances and you'll see field service engineers undertaking detailed fault analysis and fault recording in a structured manner that is then fed back into the R&D process in order to improve product design," says Dilhe. "And look at EFACS E/8 customer Triton Showers and you'll see field service engineers being scheduled far more efficiently, with average travel time reduced through route optimisation," he adds. "These are real benefits, coming through for real companies – our customers – in addition to the increased sales that they're seeing. Servitization is real, it's happening and it's happening now. And, to ride the wave, businesses need to have the right systems. Otherwise, for them, servitization will represent failure, not success."