Last updated: Servitization in manufacturing: New services drive growth, profits

Servitization in manufacturing: New services drive growth, profits


Listen to article

Download audio as MP3

Picture intelligent drones hurtling through miles of underground pipes or scaling rugged terrain, spotting hazards before they cause havoc. Back down to earth, consider a technician who arrives at the factory to replace a part that’s about to break—because the machine automatically alerted them.

These are just two examples of how manufacturers have turned to servitization to increase revenue streams while ratcheting up customer satisfaction and equipment performance levels. New value-added services are helping manufacturers drive sustainable growth in a tough economy.

Servitization in manufacturing opens up new opportunities

IDC researchers predicted that by 2026, G2000 organizations will generate 40% of total revenue from digital products, services, and experiences. In a nod to sustainable product life cycle management, Gartner industry analysts expected 50% of the top 10 consumer goods manufacturers to implement digital product passports for at least one of their product categories by the following year.

One research firm projected the global everything as a service (XaaS) Market will total $1225.07 billion by 2030.

Equipment providers are differentiating themselves in the modern world by adding new services to their products, or even selling their products as-a-service…to better compete and grow market share and revenue,” said Patrick Crampton-Thomas, vice president of digital asset management at SAP.

“We have a customer who manufactures tractors in Latin America, and [generates] one-third of their revenue by selling services on top of those tractors to farmers…Another customer, a major battery manufacturer, reduced warranty costs by 50% because they were better able to manage and serve batteries in the field.”

Discover your path to future profitability through servitization NOW.

Crampton-Thomas shared his remarks during a recent episode of The Future of Supply Chain podcast, where he laid out three ways servitization in manufacturing is changing business models so manufacturers can win their rightful share of this burgeoning opportunity:

  1. Deliver service excellence
  2. Stand out from the competition
  3. Improve equipment performance

As-a-service raises the bar for service precision

According to Crampton-Thomas, manufacturers have long been fixated on delivering operational excellence when it comes to service. Digitalization, especially in the wake of the pandemic, has forever changed industry norms.

“Organizations want to reduce costs as they provide high-quality services to the customer,” said Crampton-Thomas. “For example, remote support is on the rise, in part because of COVID-19, but also because some industries like mining, are often managed remotely.

“With an as-a-service offering, if something breaks, it could be fixed remotely and faster. This is great for the environment because it could reduce in-person service technician visits.”

Driven by connected data, service management innovations are exploding. Real-time information from IoT-based sensors on equipment, mobile devices, as well as learning tools like augmented reality can speed up diagnostics and problem-solving for field technicians – notably new talents and experts from third-party service companies.

“Manufacturers are empowering people in the field with all the tools at their fingertips to fix it the first time,” said Crampton-Thomas. “That’s important because a lot of the engineering and technician support talent is maturing…As companies bring in new talent…those tools can be critical, allowing that individual to be as efficient, or even more so, than someone with 20 years of experience. You also have to integrate across networks with outsourced resources.”

Servitization for disruptive differentiation in manufacturing

In a fiercely competitive market, it’s not enough to introduce new service offerings. Crampton-Thomas had pointed advice for manufacturers planning to reinvigorate their business models through servitization.

“First, know your place in the market and what your products are, and second, understand what your customers really want,” he said.

“Ask what service level would amaze them? How could I package up my product to make consumption of a product as-a-service easy…and deliver on commitments to service level agreements. Offer an immersive and amazing experience to engage with customers…providing omnichannel routes to service, and make that as simple as possible across the service life cycle.”

Revolutionize equipment performance for sustainable business

There’s a straight line from equipment longevity to sustainable business. That’s one reason manufacturers are using data from advanced technologies like IoT to monitor equipment performance for predictive maintenance.

“If we can revolutionize equipment performance and reduce how often we have to replace a piece of equipment…and also improve its performance, perhaps reducing energy consumption, assets and equipment could be at the heart of a company’s ability to meet its sustainability goals,” said Crampton-Thomas.

There’s no end to the value of equipment performance data for manufacturers. Applied effectively, automation fueled by data from artificial intelligence and machine learning can support better redesign and sourcing decisions to improve product performance and prevent failures.

“We can have an end-to-end digital thread that starts in design, and it goes right through to installation and service, but it’s closed loop, so now I’m getting performance information back into design from equipment in the field,” said Crampton-Thomas. “That will help enhance existing products with revisions and develop new products and services going forward.”

Although every manufacturer may not pilot swarms of drones, organizations in search of steadier growth in a volatile market are finding solid ground through servitization that generates new recurring revenue streams while strengthening long-term customer relationships.

Keep your supply chain connected,
reliable, and resilient –
no matter what.


Frequently asked questions (FAQs):

Servitization is a business strategy where a business shifts from selling only products to also offering services and solutions that provide additional value to customers. It is a business approach to building revenue streams from services. It is a concept of selling an “outcome as a service” as opposed to one-off sale.

With a servitization business model, customers pay a fixed cost per-unit of service consumed, while the ownership of the system remains with the technology provider, who is also responsible for all operational costs.

In a servitization model for manufacturing, companies may offer a range of services such as product installation, maintenance, repair, training, and consulting. This approach allows the manufacturer to provide a complete solution that goes beyond the initial sale of the product and creates a more long-lasting and profitable relationship with the customer on an on-going basis. Adding servitization as a business model enables the manufacturer to even out uncertainties in cash flows and generate more predictable and steady revenue streams.

Following are a few examples of servitization in manufacturing, which involve offering a range of services in addition to the traditional manufacturing of products:

  • Rolls-Royce originally a British luxury car manufactures later grew into an aerospace and defense company that has adopted a servitization strategy. The company offers “Power by the Hour”, a program that allows customers to pay for the use of Rolls-Royce engines rather than buying them outright. This approach provides a range of services, including maintenance, repairs, and upgrades, which helps to increase the lifespan of the engines and reduce downtime.
  • Philips a Dutch multinational conglomerate originally started as a lighting company, later expanding into electronics and healthcare technology. Philips offers a “Pay Per Lux” solution, whereby customers like Schiphol airport, rent lamp and lighting systems from Philips. In turn Philips is responsible for all of the post-sale service, repair, and replacements during the period of the service contract
  • ABB is a manufacturer of industrial automation equipment, including robots and control systems. The company offers a range of services, including maintenance, repair, and remote monitoring, that help to improve the performance and reliability of its products. Additionally, ABB offers digital services that use data analytics and artificial intelligence to optimize the operation of its equipment and reduce downtime
  • Caterpillar is a manufacturer of heavy equipment used in construction and mining. The company offers a range of services, including maintenance, repair, and parts, that help to extend the life of the equipment and reduce downtime. Additionally, Caterpillar offers remote monitoring services that use telematics technology to track equipment performance and provide predictive maintenance.

Share this article


Search by Topic beginning with