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Thiru Vengadam, Regional Vice President, EPICOR SOFTWARE INDIA

Guest Editorial Are our factories an endangered species?

Aug 13, 2018

The manufacturer, instead of selling products, is now in the business of selling outcomes

There is no doubt that the manufacturing landscape is tricky to navigate. There will always be some items that are produced in low numbers, items with a short shelf life, heavy items, such as, bricks in order and those that need to be changed quickly to adapt to market needs. However, in general, if businesses want to continue to manufacture products in our country, then they need to think long and hard about how they can do this whilst building revenue, staying competitive and continuing to prosper as a business.

Many manufacturers rely on their technical expertise to keep themselves at the cutting edge of innovation. Others do everything they can to provide a higher quality product. These companies can often stay one step ahead of their competition but this is not always possible for everyone. Is there another way? Yes, there is. It is called servitisation and it could possibly revolutionise manufacturing worldwide.

The idea of manufacturers providing services is not new. At a basic level, manufacturers have been supporting their product offering with spare parts for generations. The next step in the servitisation model is to offer intermediate services, such as, a helpdesk, periodic maintenance, repair and overhaul. Again, many of these are standard fare and have been for a long time, even so these intermediate services present a fantastic opportunity for businesses to strengthen relationships with their customers, and provide ways to generate additional revenue streams for the business.

But, it is with advanced services where the opportunity for business growth is even greater. With an advanced service offering, the customer receives an outcome or capability, rather than purchasing a product. For example, an office manager might sign up for the provision of ‘document management solutions’ rather than buying a photocopier. Similarly, an airline might enter into an agreement for a number of flying hours rather than ordering a jet engine. The advantages with these advanced services are numerous for both customer and producer. The customer also benefits from a guaranteed product performance as well as commitments regarding product development and enhancements over time. In return, the customer agrees to a longer term contract over several years and a stronger partnership between manufacturer and customer is formed, all of which improves long-term cash flow and customer lifetime value.

The manufacturer, instead of selling products, is now in the business of selling outcomes, bundling together a range of products and services tailored to individual customer’s requirements. If carried out correctly, the business transformation through servitisation should allow for a new lease of life for manufacturers up and down the country. On that note, who said our factories were an endangered species?

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