Servitization in the manufacturing industry: from product to valuable service

More and more manufacturing companies are switching from a product-oriented approach to a service-oriented approach. Why? Because customers don't want products, they want solutions. Just like no one is looking for a drill, but a hole in the wall. Servitization helps you deliver just that, smart solutions around your product.

What is servitization?

Servitization means that, as a company, you no longer just sell products, but offer them in combination with additional services. In the B2C market, we've known it for years. Think of the meal boxes, razor blades or even the briefs from On That Ass. You no longer buy a product once, but you take out a subscription, including delivery, ease of use and service. The same model is now also trickling into the B2B market.

Servitization in the B2B market

In the B2B market, there is now also an increasing number of service-oriented business models. Especially within the manufacturing industry. Instead of one-off transactions, you work towards recurring turnover and long-term customer relationships.

Examples:

• Light as a Service of Philips: customers pay for light, not light bulbs.
• Power-by-the-hour of Rolls-Royce: customers pay for engine operating hours, not for the engine itself.
• Compressed Air as a Service of Kaeser: customers pay for used compressed air, not for the compressor.
• Effifuel of Michelin: customers pay for fuel savings per kilometer, not for the tire.
• Pay-per-page of Xerox: customers pay per page printed, not for the printer.

The goal? Recurring turnover, more stable cash flow and stronger customer relationships. You become less dependent on project sales and more on long-term collaborations with predictable returns.

What does servitization provide?

Servitization changes your business model and customer relationship. And that provides demonstrable results. Manufacturing companies that focus on services generate up to five times as much turnover from services as from new sales. Think of maintenance contracts, monitoring or performance guarantees. Major players like ASML, Marel, Philips and Vestas fetch now 20 to 40% of their service turnover.

1. Stable cash flow and predictable income

Instead of peaks and troughs per order, you are building a stable business model with recurring turnover. This makes you more attractive to investors and less dependent on the vagaries of the market.

2. Stronger competitive advantage

With smart services, you sell more than just a product. You offer added value that is difficult to copy. As a result, the comparison shifts from price to performance. A shift that makes customers more loyal and more profitable.

3. Long-term customer relationships

Servitization ensures more contact moments and higher customer satisfaction. You know what's going on faster, can respond proactively and build a relationship that goes beyond the one-off delivery of a product or project

4. Unburdening the customer = delivering more value

For customers, it's easy: they don't want a hassle. They want certainty. With servitization, you provide that certainty, in the form of performance, availability and support. This provides trust and convenience.

5. More sustainable and future-proof

By retaining (or taking back) ownership of products yourself, you encourage reuse and extend their lifespan. This fits perfectly with circular business models and social objectives.

How do you start servitization? (in three steps)

The move to servitization does not start with a completely new business model. It starts with one smart service, based on what you're already delivering today.

1. Start with the customer

You have to understand what customers really want. What happens after your product has been delivered? What do customers run into? And what kind of care can you structurally take care of?

Examples:

• Do you provide components? Automate inventory management and prevent shortages.
• Do you sell machines? Bid predictive maintenance on the basis of IoT data.
• Do you build customized solutions? Consider support subscriptions or performance dashboards.

2. Map out your current services

What services do you already offer? Are they charged or “do you add them”? Many manufacturing companies already offer valuable services without structurally asking for anything in return.

Typical opportunities:

• Installation → can be used as a starter package with a service contract
• Maintenance on demand → can become a service subscription
• Email or phone support → can be a premium LETTUCE becoming
• Commissioning and training → can be offered via an online learning environment
• Remote monitoring → is possible as a digital service with service advice and monthly reports

3. Link your services to a revenue model

By smartly packaging existing services, you add value and create a predictable revenue stream. Which revenue model suits your organization depends on your product, customer relationship and digital maturity.

Examples of servitization business models:

• Pay-per-use: Your customer pays for use, not possession. Think of light, running hours or printed pages.
• Subscription-based: You offer a fixed monthly or annual fee for use, maintenance and service.
• Performance-based: You guarantee performance, such as uptime or energy savings, and are charged accordingly.
• Product-as-a-Service (PaaS): You offer a complete package: product, installation, maintenance and service in one contract.
• Monitoring-as-a-Service: You monitor the performance of a product and provide advice and monthly reports to improve performance.

The role of digital technology

Servitization only works if you digitize it smartly. Without technology, delivering services quickly becomes too complex, error-prone or expensive. Digital technology makes it scalable. Think about:

• IoT sensors that measure real-time performance and predict failures.
• AI and data analysis that plan maintenance smartly and optimize processes.
• Cloud platforms for customer portals, dashboards and self-service.
• API links with ERP, CRM and other systems, so that all data automatically ends up in the right place.

With these building blocks, you can create digital services that are efficient to manage, add value and retain customers.

How Flawless Workflow helps with servitization

The transition to servitization requires a different way of thinking and a digital basis that is flexible, scalable and smart. Bee Flawless Workflow we help manufacturing companies to make this transition concrete and feasible. We do this by designing, building and implementing digital solutions.

If you want to offer predictive maintenance or give customers access to their own portal: we ensure that processes, systems and data work seamlessly together. Thanks to our digital roadmaps, BI/AI processes and customized software, you get insight into where you stand and where there are opportunities to offer a service-oriented business model.

Together, we build the ideal IT landscape, based on your processes, goals and customer relationships. Not because your customer is looking for a drill, but because he wants a perfect hole in the wall. That's what we help with.

Learn more about our services on our services page.