Listen, we love servitization here. It’s something that we talk about so much that we have a section of our website dedicated to it. Restructuring businesses away from product-focused growth strategies towards business-focused strategies objectively supports the bottom-line (overhead costs for service are significantly lower than that for other product functions), provides new outlets for customer engagement, and aides in the development of subscription-based products build around perpetual maintenance or outcome guarantees.
So why would a more service-minded approach? To understand this, we need to think about what businesses are focusing on servitization, and what that means about the ways that they approach customers, parts, and products themselves.
When we discuss servitization, we’re mostly talking about manufacturers of goods. Manufacturing has had no shortage of disruptions over the last two decades or so, and solvency means rethinking their footprints, their relationship with their staff, and their relationship with their products. Service remains a masterful way to bring these elements together in support of business interests.
Service doesn’t happen in a vacuum, though. It changes the supply chains, workflows, and it changes what constitutes a new device. Pre-servitization, businesses don’t care what happens to their products post-transaction. They use raw materials, sell to consumers, and at end of life, they don’t have to worry about expenditures, because the product is in the hands of someone else.
When service enters into the picture, profitability of devices in the hands of consumers becomes more important. If, for instance, a service technician hauls away a component that costs $18 to manufacture, do they recycle the aluminum for eight cents? No—they figure out a way to recycle the parts in-house. This is the basis of the circular economy of manufacturing, a topic that we’ve discussed before. And while this is great for the environment (fewer end-of-life machines in landfills) it’s also great for the bottom-line, and will change the ways that manufacturers create products, thus changing the ways that those products are serviced.
This isn’t speculative any more. Gartner expects by 2029 that 100% of manufacturers will have embraced this model. So how does this change service?
Repairs in the Circular Economy
If manufacturers are banking on service, and therefore seeing parts and products throughout their lifecycle, they’re going to do everything in their power to reuse parts in an effort to mitigate costs, power the circular economy, and protect the bottom-line. My favorite forward-thinking example, Apple, practically dislocates its own shoulder patting itself on the back for this, and hey, if you hire a supply chain guy as your CEO, you get really smart supply chain decisions.
So—if manufacturers are incentivized to invest in the circular economy, that means a couple of things:
- Manufacturers are going to want parts to be reasonably intact upon extraction from a product
- Manufacturers are going to want parts and products back as much as possible
- The act of repair will, in many circumstances, be eclipsed by the act of remanufacturing goods into wholly new items
The first point here hinges upon a simple premise: Manufacturers are going to focus on increasing not only quality control, in order to mitigate repairs, but part modularity, in order to make the act of repair itself a different type of process. If, for example, you need to replace a shock absorber in your washing machine, rather than 3,200 proprietary screws, if the part’s locking mechanism is self-contained, it can easily be removed and replaced.
Making parts easier to replace also means less actual service appointments. Why? Because easier parts means easier on-site service. When things break, manufacturers can ship parts to customers, and provide the packaging to allow the broken part to be shipped back to the manufacturer, thus keeping it in the circular manufacturing loop. Add in tools like remote assistance and even moderately complex jobs can be completed without a truck roll or a local tech.
So a servitized future means a future with far fewer truck rolls, far more remote assistance, and the need for a much more complex system of forward and reverse logistics. As I’ve mentioned many times before, these are imperative, and easy-to-overlook elements of service management, and in an environment when service appointments themselves will be increasingly de-emphasized, they take on greater significance. A while back I created a buyer’s guide to discuss the important elements of Reverse Logistics, so if you’re interested in learning more, you can start there.