Supporting the Path to Servitization Through Optimized Inventory Management

Supporting the Path to Servitization Through Optimized Inventory Management

Service parts planning is absolutely crucial to servitization models.

When a piece of equipment goes down – and you don’t have the right part at the right place at the right time – the machine experiences downtime and revenue is lost. That’s why it’s so important for manufacturers to focus on optimized inventory management and parts planning to support the shift toward a servitization business model, where companies are selling service rather than products.

What’s happened now is that customers see service as an embedded part of their day to day business. Customers and their parts providers are invested in solving problems together. And, as customers move toward servitization in their purchase decisions, as well, the more important an uptime model that negates the cost of downtime becomes to them. Ultimately, comparing those costs is critical to coming up with a solid service plan to support the overall uptime business model.

To do this, companies are starting selling service as a sort of ‘consultancy,’ where product managers built into the process to solve customers’ problems entirely. Similar to selling a subscription, service should be baked into user agreements, providing value immediately and making sure fill rates are happening on time right out of the gate.

The draw? Anybody can sell a warranty, but not everyone sell the same level of service contract. And that competitive differentiation is what is starting to set manufacturers apart.

Understandably, this new way of doing business poses lots of questions for the OEM. How do we determine the right pricing structure? How are parts planning requirements and logistics considered when pricing service contracts? But, organizationally, as you move down the path of outsourcing, specializing and delivering better service, you have the opportunity to build scalable system that factors in the variability of 3rd party logistics. And, if you find customers that are willing to partner with you and share their data, equipment downtime will be your only penalty in an outcome-based delivery.

By taking into account stocking extra parts and having extra overhead on specific days or busy seasons, a truly integrated process will benefit from the advantage of knowing your customers needs and their seasonality. And, to make this a reality, manufacturers have to think beyond the cost of downtime. By having extended downtimes, you’re ultimately risking your entire customer base. If organizations don’t elevate their service levels, the probability that they will start losing customers altogether is high.

Ultimately, optimized inventory management and getting the house in order now will help manufacturers not only increase cost efficiency in the whole value chain and reduce total cost of ownership, but ultimately bring more value to their customers in the long run.