Aerospace and defense manufacturers are making the shift from selling a product itself to selling the outcome or value that the product delivers. Here’s what the coming year will bring.

For the military and aerospace vertical, maximized product uptime, in addition to a fully optimized service supply chain, have been key factors in progressing on the journey to servitization.

Collecting insights from academics, customers, and industry leaders, Syncron set out to understand how manufacturers can capitalize on the megatrend of servitization, where manufacturers shift from selling a product itself to the outcome or value that the product delivers.

Below are three key trends we identified for aerospace and defense (A&D) manufacturers, in particular. These trends – in addition to some proactive steps manufacturers can take today – will set up aerospace and defense brands for success in 2019 and beyond.

1. Optimize current processes to lay the foundation for servitization success.
The aerospace industry is ahead of the curve when compared to their manufacturing peers in other industries. Rolls Royce first championed the ‘Power-by-the-Hour’ concept in the early 1960s, where customers pay a fixed cost per hour for uptime.

Being ahead of the curve doesn’t mean A&D manufacturers should stop innovating, however. More companies are moving to a Performance-based Logistics (PBL) model, where the industry is moving away from the decades-old practice of selling service parts to contracts that are based on expected performance outcomes. With this shift comes added responsibility for the original equipment manufacturer (OEM).

In 2019, manufacturers must reevaluate their service parts inventory management processes and operations. Identify any inefficiencies and determine how current service parts management processes are impacting customer loyalty. OEMs should also consider evaluating their service parts pricing processes – are pricing processes mature or basic? Could a value-based solution uncover additional profits? Finally, manufacturers should reexamine vendor relationships, ensuring their after-sales service solution providers are meeting (and exceeding) expectations and ultimately adding real value to the organization. 

2. Create a servitization taskforce.
The full shift to servitization could take anywhere from five to 15 years. The realization of a servitization-centered economy is a marathon, not a sprint, and it’s here to stay. As a result, manufacturers should establish internal teams and leaders to ensure that the changes the business implements are successful.

In the coming months, A&D manufacturers should identify key leaders in various functions that will touch any aspect of servitization. Organizations like research and development, production, service, finance and sales, among others, all have a vested interest in making the shift to servitization a reality. Consider establishing something like a ‘servitization council’ that regularly meets and can facilitate educating the broader organization on the importance of the changes servitization requires. 

3. Establish milestones to measure progress and encourage accountability.
Change can be scary for anyone, especially when it involves completely redefining the way a large OEM has operated for decades. To mitigate some of the fears and risks that come with change, A&D manufacturers should build the structure that will help internal teams measure their progress.

Because the full shift to servitization will take years, define milestones and where the organization expects to be one, two and three years from now (or whatever timeline is best for each organization’s needs and goals). This will help leaders create more tactical, department-level milestones and identify the necessary resources, technology and infrastructure needed to succeed. Finally, establish regular updates and ensure each functional area meets its desired goals.

In this era of servitization, the responsibility for ensuring maximized product uptime is shifting from the end-user to the manufacturer and it requires manufacturers to find ways to increase cost efficiencies throughout the entire value chain, ultimately driving them to completely transform business logic, company cultures and product development strategies. Today’s global manufacturers are at a pivotal moment in their storied histories, and those that adapt to the changing climate in 2019 will be the ones to come out on top.