Collecting insights from academics, customers and industry leaders, Syncron recently 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.
After our discussions, it became clear that 2019 is set to be a pivotal year for manufacturers, one in which they must implement new strategies and processes to position themselves for success for years to come. Most notably, we determined that maximized product uptime and a fully optimized service supply chain were key factors in progressing on the journey to servitization.
But in an industry that has been operating in the same manner for decades, how can some of the world’s largest, most respected brands adapt to remain relevant?
For automotive manufacturers in particular, we identified three key trends to look out for in the year ahead. These trends—as well as some proactive steps companies can take today—will set up automotive brands for success in 2019 and beyond.
1. Optimize current processes to lay the foundation for servitization success.
For more than 100 years, the automotive industry has adapted to new technologies, evolving customer expectations and demographic shifts. Now more than ever, automotive manufacturers must continue to adjust their business models to succeed.
Today’s on-demand mindset has created consumer preferences that focus on access as opposed to ownership. Leading brands like BMW, Mercedes, Porsche and Volvo—in addition to third party providers—have launched vehicle subscription services. Customers pay a monthly fee directly to the manufacturer for access to several vehicle models, and in addition to access, the fee covers insurance and maintenance. This model has fundamentally changed the car-buying process as we know it today and the way consumers interact with their favorite automotive brands.
It’s clear that we are in the midst of a drastic change within the automotive industry, one that is forcing manufacturers to redefine the way they do business. 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. Original equipment manufacturers (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, automotive 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, automotive manufacturers should build the structure that will help internal teams measure their progress.
Because the full shift to servitization will take years, define specific milestones, like 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 measurements and identify the necessary resources, technology and infrastructure needed to succeed. Finally, establish regular updates and check-ins to 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. 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.