Servitization as an auxiliary engine of the company

Servitization is a way of creating value for the customer. It is a business model where a service is delivered in addition to the product, which then adds value to the product. It also increases the company’s ability to grow financially. In terms of company turnover, it can be compared to a hybrid drive car. In the same way that an electric motor can help an internal combustion engine to perform better, servitization can help to grow sales. It is able to accelerate a company’s revenue by selling additional services associated with the product. It can provide a margin increase of 3 to 10% without having to invest heavily in methods such as lean manufacturing, etc.

However, the shift of the company from merely producing the product to providing value requires many changes within the company. This is often met with resistance from employees and usually from existing information systems that are not able to integrate with this new reality. However, IFS Cloud ERP is built on a platform that can cover not only the current but also the future needs of companies. And not only when it comes to product-related services. By integrating different technologies through a single platform, the system will support the company in providing more valuable products to which the services are linked.

The concept of servitization is not very widespread at the present time. However, probably everyone has come across it. There are three levels of service delivery. The first and very widespread one is implemented in the form of spare parts sales. The second level can be referred to as partial servitization and the third level is product-based services (we call it full servitisation).

Servitization and ERP systems

Like enterprises, ERP systems have varying degrees of adaptability to current requirements. The IFS Cloud ERP enterprise information system, in addition to being quite highly specialised, is built from the outset on a platform that can adapt flexibly to the enterprise and also support new business models. Among other things, the platform supports the use of technology to deliver services to customers in a way that truly benefits the company. The platform is ready to provide support for Big Data, IIoT, artificial intelligence and augmented reality.

The advantage of the platform on which the IFS Cloud operates is that it can integrate data from different ecosystems into a single data foundation designed for company management. For example, it can integrate an IIoT solution that collects large amounts of data on manufacturing equipment, etc. This data allows reporting on what was produced, in what quantities, what cycles were performed on the machines, how long each cycle took, etc. By linking modules in the IFS Cloud, it is then possible to manage documentation, warranties, service contracts, etc. Not only that, the collected data can be used, for example, in the service module – to perform predictive maintenance (a large amount of data makes predictive maintenance feasible). With the help of a unified platform, it is also possible to make better use of service personnel. According to experience, IFS Cloud can increase the utilization of service personnel by more than 25%. Augmented reality, for example, can contribute to this increase. With it, a dispatcher can visually help a service worker in the field to solve a problem and thus speed up the repair time. There are many examples of how a single platform can indirectly increase a company’s profit, only a small percentage have been mentioned.

This approach to leveraging multiple data sources has led leading consulting companies to name IFS Cloud software as one of the most valuable ERP systems available today.

The contribution of servitization to the circular economy

In addition to the obvious benefits (higher margins, satisfying existing and new customers), servitization brings other positive externalities. For example, it can prevent waste and thus make an important contribution to the development of the circular economy. In the EU, 2.5 billion tonnes of waste are generated annually from all economic activities (5 tonnes per capita). The aim is to halve the amount of non-recycled waste by 2030. Businesses can contribute to this, for example by adding new value to the product. The customer is then not forced to make new purchasing decisions. This naturally increases the pressure on product quality and also on services related to extending the lifetime of the product (upgrades, extended service, etc.). The new product-related services that companies can (and certainly will) provide will contribute to this objective.

The future of services

The current economic and political situation may increase the need for companies to service their products. The constant disruption to the supply chain caused first by the global pandemic and now by the security situation in Europe is and will continue to force companies to be more creative in their approach to business. It is forcing companies to transform from product-oriented to service-oriented companies.

If a company is constantly tapping on the brakes in the form of a cumbersome ERP system, it may not successfully survive this change. Companies that have modern cloud-based ERP software to support them in this transformation will inevitably be successful.

Michal Gallik, Account & Sales Manager at InfoConsulting