The Uptime Blog
All good things must come to an end, and so it is with the Enigma website and Uptime Blog. At the end of December, we’ll be retiring the website and blog so we can fully integrate into PTC’s Service Lifecycle Management segment.
The Enigma website was the core of our online presence, illustrating the breadth of our knowledge, experience, innovation and leadership. We were able to address specific industries with both our InService MRO (now called PTC Servigistics InService MRO) and InService EPC (now called PTC Servigistics InService Technical Content) parts and service catalog software.
The Uptime Blog was where we shared our insights, opinions and expertise. Throughout the years we’ve covered some interesting parts and service related topics, followed industry trends and shared helpful InService product knowledge. Along the way we’ve been able to keep our customers and readers in-the-know. While some of our blog posts have been purely informational, others have sparked serious MRO discussions that leap frogged to other media (LinkedIn discussion groups) and that lasted long after the post was published.
Enigma blog subscribers needn’t worry about losing a valuable parts and service information resource though. PTC has an even more robust compilation of resources and communities that are equally as useful and informative, and are adding more knowledge every day.
Stay connected to parts and service expertise
Here’s a brief list of how you can stay connected with industry news, insight and product knowledge that will support your parts, service and aftermarket intelligence.
- On the web. PTC Service Lifecycle Management segment Get the most up-to-date information on service lifecycle management solutions at the website. Visit often as product information from Enigma gets woven into the larger SLM offerings and updates to the website are made.
- On our blog. PTC Product Lifecycle Stories (Blog) Stay informed on Product Lifecycle Management topics as well as service related topics. Look for a dedicated Service blog coming in January 2014 for all kinds of service specific stories and posts.
- On Twitter. Follow our PTC corporate account at @PTC or our Service Lifecycle Management account at @PTC_SLM to say connected with all the PTC and service related happenings. Also check out @PTC_FIRST where we partner with future engineers, @PTC_University for training or @PTC_Support for information on newest product releases and technical support.
- On Facebook. PTC’s Facebook page boasts an active online community where you can learn about PTC events, the latest research, innovation, guest lectures and products.
- On LinkedIn. Learn about PTC on LinkedIn where you’ll find company insights, career opportunities and the chance to connect with the individuals behind the service and product lifecycle management success.
Explore, follow and join
We encourage you to visit and participate in these information rich communities and come back often to discover even more information as PTCs influence in the Service Lifecycle Management segment continues to expand and grow. PTC’s web and online communities are where you can stay connected to the Enigma parts and service expertise you’ve come to know and respect.
Global manufacturers of complex equipment know their products well. They know how to manage their products from concept to design, through production, distribution and sale. They know how to bring their products to market. They are experts in commanding the resources to produce highly complicated, highly valued equipment to meet specific and exacting demands and customer preferences.
Although manufacturers take great pride in the craftsmanship of the product itself, they have often left the servicing of that aircraft, medical equipment, car, or piece of construction equipment to others. That paradigm is changing. Manufacturers are now looking to ‘service after the sale’ as the next logical place to uncover hidden pockets of revenue that are proving to be lucrative.
What’s motivating them?
Earnings and stiff competition. Aberdeen Research, in their State of Service Management, Outlook for 2013, reports that “margins on service are 10.7% higher than those on products”. So while all other manufacturers squeeze earnings from low product profit margins, best-in-class manufacturers are realigning their business structures to include service as part of their revenue stream.
External competitive market conditions are also pushing manufacturers toward service. Aberdeen points out that in tight economic conditions, improved service and support can serve as a strategic differentiator. “Fifty-four percent (54%) of organizations see service as a means to fend off competitive pressures from other manufacturing or service organizations”.
Who are some of these product and service giants?
Recognizing that service plays a vital role in the total customer solution, many global manufacturing firms are re-examining the value of service revenue and are including service as part of the entire customer experience rather than just providing a product. Others have understood the value of service for a long while.
BMW – the ultimate driving machine. BMW is introducing a new electric vehicle for urban mobility, the i3. Designed with eco sleek design, great gas millage and BMW’s trademark driving comfort, the car introduces the BMW i Remote App, an iPhone application that continues the drivers experience outside the car. Using the app, drivers get direction to their destination on foot, bike or public transit, encouraging the use of alternative modes of transportation. Millennials will love this feature.
In a recent Popular Mechanics article, BMWi's Manuel Sattig was quoted as saying:
"We used to say we wanted to be the most successful manufacturer of premium cars," Sattig says. "That was our strategy, and we changed it to say we want to be the most successful provider of premium products and premium services, which means you put the product and the services on the same level." That's a pretty big statement from the maker of "the ultimate driving machine."
BMW has made a decision to rewrite their definition of premium to include not just the ‘driving machine’ but the service surrounding the experience of the drive.
Rolls Royce – Trusted to Deliver Excellence. Enigma customer Rolls Royce has long known what others are just learning – that service is part of the overall product experience, provides solid value, and is a powerful revenue generator.
Last year they celebrated 50 years of one of their most successful programs – “Power-by-the-Hour”. According to their website, “Power-by-the-Hour” is a complete engine and accessory replacement service offered on a fixed-cost-per-flying-hour basis. This aligns the interests of the manufacturer with the operator, who only pays for engines that perform well. It is core to their CorporateCare® program that also includes engine health monitoring and a global network of authorized maintenance centers to ensure that world-class support is readily available to customers.
As a global power systems company their pioneering approach to engine maintenance has become common industry practice with many others following suit.
Despite opportunities for manufacturers to reap service revenue by providing service throughout the life cycle of their products (or service lifecycle), shifting to a service for revenue model is a daunting challenge that not everyone can master, nor is willing to try. A study by Xerox and Aston University revealed that servitization – the process of adding services to a product – has a low adoption rate among manufacturers. For those best-in-class-organizations that are able to make the leap however, there is a lucrative reward, with early adopters achieving an annual growth rate of up to 10 percent.
As many know, PTC acquired Enigma in July of this year, expanding its level and depth of Service Lifecycle Management offerings. PTC is a leading provider of technology solutions that transforms how products are created and serviced.
Since the announcement, we’re pleased to say that the entire integration process has been unfolding smoothly, with PTC and Enigma staff continuing to focus on the continuity of service and ongoing support of Enigma’s loyal customer base. We’ve gotten favorable customer feedback so far and are working hard to make the remainder of the transition just as seamless.
Rest assured though, that although offices have moved, we can still be contacted for customer support or product information.
Customer support remains the same. Just as it has operated in the past, the Enigma customer support portal is still available for customers to submit, view, edit and resolve technical service requests online.
Our Corporate Headquarters is now PTC
Our Burlington, MA USA headquarters has been relocated to the PTC Corporate Campus in Needham, MA. All calls are now being routed through that office. If you have administrative questions or would like to speak to someone in sales or marketing, please contact 781-370-5000 to be directed to the appropriate person.
What Millennials want, Millennials get – and transportation is no exception.
Who are Millenials and why do we care?
The Millennial Generation (or Millennials) refers to a demographic segment of the U.S. population born roughly between 1980 and 2000. Also known as “Generation Y” or “Echo Boomers” these individuals are the children of the post-WWII baby boomer generation, and represent the largest generation in U.S. History.
The sheer number of Millenials is staggering – population estimates range depending on the interpretation of the actual start and end dates of the generation, but regardless, it’s impressive. It is estimated that there are approximately 80 million Millennials in the United States, about 4% more than the Baby Boom generation. As we learned from the Boomers, any demographic group with numbers that large can significantly impact every aspect of our culture – politics, economy, and especially transportation policy and expenditures. And that is exactly what is happening. The very structure and use of transportation is changing based on the preferences and desires of this very influential segment of our population.
What do they want?
Without a doubt, Millennials are clear in expressing their preferences when it comes to transit,
Millennials want multi-modal transportation. According to the American Public Transportation Association (APTA), “nearly 70 percent of Millennials use multiple ways of getting around a city or suburb”.
As the National Resource Defense Council points out in a recent blog post, “Millennials (those Americans who came into adulthood in the new century) want more access to public transportation and support local governments in expanding and improving public transportation options”.
Millennials no longer view cars as the first option for transportation. “The Driving Boom—a six decade-long period of steady increases in per-capita driving in the United States—is over” says Public Interest Research Group (PRIG). Fewer Millennials are getting their licenses. According to Tony Dutzik, senior policy analyst with Frontier Group, “In 2011, the percentage of 16-to-24 year olds with driver’s licenses dipped to another new low. Just over two-thirds of these young Americans (67 percent) were licensed to drive in 2011, based on the latest licensing data from the Federal Highway Administration (FHWA) and population estimates from the Census Bureau. That’s the lowest percentage since at least 1963.”
Millennials are driving fewer miles. In a recent press release U.S. PIRG reports that “[t]he Millennial generation is leading the change in transportation trends. 16 to 34-year-olds drove a whopping 23 percent fewer miles on average in 2009 than in 2001— the greatest decline in driving of any age group”. Car ownership is down in the Millennial age group. University of Michigan Transportation Research Institute results show that Boomers are far more likely to purchase new cars than their Echo Boomer children.
What does this mean for transportation?
Public transit ridership is up, bicycle sharing/rentals are up, ride sharing is up, as is the oldest form of transportation, walking (especially in urban areas). Millennials are shaping these trends. According to a recent APTA report Millennials and Mobility: Understanding the Millennial Mindset, this group is on the move, but doing so quite differently than previous generations. They say that:
“Millennials would like to see in the next ten years: 1) 61% more reliable systems, 2) 55% real-time updates, 3) 55% Wi-Fi or 3G/4G wherever they go, 4) 44% a more user-friendly and intuitive travel experience. Fully leveraging technology, through real-time transit applications that connect users with community amenities, through smartphone fare payment, and the provision of WiFi and 3G/4G, will allow transit users to be more spontaneous, thus addressing the key competitive advantage of the car.”
With so many Echo Boomers making different transportation choices than their Boomer parents, alternative methods of transit are becoming more important. And as more Echo Boomers take on leadership positions in our communities and government, their influence will steer where funds are allocated in support of these transit options.
What does this mean for the servicing of transportation equipment?
The increased interest in public transit places new and more exacting demands on the country’s existing yet frail public transit infrastructure. In their 2013 Report Card for America’s Infrastructure, the American Society for Civil Engineers (ASCE) tell us that “Americans who do have access [to public transit] have increased their ridership 9.1% in the past decade, and that trend is expected to continue. Although investment in transit has also increased, deficient and deteriorating transit systems cost the U.S. economy $90 billion in 2010, as many transit agencies are struggling to maintain aging and obsolete fleets and facilities amid an economic downturn that has reduced their funding, forcing service cuts and fare increases”. On a standard scholastic grading scale of A through F, the ASCE gave America’s transit system a D+.
This clear cut divide between growing expectations for our transit systems and the state of our current infrastructure reality is concerning. It puts tremendous strain on the service structures of the transit operations to keep the systems and people moving. With demand rising, transit service organizations will be called upon to reduce service operations expenses by focusing on a service lifecycle management model or by outsourcing maintenance and service all together thus transitioning the liability of performance to service vendors who are paid to ensure equipment uptime.
Transit service groups would be wise to consider restructuring service operations with the aim of reducing costs, streamlining parts management, and sharing service updates and information in order to optimize the maintenance process. Any effort toward simplifying the support of the complex transit equipment with parts and service information will go a long way toward meeting the growing expectations and demands of Millennials for dependable multi-modal transit.
In July of this year, Enigma shared some exciting news that we had made a strategic decision to join PTC (NASDAQ: PMTC), a leading provider of technology solutions that transforms how products are created and serviced.
As you might expect, we’re starting to make some changes as we become part of the PTC family. But, during the integration, we want to be sure we keep our customers, partners, and other connections informed on the topics and issues that are important.
Contacting Enigma Corporate Headquarters
You may have noticed some changes to the Enigma website. Most notably, Our Burlington, MA USA headquarters has been relocated to the PTC Corporate Campus in Needham, MA. All calls are now being routed through that office. If you have administrative questions or would like to speak to someone in sales or marketing, please contact 781-370-5000 to be directed to the appropriate person.
140 Kendrick Street
Needham, MA 02494
Contacting Enigma Support
Customer support remains the same. Just as it has operated in the past, the Enigma customer support portal is still available for customers to submit, view, edit and resolve technical service requests online. Please click on the link to access the portal and sign in to access.
We will continue to keep you informed of our integration efforts and hope you’ll be as pleased as we are with the results. We believe Enigma customers will benefit from the combined resources of Enigma and PTC – two global organizations with the common goal of delivering more value across the full service lifecycle of complex equipment.
Biomedical equipment technicians (BMETs) are important to today’s medical equipment uptime. They are the men and women who are relied on to keep all sorts of expensive, highly specialized, highly sensitive complex equipment maintained, properly configured and safely functional.
But the medical equipment and devices industry is in a flux with technological, political, and economic forces exerting pressure on every aspect of its existence. Will these forces prove too powerful? Will the biomedical equipment technician survive or become extinct in a world of mobile medical apps, self-diagnostic equipment monitoring and connected networking?
The Mobile Medical App explosion
The rise in mobile medical application development has experienced meteoric growth. According to the medical markets research firm Kalorama Information, “T [t]he market for healthcare-related software apps for use in mobile devices has grown and will continue to grow quickly.”
How quickly? They report that the market for mobile medical apps was worth about $150 million following a 100 percent annual growth rate between 2009 and 2010, and an almost 80 percent growth between 2020 and 2011. They go on to say that the expected 25 percent annual growth from 2012 to 2106. Although slower from the initial surge, it is still considered solid growth, competing with other large and popular app categories such as gaming, entertainment, social networking, and navigation.
Doctors prescribe iPads for digital connectivity
The influx of portable technology in hospitals has hit a tipping point. MobiHealthNews reports that in a 2012 ON24 and MedData Group survey, 45 percent of doctors reported that they now have and use iPads at work. Another 29% said they planned on purchasing an iPad within the next 6 months. Physicians use their mobile devices to check drug prescribing and safety information, review medical research findings, and share medical images with colleagues.
Personal and pocketsize medical devices
While physicians are using Medical Apps designed for them specifically, patients too are using apps on their mobile devices to better manage their own individual health care. Personal medical apps are helping patients improve healthcare recordkeeping, better track their health indicators and be more informed on health and lifestyle options and choices.
The increasing comfort level of physicians and patients with mobile devices and health related apps has led to their increased use. Activities formerly associated with an office visit check-up are being replaced with at home monitoring and a more collaborative relationship between doctor and patient. Patients are using their mobile devices as pocket size medical devices – medical devices that never need a BMET to keep them serviced and working.
The good news for BMETs
Despite the personalization and shrinking size of medical devices, there is good news for BMETs. Technology in healthcare is adding new devices every day that have not yet found their way to an iPad or iPhone screen.
Additionally, access to healthcare and medical devices is more globally obtainable now than ever before, allowing more countries world-wide to take advantage of the diagnostic tools previously unavailable to them. Market researcher Lucintel reports that “T[t]he global medical device industry has experienced significant growth over the last five years and is expected to continue, reaching approximately US $302 billion in 2017 with a CAGR of 6.1%during next six years (2011-2017).
Employment estimates support the optimistic future of the BMET. United States Department of Labor, Bureau of Labor Statistics projects that “[e]mployment of medical equipment repairers is expected to grow 31 percent from 2010 to 2020, much faster than the average for all occupations.”
The bad news for BMETs
The bad news is that the life of a BMET, as he/she knows it, is unlikely to stay the same. The medical device industry is undergoing rapid change with frequent mergers and acquisitions that are wholly reshaping the landscape. Changing and tightening regulatory controls as well as financial pressures associated with the Medical Device Tax are exerting influential forces leading to increased competition.
Fierce competition will incent corporations to look for innovative tactics that make marked, leap-frog advancements rather than incremental gains against their competitors. The service sector offers just such opportunity. Just as product lifecycle management (PLM) and enterprise resource planning (ERP) helped launch manufacturers ahead of competition in the past, service lifecycle management (SLM) presents a similar potential for paradigm shifting change today.
BMETs and their namesake equivalent Biomedical Equipment/Engineering Specialist (BES or BMES) are employed by three main medical equipment service providers:
• Original equipment manufacturers
• Clinical Engineering (typically in-house hospital departments)
• Third-party service providers
As these three entities volley for position and service revenue, BMETs may find it beneficial to realign themselves with the most forward thinking party that is redefining the service experience. BMETs not focused on the end service game may be left behind.
Every year Polk Automotive analyzes the trends in U.S. car and light truck registrations to gauge the age of vehicles on the roads. This year, like every year since 2002, they reported that the average age of all light vehicles on the road has risen. Today, the average age of America’s auto fleet is an impressive 11.4 years of age, up from 11.2 last year.
This is great news for the automotive aftermarket whose livelihood relies on the sale of replacement parts and service repair. Older cars mean more work and more profits. But while it is certainly notable that the age continues to climb and drivers are keeping their cars and light trucks longer, we wondered what other telling trends were behind the numbers. We learned a few interesting facts.
Baby Boomers are Still Setting Trends
According to a study by the University of Michigan’s Transportation Research Institute, Baby Boomers may be aging along with their cars. As a group, they still drive significant changes in all sorts of demographics, including vehicle purchases.
The study reports that older drivers are more likely to buy new vehicles. Even though auto dealers continue to court the Gen X, Gen Y and Millennial market, it’s the graying baby boomers that have the desire and means to purchase new vehicles. It turns out that nostalgia for the era of the car is a powerful influence.
What about younger drivers? In another study University of Michigan researchers found that younger individuals – those same Millenials that auto makers are targeting for advertising, actually purchase fewer new vehicles than expected. They found that a higher proportion of internet users (the digital natives) were associated with a lower licensure rate. Fewer younger registered drivers mean less reason to purchase.
Are Auto Makers Making Better Cars?
In an age of disposable everything, it looks like automobile manufacturers may be doing the unthinkable – making better, longer-lasting cars.
M. Simon, technical contributor for Manufacturing.net contents that “Engineers Killed Detroit”.
“Cars that are engineered to last longer require that you buy fewer of them in a lifetime. Remember when a car that ran for 100,000 miles was a good car? I do. Now a 200,000 mile or 250,000 mile life is considered a good car. Engineers (aided by competition) did that. And not just American engineers. Engineers all over the world.”
John Tammy at Forbes suggests that “The Unions Didn't Bankrupt Detroit, But Great American Cars Did”. He suggests that today all cars are engineered well. They are built to last. They are reliable, affordable and don’t break down that often like they did in the 1970’s era. Tammy says “In short, cars are simple, prosaic, and easy in a modern sense to manufacture well”. If you believe his position, reliable automobiles have become a commodity, contributing to the longer life of cars and trucks.
Aftermarket Vendors Vying for Parts and Service Business
No matter what the reason for the continued aging of American’s vehicles, one thing is certain. Automotive aftermarket vendors should be prepared to capitalize on the revenue opportunity that is presently available, even though there will be competition from other providers and strong economic obstacles.
Ratchet and Wrench reports that the auto service industry is actually experiencing a downward revenue trend. “In the last five years, overall industry revenue has declined at an annual rate of 2 percent to $30.3 billion. This decline was largely due to declines in the overall economy, which caused a decline in disposable income and corporate profit, effectively stifling the use of vehicles and the need to repair them”.
With tight competition, savvy aftermarket parts and service providers eager to tap into potential revenue streams are searching for the best path to take and have discovered that service operations hold the best opportunities. In Aberdeen’s recent State of Service Management: Outlook for 2013 report, sampled organizations stated that on average service margins were 10.7% higher than those from products.
Where the Opportunity Lives
As product profit margins shrink and service profit margins grow, more companies are placing higher value on the service model and transforming their service centers into profit centers. PTC’s Service Lifecycle Management approach is leading the adoption of service related attitudes with products like Enigma’s InService EPC which helps execute those service management strategies that lead to profitability.
Aftermarket parts and service providers not focusing on service profitability run the risk of being left behind. As Ali Pinder, Research Analyst for Aberdeen Groups says in a recent blog post “This ability for service operations to produce profitable growth has raised the importance of service in the eyes of the executive team, from a cost containment tool to a growth engine for many businesses”.
Every parts supplier or service department with a parts counter has a system for managing their replacement parts. So why then do some companies have us singing their praises while others make us curse the experience?
It’s the system, silly
Surprisingly, some parts management systems are still pretty basic with a manual means of receiving, storing, retrieving and reordering parts. This is slow, inaccurate and prone to mistakes. So unless you have a superstar parts guy with a photographic memory who is personally overseeing your interaction, your experience is likely to be much like the system itself, slow and inaccurate.
Other parts management systems may be partially automated, or managed through personal spreadsheets of parts and service information that gets manually updated on an irregular schedule. These semi-automated systems help, but lack the consistency of data and the scalability to adapt to growing businesses. They also lack the capacity to be integrated system-wide on an enterprise level and fail to provide the immediacy of parts and service information needed to make timely repairs.
The parts management systems that are the most effective are those that are integrated on an enterprise level across the entire business unit and tied into the company’s ERP system so that mechanics, service technicians and parts managers can easily identify parts, see recommendations on related assembly parts, and have updates available to help improve service which ultimately improves equipment performance and uptime. These systems help service technicians quickly and accurately find, order, and install the right part for the piece of equipment.
Inefficient systems contribute to cost and complexity
Parts and Service managers relying on manual or semi-automated systems of parts management however are less efficient or accurate, adding to the complexity of the experience and costing more. Consider these points.
- Parts carrying costs: There is a cost associated with having a part in inventory. If too many of the same part are on the shelves, they increase warehouse costs. If too few are available, repair time is extended while parts are ordered, received and distributed. The trick is to accurately estimate the necessary parts to keep the fleet (or customers fleet) up and running without overstocking.
- Parts ordering costs: There is a cost associated with ordering parts. The less sophisticated the parts management system, the higher the per order cost of parts including finding the correct part, calling for availability, issuing a purchase order, shipping (or delivery), receiving, stocking, and order delivery. The fewer the steps or the more automated and accurate the system for delivering the information, the more cost efficient parts identification and ordering can be.
- Service update costs: There is a cost to keeping multiple service locations or multiple mobile service technicians up to date on the newest parts, part numbers, service bulletins, or service training information. Outdated service information causes the wrong parts to be ordered, extends repair times, and unhappy customers.
- Information distribution costs: There is a cost of keeping field technicians, service departments, mechanics and parts managers informed on critical parts and service information. Parts catalog production, printing (or even electronic media preparation like parts catalog CD’s), and distribution can be a costly endeavor. Especially when multiple locations, dealer networks or field service crews are involved.
- Parts mis-order costs: There is a cost to parts mis-orders, which are due in large part to information being inaccurate or outdated (see 4. Information distribution costs). Returns, reorders, and delayed time to repair are costly contributors to equipment repair or maintenance.
Whether you’re the OEM operating your own in-house service department, a dealership working with your OEM or an end user of a piece of complex equipment, running a less than optimum parts catalog system yields the same results. It takes more time, effort and money to keep the equipment running. You, your dealers or your customers pay inflated costs and get an unsatisfactory service experience.
Moving toward a new model
While some parts management teams try to implement one or more single point solutions (like adding more frequent parts catalog distributions, an easier ordering processes, or warehouse inventory improvements) to make parts and service management more organized and keep the high cost of parts management in check, a more holistic approach produces a better result.
A complete service management system is a new approach that is finding support in the service community. Just as Enterprise Resources Planning (ERP) consolidated the concept of business integration into a product lifecycle management type of structure, service lifecycle management (SLM) is now helping to bring together individually run yet related service units inside a service organization. It’s a cross-functional system that supports the service eco-system of a business that enables a full lifecycle approach to customer service and product performance. It optimizes the total value of the customer experience. And it’s how companies will learn to earn more service profitability.
InService EPC, Enigma’s electronic parts catalog is one of several service related software components that integrate together to form a stronger, more holistic service approach. We’re part of the burgeoning SLM concept designed, developed and now coming together under the PTC service lifecycle management approach.
According to University of Cambridge Professer and servitization expert Andy Nealy
, “[s]ervitization is the innovation of organisation’s capabilities and processes to better create mutual value through a shift from selling product to selling Product-Service Systems. A Product-Service System is an integrated product and service offering that delivers value in use. A Servitized Organisation designs, builds and delivers an integrated product and service offering that delivers value in use.”
Simply put, it is the process of adding services to a product. Especially important for complex equipment, servitization extends the value of a product throughout its entire life cycle, not just its initial purchase. It redefines the provider and customer relationship by transforming the traditional short-term transactional exchange of a product into a long-term relationship with service over the life of the product. Is servitization something new or was it here all along?
There are differing opinions when it comes to the emergence of servitization on the manufacturing scene. While some argue that servitization has long been part of manufacturing, others maintain it has been a recently observed phenomenon.
Indiana University Operations Management Professor Roger W. Schmenner
suggests that servitization has antecedents that go back 150 years but simply wasn’t an attractive revenue stream for some manufacturers with high production capabilities. It wasn’t their core competency. Schmenner says that “[t]he bundling of manufactured goods to downstream-available services was led by companies with new products but with no great manufacturing strengths, as a way to establish barriers to entry. Companies with significant manufacturing capabilities were not as quick or as complete in their integration of manufacturing and service.”
In a research paper, Baines, Lightfoot, Benedettini and Kay
say that “[i]n management related literature, servitization development is commonly traced back to the early 1990s. However, Davies et al. (2007) point out that the industrial marketing literature suggests that pioneering applications originated in the 1960s with the introduction of ‘systems selling’ strategies”.
Whichever theory you believe, long established practice or recent arrival, servitization is a topic that is spurring lively debate in the search for additional sources of revenue in the highly competitive manufacturing landscape. Is service revenue growing?
Much has been written about the growing aftermarket parts and service industry as it relates to complex equipment, including posts on our own blog (Complex Equipment and Aftermarket Support Are Like Peas and Carrots
). But is the idea of boundless service revenue fact or fiction?
According to a University of Cambridge research paper The Servitization of Manufacturing: Further Evidence
by Neely, Benedetinni and Visnjic, the scale of servitization is less remarkable than one might think. Their initial worldwide 2007 and subsequent 2011 estimates reveal that the number of “servitized” manufacturing firms stands unchanged at roughly 30%. The United States experiences the highest level of servitization with 58% in 2007 and 55% in 2011. China saw the most significant increase from less than 1% to 19%. With the exception of China, servitization worldwide doesn’t appear to be vastly or immediately reshaping the world.
While they report that “there have been widespread efforts to servitize,” they go on to describe the “servitization paradox” – that “some firms that have decided to servitize achieve superior financial results, while others achieve superior financial results remaining as a pure manufacturing firm.” Schmenner’s theory that highly proficient manufacturers don’t experience success in servitization may be one explanation for low adoption, but there’s more to the equation than is being considered. And that is the application of technology.Servitization at the center of convergence
Products, services, technology and manufacturing don’t operate in a vacuum. They are becoming increasingly connected at an amazing rate. It is at this point of convergence where servitization is poised to redefine how we structure the business models of manufacturing and aftermarket services. Manufacturers not willing to embrace and incorporate technology will find themselves at the shallow end of the servitization revenue pool.
Unlike traditional manufacturing, which has learned best production practices since the days of the industrial revolution, clear cut paths to successful servitization have not been as easy to find or follow. Big Data
, Performance Dashboards
, and Mobility
are just now emerging, establishing themselves as valuable tools in navigating the route to servitization success. Enigma's InService MRO
and InService EPC
have been leaders in defining that road map. We have developed tools that complex equipment manufacturers use to successfully extend, manage, and capitalize on aftermarket services. It’s the path that manufacturing has been searching for.
As PTC president and chief executive officer James Heppelmann relayed to customers at the company’s annual PTC Live Global
meeting, “The world of building stuff is being transformed into a world of building services tied to stuff.” Complex products, by their very nature will also contribute to the servitization of manufacturing. Complex equipment and the data they generate, collect and share through the Internet of Things
will become part of the service history that manufacturers will use to service their products through their full life cycle. This concept is bigger than us all individually. It is life altering.
Technology is the change agent in connecting the manufacturer of complex products with the aftermarket service of those products. As forward looking organizations like Enigma and PTC combine their expertise
, servitization will become more widely attainable, pushing the scale higher and opening new avenues of revenue for manufacturers.