What is Servitization?

Servitization is defined as the process of transformation wherein a business moves from a product-based business
model to that of a service-based model where consumers pay per-unit of service consumed; the organization still
holds rights to the product but is responsible for operating cost
Implications of Servitization on Supply Chain
Manufacturing companies shifts from ‘product provision’ to ‘product capability’ and the associated
service provision
• Centralizing production but keeping services custom
• Becoming ‘less agile’ for products but ‘very agile’ for advanced services

Spare parts and associated services are available as they become more critical to service provision
• Redesign spare parts network by reviewing positioning of inventory

Roles and Requirements of Workforce change

• Ensure employees are relationship builders who are flexible to customer needs

Manufacturers can remain the owner of the product

• Take responsibility of reverse logistics and waste management such that the organisation remains owner
of the product cycle

Source: DHL White Paper on Servitization

Benefits and Challenges of Servitization
Benefits Challenges

• Organisations keep ownership of the systems while being • Change in an organization can be difficult given the
responsible for the operating costs; it incentivizes the complexity of processes within said organizations
organisation to think long-term in terms of designing an • Change in mindset of employees from product-focused to
efficient product customer-focused takes time (training) and investment
• As part of McKinsey’s research, Servitization deters product • Timescale: organizations need to manage multi-year
switching i.e., organisations are more likely to focus on partnerships, control long term risk while transitioning and
existing products (thereby improving them) instead of need to understand bottom-line implications
venturing into newer products • In order to shift to customer-focused operations, developing
• Organizations are able to offer a connected operations new capabilities and delivering value will be imperative
solution i.e., the company has remote access to the product
to send updates, partake in analytics and perform remote
diagnostics
• Servitization also helps from a sustainability perspective,
contributing to systemic efficiency and decarbonization
• Example: Signify (Philips lighting) allowed consumers
to pay for the light they use and leave
equipment/maintenance to Signify through their
‘light-as-a-service’ product (LaaS)

Source: Zensar Paper

Examples
Desso-Tarkett is a flooring company that has a business model in which they remain ownership over the flooring
and take care of it after usage. They do this mainly because they have noticed that a long lifetime is rarely reached,
and customer get rid of their flooring before this period.

Signify -Philips lightning- is an example of Light-as-a-Service in which you pay for lux or light intensity. The data
on provided light can also be used to find out where the light has burned most, this can then be used to
determine when to clean certain rooms. This can in turn save costs.

Rolls-Royce provides power-by-the-hour (they sell ‘thrust’) to increase the service component. With the use of
sensors they are able provide preventative maintenance and consequently increase up-time.

Xerox started with the pay-per-print business model in which they monitor the use of their products to provide
solid customer feedback, and provide maintenance services to lengthen the lifespan of the product and keep up
the performance over time.

Kuka sell robot-services to automotive companies (like automated welding); they proactively deliver maintenance,
which results in less malfunctions and overall downtime of the production facility. This is especially important in
high volume, high cost production lines, in which one wrong weld can lead to rejected products.

Source: Firmhouse.com