The majority of companies that deal in manufacturing goods tend to overlook the service sector. According to a recent research conducted by Deloitte, this is putting their entire line of work at risk. This is because such manufacturing firms face stiff competition from businesses that offer lower cost solutions to customers. Other reasons include the supply chain becoming more complicated to navigate pretty much all over the world, as well as the ever increasing demands of the modern consumer.
The Results of The Study
One of the things that the recently conducted research did was that it put a number on how much the services provided by manufacturing firms are worth. These services bring in a global revenue of about one and a half trillion dollars every year. That is an enormous pie, so it is understandable that the researchers highly recommend all manufacturing firms to try and get a piece of it. In fact, the research went so far as to imply that the most successful manufacturing companies out there are in fact earning a full half of their revenue from providing services to their customers. On average, manufacturing companies earn a quarter of their revenue from services.
There is a reason that the most successful manufacturing companies earn half of their revenue from services. Services are generally a lot more profitable than pretty much any other aspect of the manufacturing business. To put a number on it, services earn seventy five percent more revenue. If you do the math you can see why businesses that get more revenue from services would be earning a lot more profit than those businesses that avoid getting into the services side of things.
Problems Currently Being Faced
One of the more striking statements presented in the study from Deloitte was that the viability of the manufacturing industry as a whole comes from the services sector. This is because a lot of manufacturing companies depend on service provision, otherwise they wouldn’t be nearly as profitable as they currently are. Businesses that provide a lot of services grow ten percent faster than businesses that don’t. The most service oriented of these businesses, the top quarter to be precise, grow at almost double the rate of all of their non service oriented competitors. Half of currently operating manufacturing companies are not earning enough profit to make the initial investment worthwhile. Providing services can help them get past the finish line in this regard.
The problem isn’t just that a lot of manufacturing companies aren’t offering services. Many of them are, but their services division is just not given as much attention as all of the other disparate parts of their enterprise. Over sixty percent of manufacturing companies have service divisions that are growing at a crawl when compared to the rampant overinvestment that other areas of the company are seeing, in spite of the fact that they are not nearly as profitable.
After sales services is clearly being underplayed, but the after sales spare part business is also being criminally ignored by manufacturing companies. Spare parts are always going to be an essential aspect of the business, and they serve as an opportunity to earn incredible profits from people that have bought your products anyway. Many manufacturers don’t offer spare parts because it is an ostensible admission of the fallibility of their products. They may be loath to admit it, but the products they are manufacturing are definitely going to break down at some point. Profiting from this inevitability is only smart business and nothing else.
One of the authors of the study states that the service sector should be thoroughly conjoined with manufacturing. The benefits of providing services does not just benefit companies in terms of increased revenue and profits. It is also a way of staying competitive in our increasingly challenging market. Customers like to work as little as possible, and they like instant gratification. Hence, purchasing their products from a manufacturing company that would also provide services is something that gives customers more value for their money in their eyes.
Why It Hasn’t Happened Yet
Upon reading all of this, one might wonder why more manufacturers aren’t jumping on the service sector bandwagon. One of the major reasons is that many of them don’t realize how beneficial, and frankly necessary, service provision is. Their assumption is that manufacturing is their main concern, so that is where their focus should lie, and that if they focus on just manufacturing all the other components of their business will handle themselves. Another possible reason is that they don’t quite know how to implement services. This can be handled through a customer support software like Kayako and the ticketing system it offers which can help organize requests for services and streamline the whole process.
Many manufacturing companies also just don’t have the kind of work environment that would be suited to services. They have operated for years with the manufacturing aspect of the company serving as its backbone and incorporating services into their corporate culture at this point might seem to them a huge waste of time. However, there are examples of companies that changed the way they do business in order to take advantage of the way things have changed in the world. Siemens AG Medical Solutions is a good example of a manufacturing business that has shown renewed interest in providing after sale services.
Another problem that prevents companies from providing services is the fact that their customers are often all over the world. Providing services means having boots on the ground, service centers and other facilities. Opening up such facilities in every location they have customers in will be prohibitively expensive for manufacturing companies. That being said, this is another problem that has been solved by a company. Caterpillar Inc has customers in every part of the world, and they manage to deliver spare parts to them within twenty four hours. Their methodology can be studied by companies struggling to do the same.
Read moreWhy Manufacturers Should Also Become Service Providers