Key market trends like global competition, access to data and a growing focus on customer experience are driving a movement toward service-based supply-chain models. 

However, these models can require changes to business strategy, product design, supply-chain operations and employee training and mindset — all of which can be blamed for slow adoption. Access to data needed to support service models is a significant challenge, too.

Determining which service-based offerings make sense for your company, and how to deliver those offerings, requires clear strategic and product alignment, critical capabilities development and an agile development cycle. 

There are three servitization models to consider:

• Product-based: Services built on and closely related to the manufacturer’s product
• Output-based: Delivers the output that is of value to the customer 
• Outcome-based: Delivers what the end customer requires

Four Steps to Servitization 

1. Identify service opportunities and define strategy. Identify the market opportunity for services, define what servitization means for your company, and understand how that aligns with your supply-chain goals.
2. Define services portfolio and operating model. Your services portfolio and related end-to-end processes should be defined to form a foundation for your future services and go-to-market approach. Define the supply-chain operating model and capabilities required to support your portfolio.
3. Conduct proof of concept. Define the supply-chain elements to be tested in proof-of-concept — including data and analytics — to evaluate services and ensure they can be supported.
4. Validate roadmap. Consolidate concepts and models into action items supported by a business plan and future-state roadmap. Ensure the supply-chain operating model and capabilities are properly represented; investment and initiatives for development are defined; and roadmap for action is achievable.

By adopting this approach, the supply chain is a full partner to the development process and can help contribute to the success and benefits anticipated with servitization — including increased revenues, better production utilization, lower logistics costs and higher customer responsiveness.

Outlook 

Growing demand from customers for solution-based offerings — and greater access to data required to create them — will drive an increase in servitization business models. Companies looking to adopt will use systematic approaches to align offerings, develop capabilities and test services to successfully bring them to market.

Andy Prinz is managing consultant at PA Consulting.