The Development Trend of Servitization in Manufacturing

Servitization in manufacturing:

With the advent of the era of globalization and the knowledge economy, the deepening and specialization of the international division of labor has led to great changes and impacts on the overall global economic environment. 

Since the 1980s, along with the production of industrial products, more and more complementary services have been integrated into consumer products. Manufacturing industries have gradually expanded into service industries as well. With services being more and more integrated into industrial production methods, it is sometimes difficult to distinguish between manufacturing enterprises and service enterprises. If viewed from a country-by-country basis, the United States embedded services into manufactured goods early. The dependence of the manufacturing industry on the service industry has increased from 16% in the 1970s to 27% in the early 2000s. With the transition of manufacturing into the service industry, Organization for Economic Co-operation and Development countries reliance on manufacturing has also decreased, and service industries have grown.

The manufacturing and service industries impact each other. Investment in manufacturing can drive investment in service industries, as service industries support manufacturing production. This mutual influence has a positive impact on overall national economic development. Although there is still a gap between Taiwan's manufacturing industries and its emphasis on servitization, Taiwan is also changing and adjusting its industrial structure. 

Servitization of manufacturing is when product-centric manufacturing combines service value-added features with their products. Product differentiation through services that meet customer needs creates higher added value.

1. Services to expand the value chain
   Manufacturing companies consider the entire life cycle of products and services. They look at the services they provide to customers before, during and after the product purchase, and expand their services to the upstream and downstream of the value chain.
   • Product Extension Services:
     Product extension services apply when product ownership is transferred to the customer and manufacturing companies extend their services beyond the original manufacturing activities. Upstream to manufacturing there is a focus on R&D, procurement and customized production. Downstream there is a focus on customer needs, strengthening relationships with customers, increasing value to the customer through after-sales service, and expanding the customer base. Usually, these types of manufacturers will work with marketing companies to provide joint design, R&D, or customized production services to make product functions more in line with customer needs, or to provide downstream after-sales services.
   • Product Function Services:
     When product ownership remains in the hands of manufacturing companies, companies can provide a combination of products and services to the end user. Customers buy the functions of the product rather than the product itself, and only pay for the functions provided by the product, not the product itself. Examples of manufacturer product ownership include machinery leasing, car leasing, elevator maintenance, etc.
   • Integrated Solutions:
     Manufacturing enterprises provide customers with a complete set of solutions (including products, services, and systems). Manufacturing enterprises integrate multiple services or functions, and provide customers with innovative combinations of technology, products, and services to meet customers' demand for high-value products.
2. Derivative external services
   Enterprises leverage their product’s functions to create independent service business advantages. Their services extend beyond industry peers to reach non-peers (new customer groups) to maximize corporate value.
3. Service-led product manufacturing
   Manufacturing companies provide service-oriented products with specific features built in to meet customer needs.

Key elements of the development of manufacturing servitization:

• Servitization effectively provides tangible products and intangible services to meet the new needs of customers resulting from changes in the external environment; Manufacturers adjust their business methods to meet the needs of customers.
• Servitization effectively provides tangible products and intangible services to meet the new needs of customers resulting from changes in the external environment; Manufacturers adjust their business methods to meet the needs of customers.
• The development of the “product extension service model” in the value chain of Taiwan's manufacturing industry has been quite effective. In contrast, foreign manufacturers tend to favor the “integrated solution model” in the value chain expansion service model. This is mainly because Taiwan's manufacturing industry has traditionally been product-oriented. The transformation of manufacturing services has been mostly on the manufacturing and R&D side. Focus on services beyond the production stage will lead to the development of more service oriented "integrated solutions".
• The industry has a high degree of mastery of its professional technology and experience and adapts to the market demand to provide competitive service products. It will build on independent business units or departments to add services that will meet outside demands.
• The development of service-led product manufacturing simultaneously coordinates manufacturing and service markets.

Manufacturing and service transformation relies heavily on information and communication technology, and emerging digital technologies. Through process optimization and product and service innovation, companies can develop more competitive business models to continue industry growth.

In the aftermath of the US-China trade war and the COVID-19 outbreak, business operations and global economic development were greatly affected. Economic activities still face uncertainty, and to adapt to the new normal, companies will need to accelerate the pace of digital transformation. Digital transformation enables companies to maintain resilience and withstand external shocks caused by uncertainty. As the manufacturing industry focuses more on service, flexible service models through digital tools will help the market to cope with rising challenges.