Measuring the exact value that manufacturers have the potential to create when they offer services with their products is hard to pin point but understanding and solving the problems your customers need to confront may be where your firm’s future profitability lies.
A new Cambridge Service Alliance paper by Florian Urmetzer, Andy Neely and Veronica Martinez 'Engineering Services: Unpacking Value Exchange', explains how firms can define value and how the manufacturer and the customer need to work together to solve the problems presented which may vary at different stages of the business cycle.
In a new podcast Dr Florian Urmetzer, a Senior Research Associate, explains how value is defined in modern manufacturing processes and why more and more firms are providing services alongside traditional product offerings but how they in turn need to be more in tune with their customer’s needs.
He says:'Value is a very complex concept to grasp, the problem realistically is that what is value to me is not necessarily value to you. Value is not really a tangible concept. I can perceive value, but when I realise as a manger my company gets certain value out of a service contract or by buying a product I can start managing around it, however often it is intangible and not really discussed. It is a very complicated concept, but if I am a manufacturer I can create value and this value can in turn get captured by the customer to help me create better services the customer values. In its simplicity form this could be customer feedback.'
Dr Urmetzer goes on to explain how sales staff and maintenance engineers can work together to capture this value: 'There can be discussions back and forth with the sales teams and the service engineers on the ground, and if you capture this information you can improve your processes and create better value for your customer.'
Understanding the business model of your customer is crucial if you are going to form a closer working relationship. 'If you understand the business model and you understand the problems of your customer then you can move the customer very much closer to you,' says Dr Urmetzer. 'If the customer has the feeling you really understand him you have the opportunity to create future business. It creates a lot of loyalty. If people are responsive and understand my business and they understand my business cycle and pain points, and I see that they can help me to run my business better, it is a big plus for me as a customer.'
Indirect value can also be measured says Dr Urmetzer: 'We have started to talk about indirect value in terms of what you bring to the table. If you can make your customer look good, you are creating value for managers internally and also for the firm. With these associations things do get more complex, value is hard to define, but management should be trying to visualise, map and understand this, and how they can bring that value into the company.
'With customer feedback, for example, there are a lot of suggestions as to how you can help your customer run their businesses better. It is a kind of present from your customer, they might tell you they want their bills to be better presented, if you take on board that feedback and change the way you bill, it is more complex, it is more work, but companies with happy customers will be more committed to doing business with you in the future.'
Dr Urmetzer, gives the example of how using new technology you can monitor closely the use of equipment. In quarries manufacturers can see the problems truck drivers have to confront. 'So for instance a gear change with a truck in a quarry will use more fuel, and you might want to improve the holes in the roads too, so if you make changes to the roads, and there is less need for gear changes, your trucks consume less fuel.'
In conclusion, Dr Urmetzer says, innovation and capturing the value of any change is an essential part of the manufacturing process these days. 'It is really a win, win situation where the process of production gets more efficient by combining capabilities and optimising these capabilities.'
He says many manufacturing firms are now taking on board these concepts of value: 'Servitization is getting more and more mainstreamed. At the Cambridge Service Alliance we get a lot of requests from customers’ as well unexpected manufacturers who are thinking at least of strategising in the area of Servitization.'