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APICS Supply Chain Management Now

Achieving More Through Service

By APICS CEO Abe Eshkenazi, CSCP, CPA, CAE - June 07, 2013

 

Last week, the Financial Times ran the article "Manufacturers Reap the Benefits of Customer Service." The bottom line: In Europe, manufacturers are expanding their profitability by providing services as well as goods.

"A range of the continent's most successful manufacturers__from Siemens to Atlas Copco to Kone and SKF__now make as much as half of their sales and profits not from producing things but from providing services to their customers," writes Richard Milne, the Nordic correspondent for the publication.

These services include aftermarket parts, repairs, predictive maintenance, and more, and the payoff is clear. Take, for example, Marel, a food-processing-machine manufacturer in Iceland. In 2006, services represented only one-tenth of overall revenues. Now, services make up one-third of the company's revenues.

"Many European manufacturers who were battered by the financial crisis in 2008 and 2009 found that their revenues from services held steady or even increased," Milne writes. "And just as importantly, the services tend to have higher profit margins."

Atlas Copco is a Swedish mining equipment manufacturer. Services make up about 42 percent of revenues, but they make up 60 percent of the company's profits. That's because, according to Bain & Co. research, services can have margins that are four times higher than those of goods alone.
 
"Chief executives ... now talk about concepts such as total life cycle costs or guaranteed uptime for products such as windmills," Milne writes. "Both bring greater predictability and reliability for customers, a big selling point in tough economic times."

Creating value

Manufacturing's focus on service goes beyond Europe and stretches all over the world. John Deere's world headquarters is right here in Illinois. Earlier this year, Robert D. Boyle, a director at John Deere and chair of the APICS Board of Directors, explained his company's growing emphasis on service in a Supply Chain Brain article:

In order for businesses to succeed in an increasingly competitive marketplace, they must find news ways to add value. At John Deere, that means collaborating with dealers to expand the brand from selling equipment to offering solutions that improve the productivity of farming. For leaders in supply chain management, it means developing strategies that create value across the supply chain through innovation, responsiveness, and agility.

Boyle's words show that APICS leaders are carefully considering how service can influence businesses' strategic success. This idea also will be a driving concept at APICS 2013, where the theme is "The Supply Chain Experience: Leveraging the Power of the Customer."

This year's conference, September 29-October 1 in Orlando, Florida, will be a great opportunity for you to explore how to reinforce your organization's customer and service relationships. Find out more by visiting apics.org/conference.

 

 

Questions for discussion

 

 Does your company provide services as well as products? If so, are services a form of competitive advantage for your company? Why or why not?

 

 

 Are services an essential part of supply chain and operations management? Do they drive business success? Why or why not?

 

 

In other news

 

 

Related APICS education

  • A Sound Plan By Dave Turbide, CFPIM, CIRM, CSCP, CMfgE May/June 2013, APICS magazine
  • A New Plan for Your New Products By Ferose A. Lambay, CPIM, CSCP January/February 2013, APICS magazine
  • Boosting Your Service and Innovation by Philip E. Quigley, CFPIM, PMP May/June 2012, APICS magazine

 

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