Transition from solution providers to service providers

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What is a Service provider and what are the benefits?

This post will discuss the possibility  for service companies of creating stable revenue with a high margin of profit and build a closer relationship within their customers. 

The combination of OEM and service offerings

Original Equipment Manufacturers (OEM) are very common in all industries and they generate their value, creating different solutions for their manufacturer clients. In today’s world OEM´s know that they need to focus more on their service offerings. New business models are emerging from these new service offerings which means that a lot of traditional businesses need to transform their current product portfolio.

New service business models are partly enabled by advances in Information and Communication Technologies (ICT) and big data with the connectivity of capital equipment that provides for remote diagnostics and smart solutions like new technologies as wireless vibration sensors. Moving from being a manufacturer to a solution provider is a huge transformation where attention shift from product to focusing on customer needs and service.

Why you should have a Service provider?

The service provider enables OEM companies to:

1. Have more focus on their core business.

2. Embrace the technological push and increase the importance of adaptability.

3.Improve balance sheet and assets.

NEW TECHNOLOGICAL STRATEGY

In a competitive environment, product and service offerings are a key to survive. Physical products can´t create all the value alone but the product function and the brand can complete the process. The focus has been moved from selling the product to selling services that create customer value. To be able to handle the advanced technological push companies abandoned low levels of technology partners moving forward to specialized services companies. Not only production but also product development, being externally sourced at an increasing rate to fewer and larger sources that supply complete production process solutions.

Another reason for the OEM to consider outsourcing is to become more flexible and responsive to technological and market changes. History shows the dangers of being tied up by investments in technologies, which become obsolete through radical innovations.

Technology can affect structures and can drive collaborations. In the past years’ multiple components, systems, and whole processes have been sourced externally from other companies in order to have the best service within their process managed by experts.

However, to be a solution provider, the supplier must develop not only the manufactured product and basic services but also a business model offering the functional performance of the product, and eventually run the process for the customer.

Examples of Original Equipment Manufacturers (OEM)

An example can be external companies running some of the services:

Example of Connecting machine health & manpower in condition-based monitoring can be seen in (Hexastate CONNECT) solution:

Predictive maintenance solution Hexastate
Hexastate delivers vibration sensors and software for understanding these vibrations.

 Where the sensor is placed on machinery then the data is sent on a cloud and is analyzed by software, the results are shown in a short time and an easier interface for technicians to understand and use this data fast and effectively.

If you want to know how Hexastate can help OEMs become more focused on Service, please contact us here. If  you want to discuss anything related to the above-mentioned article, please do not hesitate to strike a line.

For more information about the topic mentioned above, check the links below containing our sources and a deeper dive into servitization:

Karlsson, C., Stjernqvist, P., & Frandsen, T. (2018). Becoming a Solution Provider: Integrating in the Customer Process: The Case of Equipment Producers and Trackunit as Enabler. Frederiksberg: Copenhagen Business School, CBS.

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