Servitization & the Future of Logistics



I attended the DHL Regional Engineering & Manufacturing Conference 'Rise to the Challenge' this week at the National Convention Centre in Birmingham. Seventy delegates from DHL customers were there to share best practice around logistics for the manufacturing industry.

In his opening address, Eamon McMahon VP Engineering & Manufacturing Sector EMEA referenced a recent study by KPMG which found that 77% of surveyed UK CEOs are worried about the relevance of their products or services three years from now. Eamon also shared direct quotes showing how some of these CEOs who are leading manufacturing businesses have recognised the need to think about how technological innovations, big data and the internet of things are providing opportunities to develop new business models:

“By the year 2000, some two billion gigabytes of data had been accumulated worldwide. Today, the same volume of information is generated in a single day. […] Siemens was one of the first companies to identify the opportunities provided by the megatrends […] and to rigorously align its business activities accordingly.” – Joe Kaeser, President and CEO Siemens

Manufacturers are realising that in order to develop sustainable revenue streams and exploit their advantage as the innovators of complex products in order to fend off the threat of disruptors entering their markets, they need to harness technology and data to enable them to become much more responsive to customer demand, understand their 'job to be done' and provide a combination of products and services that meet this need.

These services are designed to improve the efficiency and effectiveness of the customer's use of the product, their wider business processes or their entire value network. MAN Truck & Bus UK, for example, focuses on the customer's 'job to be done' which is moving goods from A to B, and provides services to help them do this with minimum hassle and most efficiently, such as managed repair and maintenance, driver behaviour assessment and training (using data capture) and route optimisation.

This is know as servitization; my colleague Dr Ali Bigdeli spoke about this at the conference.

So what does this trend of manufacturers increasingly delivering services mean for the logistics industry?

The core concept of servitization is that manufacturers develop a much closer relationship with the customer. They generally have outcome-based contracts with performance measurement and KPIs that reflect the needs of the customer. They often guarantee 'uptime' or 'mobility' and can be penalised if their products don't operate to contractual agreements. They use data to monitor the performance of their products, predict and schedule maintenance and identify unexpected failures likely to lead to breakdown.


Logistics plays a critical part in enabling the manufacturer to deliver these outcomes:

Availability and distribution of stock becomes even more critical under an advanced services contract: If a manufacturer is guaranteeing product availability (and potentially has financial penalty clauses in its contract if the product is not operational) then they need a responsive and reliable logistics infrastructure to ensure they can carry out repairs as quickly as possible.

Secondly, many manufacturers have also found that successful delivery of advanced services is enabled by facilities that are co-located and distributed throughout customers' operations (ref: Made to Serve). Proximity aids responsiveness: localised facilities enable quicker fault diagnosis and speed of repair, impacting on product availability.

Proximity also increases reliability: stronger relationships are built between the manufacturer and customer at the level of day-to-day operations, enabling the manufacturer to witness and improve their understanding of how the user operates the product. This knowledge can be used to modify the design or make recommendations about product operation.

At the conference yesterday, Dr Klaus Fischer, Project Leader at Airbus, described how his company had installed a final assembly line in Mobile, Alabama in order to be closer and more responsive to its customers in North America. This is in addition to the 11 production plants, 4 engineering centres, 5 training centres, 10 materials and logistics centres and 3 other final assembly lines that it already has distributed around the world.

Manufacturers that are competing in this way need significant logistical support from a responsive partner who understands the business model they are operating, to ensure all of these decentralised facilities are supplied with the parts they need.

The key learning point for logistics providers:

Logistics providers need to recognise that their manufacturing customers are responding to threats from technology-enabled disruptors by changing the way they do business; manufacturers are becoming more knowledgeable of, ingrained into, and responsive to, their customer's businesses.

Logistics providers need to do the same for their manufacturing customers, in order to safeguard themselves against the technology-enabled disruptors (the likes of Uber Freight for example) in their own industry.

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Eleanor Musson is a servitization and advanced services specialist and manages partnerships with global businesses interested in adopting services. Find out here how to be involved with her research. More here about some of the courses and training available on this subject.


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