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Manufacturers see competitive power in service excellence, IDC says

An IDC-Infor study reveals that more manufacturers are turning to service excellence as a revenue driver and customer strategy.

Service excellence is a fancy way of saying a company excels at meeting customer needs and providing reliable product service, maintenance and part replacement. Making a commitment to service excellence can result not just in greater customer satisfaction and retention, but also in significant revenue growth. In a recent survey sponsored by ERP vendor Infor and conducted by IDC Manufacturing Insights, manufacturing companies explained their interest in improving service excellence -- and what's standing in their way.

"There are two sides to it," said Simon Ellis, practice director of supply chain strategies for Framingham, Mass.-based IDC and one of the authors of the report.

"There's service, which is the degree to which I meet my customer service obligations and respond to customer concerns or problems. There are also services, which can mean selling machine time or services with those machines rather than the machines themselves; it's incremental revenue," he explained. "This focus on service is increasingly important to manufacturers across multiple segments."

Service excellence revenue rising

According to the survey titled From Products to Services: Service Excellence as a Strategy to Combat Market Uncertainty, U.S. heavy equipment manufacturers in 2009 saw their revenue from maintenance service and parts exceed that of the previous year, despite the fact that business was suffering in all other departments. By 2012, services made up 40% of heavy equipment manufacturers' revenues -- and they show no signs of slowing down.

Manufacturers have taken notice and are becoming acutely away of the business benefits of service excellence, according to the report. Many are making it part of their long-term strategies. Of the companies surveyed by IDC, 67% are looking to product service as a competitive differentiator. Additionally, 44% of respondents considered product service innovation as a key element of their business growth strategies.

"As the economy has been in a downturn, the ability for manufacturers to really fully capitalize on their markets is going to require getting into a much more service-oriented space," said Warren Smith, director of strategy for equipment and automotive at New York City-based Infor.

Service excellence requires data integration capabilities

Besides providing product and brand differentiation, companies surveyed were also interested in service excellence's potential to add top-line revenue, create new revenue opportunities and improve customer loyalty and satisfaction.

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A company that is dedicated to service excellence can tie this right into its ERP system by having the as-configured bill of materials -- down to the serial number -- in place during production and then forwarding that information into the service model, Smith explained. This allows the user of a piece of equipment to easily bring the equipment in for service. Such data integration also makes it easier to manage product warranty and regulatory information, as well as handle recalls if and when they happen.

"[As a manufacturer], after I sell a new piece of equipment, it's important to know that I have all the service parts to my dealer so I don't have that dealer turning to third-party sources for those parts -- that's where I'm making my money these days," Smith said. "Because the customer doesn't want to overpay, I need to work on a system that makes my labor highly efficient. Training and education going to a service agent to keep this equipment up and running is extremely important."

Getting management onboard with service excellence

Education shouldn't stop with service agents. The survey showed that 63% of companies believe that lack of top management's commitment and understanding is the biggest barrier to higher levels of service excellence. Insufficient investment in people and technology is close behind.

"Many of these businesses have grown up product-centric, so the notion of being service-centric is culturally foreign [to the managers]," Ellis explained. "[Manufacturers] need to look at best practices examples from these industries where companies have embraced service excellence. Also, go out and talk to customers and get a better feel of what their needs are."

Smith had some advice for manufacturers that want to improve their service excellence practices. First and foremost, it's essential to retain a solid relationship with the customer. Next, tie that customer information into an integrated engineering system and ensure it will be possible to provide services for equipment that is growing in complexity.

"For example, vehicles are really starting to adopt high technology, so an equipment manufacturer that may have been a great machinist now has to be able to overlay sensors and telematics into the vehicles or equipment," Smith said. "The [service] software needs to be able to support that overlay of high-tech on top of the manufacturing."

Ellis also has a tip for companies that are planning to revamp their service excellence plans. "The most important thing is if you're going to embark on such a mission, that you have the underlying capabilities," he said. "To move to a more service-centric approach, you've got to be able to deliver the goods. You need to meet those customer expectations."

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