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'Dramatic Shift' to Services Boosts Manufacturers' Profits

As economic uncertainty grips economies throughout the world, some manufacturers are overhauling their business models to boost profits and solidify customer relationships. So rather than just producing products as jet engines, air conditioners, or elevators, the companies are marrying their capital goods with long-term bundled service contracts and altering their lean supply chains to keep pace.

"Manufacturers are being drawn closer to their customers with this dramatic shift to services, and this is causing companies to integrate many of the previously separate IT components, such as ERP and CRM systems," says John Barcus, Oracle vice president of manufacturing and asset intensive industries.

Early adopters of this product-with-services approach are integrating the technologies to handle everything from sales and contract management to spare parts deliveries and technician scheduling. "Some studies have shown the best practitioners have seen a 43 percent increase in revenue per technician, compared with industry averages", Barcus says. "Profits for these pioneers have risen as much as 128 percent", he adds.

"The other benefit, which is just as important, is these companies essentially lock in the customer for the longer term, since they are pretty much dependent on the service because it's saving them significant costs," he says.

In a reflection of the lean philosophy of minimizing waste by automating essential processes, the product-with-service connection sends an electronic signal to a manufacturer's service hub when the refrigerator at a convenience store, for example, is on the verge of failing. The store manager doesn't spend time thinking about refrigerator maintenance, let along contending with gallons of spoiled milk.

Oracle is working with various industry verticals to provide applications to help interpret and manage the service-delivery process and end-user experience.

"Systems like this are especially important during an economic downturn," Barcus says. "They're able to help [end users] minimize their costs and focus on the things that really drive their businesses."

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