Tuesday, May 20, 2008
Consutancy report on SERVATION.
(and what's SERVATION- see earlier blogs)
http://www.deloitte.com/dtt/cda/doc/content/dtt_manufacturing_ServiceRevolutionInGlobalManufacturing012006.pdf
Deloitte Research: "The Service Revolution in Global Manufacturing Industries"
A Report by the Indian School of Business, New York University, Purdue University, and Deloitte Research
includes
Executive Summary..................................................................
Driving Profitable Growth Through the Service Business......
The role of the service business in global industries..............
The impact on profitability and growth................................
Building a Block-Buster Business Through Service Excellence: Challenges and Opportunities.
Strategy and business design: Laying the foundation..
Operations planning and management: Enabling service excellence..
Execution: Delivering service excellence one customer at a time..
Leapfrogging through process collaboration and technology maturity...
Why Now: Chasing the Changing Basis of Competition in Manufacturing....
“... Manufacturers are
looking for growth and profits in all corners of the globe, but
they often neglect the very large opportunities much closer to
home—in their own service businesses.1
Confronted by low-cost competitors, the escalating complexity
of their global supply chains, and ever-increasing customer
demands, manufacturers ignoring the needs of the service
business do so at their peril.2 As the basis of competition in
manufacturing continues its shift towards service excellence—
the ability to drive business performance through excellence
in service and parts management—they are effectively putting
their entire business models at risk.
Over the last year, we have benchmarked the service
businesses of many of the world’s largest manufacturing
companies with combined revenues reaching more than
US$1.5 trillion. In industries ranging from aerospace and
defense and automotive to high technology and diversified
manufacturing, we have studied the strategies, operations, and
processes, as well as the tools and technologies being adopted
to drive service excellence. By exploring the factors underlying
success, we are able to provide a perspective on the challenges
and opportunities for building and sustaining profitable growth
through excellence in service and parts management.
Across the manufacturing companies we have benchmarked,
services revenues today represent an average of more than
25 percent of the total business. In many companies, as for
Rolls-Royce plc and Xerox Corporation, the service business
contributes 50 percent or more of total revenues.
Even more importantly, the average profitability of the service
businesses benchmarked is more than 75 percent higher
than overall business unit profitability, and accounts for an
estimated 46 percent of total profits generated today.
In fact, in many manufacturing companies there would be little or no
profitability without the service business.
Our analysis suggests the untapped potential for growing
profits through the service business is immense. But most
companies fail to grow their service business. More than
two-thirds (67 percent) of companies are growing their service
businesses at the same rate as, or slower than, their overall
business. In essence, they are managing a high growth
potential “star” business as a slow-growth “cash cow.” The
median company benchmarked secures only 40 percent of
the after-sales service market and 75 percent of the aftersales
spare parts market in servicing its own installed base of
products (the “captive market”). For many companies, such
as automotive original equipment manufacturers (OEMs),
these shares are often much lower. In addition, only a few
OEMs have made significant inroads in servicing “non-captive”
customers—a market that is typically 2 to 10 times larger than
the captive market.
The challenges are many:
• In strategy and business design, most companies
struggle to build the foundation for service excellence.
Few have sufficient insight into the barriers and
opportunities for driving profitable growth through
services, which makes it difficult, at best, to develop the
right strategies, identify the right priorities and invest
sufficiently in the service business. Yet some companies,
such as Siemens AG Medical Solutions, make the service
business central to their corporate strategy: they design
the service business around customer requirements in
order to drive customer satisfaction, loyalty and business
performance.
• In operations planning and management, companies
with complex service operations—those with thousands or
hundreds of thousands of parts, services that need to be
delivered around the clock and often in remote parts of the
world, and service lifecycles that can stretch for decades—
often lack the capabilities to realize service excellence. The
experiences of some of the world’s leading manufacturing
companies, such as Caterpillar, show that persistent
investment in, and focus on, improving the service and
logistics operations can drive outstanding customer service,
resulting in enhanced customer loyalty and a foundation
for profitable growth.
• In execution, the “last mile” to the customer where
battles for customer loyalty are won or lost, the majority
of companies are still unable to provide customers with
excellent and cost-effective service. Overall, our analysis
of the benchmark results suggest that customers are likely
to get exactly what they want, at the right time and place,
less than 75 percent of the time—a dismal performance
in a global economy where customers have more options
and more information than ever before to prompt a switch
to competitors’ products and services. Ensuring service
excellence, however, is core to the business model for
many companies, such as Hyundai Motor Company and
Kia Motors Corporation, where service guarantees, such
as extended warranties, are an essential part of the value
provided to the consumer.
There are great opportunities for companies to improve
what should be an engine for profitable growth in many or
most manufacturing organizations. Some companies are
championing the service revolution to drive performance.
Twenty-five percent of the benchmarked companies report an
on-time delivery performance to customers of 96 percent or
higher. Caterpillar—with more than 600,000 spare parts, and
an installed base of equipment that often needs service for 40
years or longer—is able to ship its customers exactly what they
want, within just 24 hours, 99.7 percent of the time.
While the challenges are numerous, our research suggests that
companies can make strategic and operational investments in
processes and technologies that will enable them to leapfrog
the competition and drive continuous improvement in the
operational and financial performance of their global service
businesses.
With profitability and growth levels in many cases far
exceeding the main business, it is abundantly clear that the
service revolution in global manufacturing is well underway.
For most manufacturers, it is now a matter of effectively
embracing the service revolution or risking being left behind.
Deloitte Research—The Service Revolution in Global Manufacturing Industries
For many of the world’s largest manufacturers, aftermarket
service and parts operations essentially define the business.
For example, for Rolls-Royce, one of the world’s largest jet
engine and gas turbine makers, service revenue is about 55
percent of the more than US$11 billion in total revenues;6
and for Xerox Corporation, the US$16 billion technology and
services giant, post-sale and other service revenues amount to
more than 65 percent of total sales....."
.
2 For more on the global trends in manufacturing, innovation, and supply
chain management, see e.g. Deloitte Research, Mastering Complexity in
Global Manufacturing: Powering Profits and Growth through Value Chain
Synchronization (New York and London: 2003); Deloitte Research, Mastering
Innovation: Exploiting Ideas for Profitable Growth (New York: 2004); and
Deloitte Research, Unlocking the Value of Globalization: Profiting through
Continuous Optimization (New York and London: 2005).
To learn more about the Global Benchmark Program, visit the Web site www.deloitte.com/serviceandpartsmanagement
www.deloitte.com/us.
© Copyright 2006 Deloitte Development LLC. All rights reserved.
(and what's SERVATION- see earlier blogs)
http://www.deloitte.com/dtt/cda/doc/content/dtt_manufacturing_ServiceRevolutionInGlobalManufacturing012006.pdf
Deloitte Research: "The Service Revolution in Global Manufacturing Industries"
A Report by the Indian School of Business, New York University, Purdue University, and Deloitte Research
includes
Executive Summary..................................................................
Driving Profitable Growth Through the Service Business......
The role of the service business in global industries..............
The impact on profitability and growth................................
Building a Block-Buster Business Through Service Excellence: Challenges and Opportunities.
Strategy and business design: Laying the foundation..
Operations planning and management: Enabling service excellence..
Execution: Delivering service excellence one customer at a time..
Leapfrogging through process collaboration and technology maturity...
Why Now: Chasing the Changing Basis of Competition in Manufacturing....
“... Manufacturers are
looking for growth and profits in all corners of the globe, but
they often neglect the very large opportunities much closer to
home—in their own service businesses.1
Confronted by low-cost competitors, the escalating complexity
of their global supply chains, and ever-increasing customer
demands, manufacturers ignoring the needs of the service
business do so at their peril.2 As the basis of competition in
manufacturing continues its shift towards service excellence—
the ability to drive business performance through excellence
in service and parts management—they are effectively putting
their entire business models at risk.
Over the last year, we have benchmarked the service
businesses of many of the world’s largest manufacturing
companies with combined revenues reaching more than
US$1.5 trillion. In industries ranging from aerospace and
defense and automotive to high technology and diversified
manufacturing, we have studied the strategies, operations, and
processes, as well as the tools and technologies being adopted
to drive service excellence. By exploring the factors underlying
success, we are able to provide a perspective on the challenges
and opportunities for building and sustaining profitable growth
through excellence in service and parts management.
Across the manufacturing companies we have benchmarked,
services revenues today represent an average of more than
25 percent of the total business. In many companies, as for
Rolls-Royce plc and Xerox Corporation, the service business
contributes 50 percent or more of total revenues.
Even more importantly, the average profitability of the service
businesses benchmarked is more than 75 percent higher
than overall business unit profitability, and accounts for an
estimated 46 percent of total profits generated today.
In fact, in many manufacturing companies there would be little or no
profitability without the service business.
Our analysis suggests the untapped potential for growing
profits through the service business is immense. But most
companies fail to grow their service business. More than
two-thirds (67 percent) of companies are growing their service
businesses at the same rate as, or slower than, their overall
business. In essence, they are managing a high growth
potential “star” business as a slow-growth “cash cow.” The
median company benchmarked secures only 40 percent of
the after-sales service market and 75 percent of the aftersales
spare parts market in servicing its own installed base of
products (the “captive market”). For many companies, such
as automotive original equipment manufacturers (OEMs),
these shares are often much lower. In addition, only a few
OEMs have made significant inroads in servicing “non-captive”
customers—a market that is typically 2 to 10 times larger than
the captive market.
The challenges are many:
• In strategy and business design, most companies
struggle to build the foundation for service excellence.
Few have sufficient insight into the barriers and
opportunities for driving profitable growth through
services, which makes it difficult, at best, to develop the
right strategies, identify the right priorities and invest
sufficiently in the service business. Yet some companies,
such as Siemens AG Medical Solutions, make the service
business central to their corporate strategy: they design
the service business around customer requirements in
order to drive customer satisfaction, loyalty and business
performance.
• In operations planning and management, companies
with complex service operations—those with thousands or
hundreds of thousands of parts, services that need to be
delivered around the clock and often in remote parts of the
world, and service lifecycles that can stretch for decades—
often lack the capabilities to realize service excellence. The
experiences of some of the world’s leading manufacturing
companies, such as Caterpillar, show that persistent
investment in, and focus on, improving the service and
logistics operations can drive outstanding customer service,
resulting in enhanced customer loyalty and a foundation
for profitable growth.
• In execution, the “last mile” to the customer where
battles for customer loyalty are won or lost, the majority
of companies are still unable to provide customers with
excellent and cost-effective service. Overall, our analysis
of the benchmark results suggest that customers are likely
to get exactly what they want, at the right time and place,
less than 75 percent of the time—a dismal performance
in a global economy where customers have more options
and more information than ever before to prompt a switch
to competitors’ products and services. Ensuring service
excellence, however, is core to the business model for
many companies, such as Hyundai Motor Company and
Kia Motors Corporation, where service guarantees, such
as extended warranties, are an essential part of the value
provided to the consumer.
There are great opportunities for companies to improve
what should be an engine for profitable growth in many or
most manufacturing organizations. Some companies are
championing the service revolution to drive performance.
Twenty-five percent of the benchmarked companies report an
on-time delivery performance to customers of 96 percent or
higher. Caterpillar—with more than 600,000 spare parts, and
an installed base of equipment that often needs service for 40
years or longer—is able to ship its customers exactly what they
want, within just 24 hours, 99.7 percent of the time.
While the challenges are numerous, our research suggests that
companies can make strategic and operational investments in
processes and technologies that will enable them to leapfrog
the competition and drive continuous improvement in the
operational and financial performance of their global service
businesses.
- • First, companies can adopt collaborative processes across the service supply chain, from suppliers tocustomers, that are well-documented, proven, and ready for implementation. Indeed, our analysis indicates a strong relationship between the level of implementation of processes—such as collaborative planning, forecasting,and replenishment with customers—with the benefits achieved from the implementation. Across the service businesses benchmarked, the more extensive the level ofimplementation, the higher the benefits reported fromadoption of key processes. Volkswagen AG experiencedfirst-hand in its North American operations the benefits of implementing robust processes for service partsmanagement. It drove dramatic improvements in customerorder fill rates over just six months while reducing annual cost by over US$25 million.
- • Second, information systems for designing, planning,managing and executing the service and parts businessare maturing rapidly and can now support most of therequirements of even the world’s largest and most complex service businesses. These systems are no longer the weaklinks on the road to service excellence that they were 5,10, or 20 years ago. In fact, without sufficient technologysupport it will be increasingly difficult, if not impossible,to manage and optimize the service business as customerrequirements increase and the service business grows morecomplex. While adoption rates are still abysmally low inmany areas, our analysis points toward a strong correlationbetween information systems implementation and benefitsachieved. Some companies, such as Rolls-Royce, arecapitalizing on improved technology, sometimes going beyond what would have been thought possible just a few years back.
With profitability and growth levels in many cases far
exceeding the main business, it is abundantly clear that the
service revolution in global manufacturing is well underway.
For most manufacturers, it is now a matter of effectively
embracing the service revolution or risking being left behind.
Deloitte Research—The Service Revolution in Global Manufacturing Industries
For many of the world’s largest manufacturers, aftermarket
service and parts operations essentially define the business.
For example, for Rolls-Royce, one of the world’s largest jet
engine and gas turbine makers, service revenue is about 55
percent of the more than US$11 billion in total revenues;6
and for Xerox Corporation, the US$16 billion technology and
services giant, post-sale and other service revenues amount to
more than 65 percent of total sales....."
.
2 For more on the global trends in manufacturing, innovation, and supply
chain management, see e.g. Deloitte Research, Mastering Complexity in
Global Manufacturing: Powering Profits and Growth through Value Chain
Synchronization (New York and London: 2003); Deloitte Research, Mastering
Innovation: Exploiting Ideas for Profitable Growth (New York: 2004); and
Deloitte Research, Unlocking the Value of Globalization: Profiting through
Continuous Optimization (New York and London: 2005).
To learn more about the Global Benchmark Program, visit the Web site www.deloitte.com/serviceandpartsmanagement
www.deloitte.com/us.
© Copyright 2006 Deloitte Development LLC. All rights reserved.
