Monday 24 June 2013

Manufacturers to adopt servitization to continue boosting the UK economy

Britain's strengthening manufacturing sector helped industrial output increase by more than expected, adding to signs that the recovery is gaining traction.

Manufacturing output accounts for 7% of the UK economy. This sector rose more than predicted by 1.1% following a 0.7% increase in February according to the Office for National Statistics (ONS).

This boost to the economy comes as companies ramped up production of basic materials and overseas demand increased for UK equipment and machinery, suggesting that a weaker pound has made British exports more attractive.

Although economists hailed the figures as "stunning", most said the sector still faced significant discharge from a declining Eurozone economy and faltering growth in emerging nations such as China and Brazil.

However, a study from Aston University and Xerox reveals that early adopters of ‘servitization’ can drive annual growth by 10%.

Servitization is the concept of adding technology-led services to manufacturing, and by doing so has the potential to represent 50% of a company’s revenue. Servitization reduces costs up to 30% for manufacturing customers by aiding those to simplify business operations and streamline labour-intensive processes. Examples of servitization range from the delivery of spare parts to product maintenance repair and overhaul.

Despite the cost saving displayed to participants in the study, servitization has failed to generate a widespread awareness in the UK market.  Companies are failing to understand that the combination of manufacturing and service can re-shape the future of UK manufacturing, benefiting them in the long haul.

The qualitative study revealed several perceived barriers to the adoption of servitization, including lack of skills and concerns around budgets, processes, legislation and contracts. Therefore the report calls for businesses to encourage skills, contracting structures, risk management mechanisms and financing systems that will allow companies to deliver services while building their capabilities and utilise innovative technology along the way.