As new product sales continue to wane worldwide, it’s clear that manufacturers need to start shifting their focus from solely selling products to selling the usage of those products to stay competitive. This shift is known as servitization – and it’s completely revolutionizing the way we buy and consume everything from clothing to cars to construction equipment. The true marker of success in this new way of doing business is going to lie in original equipment manufacturers (OEMs) ability to balance a dual focus: optimizing inventory in today’s current business model and preparing for future business models built to sell products as a service. But why the need to do both, simultaneously?
Optimizing Inventory Funds Transformation
There are two main reasons for OEMs to prioritize the optimizing inventory. For starters, OEMs need to tune their parts supply chain so that they can deliver high fill rate levels. Think: right part, right place, right time. Why is this important? Simply put, there are multiple activities that depend on part availability; from the technicians, to the service window, to the end-customer – all of those things depend on the part being available. The need to develop an after-sales service parts supply chain that can perform at that high level is crucial to overall inventory optimization.
But, besides increasing fill rates, the other motivation to optimize inventory is to fund the journey to servitization. The shift to selling products as a service is not a business transformation that will happen overnight, and in many cases, it’s not the financially attractive choice right off the bat. It’s going to take a large investment on the part of the OEM to make servitization business models a reality.
But, at the end of the day, economic shifts are proving that initial product sales aren’t going to cut it to meet revenue expectations anymore, making after-sales service a stronger financial lever for manufacturers than ever before. And with that lever, companies can leverage optimized inventory to help fund the journey toward servitization.
Reinvesting Stock into Servitization
Just about any shift in business strategy requires additional funding – a fact that’s caused many manufacturers to keep operating in the same way they have for decades. But the funds required to make servitization a reality could actually be hidden within the four walls of their own businesses. For example, by using an advanced inventory management system to pull unnecessary safety stock out, OEMs can achieve the liquidity and the financial performance necessary to fund new projects (read: servitization-related business models) without having to request additional funding.
The recuperation of inventory value not only gives OEMs the ability to optimize replenishment lead times so that parts can move more quickly through the system, but the ability to reinvest excess stock to deliver even higher fill rates for critical parts. Through this, OEMs can adjust their balance and selectively increase fill rate based on identified critical part paths without having to raise any initial inventory investment. Ultimately, by simultaneously optimizing inventory and thinking proactively about future investments, they’ll be achieving all of their goals faster, while getting the most out of their stock at the same time.
Why Change Today is Crucial for Success Tomorrow
There are a number of reasons why changing the way inventory is managed can make a difference in OEMs’ overall performance. Say they’re only capturing a small percentage of aftermarket parts sales – or say they’re in a dealer relationship where the dealer is going elsewhere for parts due to competitive reasons either because the parts are priced wrong or they’re just simply not available. Or, say they’re losing business because the factory part is always on back order and their dealers are forced to find a more reliable supplier – these are all things that can be improved by an optimized inventory system.
But, at the end of the day, if OEMs are still managing their inventory through manual, homegrown spreadsheets instead of intelligent service parts planning solutions, they’re missing out on the opportunity to improve liquidity to free up funding for their future operations. And, in an industry where competition is fierce and customer approval is even fiercer, OEMs are going to need to take everything they can get to stay ahead in tomorrow’s evolving consumer landscape.
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Interested in learning more about how to start your journey toward better inventory optimization for your organization? Reach out to us today to speak to an expert about how you can get started with an intelligent inventory management solution that meets the needs of your business today and will evolve with you into the future.