Supply chain antecedents of servitization: A study in ETO machinery companies

Abstract

Nowadays, manufacturers are increasingly shifting towards Product Service Systems (PSS) by accommodating servitization. Whereas a fair body of research investigates the effect of servitization on the product supply chain, studies on the impact of the supply chain on the company's service offerings are scarce and reveal controversial results. In this paper, we aim to clarify the latter relationship by studying the impact of three supply chain features on servitization within three Engineer-To-Order (ETO) machinery Small- and Medium-sized Enterprises (SMEs). First, our results reveal that companies located downstream in the product supply chain exhibit higher servitization levels. Second, the level of customization, represented by the position of the Customer Order Decoupling Point (CODP) in the supply chain, and the company's servitization level seem to be unrelated. Whereas it is true that higher product customization, per se, enables companies to offer more services around the product, the operational challenges encountered because of higher customization levels can lead companies to deliberately reduce their menus of services to the customer. Third, higher levels of vertical integration support the provision of basic services because companies have more control on supplies required for services such as maintenance and repair. Companies with low levels of vertical integration cannot provide the speed and responsiveness required for basic services, but can still offer advances services, provided that they engage in strong collaboration with their suppliers. Thus, with this work, we highlight the extent to which product supply chains can support or inhibit the servitization endeavours of ETO companies.