Strategies For Manufacturing Servitization Of Korean SMEs: By Using Data Envelopment Analysis

Abstract

This study examines the efficiency of Korean manufacturing SMEs through data envelopment analysis. We divide business processes into support activities (e.g., business management and product planning) and primary activities (e.g., production and sales and after-sales services) to measure the efficiency of each process by product module. Moreover, we verify the effect of manufacturing servitization by comparing between the efficiency of servitized and non-servitized firms. The result shows that support activities are generally more efficient than primary activities and that standardized mass production with option (module 2) and totally customized production (module 4) is more efficient than either standardized mass production without option (module 1) or customized assembly after standardized production (module 3). The results suggest that, as SMEs are small, they have an advantage in support activities but also lack production and sales channel infrastructure. Moreover, modules 2 and 4 are relatively efficient because they can increase their product values via product differentiation. In addition, servitized firms are more efficient than non-servitized firms in almost every process and module, implying that servitization in manufacturing is an effective way to improve product value. Finally, module 1 and the production process are relatively inefficient, while servitized firms have higher efficiency scores than do non servitized firms. Likewise, module 3 and sales and after-sales services are relatively inefficient, while servitized firms have higher efficiency scores than do non servitized firms. There results imply that servitization can be used by Korean manufacturing SMEs to develop efficiently and effectively.