The world is changing at an unprecedented rate. From technology, education, and healthcare, to energy, politics, and the economy – there’s hardly anything in life or business that’s staying stagnant. We’re experiencing demographic, economic, political and social changes that will serve as catalysts for massive transformation across diverse industries in the coming year, and this transformation is all thanks to the technological revolution that’s fundamentally altering the way we live, work, and communicate.
The scope and scale of this transformation will be like nothing we’ve ever experienced and will leave few industries and business functions untouched. But one critical business function that is ripe for transformation is after-sales service – the service original equipment manufacturers (OEMs) deliver after the initial sales of their products.
Service is the new product
Over the past several years, volatility in equipment orders, diminishing margins and decreasing new equipment sales have caused many OEMs to pause and evaluate their futures. Unfortunately, many are faced with uncertainty, forcing them to explore new business models and sources of revenue and profits. The more innovative manufacturers are shifting their focus from the new product side of their business to after-sales service, where margins are much higher.
In fact, McKinsey & Co. recently revealed that upwards of 15% of OEMs’ total revenues come from parts and service, while a Bain and Co. report suggested that service has an average gross margin of 39%, which is significantly higher than margins on most new manufactured products. So, as these product-based revenues decline and margins diminish in maturing industries like high-tech, aerospace, motor vehicles and consumer and industrial products, after-sales service margins remain healthy. Simply put, service revenue is more predictable, making it the attractive choice during these rapidly changing times.
With this shift in focus to after-sales service, 2018 is well positioned to be the breakout year for the transition from a break-fix service model to a model focused on maximizing product uptime. Fueled by factors like the aforementioned declining product margins, changing customer demands and declining tech costs, these accelerations are already gaining momentum on the service side of the house when it comes to finding new sources of revenue and profit.
In today’s changing world, though, product advancements alone will not enable manufacturers to gain or sustain the competitive differentiation needed to ensure long term financial performance. Shifting from a product-led growth strategy – which has sustained OEMs for many decades – to a service-led growth strategy will require OEMs to embrace change, think differently, act differently and embrace technology to completely transform their after-sales service functions.
And, transforming service into the new product can’t be achieved by simply doing the same things better. OEMs need to start viewing their service organizations through completely different lenses to remove the historical constraints limiting innovation and the speed of adoption. OEMs that build a culture around maximizing product uptime and delivering exceptional after-sales service experiences will be the early adopters of technology, and the first to start reaping the rewards.
Emerging technology & the race to uptime
Emerging technology is the biggest driver of what many are calling the Fourth Industrial Revolution, and manufacturers that adopt these new technologies will win the race to maximized product uptime. Advancements and solutions that tap into early detection equipment faults are the key to enabling OEMs to move parts and people where they’re needed to proactively perform repairs and avoid costly downtime. The key here is simple: The earlier an OEM can identify equipment problems, the better equipped they will be to drive the value they can deliver to their end customers.
Because of this, equipment uptime will become the new key performance indicators (KPI) consumers use to evaluate OEMs and the equipment they sell. Take the farming industry, for example: Today’s farmers are dealing with difficult commodity markets and razor-thin margins, and they simply can’t afford equipment downtime. As agricultural equipment technology advances, farmers will become more dependent on their combines to maximize crop yield. During an interview with Kansas City Public Radio, central Illinois farmer Len Corzine said “The most expensive time we have is if the combine has to stop or the corn planter has to stop. You know you’ve got to get it planted in a timely manner when your conditions are right and you know you’ve got to get it harvested.”
Now, think about driverless cars: When actually deployed at scale, self-driving vehicles will be transformative for a variety of industries. Juniper Research predicted that by 2025, there will be 20 million driverless cars on roads around the world, with them becoming popular in North America and Western Europe by 2021. For field service, specifically, this means that parts management software could be integrated into these driverless service vehicles, creating efficiencies in areas like fill rates, routing, technician prep, driver fatigue and even the number and maintenance of the vehicles in question.
Companies like Google, Volvo, Apple and Tesla are the kind of innovators leading the development of these driverless vehicles, but now it’s up to mainstream OEMs to keep up with these industry tycoons and successfully adopt these interconnected technologies into their after-sales service strategies. And while the hype associated with this emerging technology and AI advancements has increased exponentially over the past few decades, the technology is beginning to deliver real world value.
Technologies like AI and IoT will enable technicians to compare historical and current equipment states, proactively uncovering abnormalities which could lead to future equipment needs. By identifying these potential failures, service calls can be preemptively scheduled, and parts and materials can be moved to the right location to perform preventative repairs, avoid costly downtime, and maximize product uptime. This powerful combination of technologies will enable OEMs to transform their service parts supply chain from a costly and inefficient “just in case” model, to a highly efficient “just in time” model, where inventory levels are optimized and service parts fill rates are near 100 percent
OEMs’ after-sales service operations are ripe for massive transformation that will deliver significant value in terms of improved financial performance, operational efficiency and the lifetime value of customers, but this transformation can only be accomplished through investments in emerging technologies that are specifically designed to optimize the after-sales service supply chain.