It’s no secret the world is changing, and it’s changing fast. Everything from technology, education, health, energy and the economy – there is hardly anything in business (or life) that is not evolving. And, it’s all happening very fast, perhaps even faster than our ability to learn and adapt.
A big part of this change includes evolving customer expectations. Today’s customers expect quick, reliable service on demand. For manufacturers, this especially impacts after-sales service. The status quo is no longer sufficient, and companies must invest in human capital and new technologies and business practices to succeed.
So, how can manufacturers adapt to these major social, demographic and economic trends, while still increasing customer satisfaction and improving financial performance? Redefine service.
After-sales service is becoming an increasingly important and strategic focus area for manufacturers around the world. There is more interest in the space than ever, as senior executives understand the value that exceptional service experiences can bring to a company’s financial performance.
Recent studies from multiple third-party research organizations support this clear opportunity, suggesting that after-sales service is critical to the success of manufacturers’ long-term financial performance. A report from management consulting firm Bain & Co. suggested service averages a gross margin of 39%, which is much higher than margins on most new products (27%). The study also revealed manufacturing companies’ service business grew by nine percent annually, compared to a five percent growth rate captured on the product side of the business.
Moving into 2018 and beyond, manufacturers have two key focus areas to fully optimize their after-sales service organizations to succeed in today’s changing world:
Move beyond the status quo.
Currently, manufacturers base after-sales service predominantly on a break-fix model, which centers on reactively replacing parts after they have failed and leads manufacturers and dealers to keep a large variety of service parts in inventory in an effort to avoid long customer wait-times. This “just-in-case” way of doing business most often leads to excess stock – creating overhead that negatively impacts the bottom line. To succeed, manufacturers must invest in both human capital and technology to fully optimize the service supply chain. While Microsoft Excel spreadsheets and legacy enterprise resource planning (ERP) systems may have been helpful for managing service parts inventory and pricing in the past, using these outdated, cumbersome tools is no longer an effective way to do business.
Cloud-based service parts management solutions help manufacturers increase both margins and revenue from after-sales service and easily integrate into existing ERP systems, allowing manufacturers to track service parts, eliminate excess and obsolete stock and forecast when new parts are needed. These practices are critical for meeting customer delivery expectations and maintaining an edge over both direct competitors and third-party e-commerce sites. Beyond keeping products in the right place at the right time, service parts inventory management technology also reduces carrying costs.
It may seem obvious that selling a service part for the optimal price is critical to increasing revenue and boosting profit margins, but too many manufacturers are still using outdated methods like cost-plus or simple spreadsheets. Making the switch to modern service parts pricing technologies can increase service revenues by as much as five percent, and gross profit margins by upwards of seven percent. These advanced technologies incorporate data from customers, competitors, IoT platforms and other legacy systems to create the optimal price – ensuring the manufacturer is maximizing margins while simultaneously ensuring the end customer has a great experience.
Shift from the transactional, break-fix model to subscription-based product uptime
Customer expectations are changing, the manufacturing sector is consolidating and new sales of durable goods are fluctuating. Additionally, disruption from companies like Amazon, millennials in the workforce and new emerging technologies are creating a significant business opportunity for manufacturers, and it’s time for them to capitalize.
More customers than ever are requiring service level agreements (SLAs), which often guarantee product uptime – or proactively repairing equipment before it fails. It’s becoming more important than ever to ensure downtime is minimized (or preferably eliminated) to improve the customer experience and maximize revenue. This requires manufacturers to move from a break-fix, reactive model of service to subscription-based uptime guarantee.
In this uptime world, there is much more emphasis on predictive maintenance, smart parts, remote performance and more. Service organizations should be aware of common failure points and identify strategies on how to best guarantee maximized product uptime and customer satisfaction if they want to hit the ground running in 2018.
Manufacturers need to equip staff, as well as invest in modern technologies, to exceed changing customer expectations. And, seamless integrations between IoT platforms, field service management systems and legacy ERP solutions with advanced after-sales service solutions are key to success.
Maximizing product uptime isn’t necessarily a new thought, but it does require a new way of thinking. Manufacturers that properly leverage IoT and advanced after-sales service technologies will be well equipped to succeed in this new way of doing business, edging out the competition and improving both financial performance and the overall customer experience.