Untapped Revenue Source – Aftermarket

In environments of increasingly fierce competition, manufacturers are looking to capture new ways in which to gain a competitive advantage in the marketplace. They recognize the goal of operations strategy is to position and differentiate itself more effectively by providing increased flexibility—well-designed business models that move and keep the manufacturer ahead of its competitors—through market intelligence and periodic invention and reinvention of process, talent, and culture.

Total Value-Chain

These manufactures continuously review and dissect the total value-chain in which they participate in their chosen markets—analyzing all inputs and outputs—removing any activity to improve process flexibility. From suppliers, to production, to logistics, this detailed operational analysis allows them to discover and offer new service offerings that its competitors will find hard to follow and duplicate—allowing the advantages of positioning and differentiation to further extent.

Demand-Pull Strategy

These manufacturers recognize that strategic flexibility resides within their customers’ product lifecycle and the ability to deliver products and services at each stage—based on changes from customer preferences. Instead of a push-demand strategy of guessing or designing services that nobody wants, they form ties closer to the end-user to understand what happens when products are used.

For example, Hi-Teck Inc (HTI) manufacture's electronic HVAC systems. Their business model strives to match or anticipate its customers’ preferences by collecting and tracking the users-voice by being on-site when the equipment is operating. This business model of ‘operator-product observation’ allowed HTI to design and deliver an aftermarket offering, which led to substantial increases in revenue and profit.

Aftermarket is the Key

HTI discovered their customers were experiencing slowdowns and downtimes due its products. This information was fed back into the organization, so HTIs leaders could focus on root-cause and possible designs changes. Within any industry, machines and equipment have a life-span, and parts and components wear-out and need replacement. So, HTI collaborated with its customers and designed and delivered a preventative and predictive maintenance program.

The financial benefits to HTI and its customers are numerous, but the three main areas are:

1. Reduced warranty claims and disputes

2. Reduced field failure and downtime

3. Reduced complaints and technical support calls

Other key areas that resulted from the preventative and predictive maintenance program are:

*Improved product brand image—customers are more likely to provide positive reviews and referrals.

*Improved statements—HTI and its customers can experience higher levels of fiscal performance.

*Increased throughput—equipment operates longer and at peak efficiencies.

*Optimized resource allocation—employees have more time; they are not processing as many claims.

*Improved relations—employee morale improves, along with trust and respect between HTI and its customers.

*Increased engagements—recognize other sales opportunities for cross-sell and up-sell.

*Better planning—Aftermarket programs can be offered as an annual service contract.

The entry cost into the Aftermarket is determined by the scale and scope of a manufacturers’ customers, as well as other competitive and market factors. The ramp-up of such a program cab be difficult and time consuming, and requires technical and managerial resources in equipment diagnostics/repair, parts replacement inventory, maintenance management system, eCatalogs/eCommerce, and fleet dispatch/logistics management.

A calculated ROI is possible because an Aftermarket strategy is designed with a set of processes and a measurement system—it is long-term that requires on-going evaluation and commitment. To minimize risk and costs, a pilot project offered to one or two customers would provide enough data to support a complete roll-out decision and its effect on the manufacture. HTI performed such an experiment and earned a 42% profit margin from one customer—replacements parts and after-hour support command premium pricing.

If properly designed and executed, the Aftermarket is a segment where manufacturers can gain a significant advantage over rivals. The sophisticated nature of a program is such that it is difficult for competitors to replicate because it requires high skill-levels in machine maintenance and customer service, especially if the Aftermarket program offers a 24/7 support-line.

Operations strategy concerns itself with building manufacturing flexibility—the ability to change in response to changing customer preferences. The Aftermarket is a segment that is gaining attention because it is when end-users are in-contact with products—and end-users are the VOC.

Don’t allow your business to fall-behind as a result of inaction—rather—reinvent and prosper.

Hartwig Consulting

© 2019 by Kurt  H Hartwig