Maximizing availability of a machine and outcome-based equipment is where higher stage of evolution of servitization happens. With emergence of IoT, Cloud and Mobile devices and their commoditization, companies are realizing it is possible to get use case data to generate condition monitoring, field services and engineering help desk. Heavy equipment manufacturers like CAT or Atlas Capco and many more have deployed remote tracking and monitoring services as a part of their aftersales services. Remote equipment tracking is not only used for preventive maintenance scheduling, but also in obtaining data on field use and productivity. Armed with advanced technologies companies are offering their equipment on pay per use or per output basis. Companies with advanced technologies including IoT, machine analytics, etc to monitor operations, including service agreements & availability contracts.
Key in the transformation from manufacturer to servitization partner is preparing the company to traverse from product supplier, outsourced agency to managed partner. Companies face several challenges in follow through a servitization strategy. Smart companies see servitization as a marathon not as a sprint and pursue a four-legged approach.
First step is to realize the areas where servitization would be pursued. Monetization opportunities of installed base opens up avenues for servitization strategies. Key is to start small. Identify parts where the cost of service is a significant part of the total cost of ownership and “downtime” costs have huge business implications. Products that need to calibrated regularly to meet regulatory requirements are also ideal candidates. For companies wishing to pursue product-based opportunity it is better to start with a single product. Initiate necessary investments to pursue asset recovery or asset availability programs. Safer to starts with rotary parts contracts. Realizing servitization benefits will require capability development in not just technical areas (product related MTBF, etc), but also in customer engagement and IT. Customer relationship moves beyond point of sales. Capabilities to assess customer expectation of service provision and balance of risk and rewards is what is required to stay relevant. Investments in field service software and help desk increases your ability to offer first time right services. IT enabling field service will help break the silos and improve transparency. Successful Servitization programs requires rewiring the organization. Sales and services teams may be integrated, aftersales parts and service may be tightly aligned. Supply chains may need to automated an optimized. Systems to pair service parts inventory and price management may be required to provide logical and automated next steps for maintenance & repair. KRA/KPI may have to be relooked to ensure common objectives, incentives may have to be redesigned to integrate sales and services. Important cog in the wheel of servitization is change in the culture of organization. Changing the mindset and the capabilities of the company from sell and forget to delivering services and solutions requires strong commitment from the leadership and appropriate mechanisms to institutionalize service orientation. The big challenge is to move to data driven organization. Connecting field service and other areas would provide detailed insights into warranty program, design capabilities and engineering maturity of a company. Investments made for servitization can offer useful insights on the product configurations deployed in field, over-or under- engineering of parts, opportunity to sell an extended warranty, features used and unused and so on. The ability to breaking down the silos across teams and using data to drive “service” revenue maximization is the biggest challenge companies face. This may also require managing geographically dispersed and culturally different distribution network of partners. Smarter companies are deploying skunk teams or holacracy and other approaches to drive the results. In essence, Servitization is a transformation journey. Plan ahead and focus on execution.
Dr TR Madan Mohan
]]>The biggest cause for lack of proper after-sales service is that many organizations have no proper service strategy aligned with their organizational goals. Many adopt the concept of “Outsourcing of parts logistics” without realizing the zone of conflicts it can create and the impact. The idea to make cost efficient parts supply and distribution is appreciated, but this doesn’t synchronize with the field customer service. Worst part, is that various divisions work at loggerheads within the organization, causing a lack of cohesion between the field service and parts supply. The parts and service aspect of an automotive organization go hand-in-hand.
More than 60% of parts per vehicle, on an average, are out-sourced by the OEMs from individual parts supplier. In order to avoid risk, OEMs develop 4-5 vendors per part when 2-3 vendors are more than sufficient. This policy of the OEM forces these suppliers to supply in the open market to increase revenues. Moreover, Parts supply and parts sales in open market are more profitable than sales through the respective OEMs. This inevitably leads to revenue loss from services for the OEM.
Product development regulations are pretty high in developed nations, leading to high quality. Hence, minimum levels of Standard Operating Procedures (SOP) for service are adequate to ensure there is no cause for complaint from consumers. When the same SOPs are implemented in the Indian market, it leads to service failure due to the lower quality of components. When the foreign culture of highly reliable and innovative product doesn’t exist in the cost conscious Indian automotive industry, then why does the after-sales service strategy and policy remain the same for both the markets?
With a specialized mechanic in every corner of the street providing service at cheaper rates and the availability of cheaper spare parts in grey market, the dealership revenues are in doldrums. The automation and IT infra-structure connecting the OEM and dealerships is not robust and not fool-proof. Moreover, the revenue generating model for the dealerships is not very sustainable in the long-run especially during economically low periods, considering the huge infrastructure investment made by each dealership of an OEM. All these factors induce the dealer to purchase from grey market and eventually, a loss for the OEM occurs.
The Indian Automotive Industry is moving towards technology saturation. There is no substantial product variation, especially in terms of technology. Brand differentiation can only be improved through an effective and efficient after-sales service channel. Issues such as development and implementation of a sustainable after-sales strategy, with focus on number of parts suppliers, India centric SOPs for service, and not outsourcing the parts logistics, are just tip of the iceberg issues that need to be grappled with. There needs to be a well thought out and integrated service strategy specific to local markets, since it is a substantial revenue stream that will improve bottom line and help companies tide out the troughs in sales!!!
Bangaru Vignesh
Junior Consultant – Marketing & Strategy
]]>While aftermarket revenues could contribute an upward 30-50% of existing revenues, many OEMs are not prepared to gain from it. Most OEMs fail to meet their service level agreement which subsequently leads to decrease in customer loyalty and negative word of mouth. Why does this happen? It is simply because they do not manage their weakest link in the chain, dealers.
The major reasons why dealers fail to deliver an effective after-market service. One is the lack of agency and incentive alignment. Dealers find managing post-sale operations cumbersome and are just happy to skim the revenue from fresh sales only. Many dealers lack the necessary skilled resources, inventory but just gloss over service commitment. Secondly, Lack of comprehensive supply chain management, and ineffective SOPs from OEMs compound the matter further. So it is quite common to see customers waiting for a free vehicle pick up promised by OEM and also an unreachable dealer service desk. Customers planning to drop their vehicles at dealer showrooms and catch their Monday morning work schedule, beware! You may end up waiting in the lobby for hours. Dealers of many world class OEMs are woefully short of qualified human resources. Spare parts unavailability or delay in shipping spare parts is a common problem. Lo, that is not the end of agony, even after getting the vehicle well past the promised delivery date; customer must be prepared to see recurrence of earlier complaints or some new larger issue surfacing after the service.
What is the way out for OEMs? Incentivize service and parts business for your dealer. Invest in basic training and evaluation of dealer staff across after-cycle process. Invest in your own resources not just at sales cycle but at after-service cycle also. Manage parts availability and protect grey market penetration.
If you are a dealer, bring down the walls within your organization. Too many departments working at loggerhead with each other does not help you. Ensure information flow & communication happens seamlessly and data visibility is high. Adopt SOPs as they help you to know the productivity and revenue generation opportunities you may be currently missing. Training and employee engagement is very crucial to effectively gain cost advantage. Drivers, technicians, bay engineers must be incentivized for ownership, initiative and quality of outcome.
Banu Priya P
Junior Consultant – Marketing