How is it possible for a manufacturer of engineered products to 4X your sales without having to find any new customers?
Watch this video to learn:
- The remarkable research evidence from recognised industry sources to back up our claim
- How manufacturing service maturity drives customer value, business longevity, profitability and more
- What service transformation actually looks like, in practice, for engineering manufacturers
- Examples of well-known manufacturing service champions and inspirational case histories
This is the second video in a 3-part video series. To watch the 1st video in the series, click here.
Hello, I’m Adrian Botham of Servispart Consulting and I’d like to welcome you to this 2nd video, of a 3-part series.
If you’ve not watched the first video yet, which was titled “Manufacturing Services – A Contradiction in Terms or Missed Opportunity?”, then I recommend you go and watch that video first before coming back to this one.
Don’t worry, I’ll still be here when you get back and this video will make a lot more sense than if you just jump in here.
In this video, I’m going to be explaining how it is possible for you to 4X your sales without having to find any new customers.
I’ll also be explaining what’s involved in you doing this, the benefits enjoyed by companies that are already doing this and what the benefits might be for you.
Before I get to that though, let’s just take a minute to have a quick recap of what we covered last time.
Recap of the last video
Firstly, we talked about what a manufacturer actually does and the challenges they face today.
We then joked about the 1980s and talked about how a business generates sustainable value for its customers.
And we talked about differentiation, how the kind of differentiation shifts as a product market matures and how most of the advanced manufacturing sectors today have reached the service innovation stage, where customer service is a primary source of revenue, profit growth and competitive advantage.
Lastly, we examined a typical lifecycle for a piece of equipment in order to explore the various service opportunities available for a manufacturer.
In particular, I mentioned how extracting the maximum share of this revenue for your company involves establishing an ongoing relationship with your customers and taking a holistic view of service, coupled to product performance.
I’ll come back to this in a minute, but before I do, I want to look at the business case for services a little more closely.
How to 4X your sales – the business case for services
Gartner, a well-known research firm, recently did some work on the manufacturing industry.
And they found that, on average, aftermarket services account for 24% of total revenues of a manufacturing business, but 40% to 80% of its total profits!
In a similar research study, it was discovered that value-added services can yield 10x to 30x the return from Original Equipment sales.
And yet, despite these benefits, manufacturers are capturing only 25% of their customer’s total spend on their products and services.
So firstly, how does your business compare against these averages?
And secondly, with such a compelling opportunity on offer, to potentially 4X your sales and achieve the unimaginable with your profits, you need to ask yourself the question are you really making the most of your aftermarket?
Manufacturing service maturity
When we talked in the last video about the service lifecycle, I showed lots of examples of services a manufacturer could offer.
All manufacturers start at the bottom of the maturity staircase, focused entirely on making and selling products, only offering the kind of services that are obligatory such as warranty.
As they develop, manufacturers start offering related products and services to boost margins at the Point of Sale.
They might also start offering spares and repairs into the aftermarket to support their products.
As a manufacturer matures further, you start to recognise service as a differentiator and offer reactive aftermarket services to repair customer products with a guaranteed response time.
As you get even closer to the customer, manufacturers start to differentiate by leading with their service offering rather than the product, offering proactive, preventative maintenance contracts based on availability or uptime.
And at stage 5, your customers no longer own your product, receiving a pure service instead, where you product comes bundled in.
Here the focus is on capability to perform, risk sharing, etc.
Getting to the top of the service maturity staircase, is a paradigm shift for most manufacturers, but when done correctly, it can deliver strong revenues, profits and business longevity.
Now that you know the 5 levels of manufacturing service maturity, how mature is your business?
Your business doesn’t have to be at the same level of maturity for all your products, customer groups, markets or divisions.
Flexibility to operate at different levels for different customer groups is useful, because different customers want different things for different reasons.
Ideally though, you should always be seeking to migrate your customers up the staircase towards higher levels if at all possible, because that generates greater value for them and greater profitability for you.
Examples of manufacturing service champions
Here are 2 examples of companies that have been investing in their service capabilities for a number of years now and are quite well advanced in their service transformation.
BAE Systems operates in the defence sector across air, land, sea and cyber domains.
Rolls-Royce is best known for its civil and defence aero engines but it also operates in industrial power, nuclear and marine sectors
Both are generating a significant proportion of their sales from services:
- In the case of BAE Systems, they are generating 40% to 80%, in various geographies.
- Whereas R-R are generating 30% to 60%, including in a number of non-aerospace sectors.
Also notice that both are generating healthy returns on sales despite huge cost pressures for their products.
In both of these examples, the companies have not just grown their business faster, defended against product commoditisation and shrinking product margins.
They have also leveraged aftermarket services as a means of accessing a greater share of their customer’s spend.
Service benefits when you 4X your sales
I’ve now mentioned a lot of different benefits from growing your service business in the last two videos, so I’d just like to summarise them for you under some key headings.
For customers – there are clear benefits in terms of cost savings, improved performance and better service.
Your products benefit from the additional customer service touch-points and opportunity to gather usage and performance data.
Services create new revenue streams for manufacturers and an opportunity to participate in lifecycle management and customer value optimisation.
Greater business longevity is achieved via longer-term service contracts, customer retention and involvement throughout the product lifecycle.
And ultimately, manufacturers benefit from higher margins; stability and visibility of future profits and order book; and of a higher earnings/equity multiple.
Which will be of interest to any of you thinking of selling your business in a few years time, floating on the stock market or looking for a promotion!
Before I conclude this video, I’d like to share a couple of case histories with you.
Case history 1 – Aerospace OEM
One of the key programmes along the service transformation journey at BAE Systems was this one, called Tornado ATTAC.
This was the first ever whole-aircraft availability contract, taking BAE Systems from position 2 on the service maturity staircase I showed earlier, to position 4.
As you can see, the benefits for the OEM and its customer, the Ministry of Defence, were considerable.
By the way, these benefits were independently verified by the NAO in its report “Transforming Logistics Support for Fast Jets.”
Ian King, who was the Group Managing Director at the time was so impressed by the benefits of this programme that he rolled out the same methods and approach to all of BAE’s other aircraft platforms.
As a result, BAE Systems went on to win more long-term service contracts worth more than £5 billion over the next few years.
How could availability contracting and improvements like these impact your business?
Case history 2 – Automotive parts distributor
In case your wondering, it’s not just OEMs that can benefit from aftermarket capability development.
In this case, the key thing stopping the business from growing was its service parts planning system.
Once the business leaders knew that, they replaced it, unlocking the incredible financial benefits you see here.
If you were able to do something similar for your business, what would a sales increase of 38% or doubling of profits mean for your company and you personally?
Both of the case histories I’ve just shown you are available for download on our website if you want to know more.
They also share something else in common, which is that both opportunities were unlocked with a remarkable aftermarket growth method.
Coming up in the next video…
In my last video in this 3-part series, I’ll be introducing you to the powerful aftermarket growth method that your competitors don’t want you to know about.
It’s the method that we’ve been introducing others to for a while now and has delivered remarkable results like I’ve shown you today.
Everyone who’s seen it and used it so far, has loved it so much, they wanted to own it for themselves and stop everyone else having it.
When you join me next time, I’ll be revealing:
- What that aftermarket growth method actually is.
- What the financial benefits of it could be for you.
- And I’ll be explaining how you can access the method to put it to work in your business very quickly.
That’s it for this video.
I hope you’ve enjoyed as much as the first.
Please leave me your comments and questions below as we always love to receive your feedback.
Look out for our 3rd and last video in this series – it’ll be on its way to you very soon.
Thanks for watching, see you next time!