Aftermarket parts and service operations have been around just as long as manufacturing has, yet manufacturers still experience aftermarket growth obstacles when they come to implement their aftermarket service growth strategies.
Our research highlights a number of obstacles, some of which are of an environmental nature (external to the business) but most of which are internal to the business and largely historical.
The good news is that these obstacles can be overcome and the leading manufacturers of today, across a wide range of manufactured equipment sectors, are already finding ways to do this.
They are achieving dramatic results, not just for their own businesses, but their customers too and it’s entirely feasible for you and your business to do likewise.
Aftermarket Delivers More ROI Than Manufacturing
The return on investment experienced by manufacturers when they focus on developing their aftermarket capabilities has been well documented.
On average, aftermarket accounts for 24% of total revenues of a manufacturing business but 40% to 80% of its total profits.
Despite this, many of today’s manufacturers treat there aftermarket business as an afterthought and must therefore start investing more into developing their aftermarket capabilities, as much as they do their manufacturing capabilities, if they wish to grow overall revenues and profits.
Aftermarket Growth Obstacles Are Mostly Internal
Pursuing the aftermarket growth opportunity sounds like a no-brainer for manufacturers so why aren’t more manufacturers making the most of it?
Evidence suggests a number of historical factors are present in manufacturing firms.
Much like a smoker who says they want to give up smoking but can’t, manufacturing firms have developed their own habits that have become ingrained over time.
The first step to overcoming their challenges is to recognise them for what they are and face up to them.
So let’s examine the five aftermarket growth obstacles in a bit more detail.
1. Manufacturing Dominance
In most manufacturing businesses, aftermarket is known as “the poor relation.”
Even in large corporate OEMs with large, apparently well-established parts and service businesses, this is still the case.
I’ll even go as far as to say that, after more than three decades of working in the manufacturing industry in multiple engineering sectors, I am yet to find a manufacturing business where aftermarket has equal status with manufacturing.
Manufacturing is always dominant, even when the manufacturing side struggles to break even and it is the aftermarket that makes the lion’s share of the profit to keep the business alive.
2. Organisational Structure
With the dominance of manufacturing, aftermarket struggles for equal recognition in what is principally an engineering business.
Manufacturing businesses attract engineers and employees who love the product, first and foremost.
These people rise to the top of the organisation (if not already the owner/entrepreneur) and the cultural cycle of focusing on making stuff continues.
Whilst these types of leaders are obviously necessary in a manufacturing business, their core competences are in designing, making, selling and distributing products.
Service related competences such as customer experience management, customer loyalty and total service solutions come less easily to them.
3. Financial Structure
Limiting organisation structures often drive limiting financial autonomy for the aftermarket business.
In many manufacturers, even the larger corporates, aftermarket is still treated as a cost centre rather than a profit centre.
This focuses attention on cost down strategies rather than profit expansion strategies that are more common with profit centres.
This also goes a long way to explain why investment in aftermarket capability and aftermarket growth is constrained despite it making higher profit margins than manufacturing.
4. Aftermarket Operations
Without the focus and investment in aftermarket, it often has to make do with the same information systems used for manufacturing.
This impacts on the business processes, data and skills available to the aftermarket business causing limited competitiveness, poor quality information and lower customer value generation than would otherwise be the case.
Many manufacturers invested in Enterprise Resource Planning (ERP) systems in the run up to the millennium and are now at the point where they need to upgrade their systems to the latest cloud-based and mobile applications.
In choosing the next generation of systems, now would be be a great time to consider their aftermarket business requirements in their system selection decisions to ensure suitability for aftermarket as well as manufacturing.
Unfortunately, that is not what we see.
Aftermarket therefore continues to be lumbered with a system that was designed for and chosen by manufacturing.
Quite frankly, trying to operate an aftermarket business with a system intended for manufacturing is like trying to screw two pieces of wood together with a hammer!
You can join them together eventually, but it’s hard work, produces a shabby result and a screwdriver would be a much better tool for the job.
5. Customer Distance
It’s now more than half a century since the modern marketing orientation replaced the production orientation.
Yet many of today’s manufacturers are still struggling to connect closely with their customers to fully understand their total needs.
Globalisation and the advent of modern procurement practices such as category and commodity management, online auctions, etc. are creating more distance between manufacturers and their customers and thus making the situation worse, rather than better.
The lack of customer intimacy is especially acute for Small to Medium Enterprise (SME) manufacturers who don’t have the clout or tactics to cope effectively with their much larger multinational customers.
Overcoming the Aftermarket Growth Obstacles
These five aftermarket growth obstacles are the major root causes of aftermarket still being the poor relation in most manufacturing businesses today.
For things to change, manufacturers first need to be motivated to change.
Motivation to change is not sufficient in itself though.
Manufacturers also need to know how to change and they need to possess the capability to change.
What they need, therefore, is an aftermarket growth strategy and a credible, robust growth action plan that convinces the senior leadership team to invest.
So ask yourself:
What % of your total revenue and profit does your aftermarket business contribute today?
Are you motivated enough to want to overcome your aftermarket growth obstacles?
Do you possess the capability and strategy to move forward or would you like some help?
How Servispart Consulting Can Help
Our core service is called Aftermarket 360™ and is specifically designed to assess your aftermarket capability strengths and weaknesses to create an aftermarket growth strategy that delivers high impact results in minimum time.
More information on how to discover your aftermarket genius and grow your aftermarket business is available here.