Modern customer value optimisation techniques can drive significant revenue for manufacturers of parts and equipment.
Unfortunately, most of today’s parts and equipment manufacturers are missing out on those valuable revenues and profits.
According to recent research, a typical engineering manufacturer is only capturing 25% of their customer’s total service spend.
How would you like to quadruple your existing revenues without having to find new customers?
It may sound crazy, but it’s not as crazy as it sounds.
The first step requires understanding all the areas where value can be created for the customer during the lifecycle of your equipment.
SEE ALSO: The Essential Guide to Servitisation
So let’s start by breaking down the customer’s equipment lifecycle into three tranches.
Equipment Lifecycle – Manufacturing Phase
The first tranche involves the key activities related to the manufacturing phase.
If you’re like most manufacturers, this is the tranche where you currently expend most of your effort and it is therefore the most developed.
However, if this is the total extent of your involvement in the lifecycle of your equipment, then your only customer value optimisation opportunities are during the design of the product (e.g. customisation), during manufacturing (e.g. quality, cost, speed) or by adding service at the point of sale (e.g. delivery, installation, training, documentation).
Realise also that your customer touch points are limited and, if your product is utilised for many years by your customer before it is replaced, it can be a long time before you touch base with your customer again.
There’s no guarantee that previous customers will return to you for their next product though, especially if they have been receiving aftersales support from one of your competitors in the meantime.
Customer value optimisation therefore involves you staying involved with customers after the point of sale.
Equipment Lifecycle – In-Service Support Phase
This is the in-service phase of the equipment lifecycle where the key activities relate to continued satisfactory operation of the customer’s product that was originally supplied by you.
Depending on the nature of the equipment, this tranche of the equipment lifecycle can have a duration that is far greater than tranche 1 and can last for many years or decades for certain types of parts or equipment.
Engineered capital equipment and parts related to aircraft, jet engines, vehicles, military equipment, industrial plant and machinery are obvious examples that come to mind.
Customer Value Optimisation for OEMs
Keeping high-value capital equipment operational and delivering customer value optimisation throughout that extended period will always require repairs, maintenance and possibly upgrades too.
Equipment manufacturers therefore have the opportunity to provide spare parts and aftermarket services for those customers who do not wish to perform these activities themselves.
SEE ALSO: The Essential Guide to Servitisation
In theory, the equipment manufacturer should be able to perform these product upkeep activities better than the customer or any third party competitor, as the manufacturer is usually the engineering authority and knows this equipment best.
Parts manufacturers have opportunities to grow their business during this aftermarket tranche too.
Customer Value Optimisation for Parts Manufacturers
As the provider of parts used to make the original equipment (genuine OE parts), you again have a unique value proposition from an engineering perspective.
Parts manufacturers should also be able to provide a range of other aftermarket service benefits better than the equipment manufacturer or any third party parts supplier, all other things being equal.
These could include better technical information, wider product range, better parts availability, shorter delivery times, re-manufactured parts or faster parts maintenance turnaround times, for example.
For most parts and equipment manufacturers then, getting more involved in this in-service support phase of their products is a huge revenue driver.
SEE ALSO: The Essential Guide to Servitisation
It’s also a huge generator of customer value as borne out by the higher margins that customers are willing to pay for aftermarket parts and services compared to the new product (OE) equivalents.
Equipment Lifecycle – End Of Life Phase
There’s also a third tranche of service opportunity at the end of a product’s life with a given customer.
In some cases, manufacturers are legally obligated to ensure their products are disposed of responsibly and safely.
However, not all products need to be retired when customers replace them.
Some can be re-sold, with or without remanufacturing, refurbishing, etc.
As the primary sales channel for new equipment, manufacturers are ideally placed to provide this second-hand market too, much like a car dealership.
A secondary market also provides manufacturers with the opportunity to sell new equipment earlier than it might do otherwise, e.g. by offering a part exchange service, to earn additional revenues from re-sale of the equipment and to capture the aftermarket service opportunities with the new customer.
Where resale or remanufacture of parts and equipment is not feasible, recycling retired equipment for reusable parts and materials can be a source of revenue and/or savings for manufacturers as well as fulfilling your environmental sustainability obligations.
How Advanced is Your Customer Value Optimisation?
Irrespective of whether you manufacture engineered parts or equipment, most (if not all) of these customer value optimisation opportunities will exist for you to grow your business just like the leading manufacturers are doing.
When in-service and end of life support activities are knitted together with a manufacturer’s product engineering capabilities to form through-life engineering and services, lots of additional value is created for the customer.
This kind of through-life customer value optimisation thus provides your business with a strong source of differentiation that is not so easy for competitors to replicate, especially those located overseas in lower cost economies.
So ask yourself:
What % of your customer’s service spend are you capturing today?
How well do you understand your customer’s total value needs…really?
What specific customer value optimisation actions do you need to take to capture more of their service budget?
How Servispart Consulting Can Help
Our core service is called Aftermarket 360™ and is specifically designed to deliver high impact results in minimum time.
If you’d like an informal conversation about how Aftermarket 360™ could improve your customer value optimisation, please get in touch.
Additional Resources
Learn more about how you can transform your business to avoid the product commoditisation trap and create more value for your customers by reading our white paper: Rethinking Manufacturing – How To Protect And Grow Your Manufacturing Business By Giving Your Best Products Away.
Rethinking Manufacturing White Paper
How To Protect And Grow Your Manufacturing Business By Giving Your Best Products Away
Your thoughts on Customer Value Optimisation?
Over the last few years internet revolution has presented Original Equipment Manufacturers (OEM) and the users of devices that control, detects, monitors, reads, or display with an opportunity to improve their solutions by delivering connected, integrated, faster, accurate and cost-effective systems resulting in new business and revenue opportunities. The end users can now get a holistic view of their business processes and optimize.
Thanks for your comment James. Electronic devices able to control, detect, monitor, display, etc. have been around for years in the form of RFID tags and the like. What’s changed more recently, I think, is the way these devices are being network enabled by connecting them to the Internet more readily. As you suggest, it’s certainly one of the technologies that is helping OEMs to provide more customer value and optimise it.