Magazine article CRM Magazine

Supercharging Your Aftermarket: Transforming Costs into Profitability

Magazine article CRM Magazine

Supercharging Your Aftermarket: Transforming Costs into Profitability

Article excerpt

INTRODUCTION

For all too many manufacturers, after-sale activities have traditionally been viewed as a source of cost, complaints and complication. But that is changing in today's more competitive globalized economy. Now, forward-looking organizations increasingly recognize the need to seek lifetime value from every customer relationship. They are taking a harder look at the full lifecycle of their product lines and are seeking ways to squeeze efficiency and profit from those important after-sale activities.

Today, savvy executives see the aftermarket as a crucial and often underdeveloped part of the overall produce lifecycle. Proactive original equipment manufacturers (OEMs) are now leveraging the aftermarket to expand their service offerings, to extend their market reach and to transform what was once seen as little more than a cost center into a lucrative and growing source of sales and profits. OEMs can manage the aftermarket to reduce inventory fill rates and to cut overall inventory costs by up to 30 percent. Others are opening new revenue streams by more effectively up-selling and cross-selling, and by supporting competitors' products.

By applying the best-practice principles of customer relationship management (CRM) to their aftermarket efforts, OEMs can gain a keen competitive edge in virtually any product- or support-oriented market segment.

AFTERMARKET REALITIES

Unfortunately, few OEMs fully exploit their aftermarket potential, and those failures have significant real- world costs.

Poorly managed post-sale relationships lead to declining customer satisfaction, defections and lost sales. Contract management is increasingly difficult as OEMs take on maintenance responsibilities and as warranty costs continue to grow. Companies struggle with inaccurate inventory forecasts, inefficient inventory deployment and the need to support multiple products at various stages of their lifecycle.

Those deficiencies translate directly into higher cost and lost opportunities. OEMs have seen their aftermarket revenues decline, often due to missed renewal opportunities and lackluster cross- and up-selling efforts. Ineffective lifecycle management can also lead to more frequent and expensive product recalls and patches, poor communication between customer support and product development units, and lower-quality support for new product and service releases.

Industry observers agree that OEMs can benefit by pursuing new revenues from after-sale services, particularly in maturing industries, and by reducing waste and fraud in their warranty operations.

Manufacturers have strong incentives to create responsive and resilient aftermarket operations. Most OEMs, however, tend to focus more intently on activities that take place before or during the sale. Similarly, most supply chain initiatives have focused on product design, procurement, parts and material supply, and manufacturing efficiencies.

The core processes most closely related to the aftermarket--maintenance, repair and overhaul; spares planning and logistics service contracts and warranty administration; and field services--are all too often sorely neglected by most OEM organizations.

That's unfortunate. Because in today's business environment, OEMs can no longer afford the waste and inefficiencies of a poorly integrated service supply chain. By leveraging best-practices CRM, companies can improve customer service and satisfaction, control post-sale costs, and create new aftermarket sales and profits.

EXPLOITING THE AFTERMARKET

So, how can companies realize the full potential of their aftermarket opportunities?

First, to meet the aftermarket challenge, OEMs must first have access to a service supply network that is responsive, fully connected and highly efficient. Manufacturers must then use that network, along with appropriate processes and technologies, to integrate their aftermarket business units into a single, customer-oriented approach to the full product lifecycle. …

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