The Uptime Blog
It would be difficult to manufacture anything without an accurate manufacturing bill of materials (mBOM) – that list of items (and instructions) that are cut, molded, welded, wired and assembled into a finished product. So why would some manufacturers expect their dealers and in-house technicians to service that same equipment without a service bill of materials (sBOM)– that list of serviceable parts and repair instructions that provide a critical maintenance road map for the life of the piece? Each bill of material serves a different purpose in the lifecycle of a product from conception, design and manufacture to service and finally disposal.
While much attention is paid to the early stages in a product’s life – the excitement of an idea being born, the exploration of engineering design and the satisfaction of commercially producing a piece of equipment for sale, not as much consideration is paid to equipment servicing during its useful life, and eventual end of life. It is during the “useful life” that a service bill of materials (sBOM) can make or break a revenue stream for makers of complex equipment. Having one can open up a healthy, free-flowing parts and service revenue stream, while not having one can choke revenues to a trickle.
Why is Aftermarket Parts and Service Important?
The aftermarket service of equipment and parts replacement during a piece of complex equipment’s most productive time – its useful life – is where we see the an outstanding opportunity to capture revenue. According to research firm Frost & Sullivan, in their report, “360 Degree Perspective of the North American Automotive Aftermarket", the aftermarket is expected to have an annual compounded growth rate of 2.3% from 2010 through 2017 – that’s over 91.0 Billion dollars in expected revenue. That’s good news for the automotive aftermarket industry but what about manufacturers of other types of complex equipment?
Similarities to other complex equipment manufacturing industries lead us to believe that they too have much in common with the aftermarket trends in the automotive industry. For instance, comparable economic forces are exerting the same kind of pressure on the healthcare industry. How Cars are Like CAT Scan Machines — What the Medical Device Industry Can Learn from Automotive Manufacturing.
Knowing how lucrative aftermarket parts and service can be and understanding the importance of providing the information needed to perform the work, two things become clear. Manufacturers need a functioning service bill of materials, and they need to quickly and accurately deliver it to their dealer network or in-house service staff for use through an electronic parts catalog.
What’s in a sBOM and why is it so special?
A service bill of materials contains a list of serviceable parts, which can be considerably different than the materials used to design or produce the equipment itself. A serviceable part is an individual part, assembly or component that can (or is designed to be) serviced separately after the equipment is assembled and sold. It is the service bill of material or sBOM that supports the equipment maintenance, repair and servicing after the sale. There are two important ways that the sBOM is different than the mBOM.
In-house assemblies. During manufacture the production team may use many small parts to create an assembly or component that is included in the piece of equipment – let’s say a suspension arm. Engineers designed the component for replacement, not repair meaning if any individual part that makes up the welded piece malfunctioned or wore out, the whole component would be replaced, not the individual plate steel parts of which it is made.
Purchased Assemblies. Now let’s say that the production team outsources some components that make up their equipment – a drive axel assembly for example. They install the ready-made drive axel during their production process. Although the drive axel is purchased as one ‘part’, it has been engineered for repair (ie. bearings and bushings) rather than full replacement like the suspension arm.
Negative Impact of using a mBOM as a sBOM
Using an mBOM to support the repair and maintenance of complex equipment rather than preparing and using a sBOM can shrink parts and service revenue as well as future new equipment revenue. Here’s why:
- Parts Ordering – parts used for manufacturing are not always the same as serviceable parts. Confusion on parts identification can cause mis-orders, missed or omitted parts needed to perform the repair, high rates of part returns and delays in repair resulting in costly equipment downtime.
- Repair Costs – there is a real cost to OEMs to repair complex equipment including both the parts themselves and the labor to perform it. Misinformation on parts, poor order processing, and not having access to the right repair and installation information all contribute to higher repair costs and less service and parts profit.
- Warranty – OEMs and customers incur costs associated with warranty items. For OEMs, the cost of warranty increases if the wrong parts are repaired/replaced. For instance, service technicians may not be aware that a warrantee part may include the replacement of surrounding parts that impact the life of the warranty part. In similar fashion, if a warranty applies to an assembly designed for replacement, but the mechanic doing the repair references the mBOM instead of the sBOM, he/she may perform a repair on part of the assembly rather than replace it, voiding the warranty for the customer. Additional time and materials costs to fix the errors drive up costs.
- Customer Satisfaction – in-house service technicians or the service team of a OEMs dealer network have a big impact on custom satisfaction. The purchase of the equipment may have been a positive experience, but long after the memory of that experience fades, the service team is still interacting and representing the brand and the product. Ongoing negative experiences with service can lessen customer satisfaction ultimately resulting in less goodwill, fewer referrals and/or repeat purchases.
Maintaining a service bill of material is important step in widening the aftermarket parts and service revenue. Distributing that information is just as important. Without a clear method of distribution the value of the sBOM is lost in a sea of inaccessible data. It must be available to dealer and service support staff to realize the real value. InService EPC (Electronic Parts Catalog) is a superior web-native application that enables OEMs to easily publish and distribute accurate, updated parts and service information for their dealer/distributor networks, opening the floodgates to aftermarket revenue.
Tags: electronic parts catalogue, service technicians, automotive, FTFR, No Fault Found, warranty, EPC, InService EPC, John Snow, electronic parts catalog, epc software
According to an article in USA Today there’s a: serious shortage of skilled auto mechanics looming. The article says, “There is already competition among auto dealers in many parts of the nation to hire or retain good technicians. The bigger worry is whether there will be enough younger workers in a few years as a wave of midcareer mechanics hits retirement age. “We're finding we're going to run short of technicians in the very near future,” says Rich Orbain, manager for General Motors' Service Technical College.”
The article makes clear that the biggest risk to consumers is not for routine maintenance but rather for more complex tasks that require troubleshooting and fault isolation. Advanced diagnostic systems may tell a technician which systems have gone wrong but won’t necessarily explain why. As a result, inexperienced mechanics may resort to pop-and-swap repair procedures where they simply replace parts one-at-a-time until the diagnostic system says that all is well. The problem with this approach is cost–lots and lots of additional cost.
- For vehicles under warranty, the original equipment manufacturer (OEM) absorbs the cost of all the “good” parts that were replaced.
- For vehicles not under warranty, the customer pays.
- Replaced parts are typically tested by the OEM (or component vendor) to identify which ones are faulty and which ones have “no-fault-found” (NFF).
- Parts that can be repaired/refurbished are then sold on the secondary market.
Given the potential costs associated with a bad diagnosis, today’s master mechanic is the equivalent of a high-tech field engineer. They must have expertise around powertrain technology spanning 30 years or more, including: carburetors, fuel injection, ignition systems, turbo chargers, manual transmissions, automatic transmissions (mechanical and electronic), hybrids, all-electric and advanced diesel engines. A modern vehicle may have over 20 computer chips managing different systems, each of which uses software that must “play nicely” with other software systems. (Eliminating the key from the ignition—replacing it with a “push to start” button—is the final evidence of cars becoming rolling computers.)
So what is to be done? According to the research, in the near future there won’t be enough mechanics with the skills required to fix cars. The complexity of modern vehicles means that small, independent service stations won’t be able to afford specialist mechanics and diagnostic tools and so more and more repair work will go to dealers or large maintenance outfits (e.g. Sears Auto Centers). But even these well-stocked locations won’t be able to hire master mechanics because they won’t exist. People aren’t choosing auto repair as a career path.
The only way to solve this problem is for OEMs to take ownership of the solution. If OEMs can find a way to simplify access to accurate service, parts and diagnostic information then less experienced technicians can still get the job done. Service and parts information is usually delivered to dealers and mechanics as a series of separate manuals and catalogs. OEMs have been playing around with electronic parts catalogs (EPC) for years but most of them outsource it to 3rd party suppliers (like ARI and Snap-on), effectively divorcing themselves from the solution. Unfortunately, 3rd party EPCs don’t have the know-how to fully integrate an OEMs diagnostic, service and parts information so dealers have a fully automated workflow—the way they do in the airline industry. As a result, pop-and-swap maintenance, NFF and warranty costs continue to increase. And the whole time this is happening, the OEM’s reputation is getting more and more tarnished.
Toward the end of the article, Jose Ramirez, an instructor at Los Angeles Trade Technical College highlights the challenge of working on modern cars, “Sure, a car's computer may spit out a ‘trouble code’ to report what system is malfunctioning. But that's not enough. It's a matter of how to diagnose that trouble code. You have to play around with it."
“You have to play around with it.” Is that really what the OEMs want their customers to hear? For those OEMs willing to take control of their service and parts market, Enigma stands ready to help.
Tags: aftermarket, OEM parts, Electronic parts catalogs, parts and service, Automotive Aftermarket Industry Association, Carlisle & Company, warranty, J.D. Powers and Associates, EPC, InService EPC, Enigma, dvautier, diane vautier
Auto dealerships experience a massive drop-off in service and repair work following the end of a vehicles’ warranty. It’s a sudden and steep drop with devastating financial implications for auto OEM’s and dealerships alike.
Even the best dealership service departments are not immune. According to Steve Finlay of WardsAuto, citing a J.D. Power and Associates’ Customer Service Index Study, customer retention rates for maintenance and repair are often less than 60% and only top dealership networks with superior reputations for service do better.
Carlisle and Company research shares similar results with one of their clients reporting up to 50% loss in customer loyalty on the day the warranty expires.
Why the Drop?
Soon after the sweet romance of the new car purchase in the flashy front showroom, owners are whisked away to the backroom service department for the rest of their auto ownership relationship. The experience they have in your service department over the following years has a significant impact on their loyalty and satisfaction.
Finlay again sites Jon Osborn, J.D. Power's research director: “Since dealer service is the last touch-point in the vehicle ownership cycle that auto manufacturers have with customers, providing superior levels of service can leave owners with a lasting favorable impression of the brand”. Poor impressions damage brand loyalty and ultimately reduce future service revenue and new car sales. Customers simply seek out independent service shops or change brands all together.
Losing 40-50% of service business after the vehicle warranty ends suggests that dealers are not giving owners a lasting favorable impression.
Why is post warranty revenue important?
In today’s tough economy, drivers are purchasing fewer new cars and keeping the cars they do have on the road longer. This has pushed the average age of a vehicle up to 10.8 years. Savvy automotive OEM’s and their dealers have recognized the shift and are looking to that lost post-warranty revenue as a source of additional profits to offset fewer new car sales.
Both OEMs and dealers are eager to capture a larger piece of the post-warranty pie, which can add up to serious profits given the increased length of ownership.
So, what’s the issue?
Carlisle and Company is studying the challenge. Some of its preliminary findings are that customer expectations are not in alignment with the service practices of dealerships, which leaves everyone (the OEMs, dealers and customers) unhappy and probably a little bitter.
Carlisle identified the top 26 factors (grouped into 5 categories), which customers value most and compared that against what service departments offered. The results show that dealers aren’t stacking up. “According to the customers, their business migrates to operations perceived as more trustworthy, easier to do business with, and lower priced”.
What can be done to earn more post-warranty revenue?
Auto OEMs and dealers can eliminate some of the gaps by understanding the expectations of customers and delivering what they want. One tool that has proven to accelerate repairs, increase quality and improve customer-dealer-OEM relationships is Enigma’s InService® EPC (Electronic Parts Catalog). A well-executed EPC system streamlines the dealer’s diagnostic, troubleshooting, estimating, parts availability and ordering activities, which accelerates repairs, improves estimates and increases quality (first time fix). The right EPC also provides OEMs with on-demand analytics and dashboard reports so they can spot service trends faster, and minimize customer snafus before they become a recurring issue.
InService EPC makes it easier for dealers to communicate openly and effectively with OEMs and to answer customers quickly and accurately, which helps them build a long-term, trusted relationship.
And as we’ve learned from the J.D. Power and Associates’ Customer Service Index Study, top dealership networks with superior service retain a higher percentage of maintenance and repair dollars.
The Aging Vehicle Population
Drivers are keeping their vehicles longer; a lot longer. In fact, according to R.L. Polk & Company research, the length of vehicle ownership as well as the overall average age of vehicles has risen. Today, the average age of autos on the road has hit a record 11.1 years (10.8 years for cars and 10.4 for light trucks). Not surprisingly this trend has been tied to the economic downturn as more and more owners are extending the life of their cars and trucks through ongoing maintenance and repair. This continues the trend of aging vehicles seen in a 2009 Polk study that pegged those numbers at 9.4 years for cars and 7.6 years for trucks.
However, the real question is what those figures mean for automotive OEMs and their dealers.
The Aftermarket Opportunity
The aging auto trend is expected to continue. Freedonia Research agrees in their “Automotive Aftermarket in North America to 2014”, which estimates that “The aftermarket for light vehicle components in North America will increase 2.9 percent annually through 2014.” This means that service and parts continues to be a growth business, and OEMs need to position themselves and their dealers to capitalize on the opportunity.
As autos age, each vehicle requires more service. And since parts and service carry higher profits, this is a very lucrative endeavor. A few OEMs, like Enigma customer Ford Motor Company, are capitalizing on this opportunity —increasing earnings by improving customer and dealer support—but the question remains, why aren’t more OEMs doing this?
So how do OEMs garner more from the profitable automotive aftermarket? By streamlining the aftermarket processes for diagnosing, and repairing cars and trucks (and any other type of vehicle).
Claiming a Sweet Victory
First, OEMs can rein in the parts inventory and leakage challenges with service parts planning and inventory management. Second, they can automate scheduling to optimize human capitol. OEMs and dealers have already implemented these first two steps, delivering respectable results. But it’s a third component, which is less obvious but more influential that can really give OEMs a competitive advantage and that is an electronic service and parts catalog (EPC).
A fully integrated, online/offline EPC helps OEMs quickly assemble, distribute and update the technical information needed to properly service and support today’s complex vehicles. An EPC that supports bi-directional communication (from-to OEMs and dealers) provides more than just parts and service procedures, it becomes the heart of an advanced customer support strategy that accelerates repairs, improves quality and reduces cost.
Such an EPC is richer and more beneficial than manuals, bulletins and parts lists alone. The sum is truly greater than the parts. When an OEM implements an advanced EPC it provides immediate value to dealers. It delivers more detailed and accurate information to make the dealer’s job easier while positioning the OEM as the most reliable resource. It also saves dealers money by bettering the first time fix rates. And, it improves staff productivity by consolidating all service and support information and data into one source that can be accessed with just a few mouse clicks.
The real bonus though is what an EPC yields an OEM. It builds dealer loyalty and increases preferred vendor status, which leads to more parts revenue. By making it easier to do business with the OEM, and simplifying maintenance decisions, a well-executed EPC strategy will help improve influence and control of parts purchasing in the critical post-warranty period of auto ownership.
Forward thinking OEMs have been turning to Enigma to help them capitalize on the aftermarket opportunity, which has been driven by aging vehicles. Ford Motor Company, a longstanding automotive icon and leader, recognized the potential of increased revenue from longer auto ownership and elected to implement Enigma software early in the aging auto trend, and is now enjoying increased parts revenue and stronger, healthier dealer loyalty.
Aging autos serve up a sweet aftermarket opportunity, so grab a big spoon and dig in, there’s still time. Learn how Enigma can help you turn sweet opportunity into tasty profit.
According to a recent Aberdeen Group blog post, “Warranty and Contract Management 2011 – The Customer is the Key to Increased Revenue,” their research shows that nearly half (43%) of service organizations surveyed said that their top goal for 2011 was to increase revenue, rather than to decrease costs. The blog also notes, “Instead of being focused solely on cost containment, service organizations have looked to customer satisfaction as a key factor to the success of the business …”
For many OEMs, their field service teams are busy fixing products that are under warranty. But what happens when the warranty expires? Unfortunately, customers often switch to third parties to have machines repaired or parts replaced. Since post-warranty service agreements can cement customer relationships and lock in service and parts revenue, OEMs must figure out ways to maintain their customers and get a bigger piece of the aftermarket pie.
OEMs that miss out on long-term service level agreements (SLAs) risk losing the following:
- Recurring service and parts revenue
- An important communication channel to customers
- Control of customer satisfaction and brand perception
Aftermarket parts and service represents the most profitable piece of an OEM’s business. Failing to lock-in this revenue stream can have significant consequences for OEMs. However, even in cases where the OEM can’t get an SLA signed with the customer there are things they can do to improve the aftermarket picture.
For OEMs, having clear channels of communication to their customers is critical. It is never enough to rely exclusively on a customer support center, especially since some customers will choose other aftermarket service providers. One of the best ways for OEMs to proactively keep in touch with customers is to distribute an online field service catalog that integrates with the customers’ IT systems and is affordable, easy to use and accurate.
To improve customer satisfaction and brand perception, OEMs must ensure equipment is properly maintained. This means providing accurate service and parts information to call center reps, field service technicians and in some cases third-party service providers. It sounds simple, but given that OEMs frequently modify prices and procedures it takes a sophisticated software application to assemble, manage and distribute the information so that it is always accurate and accessible.
OEMs that provide such an aftermarket solution empower their field service technicians (or owner/operators) to fix equipment more quickly and accurately, resulting in less equipment downtime. That leads to happier customers and better brand perception, as well as a greater share of post-warranty parts and service revenue.