The Uptime Blog
In Part 1 of this blog topic we described the bi-directional relationship between aftermarket service information and other business processes (one impacts the other). We also described the central role that service and parts information plays in helping equipment OEMs and owner/operators to realize revenue and profit targets—OEMs need parts revenue and owners need uptime. Finally, we pointed out the importance for making information serve the enterprise (the whole enterprise), not the other way around.
In Part 2, we highlight ways that companies can capitalize on aftermarket trends and propose a direction for the future, including advice for reducing costs and delays.
Service and parts information affects almost every corporate department. As a result, implementing an IT system that serves the needs of the aftermarket and integrates with the rest of the enterprise can be daunting (each department may have multiple systems). Without proper foresight, the complexities of such initiatives carry a high risk-reward ratio—with many organizations focusing only the risks and not the rewards (which are substantial). However, based on our experience there are ways to avoid some of the most common problems, which are:
- High cost
- Long implementation time
- (Process) change management
The service and parts information is itself one of the most complicated pieces of such a solution (discussed in a previous blog series). However, to properly support equipment in the field there are a number of basic requirements which must be considered:
- Handle huge volumes of data (in multiple formats)
- Support thousands of users (often speaking multiple languages, across continents and oceans)
- Configure to specific business processes (equipment OEMs and owner/operators)
- Capture best practices and record emerging problems/trends
- Automated updates of service and parts information
- Support multiple, simultaneous delivery channels (Web, DVD, print)
A complete list of functional considerations is included in this sample RFP for electronic parts catalogs.
A major concern for most equipment OEMs and owner/operators is that software R&D and business process automation is not one of their core competencies. In fact, while most of the companies we talk with want to automate aftermarket processes, they also want to minimize IT overhead. As outsourcing of IT and various aspects of customer support becomes more commonplace, sooner or later companies will consider software-as-a-service (SaaS) to handle aftermarket parts and service information. Given the costs of publishing and maintaining parts catalogs, service manuals and other technical content it is inevitable that these solutions will turn to “The Cloud.”
Equipment OEMs and owner/operators should be exploring SaaS models for distributing and managing service and parts information. This approach will allow companies to focus on their real core competencies: building and operating complex equipment.
The SaaS EPC model is not a cure-all for the technical challenges of aftermarket service and support. In fact, some companies will decide there are still too many questions about SaaS to trust their service and parts information in the Cloud. Under such circumstances, it’s imperative that these companies choose an EPC vendor that can support multiple operating models—internally hosted, externally hosted and SaaS. This will allow companies to implement an aftermarket support strategy that adapts to future IT initiatives and helps limit costs.
Implementing business automation for service and parts carries risks and rewards. However, the technology exists today to limit the risk and maximize the reward. Because the cost and performance of data centers, data storage, processing time, and bandwidth have all improved tremendously over the past 3 years, equipment OEMs and owner/operators must consider SaaS models as they investigate the implications and opportunities of putting their aftermarket information online.
Throughout 2010 several trends, which have been emerging for a number of years, have been brought into focus:
- The first trend is the reliance of OEMs on aftermarket revenues—it’s common for spare parts to represent less than 10% of total sales but more than 25% of profits.
- The second trend is an awareness of the risks—from regulatory fines and recalls to litigation and brand perception—associated with bad service and support.
- The third trend is the growing complexity of the aftermarket environment. With sophisticated machines driven by CPU-controlled components, and sophisticated business processes driven by automated/integrated service schedules, inventory and logistics, it’s difficult for companies to gain control over the complexity of aftermarket service and support.
Each trend has a ripple-effect on companies’ current and future business plans but the impact of these ripples is not fully understood. As OEMs grapple with the need to improve business operations, for both manufacturing and aftermarket support, they don’t always “connect-the-dots” between these trends.
Let’s look at some of the underlying issues that currently affect equipment OEMs and operators:
- Aftermarket revenue is hijacked by independent maintenance providers and parts distributors.
- Maintenance decisions and recommendations carry an element of risk beyond poor performance—automakers incur huge costs and tarnished brands due to recalls and safety notices; airlines receive million dollar fines for flight delays and non-compliant airplanes.
- Troubleshooting, part selection and maintenance execution all play a critical role in protecting brand perception.
- Service information impacts maintenance decisions which impacts inventory and logistics. Inventory and logistics information impacts service schedules which impacts maintenance execution.
- Maintenance has become more complex (too complex?):
- Growing installed base
- Larger maintenance organizations
- Longevity of equipment
- Complexity of equipment
- Variety of equipment
- Multiple information sources and formats
- Increasing use of electronics and programmable components
- IT projects have become more expensive and carry greater risk
- Long implementation time
- Cost of hardware, software, integration and customization
- Change management
- Need for fast ROI
For equipment OEMs and owner/operators there is a bi-directional relationship between aftermarket service information and all other business processes (one impacts the other) but few companies recognize it. Enigma does. We believe that information should serve the organization (the whole organization), not the other way around. Aftermarket service and support is a key driver of profit and loss. Therefore, it is imperative for equipment OEMs and owner/operators to find ways to leverage the opportunity and guard against risk.
In a subsequent blog, we will highlight ways in which companies have capitalized on these aftermarket trends and provide some advice for reducing costs and delays.
“Some factories are concerned about their dealers' parts and service business—and they should be.”
A recent blog by Autonews.com (“New math: Fewer vehicle sales = lower service revenues”) highlights a couple of troubling trends in car dealership service:
- Declining auto sales means that there are fewer, newer cars to be serviced by dealers.
- Improved auto design and increased quality means less warranty and service work (with associated parts) for dealers.
The blogger adds, “J.D. Power forecasts a 20 percent decline in service traffic at dealerships from 2009 to 2013, resulting in a 25 percent decrease in service dollars from owners of 2005- to 2009-model vehicles.”
Automotive OEMs can’t afford to ignore the impact of decreased service at dealerships. Service business is vital to the health of a car dealership, especially when new car sales are flat (or down). And, indirectly, service business is vital to the health of an OEM; a big slice of overall OEM profits comes from aftermarket parts sales, and dealers are the ones who order most OEM parts. Less service means less aftermarket parts revenue.
So what can OEMs do to help their dealerships and help themselves?
- Help their dealers provide faster, better service, which yields happier, more loyal customers. Although OEMs don’t make direct revenue from service, for the sake of long term parts revenue and positive brand perception, it benefits them to have more dealerships that deliver fast, accurate service. One way to improve service quality is to deliver not only updated parts catalogs but also service bulletins and other critical maintenance changes to the dealerships. Companies like Volvo have helped dealers decrease workshop service cycle time, bolster aftermarket efficiency, and promote more cost-effective service and repairs by implementing the Enigma electronic parts catalog in conjunction with their fault tracing and onboard diagnostics system. The implementation has dramatically reduced service times and improved service technician productivity. Click here to read an earlier blog post we wrote, related to this topic.
- Make it easy for dealerships to do business with the OEM. Dealers have choices, after all. They don’t have to order all their parts from an OEM; they can get some parts from parts distributors like AutoZone, Pep Boys, Advanced Auto Parts, or NAPA for example. (Although dealers are often obligated to use some OEM parts, that doesn’t mean they must buy those parts directly from the OEM.) OEM-direct sales are more profitable because there’s no middle man between them and the dealer. If the OEM makes it easy for dealers to find and purchase what they need, then dealers are less likely to get frustrated and buy their parts elsewhere. OEMs can improve their market share of service parts by making it easy for dealers to find and order parts directly from the OEM, via an accurate, up-to-date parts and service catalog. An electronic parts catalog that integrates with dealer management systems (DMS), ERP and e-commerce systems accomplishes this goal.
If the dealer channel is under stress then OEMs must find ways to help their dealer network succeed. One of the best ways to help a dealer is to deliver relevant, accurate parts and service information to the service bay. It’s a win-win-win situation: the service bay can have higher productivity, the OEM can sell more aftermarket parts, and the car owner can get his/her car fixed faster.