Aftermarket support can be inexact. It’s hard to define, hard to differentiate, and even harder to transition from cost center to profit center. But, armed with three strategic best practices, aftermarket operations can find and capitalize on opportunity with success.
Benchmarking compares a company’s business processes and performance metrics against best in class or other similar industry standards. Management consultant, university professor and author Peter Drucker best described the value of benchmarking when he said “what's measured improves”, and benchmarking makes meaningful measurement possible.
Benchmarking in OEM or third party aftermarket support is an important step for ongoing and continual improvement. It is the process of identifying key performance indicators (KPIs), measuring them, establishing goals for improving them and then monitoring them to evaluate the level of improvement. According to a Blumberg Advisory Group study, “benchmarking is the key to understanding aftermarket services … and identifying areas for improvement.”
What types of performance metrics are benchmarked in aftermarket industry?
That depends on the industry. For instance, the telecommunications and consumer electronics industries consider key performance indicators to be No Fault Found and the overall length of the depot repair cycle. Blumberg Advisory Group found that “No Fault Found (NFF) remains one of the most cost prohibitive issues for manufacturers. 80% of respondents stated that they are looking for alternative solutions to combat high levels of NFF.” They also found that the overall length of the depot repair cycle is critical because it is essential to operational readiness and sustainability and impacts on-hand inventory stocking.
Accountants and advisors Moore Stephens Automotive, in their Key Performance Indicators for Automotive Retailers report, identify gross return on investment and gross profit percentage (among other indicators) as top automotive parts KPIs. They include gross profit percentage of labor and the parts/labor ratio as KPIs (among others) for service work.
Find and benchmark whatever aftermarket metrics are important to your industry and let those KPIs inspire strategies for improvement.
Integration connects a company’s various departments and business centers. It improves communication, streamlines operations, creates valuable channels for monitoring established KPIs, and helps drive revenue.
Integration in aftermarket operations creates a significant competitive advantage and is an important factor to future success. Enigma’s partner SAP in its whitepaper Best Practices in Complex Equipment Manufacturing, Sales, and Service writes:
“With their spare parts business growing rapidly as a percentage of revenue, many complex product and equipment manufacturers have found their cost centers growing into larger and larger profit centers.Typically, these cost centers have ‘island’ systems that are not integrated to the enterprise, inhibiting communication with customers and customer service organizations, service groups, engineers, vendors, and suppliers.”
They go on to say that “[i]ntegrated applications, especially parts and service catalog information, enable organizations to position inventories, either globally or locally to better service your customers.” SAP’s conclusion is that “manufacturing companies with integrated parts and service information are enjoying reduced inventory levels without a decrease in customer fill rates.”
Jonathan Carey, Managing Director and Head of the Automotive Aftermarket Practice at BB&T Capital Markets, in his 2012 Automotive Specialty Products Alliance (ASPA)presentation Current State of the Aftermarket estimates that the retail online penetration rates for the auto/autoparts industry has a “conservative growth potential of 12%.” That’s a huge growth opportunity that will elude OEM parts organizations still clinging to outdated “island” systems that are not up to par with progressing online usage estimates.
Continued focus on incorporating new technologies and responding to new trends allows integrated aftermarket organizations to outperform their competitors. The introduction or upgrade of an electronic parts catalog, with field service mobility, and browser and device independence (HTML 5 and CSS3 compliance), position OEM aftermarket organizations for continued success.
3. Predictive Analytics
Predictive Analytics unleashes the power hidden deep in business data. Whereas traditional reporting tools show you where you’ve been, predictive analytics uses data patterns to uncover forward-looking trends (either positive or negative) that help guide critical strategic business decisions. It’s the closest thing you’ll get to an aftermarket crystal ball.
According to a Forrester Research study, “predictive analytics enables firms to reduce risks, make intelligent decisions, and create differentiated, more personal customer experiences.” Enigma has identified three critical areas where predictive analytics can provide a competitive advantage for OEM or third party aftermarket service and parts support – to evaluate service and parts processes, identify product and service trends, and drive parts purchases.
- Evaluate Service and Parts Processes
o Gain service & parts insight about how often the EPC is being used and for what purpose
o Gauge the impact of the EPC on business and identify opportunities to capture revenue
o Align people, processes and assets to optimize performance for productivity and profitability
o Measure KPI’s to evaluate goal attainment
- Indentify Product and Service Trends
o Detect hidden service patterns and part search associations
o Efficiency of technical service & parts content
o Learn which specific equipment or models are causing the most (and least) EPC usage
o Identify quality training issues
o Identify opportunities to capture revenue
o Measure the number of lost parts orders due to shopping cart abandonment
o Understand online parts purchase flow and value via submitted carts
o Strengthen customer retention
o Improve cross-selling opportunities through service patterns and part searches
Engima’s most recent InService EPC Version 5.5 release has introduced a Dashboard Reporting feature that sheds light on these three areas to uncover business information, and giving managers and executives more insight into these three critical areas of aftermarket operations.
Knowing and working the three strategic best practices in aftermarket support will position aftermarket operations for continued success.