How a Service Bill of Material Impacts the Aftermarket Revenue Stream
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.