Why Aftermarket and Service Are Vital to OEMs—and How to Excel
Introduction
The significance of the aftermarket and service sectors for Original Equipment Manufacturers (OEMs) cannot be overstated. Historically seen as a supplementary business, the aftermarket and service now significantly contribute to the majority of OEMs' margins, sometimes reaching up to four times higher than those from new unit sales. This trend is particularly pronounced among top-performing companies that have successfully capitalized on their aftermarket and service operations, experiencing twice the total shareholder return (TSR) compared to companies that do not prioritize service.
Service Excellence
Service excellence involves continuous dedication to providing unparalleled support and services beyond the initial sale. This commitment helps OEMs to differentiate themselves, build stronger customer relationships, and drive product performance improvements, such as increased throughput and reduced consumption.
Framework for Aftermarket and Service Journey
To navigate the aftermarket and service landscape effectively, a structured five-part framework can be applied:
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Innovation to Market: During product development, OEMs must define the role of aftermarket and service. This involves assessing factors like profitability, geographical considerations, customer expectations, investment requirements, and costs associated with servicing.
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Market to Order: This stage focuses on transforming service concepts into tangible offerings. It involves business development, customer engagement, and ensuring the service aligns with customer needs and expectations.
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Order to Delivery: Here, the emphasis shifts to procurement, manufacturing processes, and ensuring seamless product delivery, maintaining the integrity and performance of the service offering.
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Delivery to Cash: This final stage ensures efficient credit management and timely payment collection, completing the revenue cycle and enhancing cash flow.
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Enabling Factors: Success in the above stages hinges on several key enablers such as technological advancements, organizational readiness, and strategic partnerships.
Emerging Trends and Innovations
- Offering a B2C-like Customer Experience: Leveraging modern technologies, OEMs aim to match the personalized and seamless experiences offered by consumer-facing businesses.
- Servitization: Transitioning from goods-focused businesses to service-centric models, where services become the primary value driver.
- Data Utilization: Collecting, analyzing, and monetizing data to optimize service delivery, predict maintenance needs, and enhance customer interactions.
- Softwarization of Features: Embedding software solutions within hardware products to enable new services and functionalities post-purchase.
- Sustainability: Emphasizing environmental responsibility and eco-friendly practices to unlock new value pools and appeal to environmentally conscious consumers.
- Remotization: Increasing reliance on remote services and digital tools for maintenance and support, reducing physical disruptions and costs.
- Localization Paradigm: Tailoring services to local markets and customer preferences, enhancing relevance and satisfaction.
- Online Marketplaces and Ecosystem Building: Expanding presence through online platforms and fostering ecosystems around products to enhance accessibility and community engagement.
Conclusion
Incorporating a strategic approach to aftermarket and service, supported by strong enabling factors, can significantly enhance OEMs' performance and competitive advantage. By focusing on service excellence, embracing emerging trends, and leveraging technology, OEMs can unlock new revenue streams, strengthen customer relationships, and position themselves as industry leaders in the evolving landscape of manufacturing and service provision.
