Boosting revenue streams in the aftermarket

The product sales aftermarket has not been a major focus for many manufacturers, who typically see their primary role as that of developing, making and selling products. Service, despite the fact that it is often a revenue stream worth as much as five times - or more - the original cost of the product, is often left to third-party companies.

It is understandable why, historically, such companies took the view that service is a non-core operation and so outsourced this aftermarket sector. However, with shrinking sales revenues has come a greater awareness that post-sales service management is an important factor in developing and retaining customer relationships. Consequently, many companies are looking at bringing this function in-house or enhancing their existing service processes.

Selling service means establishing good relationships and building confidence in the product throughout its post-sales lifecycle. To enable this relationship and confidence-building, a company needs a business strategy directed at servicing a company`s products and the customers that bought them. It is a tight balancing act. Customers expect efficiency while service organisations must be profitable.

Service management or service lifecycle management (SLM) as it is becoming known today, places the customer in the centre and ensures that information is integrated, available, correct and easy to use for everybody in the organisation involved in managing or implementing service issues.

It is a means of extending relationships with customers to that of "trusted advisor" that in turn leads to increased customer loyalty and also increased sales and service opportunities beyond the current offerings.

Paul Whalley, MD, IFS South Africa

Simply put, SLM focuses on optimising after-sales revenue streams and opportunities while maximising customer satisfaction, which, in turn, impacts future revenues. It is a means of ensuring a company becomes a strategic part of the customer`s business after the sale is completed. The ultimate goal is to achieve "trusted advisor" status, where new business is based on the trust relationship developed between the organisation and its customers.

While the basic premise of SLM is often seen as being a part of the product lifecycle management (PLM) business initiative from the point of view of the management of a product from the "cradle-to-the-grave", SLM is, in fact, much more than an after-sales product management component of PLM.

SLM is seen as a complementary, yet separate, initiative aimed at the benefits that lie beyond the product sale and tracking its life in the aftermarket to aid future product development. The goal of SLM is to deliver tangible benefits by increasing revenue opportunities and lowering internal service costs within the operation while improving customer satisfaction by meeting and preferably exceeding customer expectations around the product and service delivery.

An SLM needs to provide a manufacturer with a completely integrated information flow, from the first contact with the customer, through following up the service assignment to continuous customer care.

This lays the foundations for building long-term trusting and businesslike customer relationships that are the key to increased competitiveness and profitability.

Revenue streams are improved by maximising repeat sales, better managing warranty and contract renewals, minimising non-billable work caused by lack of information on contractual obligations, problem resolution on the first visit through proper problem identification and allocation of the correct technical resources and streamlined invoicing.

Costs can be reduced further through optimised service call scheduling and use of personnel, faster access to accumulated service object data, enhanced spare parts inventory control and less administrative work. In fact, an SLM can also predict the need for service in advance and avoid an unplanned service call with planned preventative maintenance action.

The same information base can be used when the product is due for replacement, thereby empowering the service organisation to be in a prime position to influence the buying decision for a replacement. Whereas a sales database might flag a customer, who is due for product replacement two to three years down the line, it is the service technician who really knows the product and when it is time to make a replacement sales approach.

A component of SLM beyond the traditional PLM offerings is all about having the tools to enable service relationships to be leveraged properly not only to increase after-sales servicing revenues, but also to increase product sales to existing customers. In addition to increasing the amount of service revenue earned after the sale, it is a means of extending relationships with customers to that of "trusted advisor" that in turn leads to increased customer loyalty and also increased sales and service opportunities beyond the current offerings.

Just like asset lifecycle management and product lifecycle management discussed in the two previous Industry Insights in this three-part lifecycle series, SLM offerings range from point solutions to added modular functionality within an extended enterprise resource planning offering.

Rapid return on investment should be the SLM goal by enabling users to gain additional revenues from their products and allowing them to tap into the value of the aftermarket. Ease of integration with back-end processes is again key.