Challenges in the After Market

Recent SEC filings and press briefs by Fortune 500 heavy equipment and automotive manufacturers indicate some common challenges. Companies like Caterpillar, Terex,  John Deere, Walter Surface Technologies and others indicate they have challenges a) tapping into wealth of real time customer data, b) sharing of information at various levels, c) inconsistent service, d) service parts inventory carrying costs and e) increasing revenue streams from installed base. Furthermore:

  • Industry experts opine that US OEMs and their dealers may be losing US$9-15 billion unqualified repair service sales annually to competitors. Even best in class companies, including the European and Japanese, have difficulties with complete “visibility of repair” (VOR). Return after repair is a grouse which happens at dealer level and also there OEMs do not have complete visibility. OEMs and dealers could bill billions of dollars more only if they knew how to constantly ping the installed machines for sales and service opportunities.
  • An Auto Care Association study highlights the growing clout of e–tailing. Online sales for parts replacements touched $6 Billion in 2015 and are expected to reach $12 billion by 2018, while U.S. Census Bureau data show in-store sales ended down 1.5%. Importantly, most purchases are made by service providers rather than consumers. 70% of business buyers will purchase online rather than through another channel. Yet, OEMs have less than 20% visibility into their parts e-tail market and their “genuine parts” program revenue growth may be in jeopardy.
  • A UPS Online shoppers survey shows online buyers are diligent about research, extensively use online reviews, ratings and social media. While they may have invested in social media vehicles like Facebook, Linkedin or Twitter, OEMs lack comprehensive platforms to push and hear chatter.
  • OEMs also miss out on user led innovations that happen on their products in a particular region and the opportunity to adopt the improvisations across markets to out-compete the competition.
  • OEMs suffer from limited remote equipment connectivity leading to incomplete and often inaccurate installed base management. Unscheduled downtimes, high service delivery variance and suboptimal data analysis lead to lower efficiencies and reduced effectiveness. Lack of comprehensive processes affects issue resolution and first call fix rate. Unacceptable delays may happen in the field because of wrong technician attending machine, or unavailability of parts with technician. Many OEMs also do not enforce common policies across regions, especially on re-manufacturing and recycling. Hence cannibalizations and brand value dilution probably does occur.
  • Counterfeit parts and accessories is another major headache that affects global OEMs. The US Federal Trade Commission estimates over $12 billion international trade in spurious parts. Many of the counterfeits are manufactured, packaged or represented in such a way as to mislead consumers. Fragmented aftermarket processes and incomplete IT systems hamper complete visibility of operations pertaining to this issue.

OEMs and their dealers can emerge out of this conundrum if they could better capture and manage both machine-chatter and consumer chatter in a unified platform and companies do recognize a need to automate service and parts management processes and increase collaboration amongst various functions (logistics, operations, sales, marketing) and channel partners. Digital technologies and ubiquitous connectivity can help in alleviating pain areas related to poor customer experience, revenue leakages, and operational inefficiencies, while creating new opportunities at multiple levels. These technologies are helping reorganize and redefine internal and external structures and processes of companies.

Digital Transformation of the After Market

Digital transformation induces an evolution in business models and strategies – from selling a product or service to a customer experience-centric value proposition. Digital technologies enable fundamental transformation of a company and its ecosystem, not just piece meal improvement. They open up new opportunities for aftermarket services in six main areas: Technology, Channels, Customers, Business Processes, Business Innovation, and Employee Empowerment, as shown in Figure 1.

Figure 1: Aftermarket Digital Transformation Levers

after-market-digital-transformation

Digital technologies enable products or services to be always connected, intelligent and self-managing. By using a combination of IoT, telematics and predictive intelligence, services can truly become “sense and respond”. Remote diagnostics dramatically reduce critical, unanticipated failures and frequency and severity of recall.

Digital transformation interconnects supply chains thus lowering costs and accelerates supply chain transparency by end-to-end process integration. Cloud based tools provide visibility for every party in a supply chain to look at same data and analytics arrests defects as they are detected and corrected earlier in the chain.

On the customer front, digital transformation leads to better understanding of customers, personalizes responses, and improves revenue by serving manifested and latent demands. By using social media and analytics tools, customer touch points can be made comfortable, convenient and value adding. Unwanted waiting and reneging could be eliminated. Digital technologies allow companies to derive total life cycle value from their incumbent customer base. They include advanced algorithms for managing workflows and improving service call effectiveness. By integrating mobile, cloud, virtual assistants and native bots, they optimize business processes by enabling predictive interventions, omni-channel support and seamless communication.

By supporting unified, experience rich and many-to-many collaborations, digital technologies provide opportunities for businesses to experiment with novel business models. They help companies design “service-friendly” products or pursue “outcome based” engagements, as risks can be more easily quantified and hence made manageable. Finally, on the employee front, digital technologies can increase transparency at all levels, and drive ownership in a collaborative environment, while by integrating knowledge, tools and support procedures they help achieve higher productivity levels.

Impact of Digital Transformation

Without digital technologies customer interactions with dealers or OEMs are limited by time and geographic reach. Cloud and IoT enabled infrastructure enable a highly cost-effective, rapidly responsive and elastic IT, better aligned with business needs. With legacy and disjointed systems, aftermarket processes suffer from high latency and lagged response. This may be because of restrictive technologies and interfaces or high cost of wrap up solutions. For example, waiting time for a service ticket may be so high as to dissuade customers from reaching out to OEMs or their dealers. Moreover, legacy systems may not be enabling customers to do self-service. Management reporting and control without real-time automation only provides lag information, while management needs lead information. Hence, management may not find data objective and relevant to take good decisions in dynamic situations and changing environments.

Digitization enables organizations to quickly sense and respond early so that value of information remains high and managerial decisions effective. It enhances availability and reach of aftermarket touchpoints. Digitization also eliminates the vagaries that creep into a service experience due to human intervention. Services focus shifts from meeting SLAs with permissible failure rates to continuous proactive improvements.

AR/VR enabled sales experiences bring context rich experience to customer pre-purchase interactions and training sessions. Mobile platforms help receive work packages, process service order requests, collect and collate performance data of people and machines and efficiently manage the workforce. Digital transformation enables organizations to not only codify and manage knowledge within their own boundaries, but also with their ecosystems. Companies can build a rich repository of products specialists, influencers and domain consultants. They can connect at will, access resource and reuse knowledge effectively. A key outcome of aftermarket digital transformation is the reach, richness and personalized insights OEMs and their channel partners gain about end customers. The “voice of customers” becomes louder and sharper at all levels, helping OEMs to scent the last mile happenings, keep tabs on the directions of tides and respond immediately to words of mouth. Aftermarket engagement moves away from subjective, reactive and people-led process with its limitations and idiosyncrasies. Service contracts, spare parts planning and forecasting, equipment diagnostics and field service optimizations benefit from predictive data-driven analysis.

Figure 2: Impact of Aftermarket Digital Transformation

impact-of-after-market-digital-transformation

Aftermarket Digitization Program: Planning & Roll out

Aftermarket digital transformation starts with a vision and an understanding of what needs to be achieved. First, identify the current status of your aftermarket process. Your aftermarket maturity may be 1) Rudimentary, 2) Internally evolved, or 3) Externally focused. At the rudimentary stage essentially no formal aftermarket processes exist: Parts planning is either weak or mainly reactive; Support and service are mainly reactive. Customer engagement is mostly transactional, limited to a “purchase and use” philosophy. At the internally evolved stage, OEMs have defined service standards: Planned CM, PM processes and dealer sales and service SOPs are defined and in place across the OEM’s network chain; OEMs in this stage have defined key performance criteria and customer engagement processes. However, these OEMs suffer from incomplete and inconsistent “process islands”, systems and controls. OEMs in externally focussed stage of maturity exhibit more data driven planning, control and measurement of parts and service processes. Still, while these OEMs have evolved to predict, respond to and manage incidents, there is room for improvement in incident management, information integration and partner management.

Setting a clearly defined scope and context is the key for digital transformation. Goals and key objectives, both short and long term, need to be set; How activities at each stage are connected and lead to the next stage needs explicit articulation. Assessing current organizational capabilities, customer pain areas, and benchmarking of competition and best practices is critical to define value levers for digital transformation. Brainstorm to derive priorities for investment and quantification of impact. Look for a unified theme that would increase the relevance of the company to its market and value to its customers in terms of offerings and engagements. Identify key capabilities that may have to be harnessed further through investment and capabilities that may no longer be required. Derive short-term focus areas and detail the activities and outcomes required to achieve objectives.

Create capability improvement roadmaps that would be targeted short and longer term, detailing the initiatives, investments and ownership. It is neither desirable nor practical to completely overhaul existing IT systems and procedures to implement aftermarket digitization. While considering digital transformation think of a bi-modal mode: one to sustain current operational requirements of the business and another that brings agility for future business requirements.

Use cross-functional governance structures to balance company priorities with individual business area’s priorities. Cross-functional units are not only involved in pre-planning, but also in consolidation and definition of common interest areas. Define overarching governance mechanisms, so that changes can happen with little micromanagement, but with a high sense of ownership and outcome. Roll out digital transformation in a limited zone or with few distributors. Perfect the system by removing bugs and standardizing reports and inputs.

Figure 3: Aftermarket Digital Transformation Roll Out

rollout-after-market-digital-transformation

Finally, digitization programs need to be scaled up across the enterprise to achieve the desired impact. Scaling up requires careful assessment of options and a plan to manage risks. It must not only assess scale of operations, but also non-linear inhibitors in systems, processes and skills that may hold back outcomes: For the desired scale of operations, conduct a stretch map function-wise to evaluate how flexible available resources are (people, infrastructure and processes). Identify what activities can be automated or eliminated, what may be bundled together and/or outsourced. Metrics that improve managerial effectiveness, ownership and accountability in achieving results are of critical importance to drive a scaling up program.

Our aftermarket digital transformation experience has taught us a few dos and don’ts which are presented below.

Dos

  • Phased manner digitization with priority on capturing retail side pays huge dividends
  • Digital transformation that deepens end customer visibility and VOR have high payoff
  • Create process, product and change owners at all levels
  • All processes must be redesigned from the customer perspective
  • Top management team has to consistently create a sense of urgency
  • Keep challenging the assumptions, ask for data
  • Prioritize key pains, invest wisely on two fronts only
  • There is no need to pursue state of the art technology, mature, low cost technologies often work well
  • Set your dealers, service and sales teams to enjoy “smaller wins”
  • Communicate the changes to the employees and let it percolate to various levels
  • Digital transformation need not be complex, simple solutions often yield quick & significant impact
  • Hold weekly reviews with the heads of departments, and other decision makers
  • First objective is to achieve working solutions
  • Improvisation is a continuous process and sometimes it is necessary to tweak certain areas after the implementation has been done.

And some don’ts

  • Never thwart innovation and initiative while transforming
  • While digitization opens new business channels, do not neglect business as usual; Sustain it

 

Dr TR Madan Mohan is Managing Partner at Browne & Mohan, a management consulting firm with head office in Bangalore, India.

Rudresh Basavarajappa is Chairman and CEO of Quest Informatics Pvt Ltd, an IT solutions and services company based in Bangalore, India.

R. Ganapathy is a Director at Browne & Mohan.

Further articles on this and other topics can be found in the Si2 Partners Resources Page and the Si2 Knowledge Center

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