Aftermarket Services Are Generating New Revenue Opps for Discrete Manufacturers

Many “discrete manufacturers”—those that produce distinct items such as cars or smartphones, as opposed to “process manufacturers” that produce undifferentiated items such as oil or salt—can expect to capture upwards of 30% of their revenue from service and service-based product strategies in the future, according to a recent IDC report. In fact, the study’s authors predict that, by 2020, onboard service revenue will outpace product-related revenue by a factor of two.

“Aftermarket service management programs provide higher margins and profitability, as well as garner multi-year, subscription-based revenue streams,” the authors wrote. “For industries such as automotive, consumer products and industrial equipment—where products typically incur a multi-year product life cycle—aftermarket spare parts or maintenance repair parts remain profitable businesses.”

They caution, however, that manufacturers need to recognize that service parts planning (SPP) technology is different than supply chain planning technology (SCP), as SPP applications base demand for service parts on product reliability, warranty management, planned maintenance, and timetables within specific customer service-level agreements. For SPP, equipment uptime optimization and the management of inventory risk trade-offs are the prime considerations.

Cloud-based and Internet of Things technologies will create a competitive advantage for these new revenue opportunities. “Applying this to service innovation will provide meaningful impacts in the automatic sensing of spare and consumable parts demand, the monitoring of equipment performance, and the tracking and managing of service parts inventory,” the authors wrote.

Netherlands-based Teleplan International, an after-sales services partner for communications, computer and consumer electronics companies, wrote in a report that, to be successful, manufacturers should integrate aftermarket services programs into their overall customer engagement strategy.

“In the past, many companies focused simply on getting a product repaired or replaced” as a way to keep customers happy, Teleplan’s authors said in their report. They also recommended that manufacturers locate their aftermarket operations close to their end-customers, which may not necessarily be near their manufacturing facilities in low-cost countries.

As a result, it might make sense for manufacturers to outsource their aftermarket services to specialists who have already invested in multichannel, reverse logistics capabilities in regions close to end-users, and as such, can likely be much more efficient than manufacturers conducting aftermarket services in-house.

IDC: Business Strategy: Spare Parts Planning for Service Excellence

Teleplan: Reverse Logistics: Changing the Game in Aftermarket Service Strategies