Most manufacturers understand that skillful management of service parts operations is critical to reducing costs and optimizing stock levels throughout a supply chain network. But very few are actively leveraging the after-sales side of business as a source of greater profits. This is a significant lost opportunity; according to IDC, manufacturers could use service delivered after the initial sale of a durable good to increase revenue up to 30 percent. Better service parts management is not only a source of profit; it has ramifications throughout the organization, its distribution network and its customers.
Forecast Service Part Demand More Accurately
With durable goods manufacturing declining since the fourth quarter of 2015, many large manufacturers emphasize after-sales service as a form of competitive differentiation and source of revenue. Businesses are also turning to improved service parts management and price optimization to help manage inventory levels and even boost margins.
However, the erratic demand patterns for service parts is challenging. Parts may not move off the shelf quickly during most of the year. Then, demand may spike for one reason or another — whether seasonality, customer incentives to buy large quantities, or minimum buys. Often, the reasons behind these demand spikes go unrecorded or even unnoticed, and in some cases, the fluctuations can be catastrophic. That’s why companies want to make sure they have all necessary service parts available, while keeping inventory levels to a minimum to avoid clutter, overstocking and obsolescence.
At the same time, forecasting future demand becomes pointless if these intermittent swings are not properly identified. A single miscalculation can mean high levels of unusable or obsolete stock that can cost a company thousands or even millions in warehousing expenses. According to Paul Trujillo, Product Marketing Manager at Informatics, the carrying costs for $300,000 worth of inventory are estimated at more than $60,000 per year. These charges can add up quickly, and over time they will impact a company’s bottom line. When funds are tied up in parts that can't be sold, it leaves less shelf space for more relevant stock. This chain of events often leads to customer dissatisfaction if the end user can’t get the parts needed for a quick repair. Fortunately, after-sales services provide an opportunity to move the needle in these key areas.
Opportunities Within Aftermarket Services
Exceptional and profitable service means having the right parts sold at optimal prices at the right place and time — not just “sticking to what you know.” For example, doubling the price of a part may be a default move by many auto shops and dealers, but what if it’s a disservice to your business? Or what if you could actually charge more with a smart pricing analysis? Managing large inventories and complex supply chains can be daunting and time-consuming. The right tools can automate and simplify the process while yielding greater profitability.
The first step is an effective inventory management solution that automatically tracks stock, orders new parts just in time, forecasts accurately, and manages the entire service lifecycle of a manufactured product.
The efficiencies created by an inventory management solution alone make it easy to reduce costs and optimize stock levels. According to a report by Aberdeen Group, service has come to be about more than support. It comprises a true understanding of customer needs as well as profit opportunities for the organization. And those opportunities are very real; margins generated by after-service-related activities can be as much as ten times higher than those of initial product sales.
The final benefit of better management of aftermarket sales is less tangible, but still important. As the Aberdeen report reminds us, being customer-centric is also profitable. Customers will be far more satisfied if they receive needed parts, and therefore needed service, without delays or mistakes. They’re also more likely to purchase in the future if they have a positive experience, and they may recommend the brand to other potential customers as a result. For most companies, better service parts management means higher revenue, greater profitability, and over time, a powerful competitive advantage for the company and the brand. In other words, everyone wins.
Gary Brooks is Chief Marketing Officer at Syncron. With 20 years of marketing experience, Mr. Brooks is a revenue focused B2B marketing executive who believes in qualitative work with quantitative results to deliver breakthrough revenue performance.