This is about the life of innovative machine manufacturers and their aftermarket. It’s also the first piece in a series of articles about the unnecessary risks, the time that’s consumed, the cost and not to say the least, the pirates. Well managed, it is a fantastically profitable and sustainable part of the business, but…
What are the golden eggs in your aftermarket?
Do you know of any hens that lay golden eggs? According to us very few of these hens have been found outside the fairy tales. A machine manufacturer, on the other hand, who has built up a well-functioning aftermarket can count on a steady income flow for a long time to come. On top of that, they have better margins and a reduced economic vulnerability during recessions. A great example of this is Tetra Pak, whose machine sales are primarily to be able to sell their packaging and consumables. During times of economic turmoil, investment in machinery may decline, while sales of milk and yogurt will always be stable. Even in less obvious examples, the aftermarket and its additional sales should be more profitable. No one other than the original machine manufacturer will know more about the customer, its needs, and machinery. This makes it a good deal to be able to offer service, spare parts, and consumables yourself. It’s also an excellent indicator for the seller to know when it is time to sell a new machine. With a continuous and reliable margin, it becomes less risky to keep having high research ambitions. This, in turn, provides a long-term sustainable pace for product development and leads to you keeping the lead in technology and innovation.
What are the risks for the machine manufacturer in the aftermarket?
In real life, it is neither as simple nor obvious how to succeed. Most probably there are competitors without scruples who want to steal your aftermarket and new sales to your customers. A variety of external factors such as geography, wages, taxes, import duties, etc. can also nibble on your profit. However, the most common reasons for a less successful aftermarket often lie in your own processes, in the internal communication, or the communication with the customer.
Wrong orders and incorrect deliveries will cost you
You probably have someone in your factory and/or out working at the customer who has been with you for a long time. That person knows all the ins and outs when it comes to the machines and their history. Even if this person is available, there can still be great uncertainty about what kind of spare part to order or deliver. Especially if the machines have been modified or have a mixture of original parts and replacement items. Errors made during handling of spare parts cost you a lot, both through unnecessary production stops, the extra administration, but also in shipping and more.
Suboptimal storage of spare parts will cost a lot to machine manufacturers
It’s not easy to manage a storage of spare parts. Too many spare parts in stock will look your capital and have direct costs, such as costs for premises, storage systems and even doing the inventories take longer time. Too few spare parts in stock cost money and customer relations, but will also cost through more expensive handling of, for example, express orders from the machine manufacturer’s own suppliers.
Attacks from “patent-trolls” and spare part pirates will cost you
There are companies building their entire business on monitoring when different patents expire. The pharmaceutical industry is an extreme example of this. After fifteen years of research, clinical studies, regulatory approvals, on average one in three medicines or substances is approved. The next ten years are spent marketing and presenting the product to an entire medical profession. When a total of 25 years has passed, the recipes are free to copy for those who want. If the copy puts its price 10% below the original, then pharmacies in many countries must recommend the cheaper product and it’s perfectly legal. Tetra Pak’s patents for a couple of their best-selling packaging materials will soon expire. Then the price is not what you want to use fighting the new competitors. One must fight with innovation, first-class service, guarantees, and world-class user experiences. They can no longer just sell machines and processed paper, they must sell themselves as a whole and as part of the flow of the customer’s production. If the customer processes are digitalized, the machines must also be an integrated part of these. This is something that can be difficult for competitors to offer. For a machine manufacturer, there are also many pirates on the market. They sell knock-offs of components and spare parts without even waiting for patents to expire. To stop it a machine manufacturer may require original parts to be used for warranties to apply. Apart from that, there are no measurements the machine manufacturer can take against pirate parts before the damage has occurred or a service inspection has been performed.
Cumbersome handling of purchase orders costs
There can be very different routines for how orders and purchases are made. It can be decentralized, making an operator responsible for making certain purchases. The opposite is a centralized process where purchases must be approved at one or more levels above the operator. Regardless of the process, this type of purchase requires an operator or maintenance manager to take the time to communicate with someone by phone, email, or have a license to order via the business system. It sometimes happens that you do not have time, or forget what you need to do. This is not the fault of the machine manufacturer, but there is a risk that an electrical fault, the break in usage, and the downtime instead are said to be due to the poor quality of the cable. On the other hand, it partly is the machine manufacturer’s fault if the customer contacts a competitor because the reception of the order had a too long waiting time or the website was too complicated to find the right spare part.
A service agreement is costly
There are many machine manufacturers who find it difficult to sell the right type of service agreements a customer need to avoid unnecessary machine errors. No wonder many of these customers think it will be cheaper to act only when shit hits the fan. The cost is perceived as more expensive than the risks and consequences of not having this type of insurance. What’s the reason for this? Service intervals simply cannot be based on the average or median value of the risk of something happening. The interval must be based on a significantly lower risk. The fact that only 5% of the machines’ ball bearings sees the end already after a year or 3000 hours in operation may be a valid reason to always change bearings at this interval. However, mathematically it’s 95% probability that this is unnecessary.
So how do you as a machine manufacturer prepare for nurturing your aftermarket?
The very foundation of being successful in your aftermarket is to own the history of your machines and keep a close eye on them. If you succeed in doing that, all other features will be much easier to implement. The reverse is also true. For example, the benefit of having a new module in a business system is never more important than the quality and reliability of the data it should handle. It does not matter that the reports are good-looking if the numbers are not reliable. In order to gain maximum control, several different, and often quite complex, operating systems have previously been required. There are a few different systems that can keep track of machines and their components at an overall product level. PIM is perhaps the most common term and is an abbreviation of Product Information Management. A modern PIM system should also be able to handle different versions of documents and other media associated with the product. If there are also CAD tools in the solution, the system acronym will instead be PDM, Product Data Management. To keep track of exactly where each unique machine is and has been, a facility register is needed. In order not to confuse this with the facility register for depreciation of your own equipment and assets, these systems are often called EAM, Enterprise Asset Management. A PLM tool, Product Lifecycle Management, follows a product series or machine type from the time it is conceived, designed, developed, tested, produced, marketed, sold until it is discontinued. This connects many different roles in an organization such as R&D, production, sales, and service that share information. A PLM tool is usually very powerful and has extensive functionality. SAP, ORACLE, PTC, Siemens Teamcenter, and Upchain PLM are some of the largest suppliers. It is no wonder that Boeing, BMW, Tetra Pak, and other really big companies have put many years and millions into implementing and integrating this type of tool to manage the aftermarket of their machines. But, what should then a machine manufacturer with limited resources in time and money do?
In our upcoming articles about the aftermarket for machine manufacturers and OEM, we will continue to go through the most common obstacles that many encounters. The working methods, processes, and system support common in the industry today. What stands between these and the digitalized flow many are talking about, but few experience. We will guide you on how to look at these flows, how to start changing and improving. That there will be a lot of unnecessary work if you do not capture the end customers. Today, we focused on business flows across company borders. In the next article, we will focus on the internal workflow. In other words, where change needs to begin. So you will know how to lay your own golden eggs without a magic hen.
The series of articles about innovative machine manufacturers and their place in the aftermarket so far:
- The costs to avoid in your aftermarket (this one)
- Why the system support is deficient when it comes to the aftermarket
- How to make money in your aftermarket with connected machines
- How your aftermarket benefits from a data-driven service book
- How to increase sales in your aftermarket with digital sellers
- How to reach the goal of having great system support for your aftermarket