Aquila

Manufacturers are increasingly focused on aftermarket services

Manufacturers are increasingly focused on aftermarket services, not just to enhance customer satisfaction, but also to generate money. Scaling aftermarket services at a time when new equipment orders are being halted and capital expenditure is being questioned makes extra financial sense in the context of COVID-19 disruption

Manufacturers are progressively beginning to provide more aftermarket services, which encompass the sale and delivery of maintenance, replacement parts, and other value-added services. Customer demand changes, growing market maturity, cyclical variations in new equipment sales, and price pressure are among the primary causes pushing many manufacturers to explore new aftermarket services income possibilities.

This trend appears to be occurring as more consumers emphasise service level agreements (SLAs) that ensure product uptime and, as a result, seek service providers that can proactively maintain their equipment before it fails. In exchange, these clients are ready to pay a higher price.

With the interruption caused by the COVID-19 situation, manufacturers should consider taking advantage of the chance to rapidly grow their aftermarket services capabilities. As new equipment orders are interrupted and capital investment is questioned, aftermarket products and services will become an increasingly important and stable component of the industrial business mix.

Manufacturers should seize this opportunity to implement long-planned improvements and innovations in the aftermarket that have the potential to transform the nature of their connection with their customer base and channels.

We interviewed 35 North American and European manufacturing leaders and subject matter experts in a series of worldwide CEO interviews.

Based on the findings, we give numerous current-situation insights that manufacturers may consider when developing and implementing their own aftermarket service plan, including:

Aftermarket services provide manufacturers opportunities to navigate the COVID-19 issue. The significance of digitization in improving service offerings and developing revolutionary business models based on value offered Manufacturers' strategies for overcoming the typical problems they confront in aftermarket services

Manufacturers have traditionally focused on selling equipment, with aftermarket services being an auxiliary industry, and as a result, overall business models have been mainly transactional in nature. However, due to changing market conditions, many manufacturers have shifted to a relationship-based business strategy, selling results, in recent years. However, as a result of the exceptional crisis, manufacturers must concentrate on offering sophisticated connected services, perceiving themselves as solution providers that improve client business outcomes . To minimise equipment breakdown, manufacturers should focus on selling uptime and collaborating with customers.

As a result, manufacturers are transitioning from a transactional to a relationship-based business model, which may involve long-term incentive, pay-per-use contracts. While this has tremendous potential for many manufacturers, it may need them taking on additional duties, liabilities (both operational and reputational), fines, and revenue payments associated with use. It does, however, allow manufacturers to collaborate directly with their clients and alleviate the pressure on component prices created by customers looking for lower-cost replacement parts from online wholesalers.

Zero unexpected downtime is becoming the top objective for a growing number of manufacturing clients. They are moving their emphasis from a capex (capital expenditure) to an opex (operating expenditure) model, i.e., from making large capital expenditures to gain equipment ownership and capabilities to paying costs to utilise the equipment and related capabilities as a service.

Manufacturers should collaborate closely as partners with their customers to get the desired results. Many manufacturers are increasingly focusing on service-based business models that are dependent on consumption, such as subscription-based pricing or pay-per-use contracts.