If your Aftermarket is an Afterthought, you are in for a treat.  After decades of carving out market share, refining and optimization process technology, and running #businessmodels based on CAPEX sales, original machine manufacturers (“OEMs”) have recognized that searching for the next golden goose is one they already have.  After all, the lifecycle of a machine starts with the capital equipment sale, and then quickly moves into its deployment and the customer’s cost of operating the machine.  

But the OEM mindset change to deliberately drive revenues and especially profits from small ticket service and parts Sales is a challenge for most companies that are used to having large ticket Sales dominate their P&L.  To then sell the Aftermarket-as-a-service, most #manufacturers get stuck on the transformation along TSIA‘s journey of selling subscriptions.  The truth is that changing Operations from a reactive to a fully engaged service focused on customer outcomes is a big lift.   

In our practice, when we configure #crmsolutions , we often encounter the Industrial OEM’s struggle to capture Aftermarket Sales. They’re not designing Service into the CAPEX Sales cycle.  The organizations are built to sell, manufacture and deploy machines.  And then they start thinking about service.  And yet these very machines become revenue sockets for repeating component orders, much the same way printers consume ink.  And the business model is as old as Gillette‘s entitlement of razor blades for every razor sold – or given away.

So why should this be so difficult? The reason is that Aftermarket Sales cycles are totally different from CAPEX machine Sales.  The mindset and needs of customers running these machines are measured in days and hours, not months.  Most often, original equipment manufacturers don’t build their companies to optimize for machine life cycle.  They have their hands full getting machines sold! With a typical product life cycle of 25-40 years, the installed base of machines will experience many more challenges and #applications than any OEM could ever anticipate in the design phase.  Thus maintaining, upgrading, and replacing an aged population facing obsolescence and a host of mysterious problems remains a challenge.   

To make things worse, The OEM’s #aftermarket or Service department often lives in a disconnected silo in the corner of the OEM’s building.  I’d encourage you to walk into a machine maker’s lobby and see a service banner dominate over technology prowess.  Or check out their websites: Look at the world’s largest OEM for lasers TRUMPF, or high precision CNC machines Makino.  Manufacturers and their customers are so enamored with performance that the next 25 years of maintaining the machine is secondary.  As a result, for most OEMs, servicing the installed base is a reactive business.  Even when parts are in stock, delivering them to a geographically dispersed fleet requires a well-run #supplychain and logistics department.  Check out our partner: Sourcing IQ to drive the buying and inventory side of your business.  

And yet, the Aftermarket is often twice as profitable as new machine Sales.  Short Sales cycles involving few resources with high margin spares, shipped the day they’re available, stand in sharp contrast to lengthy #capex sales that consume a big chunk of the OEM’s SG&A.  A well-balanced business will generate half of its revenues from the Aftermarket at twice the EBITDA.  Clearly well worth it, so what’s in the way? 

We have identified 4 root causes that stand in the way of enabling the Aftermarket revenue stream: 

01. Reward system optimized for Top Line. 

Most OEMs reward their Sales teams on top line revenues.  Nothing wrong with that, but if the service contract for a machine falls victim to pricing pressure in the negotiation, service has an uphill battle to make customers pay for something that was given away in the heat of getting the purchase order for the machine. 

02. Disconnect between machine sales and service.

A sensible Sales cycle design respects both the upfront capital investment and the cost-of-ownership for a machine that will print money much beyond its CAPEX ROI.  Isn’t the sale of the equipment the best time to sell the service contract?  When was the last time you walked out of Best Buy and weren’t asked at the cashier if you wanted a lifetime replacement guarantee?  In our practice, when we design Sales cycles, we build the service component into the CAPEX cycle and track EBITDA on selling the Aftermarket.  The math is simple: For a given $250k piece of equipment with a service life of 25 years, annual contract values of $25k are only a 10% adder but deliver twice the machine Sales ticket in revenues over time.  And that’s without having to sell a new machine every time, and at twice the profit. 

With some training, a good Sales cycle design, and the appropriate Sales incentive system, #OEMs can easily design for the Aftermarket in their equipment Sales.   

03. Poorly understood Aftermarket business process.

Designing and maintaining machines are two totally different objectives that just happen to be about the same machine.  Significant gaps arise as soon as the OEM has installed and commissioned the machine.  Ownership is transferred to customers, and so is the responsibility for continued performance of the machine. That can tarnish the reputation of an OEM.  Unless there is a documented business process of how to track the machine, dedicated Aftermarket resources that understand their roles and responsibilities of staying in touch with customers, and a system that can monitor the maintenance and performance of the #machine , condition and performance of the installed base is up to the customer. 

04. Inaccessibility of documentation.

One of the most painful truths about the machine tool business is that not 10 machines are exactly alike.  In the 80s Intel famously developed its Copy Exact methodology to produce identical semiconductor chips from processes that can scale and be replicated in facilities world-wide.  The implication for machine manufacturers was an immense effort to document its bill of materials, control for changes, manage obsolescence, and understand the use of its machines by its customers.  There is no such standard in the machine tool business.  As a result, the OEM’s machine population often contains continuously changing bills of materials for the same model machine over time.   Most manufacturers have some database or at least a shared drive in which BOMs are stored, but using and finding them let alone sourcing them back to an active part with an inventory count is mission impossible.  And looking up the BOM for a given serial number of the machine in the #ERP system probably requires some database skills.   

The Solution?

After seeing dozens of OEMs struggle with their Aftermarket business, we found a platform partner at Industrility to use a simple and yet highly sophisticated way to list customer machines as assets in the field.  Industrility ingests drawings, models, BOMs and manuals, and provides end users a direct connection to ordering maintenance and spare parts.  We were very impressed with Industrility’s implementation of PDC Machines, LLC’s hydrogen compressors, led internally by a small Aftermarket team and stood up in just a couple of months.  As we helped PDC implement the Aftermarket use case, we relied on Industrility for the heavy documentation lift.  As a result, end users can now scan a QR code on their machines with their mobile phone, select supporting documentation, and order maintenance kits and spares that pertain exactly to their machine model. 

Industrility has managed to provide the look, feel and ease of an Amazon shopping experience with the documentation package otherwise hidden in the OEM’s central IT systems.