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Competing for High Margins in the Aftermarket

Feature Article | June 13, 2017 by Andreas Schmitz

The aftermarket is between four and five times larger than the manufacturing market. So it’s hardly surprising that a number of third-party providers are looking to secure business with maintenance and repair services that are required following the sales of machinery.

Designing and building machinery is just one side of the business. Thanks to the Internet of Things (IoT), the maintenance and repairs industry has undergone a remarkable boost. SAP experts estimate that the aftermarket is four to five times larger than the current manufacturing market, where the total volume of customer expenses for replacement parts and services amounts to approximately $1 billion USD every year in the United States. Industry experts maintain that some manufacturers are currently generating up for 40 percent of their turnover from the sale of accessories, replacement parts, and services.

Thus aftermarket business has become a fiercely competitive market. Independent suppliers of alternative replacement parts and services are competing with machine manufacturers to secure the business that becomes available immediately after a purchase has been made.

“Customer service, replacement parts, and accessories constitute an enormous growth market for manufacturing companies,” affirms SAP Business Solution Advisor Dale Grant.

How Amazon Became a Model for Aftermarket Business

In the digital world, customers have grown accustomed to the added value provided by the quick and simple shopping experience instigated by the likes of Amazon, Google, and Alibaba. What about the variety of offers from the global supply network? The next logical step: “Driven by these past experiences, the customers’ expectations of their suppliers have radically changed in recent years when it comes to replacement parts and services,” says Grant. “In the past, customers reached out to the contact person recommended by the manufacturer, or the small maintenance company around the corner. Yet they’re now looking for a quicker and easier solution to their problems, and across all distribution channels.”

In the future, OEM portfolios will include personalized customer portals with self-service options for customers, and will integrate sales channels such as telephone support by using a multi-channel approach.  This requires an end-to-end process: Only those who fully understand the product life cycle — including the required materials, repairs, care and maintenance, installing upgrades, offers for add-on products, and trainings — and have also mapped it in their own system, can ultimately provide customers with tailored offerings at the right time during usage.

“This is how the manufacturer can establish a connection with the customer throughout the usage phase, and can secure future aftermarket business,” says Grant.

“The aftermarket profit margins speak for themselves. Many manufacturers see the potential of this market, but don’t opt into it. As a result, they lose out on additional business and sales to producers of alternative replacement parts and service providers, whose offers are simply more attractive thanks to the digital sales channels.”

Krones’ Approach to the Aftermarket

For Bavarian packaging and bottling machine manufacturer Krones, the main focus of maintenance and service is preventing system downtime, and quickly securing repair work. One key requirement is that the customer receives the correct replacement parts as fast as possible.

“In our online shop, our customers can enjoy the same shopping experience as they would with online retailers such as Amazon,” explains Bernd Baldauf, head of E-Business at Krones. Customers in search of replacement parts don’t waste time leafing through outdated catalogs. Instead they try their luck online by researching the system structure and machine to locate the bills of material and the relevant drawings. The drawings help customers decipher which various system components they need. This simplifies the selection of the required items that can be directly added to the shopping basket and ordered. Urgent orders are dispatched via express delivery, and arrive at the customer within 24 hours.

The Role of IoT

The Internet of Things (IoT) will also play a key role in the future. Many machines currently communicate using sensors and can be monitored remotely. The sensors recognize when the operating hours or vibrations have exceeded the defined thresholds and indicate that an inspection is needed. This data can be integrated directly into a personalized manufacturers’ portal and used to forward service requests to the manufacturer or automatically order the required materials.

What Belongs in the Technological Portfolio

Technically speaking, there are a vast number of elements at play. “SAP isn’t focused on a single product, such as an E-shop, but is more concerned about combining various solutions and a back end, in which orders can be processed, and invoices can be drawn up for the delivered replacement parts,” explains Grant.

At the heart of the solution – also the case for Krones – is the e-commerce platform, SAP Hybris B2B Commerce, to which additional functionalities can be added depending on the intended purpose. The visualization tool SAP Visual Enterprise will enable exploded system views and the SAP Asset Intelligence Network has a current replacement parts catalog and technical documentation for the respective system, and is the prerequisite for the machine’s digital twin. SAP Leonardo, the portfolio for the Internet of Things, enables sensory data from machines to be processed and analyzed in the cloud. “If the devices are already equipped with the relevant sensors, the service will automatically receive a warning if the machine overheats or vibrates excessively,” explains Grant. SAP Hybris Cloud for Service ultimately ensures that service technicians can be deployed when required, and can be guided accordingly.

Creating an Individual Solution

The choice of SAP portfolio components to be deployed in the company is ultimately decided by the individual.

“The basic architecture is a broad field,” affirms Grant. “This is why we usually kick off collaborations with potential customers with a design thinking workshop. After a company has opted for technical solutions, the aim is to identify the approaches that are expected to have the largest impact on the business models. Only then can we decide on the best choice of software modules for that particular company.”

Questions? Contact Jochen Marc Barmbrock, Head of Hybris Services Sales Middle & Eastern Europe at jochen.marc.barmbrock@sap.com or Klaus Drews, Demand Management Services Middle & Eastern Europe, at klaus.drews@sap.com.

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