1 amt presents: survival and sustainability through customer service in unprecedented times 11:00am...
TRANSCRIPT
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AMT Presents:Survival and Sustainability
Through Customer Service in Unprecedented Times
11:00am
May 8, 2009
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• Mario WintersteinBusiness Development
Director
Staff Liaison to the Global Service Committee
The Association For Manufacturing Technology
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Mark Your Calendars
Customer Service and Support Conference
Nashville, TN
April 15-16, 2010
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• Richard Peach, Operations & Services Manager, Siemens
Chairman, Global Service Committee
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• Bill Horwarth,
President of Global Services for MAG Industrial Automation Systems
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“Survival and Sustainability Through Customer Service in
Unprecedented Times”
Bill Horwarth
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Sales of spare parts and after-sales services in the U.S. represents 8% of annual gross domestic product
American businesses spend approximately $1 trillion on assets they already own
Businesses earn 45% of gross profits from After-Sales but it accounts for only 24% of revenues
After-Sales and Service Facts
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In 2001 GM earned relatively more profit from $9 billion in after-sales revenues than it did from $150 billion in income from car sales
83% of companies surveyed by Aberdeen reported that service parts pricing is extremely important to the financial health of their companies
After-Sales and Service Facts
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Manufacturers must
expand their definitions of the value chain
focus not only on operational excellence but customer allegiance
rethink the meaning of “Vertical Integration”
New product sales are a means to more opportunity
Capturing Value Downstream
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Some manufacturers tend to view downstream services as a necessary evil - “After-Sales is an After-thought”
Think of the installed base of product as an annuity stream
In a tough economic environment, After-Sales revenue can help carry the company through the down cycle
Capturing Value Downstream
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The toughest barrier to competition is customer allegiance and loyalty
Manufactures need to deliver an exceptional portfolio of services that minimize the cost of product ownership
Let’s look at a simple example…….
Capturing Value Downstream
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0%
20%
40%
60%
80%
100%
New Car Purchase
Financing
Repairs
Preventive Maintenance
Fuel
Resale
Insurance
Life cycle cost = 4X asset purchase price
Most consumers attempt to find ways to minimize all these recurring expenses
This does not consider costs associated with lack of availability
Life Cycle Cost of an Automobile
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Determining Downstream Opportunity
Where the money (profit) is……
Maintenance, Service & Machine Availability
Cost of Capital Equipment
Tooling
Foundation/Utilities and Energy
Coolant and Chip Removal or Control
OtherAutomation
Example for a Machine Tool
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Is capturing downstream value right for your business? Think about….
Ratio of installed base to new product sales
Difference in downstream margin vs. product margin
Product differentiation
Share of total profit earned from top 20% of customers
Variable selling expenses as a percentage of product price
Determining Downstream OpportunityDetermining Downstream Opportunity
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Importance of Customer Relationships
Attractiveness of Downstream Business
Power ofSales Channel
Downstream moves are relatively unattractive or unimportant; Focus on
traditional manufacturing strategies
Downstream moves are potentially troublesome; Monitor and experiment
Downstream moves are
attractive and imperative
Ratio of installed base to new product sales
Life cycle economic activity as a multiple of product cost
Difference between downstream margin and product margin
Magnitude of product based differentiation
Share of total revenue from top 20% of customers
Distribution and Selling expenses* as a percentage of product price
2X
20X
1X - 10% pts.
Significant Patent Position
40% 2%
Superior Brand
Technology/ Performance Lead
20% Cost Advantage
Commodity 80%5X+ 10% pts. 10%
50X
* Variable and fixed sales, marketing and advertising
Determining Downstream Opportunity
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Downstream Business Strategies
What downstream strategy should you apply? Embedded Services Honeywell - (AIMS)
Comprehensive Service GE Transportation – Aircraft Engines
Integrated Solutions Nokia - Network Products & Services
Distribution Control Coca-Cola - Integrated Distribution Network
One strategy works best, however seven models can be applied to a given strategy…
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on Performance
Pay for use
EXAMPLE
Razor Blades
TV’s
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
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#1
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on Performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on Performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
#3
19
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on Performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
#3
#4
20
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on Performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
#3
#4
#5
21
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Consumer
Consumer
Consumer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
#3
#4
#5
#6
22
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BUSINESS MODEL
Disposable
Time + Mat’l
Warranty
Lease
Cost-plus
Performance based
Power by the hour
TERMS
Dispose of products when they fail or need to be upgraded
Pay for support as needed
Pay fixed price as needed
Pay fixed price for a fixed time; option to buy
Pay fixed price based on cost and pre-negotiated margin
Pay based on performance
Pay for use
EXAMPLE
Razor Blades
Appliances
PC’s
Automobiles
Construction
Aircraft
Aircraft Engines
PRODUCT OWNER
Customer
Customer
Customer
Mfg; leasing Co
Customer
Customer
Mfg; service provider
Models of After-Sales Services
#1
#2
#3
#4
#5
#6
#7 23
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Cost reduction – Pareto your costs Personnel – permanent full-time, part-time and contractors Travel & living expenses IT related expenses including communications
Turn reactive call centers into tele-marketing centers
Survey your customers for any lost opportunities Look for recurring themes of availability of material or pricing
Conserve cash – consign vs. buy, negotiate longer terms
Survival in Today’s Market
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Revisit your pricing strategy on parts and services
Determine industry segments or customers who are spending and focus intensely on them
Offer service contracts at cost-plus Allows you to retain technical workforce Keeps out low cost substitutes Pull through higher margin services and part sales
Survival in Today’s Market
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Survival in Today’s Market
Put incentive plans in place for service technicians
Expand your service capabilitiesLarge customers are reducing fixed costs
Seek long term service contracts to replace their workforce
Place under utilized service technicians in the factory to displace contract assemblers or full-time assemblers that are not as flexible on travel
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Sustainability in the Future
Prepare for the next down cycle…now! When rebuilding your workforce, rebuild
with as much variable workforce as possible
Use outsourced services if it is not your core competency
Conserve cash – consign vs. buy, negotiate longer terms
Diversify your portfolio
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Sustainability in the Future
On future orders/contracts negotiate back to back payment terms
Interview/survey customers to understand their plan for outsourcing maintenance and spares support
Partner with suppliers who add value and can help you create value for your customers
Develop strategies to keep your services top of mind for your customers
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Sources
1. “Go Downstream: The New Profit Imperative in Manufacturing”, by Richard Wise and Peter Baumgartner, Harvard Business Review, October 1999
2. Maximizing Profitability with Optimized Service Parts Pricing - A Benchmark Study”, AberdeenGroup, March 2005
3. “Winning in the Aftermarket”, by Morriss A. Cohen, Narenda Agrawal and Vipul Agrawal, Harvard Business Review, May 2006
4. 1999 AMR Research Report
5. 2004 Wharton-Stanford Service Supply Chain Thought Leaders Forum
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Q&A
Customer Service and Support Conference
Nashville, TN
April 15-16, 2010
----------------For more information about this presentation and other
Global Service Committee activities, please contact Mario Winterstein: [email protected]