This blog posting represents the third of a four-part market education series, in collaboration with supply chain planning and service parts technology provider ToolsGroup.
Background
In our initial posting in this series, we communicated that one of the most promising line-of-business areas that will benefit from Internet of Things (IoT) enabled technologies applied to supply chain management will be equipment services management, especially service and spare parts management. We declared that if your business or enterprise is considering IoT enabled business models, now is the time to consider investments in fundamental decision-making support capabilities that can best take advantage of the implications of physical and digital coming together. For the area of service management enabled business models, that would include the need for robust service parts planning capabilities.
In our second series posting, we addressed service parts planning (SPP) realities, what makes it so different, and the unfortunate reality that many manufacturing and services organizations with lower levels of process maturity have not recognized the differing process and decision-making needs required for responsive and effective SPP. Service level agreements and inventory management, especially optimized multi-tiered stocking strategies are often sub-optimized with the reality that money is being left on the table. Considering a leap to an IoT enabled service management business model will likely expose such weaknesses weakness.
Added Top Line Revenue and Profitability Opportunity
In this third in our series of commentaries, we amplify the realities that aftermarket services and parts distribution is a significant net margin producer for many manufacturers, one that can add to needed top-line revenue and bottom-line profitability growth in future quarters.
On average, and depending on specific industry area, aftermarket equipment can average 15-20 years in service life, an attractive opportunity to grow top-line revenues and added profitability. A 2015 research survey report published by IDC for UPS, “reaffirms the fact that sales is a transaction and Aftermarket/After Sales is a relationship.” This survey points to one-third of midsize industrial machinery manufacturers deriving upwards of 75 percent of profitability from parts, service, and consumables.
Manufacturers are Investing in Foundational Needs
Robust SPP therefore represents a required maturity stage on the road to IoT-enabled service management relationship business models. Evidence of such realities is reflected in both recent business headlines and in announcements of specific investments in SPP technology capabilities.
General Electric, a global producer of aerospace, energy, healthcare, and transportation related equipment, has been perceived as the initial pioneer in embracing IoT as an enabler of digital transformation for its equipment customers, as well as its own equipment businesses. As a blog focused on global supply chain management, we have consistently admired GE’s efforts both in the company’s global supply chain capabilities and IT practices, but also in the vision and current unfolding strategies surrounding the GE Digital Manufacturing, Industrial Internet and IoT strategies. CEO Jeff Immelt describes a key learning in service management as the need to sell outcomes rather than services contract, with outcomes very much customer defined.
Recognizing the need for foundational service management capabilities, the global manufacturer acquired field-service support software provider ServiceMax in November of 2016. Likewise, GE’s equipment businesses are augmenting SPP processes with advanced software and analytics-driven service management capabilities.
Commercial aircraft manufacturers themselves are recognizing the added value of expanded services management business models. Boeing has recently indicated to shareholders that it intends to boost revenues from services. The manufacturer has also initiated steps to insource more key component manufacturing and recently announced its intentions to form its own avionics business unit. Boeing is no doubt, viewing IoT and automated SPP as one future enabler of these efforts.
Other major commercial and defense aerospace equipment providers such as Pratt & Whitney have recognized the need to enhance and modernize SPP processes to prepare for business digital transformation.
HVAC manufacturer Lennox Residential began an effort to transform customer service around new digital enabled business models. The company recognized opportunities for air conditioning equipment to stream operational data via IoT, with the ability to diagnose impending equipment failures and automatically notify service management to arrange a service visit. A foundational investment in advanced SPP capability allows Lennox to automate a vast majority of service parts inventory decisions as well as to proactively manage and balance service parts availability across the services network.
Likewise, manufacturers such as Aston Martin, Harley Davidson, Mitsubishi Electric, and Whirlpool, among others, each made investments to enhance their aftermarket parts supply chain capabilities last year.
Technology Vendors Are Responding
Best-of-breed SPP technology providers such as ToolsGroup and PTC recognize the linkage of SPP as a foundational capability towards IoT enabled services management. Likewise, enterprise software providers such as Oracle and SAP are investing in such efforts. Modern SPP coupled with IoT reinforces the ability to leverage advanced analytics and more timely decision-making along with added capabilities to leverage “lights-out” or autonomous planning processes.
Again, if your organization, line-of-business, or enterprise is considering IoT enabled service management business models, now is the time to consider investments in fundamental decision-making support capabilities that can best take advantage of the implications of physical and digital coming together.
© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
