Consolidation in Manufacturing Leads to Opportunities in Service

Here are three ways manufacturers can adapt today to navigate this changing world quickly and successfully.

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Recently, Germany industrial equipment maker Siemens AG announced its intent to merge rail operations with French rival Alston, creating a “new European champion” in the space. The newly created $15 billion mega-company will quickly become the global leader in train manufacturing. While economic and business factors primarily influenced the deal, there is a huge opportunity for the combined brand to reap significant financial benefits and optimize the customer experience. 

Industry consolidation isn’t new and most likely isn’t going anywhere—French company Suez Group just finalized its acquisition of GE Water. Regardless of industry, the world is in a constant state of acceleration. The manufacturing sector in particular is changing more rapidly than ever—the aforementioned industry consolidation, in addition to demographic, economic and social changes—are creating a major shift in customer expectations and demands. 

Embracing change will allow manufacturers to achieve new levels of customer loyalty and the competitive differentiation required to achieve superior financial performance in the long term. With this in mind, here are three key ways manufacturers can adapt today to navigate this changing world quickly and successfully. 

1. Invest in human capital and technology resources. There is more pressure on manufacturers than ever to create more demand and enhance the customer experience. The status quo won’t cut it anymore—the most innovative brands will need to invest in both human capital and technology to further enhance their abilities, especially in the case of after-sales service. 

After-sales service has long been a sub-optimized area of business. In today’s climate, however, companies that are unable to meet the service demands will quickly see customers purchasing from competitors. Manufacturers must consider investing in technologies to make the service experience more seamless for the end-customer, as well as equip (or hire) staff that embrace change and have a desire to innovate. Service parts inventory management and pricing are the linchpin of any effective service operation. Effective planning and forecasting, plus aligning inventories, resources and processes, ensures optimal customer service levels with minimal risk and cost. 

2. Tap into previously hidden financial levers. Delivering a financial return for manufacturers is harder than ever, and with disruption from companies like Amazon, finding new sources of growth and profit is challenging. 

All too often, manufacturers tend to focus on the finished goods side of the business, where margins are very slim. After-sales service—the service delivered after the initial sale of a product—offers a greater growth rate (9 percent compared to new sales’ 5 percent) and gross margin (39 percent compared to new sales’ 27 percent). Manufacturers need to capitalize on this opportunity, adopting technologies and business practices to help them optimize their service supply chains. And, as more businesses across industries move to subscription based models, investment in cloud-based after-sales service technologies will become even more appealing. 

3. Move from reactive to proactive service. Many manufacturers today still adhere to a break-fix, reactive method of service, repairing equipment after it has already failed. The service side of the business has always been a key revenue and profit generator, but as the world changes and customer expectations evolve, manufacturers must rethink some of these outdated ways of doing business. 

Today’s customers expect a certain level of product uptime, and often times this is agreed upon in a service level agreement (SLA). To guarantee the expected level of product uptime, manufacturers must focus on a predictive style of maintenance. This entails incorporating emerging technologies like the Internet of Things (IoT) into everyday business practices, as well as adopting sophisticated after-sales service solutions that automate and optimize nearly every facet of the service supply chain. By repairing parts before they ever fail, manufacturers ensure an amazing customer experience—one that will keep loyal, repeat buyers coming back. 

In today’s world, there is hardly anything in life that isn’t changing. And, this change is happening at a faster rate than any other time in history. This rate of change is close to exceeding companies’ abilities to learn and adapt. However, manufacturers that invest the right amount of time and resources into the areas of their businesses that will move the needle—like after-sales service—will succeed.