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1 AMT Presents: Survival and Sustainability Through Customer Service in Unprecedented Times 11:00am May 8, 2009.

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Presentation on theme: "1 AMT Presents: Survival and Sustainability Through Customer Service in Unprecedented Times 11:00am May 8, 2009."— Presentation transcript:

1 1 AMT Presents: Survival and Sustainability Through Customer Service in Unprecedented Times 11:00am May 8, 2009

2 2 Mario Winterstein Business Development Director Staff Liaison to the Global Service Committee The Association For Manufacturing Technology

3 3 Mark Your Calendars Customer Service and Support Conference Nashville, TN April 15-16, 2010

4 4 Richard Peach, Operations & Services Manager, Siemens Chairman, Global Service Committee

5 5 Bill Horwarth, President of Global Services for MAG Industrial Automation Systems

6 6 Survival and Sustainability Through Customer Service in Unprecedented Times Bill Horwarth

7 7 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

8 8 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

9 9 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

10 10 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

11 11 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 Lets look at a simple example……. Capturing Value Downstream

12 12 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

13 13 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 Other Automation Example for a Machine Tool

14 14 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 Opportunity

15 15 Importance of Customer Relationships Attractiveness of Downstream Business Power of Sales 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 15

16 16 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…

17 17 BUSINESS MODEL Disposable Time + Matl 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 TVs PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services 17 #1

18 18 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 18

19 19 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 #3 19

20 20 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 #3 #4 20

21 21 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 #3 #4 #5 21

22 22 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Consumer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 #3 #4 #5 #6 22

23 23 BUSINESS MODEL Disposable Time + Matl 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 PCs Automobiles Construction Aircraft Aircraft Engines PRODUCT OWNER Customer Mfg; leasing Co Customer Mfg; service provider Models of After-Sales Services #1 #2 #3 #4 #5 #6 #7 23

24 24 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 Todays Market

25 25 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 Todays Market

26 26 Survival in Todays Market Put incentive plans in place for service technicians Expand your service capabilities Large 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

27 27 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

28 28 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

29 29 Sources 1.Go Downstream: The New Profit Imperative in Manufacturing, by Richard Wise and Peter Baumgartner, Harvard Business Review, October Maximizing Profitability with Optimized Service Parts Pricing - A Benchmark Study, AberdeenGroup, March Winning in the Aftermarket, by Morriss A. Cohen, Narenda Agrawal and Vipul Agrawal, Harvard Business Review, May AMR Research Report Wharton-Stanford Service Supply Chain Thought Leaders Forum

30 30 Q&A Customer Service and Support Conference Nashville, TN April 15-16, For more information about this presentation and other Global Service Committee activities, please contact Mario Winterstein:


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