After-Sales Services and Innovative Approaches Essay

Executive summary

Aims and Objective of the thesis

The following title identifies and quantifies my hypothesis: “The new role of after-sales service – how to develop unused potentials in the after-sales services via a detailed as-is-state and market analysis”. The hypothesis has been made under the present conditions in the world market and was aroused by the need of companies functioning nowadays on the secondary service apart from their major specialization – manufacturing products. The increasing need for after-sales assistance as a way to provide higher competitive advantage has been continuously recognized by the majority of manufacturers thus causing a need to create an efficient tool for assessment of black spots in the system of after-sales assistance and to design a system that would eliminate them.

Design of the thesis

The approach taken in the present thesis is a qualitative assessment of existing company analysis tools and uniting the findings into one homogeneous assessment tool to identify the needs of the customers that fail to be satisfied in the course of the provision of mainstream services to the customers and to identify as many ways to meet them as possible. Such tools as 3C’s, the SWOT analysis and the 5 Forces Analysis have been used to identify the current position of the company and potential for development and improvement that can be gained through the improvement of after-sales services provision. Unused benefits were identified with the help of the named instruments, signifying the potential that can be further developed. Afterward, practical recommendations for the increase in potential were offered together with the enumeration of threats that were potentially possible in the course of the change.

The subject matter of the thesis

The present thesis is concentrated on the issues of ensuring higher productivity of the company-manufacturer through working out a set of innovative approaches to after-sales services. The initial statement says that the sphere of services is playing a huge role in the world market nowadays, thus it should not be neglected by the producers that are concentrated only on the production segment of their activity.

In order to prove the correctness of the idea, the analysis of the customer database was conducted, helping to estimate various groups of customers that required separate attention and different services. The company being a manufacturer, it was necessary to define the potential profit brought by spare parts as well as the real profit it gains at the present moment, thus comparing two figures and understanding the necessity of change.

Analysis of demand helped understand the needs of the customers that are continuously not met, giving a scheme for future action. Analysis of competitors creating real and potential threats was also highly useful as it helped identify the problem the company faces in a broader and more complex way. The conclusion to which the researcher came is the growing necessity to pay considerable attention to after-sales services, to create a set of measures to protect the discussed segment from unauthorized third-hand parties decreasing the profit of the company, consequently coming to harmonious co-ordination of both sectors of its activity to ensure the growing competitive advantage for the company in all spheres.

Introduction

It is obvious that nowadays the sphere of services is becoming more and more important. Due to saturated or stagnant markets, changing values on the part of the customer, technical advances, globalization and access to information service are becoming one of the key differentiators especially in growing markets as a manufacturing industry. Companies introduce themselves in an increasingly competitive environment. In international competition, the precondition to survive is the introduction of measures that lead to an added value for the customer.

This added value has to be assessed by the customer as a very important and outstanding issue so that the customer prefers it in comparison with others.

A typical situation for saturated markets is that the products are very similar regarding the performance and their range of application; due to this, they are becoming exchangeable for customers. This situation results from the fact that the product and innovative technologies are at the end of the road regarding their potential for development. Furthermore, the basic technologies are used and implemented by almost all competitors. Due to this practice creating preferences on part of the customer in order to gain an advantage in the competition through optimization or improvement in the basic value becomes much harder.

Therefore, it is necessary to offer an added value to the customer; for this purpose services, especially after-sales services, are one of the best measures. Services are secondary performances that are targeted to improve customer satisfaction and loyalty through an increase in added value. These services have to be better aligned with customer requirements than those of the competitors. As a result, competitive advantages that are based on service also have the benefit of imitation protection, because services are immaterial goods.

A change in values and a consumer policy that is getting stronger result in customer behavior that is affected by increasing self-confidence, criticism and requirements. This means that the customers take some product and service performances for granted and expect them from the supplier. In addition, the willingness to accept insufficient quality regarding the products and services is steadily decreasing. Hence, it is crucial to offer a high-quality service that is aligned with the requirements of the customers.

As has been mentioned above, another factor for service to become more and more important is the increasing technical complexity of the products. The more complex and complicated the product technology becomes the more difficult the product handling and the higher the need for an explanation for the customer will be. Without accompanying services like professional consulting, training, and maintenance these high-tech products can not be used optimally and efficiently. Thus it is natural that the sales of products in the manufacturing industry are highly dependent on the supply of service, especially after-sales services that support the product.

This does not mean that innovative technologies and highly developed product quality become less important, but outstanding product quality can only be achieved by providing optimal service performance. As a consequence of the increasing importance of service and the rising demand for service, the market performances obtain a character of an independent system. Traditional product marketing will reach its final point as it is not prepared for the peculiarities of service provision and implementation. Therefore, manufacturing companies need to integrate product and service marketing in a holistic management approach. In order to develop a long-term competitive advantage based on service, the companies need to set the course already today.

Summing everything that has been said up, one can see that service, especially the after-sales service has become a very important differentiation potential for the companies. Although the companies are aware of this trend many companies are using their service advantages not adequately. The company that is analyzed in this thesis is also not completely using the potential of the after-sales service. It can be seen that it is not only the potential of differentiation that is not fully exploited by the company but also the market potential, the potential of information and customer loyalty.

The challenge for the company and the question to be asked is how to find a way to identify the unused potential benefits and how to develop this potential. Due to this the purpose of this thesis is to develop the after sales service of the analyzed company in such a way that the company would be able to take an advantage of the increasing importance of service and to develop the unused potentials in the after sales service via a detailed as-is-state and market analysis.

It will be necessary to identify the current as-is-state of the company. Chapter 5 describes the analysis to be done in order to identify the current situation of the company. Furthermore, it is crucial to evaluate a tool that permits permanent access to the company’s data to be able to follow up the target performance analysis of the company. Additionally, a market analysis will be necessary to research the requirements crucial for establishing after sales strategies that would permit the company to take an advantage of the potential. The market analysis is based on the 3C’s and covers a customer survey, a company SWOT analysis and the 5 Forces analysis in order to get a clear understanding about the existing competitors.

The research includes secondary sources, the information provided by the personnel of the analyzed company, text books and studies on the subject as well as articles provided by the VDMA (German Engineering Association).

Facts and Figures of the current situation in the manufacturing industry

As stated above, service is becoming more and more important, especially the after-sales service. The rising demand for services, in general, is reflected by an increase in the number of jobs available in this area. More than 66.7 percent of all jobs are in the tertiary service sector.¹ According to studies, 93% of investment goods producers believe in increasing importance of service.² So, once looking at the reasons why customers change their provider the importance of services becomes clear. Only 14% of the customers change the company due to product dissatisfaction, 9% – due to the fact that the product from the competitor is better, 5% – due to business relations with friends and 4% due to other reasons like, for example, the product run-out. However, it is notable that 68% of the customers change their provider due to dissatisfaction in service. ³

Service is a considerably important issue in several industries, especially in engineering and construction companies. At the present moment, these companies are in a major transformation process from a service-based production company to a service company with production. There are various reasons for the decreasing importance of selling products. First, the technical research had to a very large extent reached its ultimate point of development and therefore, the products in the global market become more and more similar.

Second, due to the world economic crisis, the customers worldwide react with increasing insurance and announce cuts or postponing in investments and expenditures. Looking at the statistics, one will see that the sector estimates a decline in the real production of an average of 7 percent. Moreover, incoming orders in December 2008 declined by 40% in comparison with 2007. Consequently, the fourth term of 2008 shows the worst quarterly result since 1958.⁴ Third, margins in the product-only business are diminishing because of technological and market transparency.

By implementing after-sales service engineering and construction companies can generate higher margins. Mercer Management found out in a survey among 200 German engineering companies that they achieve only 2.3 % of return on sales by selling machinery. But with services that are aimed at supporting the customer more than maintaining him/her, the average profit margin is at 10%. As an overall summary of the study, the German engineering companies could realize up to 50% of their profit by increasing service business. But at the moment 70% of the companies achieve less than 20% of their profit through service business.⁵

According to Impuls Management Consulting three-quarters of producers of investment goods generate profit with service and for 68 percent of them the service sector is much more profitable than the product business.⁶

Due to this companies are also able to maximize their profit by giving the service business more importance. Moreover, providing services is manifestly profitable because, according to the VDMA (Deutscher Verband für Maschinen- und Anlagenbau – German Engineering Federation), average annual costs for service and maintenance amount to about 4.7 percent of the original price for mechanical engineering products and plant construction. Consequently, after 20 years of use, these costs are equal to the original purchase price.⁷ In some service segments, e.g. spare parts, figures are almost six times higher than in the core business. Therefore it is not surprising that 75 percent of all companies selling industrial products generate profits with service, with 68 percent of them actually generating more profit by providing services than in selling products only.⁸

Definitions

Definition of after-sales service

After-sales service is a complex phenomenon that is thoroughly described in the BNET Business Dictionary: “In some cases, after-sales service can be almost as important as the initial purchase. The manufacturer, retailer, or service provider determines what is included in any warranty (or guarantee) package. This will include the duration of the warranty (traditionally one year from the date of purchase, but increasingly two or more years) maintenance and/or replacement policy, items included/excluded, labor costs, and speed of response”.⁹

Definition of potential benefits

According to Pümpin a potential benefit is an attractive constellation that could be presented latently or effectively in the environment, the market or in the company and that can be exploited by the company for their benefit.¹⁰

Potential of differentiation

Since the competition in the primary product markets is getting more and more intensive there are a lot of imitations of new products and many product innovations. Especially in market segments for high-quality products, it is becoming more difficult to gain a competitive advantage through physical and technical performance characteristics. Due to this, services are becoming key differentiators between companies.¹¹ Also the competitive advantage of the primary product or the price is, in most cases, only a short-term advantage.¹²

Nowadays competitive products are more similar and due to this they become easier to substitute; for this reason, customer loyalty is decreasing. Therefore, it leads to unilateral pricing competition and to increasing customer requirements. By implementing an after-sales service focused on the customer benefit, differentiating oneself apart from the competition and making a name for it, engineering and construction companies can handle this situation. The companies could improve the problem-solving process and the customer benefits in their service offered through product support after the sale.

For this reason, it is possible to individualize even the standardized non-cash benefits – at least in the customer perception. In many cases, this will result in decreasing price sensitivity from the side of the customer.¹³ Unlike the physical and technical performance characteristics after-sales-service performance is more likely to lead to permanent competitive advantage. It is very hard for the competitors to reconstruct and imitate after-sales service since the after-sales service belongs to immaterial, individual and not storageable services.

Market potential

Engineering and construction companies could generate additional turnover and results by improving the after-sales service. Due to the increasing focus on the core activities of the customers, the willingness to outsource some areas is more evident than ever before. Therefore, many companies are ready to reduce their own maintenance departments in favor of external maintenance services. Due to this trend, many manufacturing or external service companies are in charge of the maintenance or even of the so-called operator model. As an example, one can take a supplier of copy machines that also provides the delivery of toners and copy paper as well as the disposal. Naturally, the only task for the customer is to use the machines and all accompanying services without any additional difficulties.

For some engineering and construction companies, the additional turnover and results possess crucial importance. Especially the spare part business generates the results important to achieve positive turnover. More than that, it is possible to obtain high gross profit margins, because high breakdown costs in case of an unexpected machine downtime permit a time and quality competition instead of a cost competition.

For instance, Schindler, a German manufacturer of elevators generates a much higher profit margin with service and modernization of the elevators than with their planning, production and installation. Since the 1980s Schindler achieves more than 50% of their operational performance with the after-sales service.¹⁴

Potential of customer loyalty

Customer loyalty has enormous economic importance for almost all companies. Statistically thinking, it is five times cheaper to retain an existing customer than to acquire a new customer.¹⁵ The longer a customer relation exists the stronger the profits are increasing due to this relation.¹⁶ In some companies the reduction in customer migration by five percent could double the profits.¹⁷

Since it is impossible to retain customers with force the companies have to convince them to remain with superior performance. Due to this, it is necessary to come up with new products or services according to the requirements of the customers. In the majority of cases, it is more effective to concentrate on the existing and known customer segments than to gain a market share by launching new products. Thus, it is much easier to sell services to well-known customers than to new customers.¹⁸

Regarding the engineering and construction companies, the spare part supply and the maintenance of the machines provide a good link to establish the customer base and relationship management in order to bypass the time till a new purchase of a machine. For this reason, engineering and construction companies could use the long product utilization phase to create added value for the customers. Hereby, the business transactions and the personal relation to the attractive customer could be continued, amplified and deepened.¹⁹ Here the contact to the after-sales-employees is very important because they have more frequent and more intensive contact to the customer than the salesperson.

As there is a high correlation between customer loyalty and customer satisfaction, customer satisfaction influences the after-sales service to a high degree – it is especially the machine life that is, from the customer’s point of view, one of the most important phases. With reference to the after-sales service, the customer expects sufficient support in emergency situations, for example, in case of a breakdown of a machine or plant that would cause a high probability of losses. Therefore it is crucial that the manufacturer can give proof of his performance and due to this create customer satisfaction and loyalty. Studies from the sector of claim management show that quick problem-solving in critical situations increases customer loyalty remarkably.

Information potential

The continuous contact and interaction with the customer make a contribution to the collection of useful and valuable information regarding the customer. For example, one can collect information about requirements concerning new performances or about problems with the existing products. This information can be used purposefully when developing new services as well as for the creation of customized service bundles.²⁰

Introduction to the company

The analyzed company is a technology-centered company that develops high-tech production systems and industrial process solutions for various standard and highly specialized products. The company primarily operates in Europe, North America and Asia. It is headquartered in Graz, Austria and employs about 12,900 people. It operates 35 production/service facilities and over 120 affiliates and distribution firms across the globe.

The company operates five segments: pulp and paper; hydropower; rolling mills and strip processing lines; environment and process; feed and bio-fuel.

The company’s feed and bio-fuel business segment supplies machines and systems, pellet mill consumables, such as dies and rolls, and other technical services to the animal feed industry, the pet food industry, and the fish and shrimp feed industries. This segment has three main sites. It operates globally from ten regional sales and service offices and four manufacturing sites that are supported by a network of distributors and sub-suppliers. The major products of this business segment are conditioners and expanders, dryers and cooling equipment, extruders, pellet coating systems, pellet mills, size reduction systems, spare and wear parts.

Services provided by the company are customized wear parts, dynamic process simulation for all mill processes, equipment rebuilds and modernization, and original replacement parts.²¹

Analysis of as-is state

Assuming that there is still major potential in the aftermarket an analysis of the as-is state has to be done.

The analysis of the as-is state through the analysis of installed bases, the analysis of lifetime of equipment parts, of actual spare part orders, and the market will give a clear understanding of the current as-is state of the company and will make it possible to identify the potential benefits.

Analysis of Installed bases

An installed base of a tangible asset is the number of its used units for a certain period of time. It can be calculated theoretically as the difference between delivered and switched-off units.²²

In order to be able to exploit the aftermarket potential consequent management of the installed base becomes an important strategic target for innovative producers. According to studies, only 50% of the installed bases are known by the manufacturer, which means that they do not know where and for what purpose the installed base is used.²³

To be able to obtain the data about the installed bases on the market it is necessary to identify the existing installed base of the company, if these units are still in use and with what customers.

Therefore, a detailed list of installed machines over the last 15 years was pulled together from heterogeneous, global sources. In the following diagram, the identified installed bases are subdivided into machine types.

Having found out the number of installed machines, for now, it is possible to proceed with identifying the real number of installed bases worldwide. For this reason, the installed machines were grouped regionally in order to be able to send a list to the responsible sales manager (See appendix). The regional sales manager has to check the list and needs to figure out if there are more installed bases active with the customers or not and if there are inactive machines out there.

The returned lists were consolidated to a global installed base list and will be used afterward to calculate the possible potentials. As it can be seen in the diagram there is a considerable change in the number of active installed machines. Regarding the figures one needs to take into consideration that there are also many installed bases that cannot be allocated, thus not appearing in the evaluation. The installed bases identified are machines that can be allocated regionally and can be assigned to customers.

As there are more installed bases than estimated, there is a potential regarding the share-of-wallet. After having identified the number of installed bases it is necessary to identify the spare and wear parts lifetime in order to be able to calculate their nominal usage.

Analysis of the usage of spare/wear parts

Definition of a spare part

The spare part is a replaceable component, sub-assembly, and assembly identical to and interchangeable with the item it is intended to replace.²⁴ The spare part can be divided into 2 groups:

• Regular spare part: Parts that are not meant to last, but will wear out over the lifetime (usually in several years)
• Incident spare parts: parts meant to last – but in some statistical cases incidents will happen over the lifetime

Definition of a wear part (also called a consumable)

The wear part is a mechanical part that comes into contact with the workpiece and, owing to their production characteristics and stressing in service, undergoes multiple scheduled replacements during the unit’s planned service life.²⁵

First of all, the incidents per machine and per component have to be determined. According to previous data the incidents per machine and per component are the following:

With the number of incidents per year and the knowledge about the average amount of hours during which the machine is in use, the usage of every part per year and per machine can be calculated. The assumption is that the average usage of the machines is 5000 hours per year. So the usage per year per machine is the hours per year divided by the incidents per year.

Having calculated the usage per year and per machine the nominal usage per machine has to be calculated. The nominal usage is calculated by multiplying the number of parts needed per machine with the usage per year and per machine.

With the knowledge of the number of installed bases and the knowledge of the nominal usage, the target state can be calculated. According to the identified installed bases, there are 405 machines 1. Due to this, there should be a demand of 50 (nominal usage) x 405 (installed bases) = 20250 pieces for this type of machine. Therefore, the target demand of every machine can be calculated and later used to be compared with the actual demand. The comparison will give the potential that could be achieved.

Analysis of actual orders

The actual orders can be analyzed via the SAP-system. The SAP-system offers the possibility to create a list of all orders within a certain time period. The orders analyzed here are based on data from Q3/07 – Q2/08.

Comparing the incoming orders with the calculated demand, a high potential was analyzed. The following illustration shows some examples that give a clear understanding of the potential that can be achieved.

This analysis comes up with a potential of up to 2570%. That means that by enforcing the after-sales service a higher margin can be achieved.

Evaluation of a tool

After the analysis of the installed base, lifetime and the actual orders the three components need to be put together to be able to constantly analyze the current as-is-state and the target state. The evaluated tool is a controlling tool that can be used for the following analysis:

1. Forecasting of demands;
2. Target-performance analysis;
3. Order behavior of customers per region and per equipment.

• The database consists of three separate parts:
  • Excel: (Please see appendix)
    • “Database for Access.xls”: This Excel tool is used for the collection and maintenance of customer information, IB data and also ordering information
    • “template.xls”: This file is used as a template for reporting, which is created in the Access tool and exported in an Excel file named “Reporting.xls”
  • Access tool:
    • “Order behavior for customers.mdb”: Based on Excel data and maintained in the Excel tool “Database for Access”. The Access database can be updated and depending on the selected input mask different analyses can be made and afterward also be exported in an Excel file.

The input mask consists of two functional areas – an input and output section. After selecting the analysis criteria in the input section, the analysis will be automatically calculated and displayed in the output section. Afterward, the reporting in excel can be created.

The criteria selection field that are mandatory are marked with an * and must be filled to move further. There are four available criteria combinations in the input section that can be selected.

Analysis by region:

Analysis by region and customer: Only after selecting the region, customer name and customer SAP No will be filled with customers in this region, where only one of the two boxes can be activated at the same time, that is, either customer name or customer SAP No.

Analysis by region, customer and spare part: after selecting the region and customer name it will be filled with customers in this region, and after selecting the customer name or the customer SAP No the wear/spare part will then be filled with spare parts, which the selected customer should order.

Analysis by region and spare part: after selecting the region the wear/spare part will then be filled with spare parts, which all customers in the selected region should/can order.

In order to view the analysis by the selected criteria, the so-called list box will be applied. By double-clicking on the row in the list box the # of IB and the actual usage per year and per machine will be automatically calculated for the selected customers, and will appear in two text fields next to the list.

After the analysis has been displayed in the output section, the button ‘execute’ has to be clicked in order to create the reporting in excel.

The created reporting looks as follows:

In the column “Customer Category” different types are marked with 4 colors that have the following meaning:

• Customer category 1(yellow): customers with both IB and orders for specific wear/spare parts with a GAP in % < 100%;
• Customer category 2 (red): customers with IB but no orders;
• Customer category 3 (blue): Customers with orders but no IB;
• Customer category 4 (green): Customers with IB and orders for specific wear/spare part with GAP in % < 0.

The tool also gives the opportunity to search for equipment and wear/spare parts.

The functionality is the same as mentioned above but the searching criteria are equipment and wear/spare parts.

With the tool, it is now possible to create detailed forecasting for the orders of spare parts. Furthermore, a detailed list according to every region and customer can be created. With this list, the regional sales managers are able to identify the “good” and “bad” customers and due to this, they can address the customer who does not order or orders not enough and may obtain information about the “no-buy” criteria. Moreover, the tool helps to create a target-performance analysis as the necessary data, like nominal ordered pieces, actually ordered pieces and the gap is calculated automatically by the tool. Another advantage of the tool is that the after-sale persons can work with the tool, for example, during a phone talk with the customer.

The staff only needs to fill in the customer name and the tool gives out such necessary information as the number of installed bases, the type of installed bases, and the number of nominal and actual orders. With this information, the after-sales personnel is able to react faster and more appropriately to any questions and claims. Furthermore, having this information at hand makes it possible to offer the customer the right service.

Market analysis with the 3Cs and the 5 Forces

Customers – What do they buy and why do they buy?

In order to get a better overview of the customer it is necessary to look at the different requirements the customer has, what the decision criteria to buy are, how satisfied the customer is and what segments can be observed.

Regarding the requirements the following questions are of interest:

• Which features and facts (technical features, logistics, commercials etc.) are of importance for customers (today and in the future):
  • Basic characteristics (critical success factors; “must-haves”)
  • Performance characteristics (business driver, differentiation from competition)
  • “Wow” – Characteristics (create excitement, can be the core factor for the decision to purchase)
• Are there customer needs/requirements regarding “value chain impact” or strategic topics?
• Is the overall needed quantity known?
• Is there any opportunity to increase demand?
• What quality/service level is needed today/in the future?

Regarding the decision criteria it is of interest to know about:

• What matters to customers?
• What are they willing to pay extra money for?
• Why do or don’t they buy?

Regarding the satisfaction, the following is of interest:

• What is the degree of satisfaction of customers today?
• What are the issues and reasons for customers’ dissatisfaction and open desires?

Regarding the segmentation, the following is of interest:

• Which segmentation/clusters can be observed (different behavior across countries, distance, applications, and customers’ types)?
• Which target customer should be addressed /treated with priority?

In order to find answers to the above-mentioned questions, a survey is conducted among the customers of the engineering company. (Please see appendix). The main points that are queried are satisfaction regarding spare parts and services, satisfaction regarding aftermarket delivery performance, and satisfaction regarding customer interaction.

Having evaluated the survey, the following requirements regarding aftermarket delivery performance, spare parts and services, and customer interaction were discovered.

The customer survey revealed many known and unknown insights and areas for improvement. When looking at the service portfolio, more than 80% of customers are (very) satisfied with the aftermarket products/services. Anyway, 2/3 of the customers are (very) interested in advanced services. The lifetime is (very) important for all customers and almost 2/3 of customers are willing to invest in an increased lifetime.

Quality is very important for all customers and around 60% are willing to invest in increased quality. Evaluation of satisfaction with pricing shows that more than half of the customers who rate pricing as (very) important think that the company is not competitive at this point. So, this has a high impact regarding the fact that 90% of customers consider the price (very) important. The lead/delivery time also requires improvement. Only 52% of the customers are satisfied with the lead/delivery time; especially the dissatisfied customers are willing to invest in shortened delivery times. The delivery performance in full and timely delivery is rated better by the customers. 71% of the customers are satisfied with the delivery performance. 1/3 of the customers are not satisfied with the delivery performance although it is (very) important for them.

The online service is of high interest to the customer. All services listed in the survey are of interest to customers, particularly requests for quotations and questions that would be accepted by users. Since only 2 customers are satisfied with the information flow, and the majority of customers think that a proactive information flow is important for the intensification of information flow, it should be increased towards customers, especially proactive communication of changes in delivery times, availability and prices.

In addition, many customers would like to be supported by a new handbook in order to ease the identification of spare/wear parts. More than that, many customers are not satisfied with the technical knowledge of the aftermarket staff. One can find some examples of specifications of dissatisfaction in the following list:

• “Too little knowledge of the products’ utilization”
• “Need more skilled people”
• “Area of training in terms of customers needs to be better and the staff need to have more knowledge”

These results show that there is definitely a great need for improvement, and new after-sales strategies have to be found.

Company – SWOT- Analysis

The SWOT – Analysis is based on 13 interviews with different general managers working at the engineering company.

How can the weaknesses be reduced or eliminated?

The missing information about installed bases is already reduced and almost eliminated due to the installed base analysis. Furthermore, having evaluated the behavior tool in the order mentioned above, it is possible to do the important forecasting that can help reduce long delivery times and therefore improve the delivery performance. The improvement in delivery performance is feasible because knowledge about the demand for spare parts at a certain point in time can be calculated and due to this planning of stocked parts is much easier. With the right amount of parts on stock the delivery performance can be improved because there are no bottlenecks due to missing parts.

How can the strengths be used to create a competitive advantage?

As the quality of the products is considered to be good, the company has a brand name and the know-how of the company is very good, it is possible to price the monopoly parts higher. Using already existing knowledge from France and the UK gives a good basis to roll out service engineers as sales channels all over the world. In addition, the local presence will support the rollout in every country. The local presence is also helpful when starting a proactive sales push regionally, as it is easier for the regional sales manager to be informed about future orders and about the installed base of the customers.

How can the strengths be used to reduce the effect of threats?

Having a good quality and brand name can help to compete against the pirates. Moreover, a survey conducted among the customers will reveal the “no-buy” criterion. And the detailed analysis of the installed bases and the order behavior as well as better forecasting will help to improve delivery performance.

Competitor – Who are the relevant competitors?

In order to gain a clear understanding of the competitive situation and advantages, an analysis of the environment has to be done.

Porter’s Five Forces model is an appropriate framework to characterize the competition situation in the after-sales business.

Porter defines an industry as a group of companies that produce products or services in a substitution relationship. Therefore, an industry combines the competitors that reduce the value of their own products or services for the customers.²⁶ As it is shown in the following text, different suppliers offer identical or similar after-sales services for the producer of machinery or the customers of a primary product manufacturer. For this reason, the after-sales service for engineering and construction companies can be seen, according to Porter, as an independent industry.

The following competition analysis assumes that the existing competition is marked by the primary product manufacturers.

Industry Competitors – Rivalry among existing firms

In order to analyze the rivalry among existing firms the primary product manufacturers have to be examined, as it is possible that they provide not only after-sales service for their own products but also for external products. It concerns the following:

• Original Equipment Manufacturer (OEM)
• Vendors of components
• Primary product manufacturer with technically similar products

Due to these factors ,it can result in direct competition between:

• Primary product manufacturers (meaning between the OEMs respectively between the vendors of components)
• OEMs and vendors of components
• Primary product manufacturers of technically similar products in the same application range

Buyers

Buyers influence the competition in an industry by taking part in the decision-making process concerning prices and performance. Due to this they are in a position enabling them to play off the supplier against another supplier.²⁷ Buyers have the following three options to put pressure on the manufacturer:

• Threaten with the assignment to another after-sales provider
• Threaten with own execution of maintenance
• Threaten with not taking into consideration the company when investing in the next primary product

The existence of alternative suppliers of after-sales services is of considerable importance. After the purchase of machinery, the customers often have the feeling of dependence on the manufacturer as they do not have enough possibilities of comparison because of insufficient sources of supply. The change to another source is handicapped through switching costs.²⁸

But not only the existence of alternative suppliers is important. In many cases, the engineering and construction companies compete against the maintenance departments of their customers. In order to concentrate on the core business and on the reduction of fixed costs, companies try to reduce and downsize their maintenance departments. This could result in the need to outsource the after-sales service to external providers.²⁹

Here the engineering and construction companies see high market potential. But this development is limited due to the fact that the customers downsize their maintenance departments only step by step and as slowly as possible. The customers that maintain their machinery on their own often oppose the direct costs of their own maintenance to the costs of external procurement. But many services offer often first pay off if the customers reduce their indirect costs like costs for training, tools or standby costs. Maintenance departments also care about other technical objects like buildings, cars and other machinery. In addition, many customers do not have appropriate cost calculation methods for “Make-or-Buy”-analysis at their disposal.³⁰

Therefore, the maintenance departments of the customers can be on the one hand competitors and on the other hand customers of the primary product manufacturer. For many customers, the maintenance department is responsible for assigning – if necessary – an external service company.

Suppliers

In the after-sales business of engineering and construction companies, the supplier of parts for the primary product business can also be a competitor, especially regarding the sale of spare parts. There is the threat that the part supplier delivers spare parts to the end customer as well as to the competitor in the after-sales business. To what extent a manufacturer can enjoin its suppliers from delivering the after-sales market depends on the distribution of the bargaining power. The kind of procurement objective is of high importance in this context. It may be distinguished as follows:

• Suppliers of parts per drawing.
• Suppliers of trade parts.

For the parts per drawing, it is possible to achieve an exclusive supply. The primary product manufacturer would value the supply of other customers with drawings as a betrayal and will stop business relations. Due to these suppliers of drawings often renounce other businesses for the benefit of a high business volume with the primary product manufacturer.

Suppliers of trade parts have many sales opportunities for their standardized products. Even though the primary product manufacturers could keep their own suppliers away from the after-sales market, they are not able to control potential suppliers who produce the same products. Although the parts per drawing or the trade parts are technically identical to the parts from the primary product manufacturer, it is not allowed to call them original spare parts or to sell them as such. The trade right is to be exclusively entitled to the primary product manufacturer.³¹

New competitors

According to Porter the threat of new competitors entering the market depends on the existing entry barriers as well as on the foreseeable reactions of the established competitors. Competitors that differentiate themselves highly form the primary product manufacturer regarding the competition conditions, like origin, structures, personality and customer relations, provide the highest conflict potential.³²

Potential new competitors are:

• Franchisees
  • Plagiarizer (“Pirates”)
• As primary product manufacturers are legally bound to offer spare parts for the current and expired series of products, pirates could concentrate on attractive part numbers (“cherry picker”). Typical copied parts have the following characteristics:
  • Usage in primary products with a huge population and long lifetime
  • High wear out (frequency of replacement)
  • High prices for original spare parts
  • High value due to labor-intensive production
• Pirates are mainly active in the middle of the product life cycle. They can provide spare parts 30 to 50% cheaper than the primary product manufacturer. The reasons for that are:
  • They concentrate on attractive spare parts
  • They offer only little service
  • Partly usage of inferior material quality
  • Labor costs are lower due to production in countries with low labor costs
• Free traders (“Broker”)
  • They do not produce by themselves. They buy the spare parts from primary product manufacturers, pirates or other free traders. For an extra charge, the free traders sell the spare parts to autonomous end customers, free service providers or other free traders.
  • Free traders concentrate on special primary products from different manufacturers, enjoying popularity with customers and suppliers as well as representing sufficient technical know-how.
  • Free traders can make well-priced spare part offers for their customers.
  • They can supply goods to their customers faster than the service organization of the primary product manufacturer due to shorter reaction times and more flexibility regarding the choice of their supplier source.
• Free service provider
  • They supply the end customer with spare parts and other after-sales services, particularly with maintenance service.
  • Good free service providers are very flexible in relation to their customers. They differentiate their services considering the individual customer requirements.
• Free re-processors and maintainers
  • They offer their customers reconditioned or repaired component parts. The old or broken parts delivered by the customer are reimbursed according to their technical condition.
• Exploitation of plants
  • Operators of an exploitation company buy old machinery and plants in order to dismantle them in their spare parts and to sell them to resellers or end customers.
  • Despite the competitive situation it can occur that the primary product manufacturer buys spare parts that are no more available, at an exploitation company in order to be able to serve the customer and satisfy their requirements with old primary products. Reconditioning can be considerably cheaper than the supplementary production of an old part.

Substitution products

According to Porter, substitution products limit the profit margin of an industry as they put a price limit for the offered services. The price sensitivity of demand represents a threat through substitution products. ³³

New primary products

• There is a threat that customers substitute maintenance service through new primary products. Irrespective of the fact if the customer buys their primary product from the same manufacturer or at the competitor, the prices and the costs of the new primary product respectively limit the profit potential in the after-sales service. The lower the switching costs to a new primary product in comparison with maintenance costs are, the higher is the threat. The switching costs can be of the following three kinds:
  • Acquisition costs of the new primary product inclusively the implementation
  • Substitutions costs for overcoming substitution barriers
  • Transaction costs

In the case of the analyzed company, the threat of substitution of products is rather low as the current economic crisis forces the customers to postpone new investments.

Summary of evaluated data

The evaluated data come from the tool, the survey, the SWOT analysis and the 5 Forces analysis.

The data derived with the help of the tool can be divided into three categories:

1. Forecasting
2. Order behavior of the customer regarding the 4 customer categories
3. GAP-analysis or target-performance analysis

The forecasting makes it possible to calculate the future demand for spare/wear parts.

Having analyzed the order behavior of the customer brings out that there are 4 customer categories. The first category has an installed base and also orders some spare/wear parts, but the amount of orders is below the nominal ordered pieces, meaning there is a gap in % < 100%. The second category also has at least one installed base but the customer is not ordering at all. This category means a big loss for the company. The third category includes customers who do not have an installed base or the installed base is not known by the company, but they order from the company. The fourth category consists of customers who have an installed base and order more than supposed, meaning that they have a gap in % less than 0.

After the analysis of the different gaps, the company can calculate the different potentials that can be achieved through a better after-sales service strategy. According to the analysis potential to sell sparer/wear parts is enormous.

The results of the survey have shown that there are many areas requiring improvement. The following points are the most important to improve:

• Pricing needs to be more competitive, but customers accept slightly higher pricing for higher quality
• Introduction of further service offers like service check-ups, or advice for complete bundles could be rewarding
• As the customers are willing to invest a higher price for increased lifetime and quality, these two issues need to be taken into consideration and a price premium can be set
• The market demands shorter delivery times and is willing to pay for that. Therefore, concepts need to be developed in this respect
• Service portfolio should be extended and improved in the direction of advanced services

The strategies that need to be improved in order to develop the unused potentials are explained in chapter 9. The complete evaluation can be found in the appendix.

According to the SWOT analysis, it can be seen that the company has many opportunities that can be supported by the company’s strengths like good quality, the brand name, and good know-how. These strengths will help to set a higher price for “monopoly” parts. Furthermore, the already existing service engineer’s models in France and the UK are very good examples for the new rollout of service engineers as sales channels. Moreover, having evaluated the tool and conducted the survey helps to reduce such weaknesses as the missing information on installed bases and no-buy criteria, and gives the opportunity to forecast.

The 5 forces of Porter give a clear understanding of the competition. As a result, 10 different groups could be identified as competitors and characterized:

• Primary product manufacturer
• Customers that maintain their machinery by themselves
• Franchisees and their suppliers
• Pirates
• Free traders (broker)
• Free re-processors and maintainers
• Free service providers
• Exploitation of plants
• New primary products

Development of the unused potential benefits

In the following chapter different strategies used to develop the identified potential will be discussed.

Development of market potential via a new pricing policy

The analysis shows that there are many customers that have an installed base but do not buy or buy not enough. To gain a greater market share and higher margins in the spare part business these customers are the most interesting ones. A new selling strategy has to be developed. The most important information to be obtained is the “no-buy” criteria. According to the survey, the price is the most decisive criterion for not buying at the analyzed company. More than that, the price is a major criterion in the supplier selection and the analyzed company is rated slightly weaker than the competitors regarding the pricing. Due to this a new pricing strategy for the spare/ware parts has to be developed in order to gain a higher share-of-wallet and higher margins in this business.

Third-party maintainer (TPM) often offers prices to the customers that are considerably cheaper than those of the primary product manufacturer. In order to be able to compete against those TPMs, primary product manufacturers can use the following strategies:

• Create bundles of the primary product and after-sales services and already monetize while selling the primary product, e.g. sell the product with a two-year full service (in comparison to the guarantee the full service also includes the wear out)
• Differentiate the spare part pricing
• Develop products with higher acquisition costs and less maintenance intensity

Price bundling means that the after-sales provider combines various units that can be sold separately into one bundle. This bundle is offered at a cheaper price than all units separately. These performance packages can be combined with services or consist only of services. In the best case, the performances complement one another resulting in a higher overall benefit for the customer, e.g. less coordination and administration for the customer in case of a fixed charged service contract that bundles spare parts and maintenance. The bundles make it possible to transfer the unexploited willingness to pay for one of the parts of the offer to the other part and due to this, it is possible to monetize it. What is also important, the price bundles make it difficult to compare the price directly with the competitors, as the offered performances differ from that of the competitor. There are two kinds of bundles³⁴:

• bundling of different service offers:
  • Service unbundling: The customer pays only for the service that he actually wants to use
  • Service bundling: Sale of a standardized service package
• Bundling of product and service offers:
  • Mixed bundling: Service package and product are sold separately
  • Pure bundling: Service and product are only sold together

Regarding the pure bundles, customers are not able to disrupt the performance bundle and that allows the provider a higher degree of standardization, economies of scale, and better capacity planning. As a result of this, the company can avoid idle time costs.

With the help of mixed bundles, the company is able to react better to individual customer requirements as the customers could vary within a defined range of standard modules. Due to these mixed bundles have also a high degree of standardization but are smaller than pure bundles. It is important that the provider of mixed bundles determine general conditions like some parts that have to be included in the bundles or a minimum sales volume.

Companies that maintain their machinery on their own and third-party maintainers often buy only those spare parts from the primary product manufacturers which are not cheaper at alternative providers such as plagiarizers. For the company it is recommendable to target the price on the market in dependence on the following two criteria:

• Frequency of usage and how marketable the parts are
• Availability on the market with respect to the alternative purchase opportunities for the buyer

Depending on the availability on the market there are four spare part groups:

• Product group A: marketable spare parts with high availability on the market and with strong competition for the spare parts
• Product group B: the competition intensity is high but not as strong as for product group A.
• Product group C: there are only a few alternative providers for these spare parts. But in the medium term, there can be more intensive competition.
• Product group D: Among these spare parts the primary product manufacturer has a monopoly position. Even in the future, there will be no plagiarizers that are interested in those parts as the production is very cost-intensive and needs special know-how.

Thus, the company should reduce the profit margin for spare parts from the product group A and B and increase it for spare parts from the product group C and D. The sum of the contribution margin should remain constant.³⁵

These price adaptations will have a positive effect on the spare part business. The demand within product groups C and D will not shrink as the company has a monopoly position. Within product groups A and B, there will be increased demand as the products are now more competitive due to the price.

Third-party maintainers that already bought spare parts from the product group C and D at the company, now have to pay more for the spare parts. As there are no-cost reductions in the product groups A and B because they bought them at plagiarizers, the profit margin for third-party maintainers decreases and the market seems to be less attractive for them. As a result, the maintenance business of the primary product manufacturer will be influenced positively.

With this new pricing strategy, the company will gain a higher share-of-wallet and also higher margins because the prices are now more competitive; due to this the company is no longer rated weaker than the competitors regarding the pricing.

Development of differentiation potential

The 5 forces analysis indicated that the parts suppliers and pirates build up the most significant competitors. Due to this, the company can differentiate itself against the competition via the quality of the spare parts as well as over logistic services concerning the spare/wear parts’ ordering and the distribution.

Quality of spare parts

To be able to compete against the parts supplier and the pirates the company can differentiate itself because it is an OEM (Original Equipment Manufacturer). As spare parts are experienced and credence products, the reputation of the supplier is of high importance for the customer. The SWOT analysis has shown that the company has a good brand name and offers good quality products, so it is important to use this strength. First of all, the company has to show the added value they gain by buying the original part to the customer. The following facts will help to do so:

• The original spare parts of the OEMs, in general, have better quality than the parts offered by the competitors like plagiarizers or parts suppliers
• OEMs possess the right specifications, tools and manufacturing methods
• Constant improvement and development of the original parts happen due to the incoming information about necessary changes and improvement
• Missing know-how on the part of the plagiarizers leads to high variations in quality.³⁶
• The usage of inaccurate spare parts can have significant consequences like insufficient fitting accuracy, poor running performance, bad functional compliance, higher fuel consumption, early wear out and higher risks of downtime³⁷
• Limitation of warranty, guarantee and goodwill in case of not usage of original spare parts

The enumerated facts show that the company can differentiate itself by offering high-quality spare parts to the customer. In order to communicate this added value to the customer, customer dialogs, customer training, brochures and articles in trade journals or presentations on trade fairs are suitable measures.³⁸

Identification of spare/wear parts

It is recommendable to substitute the conventional spare part catalogue in paper form through electronic spare part catalogues on CD-ROM. The electronic parts catalogue has the following advantages:

• easy, comfortable and fast handling (like menus, search functions)
• less required space especially in case of mobile application
• less weight
• less duplication costs
• less distribution costs
• easy update
• less wear out
• add on function: direct transfer of data in an electronic order system

The company also has the possibility to provide the customers and the service employees with further service documentation like diagnostic procedures, repair instruction and a manual. With the help of hyperlinks, the different kinds of documentation can be linked to problem-oriented documentation.

As it is complicated to create a new spare part catalogue for every customized configuration, in practice, two-stage spare part identification turns out to be reasonable.³⁹

With the help of the spare part catalogue the customer or the service employees determine in the first step the product independent part number and designation. The product designation is transferred together with the serial number of the machine to the manufacturer. In the second step, the manufacturer determines with the help of a configuration database the spare part material number that is necessary for the distribution.

This two-stage pare part catalogue differentiates the company from the competitor as the competitive part supplier has no full access to the provided spare part documentation, as they cannot access the configuration database of the manufacturer. Due to missing information, the order process of spare parts at part suppliers is more time-consuming and more insecure.

It is very important that the configuration database is maintained and updated very accurately and consistently. In the configuration database, the manufacturer has to record every customer-specific configuration. More than that, it is possible that the manufacturer can record the total service history and use the information for problem analysis and prevention. The database can also be used for controlling purposes like the calculation of service contracts.⁴⁰

In addition to the database, the company needs to support the customers also with customer advisors that have the high technical know-how, especially when the customer is not able to identify the spare part. The customer advisors have to identify the spare part via a detailed and systematic inquiring procedure on the phone while using the spare part catalogue. Moreover, the customer advisors need to be able to consult the customer regarding the repair procedure.

Spare/wear part distribution

The company can also differentiate itself through professional spare/wear part logistics as it will substitute the spare part storage of the customer. Due to the known possible forecasting it the company is able to plan the demand of spare parts of the customer more precisely and is, therefore, able to guarantee high availability of spare parts and also short delivery times. Due to this, the customer stock becomes more or less obsolete. The added value for the customer is that they can reduce costs due to fewer inventory costs and carrying costs.

The company can offer the customer to create a customized warehousing concept. The concept will consist of detailed spare part planning. That means that one should do an analysis in which the demand needs to be forecast in order to deliver the parts on demand of the customer. The customer only needs to store some parts that are crucial in case of a breakdown of a machine. Due to this costs that are linked to breakdowns can be reduced and the ongoing production at the customers’ site is secured.

It is very important that the company differentiates the prices in the spare part service if there are heterogeneous customer requirements by offering various service options. It is recommendable to differentiate the prices according to the delivery time with discounts.

Development of customer loyalty via service contracts and regular service check-ups

According to the survey, 66% of the customers are interested in service contracts and 74% are (very) interested in regular service check-ups. With the knowledge about the machines that are at the customers’ site and the knowledge about the lifetime, a customized maintaining and service program can be developed and customer loyalty will be intensified.

Service contracts

Service contracts are bundles of maintenance performances that are charged with a fixed rate normally before the service is done. Service contracts provide win-win cooperation for the provider and customer. In the following illustration the benefits for the customer and the company are demonstrated:

Service contracts have to result in advantages for the customers. This customer benefit has to be clearly communicated to the customer and needs to be proved. More than that, the contracts have to provide fair opportunities to cancel the contract for both sides. The company should offer the customer cost transparency by providing an annual statement about the executed service performances so that the customer does not need to fear that he pays too much. At the end of a contract, there has to be a “balance sheet”. If the customer paid more than he received the 75% of the sum that was paid too many needs to be refunded. With the rest (25%) the company can cover the risk of a cost overrun.

With this kind of service contract, the company will gain the trust of the customers and their satisfaction resulting in customer loyalty.

Service check-ups or maintenance

According to DIN 31051, maintenance is the generic term for all measures done in order to maintain and reconstruct the nominal condition as well as for the determination and rating of the actual condition of the technical system. Maintenance comprehends the following three sub-tasks:

• Inspection as determination and rating measure for the actual condition
• Maintenance as sustainment measure for the nominal condition
• Reconditioning as reconstruction measure for the nominal condition⁴¹

According to the survey, 74% are (very) interested in regular service check-ups that include the three subtasks. Conducting regular service check-ups enforces customer loyalty because as mentioned above there is a high correlation between customer loyalty and customer satisfaction. And especially the machine life is from the point of view of the customer one of the most important points. Service check-ups will help to enlarge the machine life as problems are identified early or even avoided. This results in customer satisfaction and due to this in customer loyalty.

Furthermore, regular service check-ups also bring the advantage that the company has regular contact with the customer, which leads to better relationships between them. Moreover, regular contact with customers gives a lot of information about problems or requirements on their part. This frequent information flow also leads to a higher degree of customer loyalty.

Customer consulting

The company can increase customer satisfaction and loyalty by consulting them after the purchase of the product. The consulting consists of advice over:

• the optimal usage of the machines;
• the optimal maintenance procedure;
• the optimal point of time for replacement of the parts of the machine or the whole machine;
• information about new primary products and after-sales services.

Although customer consulting often does not result in direct sales, the consultants need to care about the relationships with the customer: it is also a good information source about their own products, products of the competitors, customer requirements and general market development. This information can then be used for future development and the creation of new services that would fit customer requirements. Due to satisfaction of requirements a higher level of customer loyalty can be achieved.

Development of information potential via frequent data collection

In order to develop the information potential introduction of an online platform is useful. The primary reason for this is that the company very rarely has the opportunity to access information about the interests and preferences of customers in such a targeted and non-distorted manner, as when the customer surf the company’s website – supposedly unobserved. As seen from the results of the survey online services, requests for quotations and questions are of special interest. The new online platform will consist of ordering frame contracts, selecting and ordering in an online shop, question platform, request for quotes and a claim system.

The question platform, the claim system and the availability of an online shop will deliver the most information about the customer. This information needs to be collected frequently and has to be evaluated and put together in one database that is accessible to every employee who has contacts with customers. The generated information enables customer profiles to be compiled, which on the one hand can assist with cross- or up-selling strategies and on the other hand facilitate the drafting of customized service offers.

However, the data is not only collected via the new online platform – it also has to be collected after service check-ups and customer consulting mentioned above, and every claim coming in has to be recorded and put into the customer database.

Prospects

In order to compete in the long run against competitors and their service offers, to be able to gain higher margins from service, the company should introduce a remote service and transform the service department into an independent organizational business unit.

Remote Service

Remote service is a technique to transfer technical services to a distant location with the aid of telecommunication networks, also called long-distance data transmission. With the remote service, the company has the opportunity to maintain the products from a distant location. Since on-site inspections cost time and money, the use of remote technologies is becoming increasingly popular and is therefore gaining ground. The company can improve the efficiency and performance of maintenance and at the same time be able to elevate the entry barrier for competitive service providers. A shortening of reaction times is the most obvious improvement because the company can react more quickly and initiate the problem-solving process more rapidly.

As it is possible to realize distant maintenance, potential product dysfunction can be discovered at an early time and also be avoided through appropriate maintenance measures. Furthermore, since systematic data evaluation takes place, it can help to identify deviations from set parameters. Thus, the company can adjust maintenance intervals. In some cases, it is also possible to solve the problems that occur by remote access.

According to the study, some companies are able to analyze and solve more than 40 percent of incidents using remote access.⁴²Another significant advantage can be achieved in materials and tools planning. Due to the submitted data, the company will be able to analyze the problem and the technician can take the appropriate materials and tools in order to solve the problem within the first visit. Therefore so-called “Broken Calls” can be avoided.

“Broken Calls” are service visits at the customer sites that are interrupted because the appropriate tool or material is missing. Avoiding these broken calls will lead to shorter downtimes and therefore to higher customer satisfaction. The remote service is also an advantage for the R&D department and the manufacturer as the constant data evaluation also discovers errors in the product that can be changed in the next production phase.

New organizational structure

A fundamental issue that every service-focused company has to address is how the service is integrated into the company’s organizational structure. For the design of the after-sales service division, the allocation of the after-sales tasks to the organizational units of the company plays a very important role. It is recommendable to bundle the service activities in an independent Service Business Unit. The change creates the preconditions to establish an independent business that is focused on the conditions of the competitor. The new structure demands a determination of targets and their realization from of a cost or profit center.

For the company, a cost center is more recommendable at the present moment. The organization as a separate cost center is characterized by management that is responsible for compliance with the cost management. The cost center is an organizational steering principle that separates the service tasks, competencies and responsibilities. This organizational form makes it possible to achieve independent service targets much easier. The services are communicated independently and actively to the customer. What is more, the total share of the service business will increase considerably. Another advantage is that the organizational bundling of services enables the company to exploit economies of scale, like the common usage of customer relations and know-how. Moreover, service-specific know-how will be concentrated in the service Business unit.

Thus, there will be competitive advantages due to experience and competency in the service-related business. Additionally, the independent service business creates the basis for a service culture and mentality. With an increase of appreciation of the service business, its strategic position in the company obtains a higher value and therefore more attractive possibilities for development on behalf of the employee. Due to this, it becomes easier to employ high-qualified service personnel.

The following illustration shows a new possible organizational structure:

Conclusion

In the past, many companies were only focused on the primary production business and neglected the after-sales service because it was considered as a cost factor or an unnecessary evil. But in the meantime, the companies, like the analyzed company, have recognized the importance of the after-sales service business, paying particular attention to the unused potential. To be able to develop the unused potential like differentiation, information, customer loyalty and market potential many points have to be kept in mind.

First, the available data needs to be evaluated and constantly updated to obtain a reliable database. This database is the basis for many evaluations that have to be done in order to identify unused potentials in the aftermarket. The analysis of the existing installed bases together with the lifetime and the actual orders gives a clear understanding of the current situation and target state.

Second, the frequently updated data needs to be available all the time for every employee who is engaged in the aftermarket business, to be in the position to serve the customer in the best way and to provide an excellent service. Third, a clear market understanding is very important as the customers, the competition and the company itself play a major role when creating the appropriate after-sales service strategies. Detailed knowledge about the customer requirements, dissatisfaction and expectations helps to create the best service portfolio in order to differentiate the company from its competitors and to create customer satisfaction which leads to a higher degree of customer loyalty.

Furthermore, with a high degree of customer loyalty, it is also possible to gain a greater market share. The awareness of the competition also helps to create the right service portfolio and the right pricing strategies in order to be able to differentiate the company from its competitors. With a critical view of one’s own company by doing a SWOT analysis the company can identify its strengths, weaknesses, opportunities and threats. Having done this, it is possible to use the strengths to reduce the weaknesses and to make an advantage out of the opportunities. Moreover, the threats can be reduced or even eliminated, when using the right after-sales strategy.

With the evaluation of the tool the data is now prepared in a way that the company can work with it easily and is able to update and maintain the data frequently. Therefore, forecasting, rating of customers’ order behavior and a target performance analysis can be done every time. This gives the company a very good overview about the present situation.

The conducted survey provides a very good picture on what the customer requirements and dissatisfactions are and what they really need regarding the after-sales service.

In order to develop the potential of the company’s appropriate pricing policy, a new logistic service concerning spare/wear parts, service contracts, and regular service check-ups, frequent data updates and online service has to be implemented.

Since in the long run, many engineering and construction companies will introduce similar services, the company needs to look further and has to implement remote services as well as a new organizational structure has to be applied.

Although the service, especially the after-sales service is gaining importance, the primary product manufacturers should not forget about their core business, the products. Even, if at the moment postponing in investments takes place and the service business plays a major role, the companies need to care about both businesses. Only a well-balanced focus on both businesses will provide the company with the expected potentials. Nevertheless, the companies are in a transformation process and due to this, they have to take advantage of this transformation by developing the potentials and gaining the biggest advantage of the situation.

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Footnotes

1. Statistisches Bundesamt, Ergebnisse der Erwerbstätigenrechnung in der Abgrenzugn der volkswirschaftlichen Gesamtrechnungen (2008). Web.
2. Impuls Management Consulting, Preisstrategien für Ersatzteile und Serviceverträge, (VDMA Verlag, 2006).
3. Canadian Managment Assosiation.
4. Web.
5. Web.
6. Impuls Management Consulting, Preisstrategien für Ersatzteile und Serviceverträge, (VDMA Verlag, 2006).
7. Frank Reichert and Michael Springert, Winning with Service excellence, (Handelsblatt Pulishing Group, 2009), p.16.
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