After-sales Support Creating a lasting customer relationship What can providing after-sales support do for your business? • Increase customer loyalty • Increase profitability – “ . . . businesses earn 45% of gross profits from the aftermarket, although it accounts for only 24% of revenues.” Cohen et al 2006 • Increase customer satisfaction Reasons companies don’t develop an after-sales support program • • • • Locations Inventory Training Unpredictable demand How to Develop an After-sales Support Program 6 Step Approach 6 Step Approach 1. Identify which products to cover 2. Create a portfolio of service products 3. Select business models to support service products Cohen et al 2006 6 Step Approach (cont.) 4.Modify after-sales organizational structures 5.Design and manage an after-sales services supply chain 6.Monitor performance continuously Cohen et al 2006 1. Identify products • All or some • Complimentary products • Competing products – Synergies 2. Design a Portfolio • Customers’ Parameters – Time – Price • Service Provider’s Abilities – Location – Level of Inventory Create Service Products • Price based on service level – Fast and expensive – Platinum – Slow and economic – Silver 3. Multiple Business Models Ownership-based vs. performance-based • Ownership-based – Low levels of service needed – Conflict of interests Business Models (cont.) • Performance-Based – Performance of product critical to customer • E.g. Aircraft Engine – Product very expensive or . . . – Producer bares risk of owning product (leasing) • E.g. Computer System 4. After-sales Organizational Structure • Products Department vs. Services Department Products Dept. Services Dept. Inventory carrying costs may overlap Organizational Structure (cont.) Strategies: • Outsource services – Core competency? • Initial product priced to generate long-term services sales – Involve marketing and sales departments • Innovative technology 5. After-sales Services Supply Chain • Product Hierarchies End products – modules – submodules – components • Geographical Hierarchies Central distribution center– regional and field stocks– customers’ premises Services Supply Chain (cont.) • Speed vs. Cost Most Expensive & Fast: – End Products – Customer Premises Least Expensive & Slow – Components – Central Distribution Center Services Supply Chain (cont.) • Economies of Scale • Customer Priority – Threshold level of inventory • Planning Services Supply Chain (cont.) • Planning – Short-term (days) – replenishment, shipment, and allocation of resources – Med-term (weeks or months) – strategic placement of resources – Long-term (years) – services strategy 6. Monitor Performance • Changing Customer Needs • Metrics: – Customer-focused – e.g. waiting time – Internally focused – e.g. fill rates • Upgrade technology • Monitor Competition Triconex Triconex provides safety and critical control systems for the processing and manufacturing industry. They provide after-sales support to their customers in the following ways: Triconex • • • • On-Site Spare Parts Program (OSP) Extended Warranty Program Smart Upgrade Program System Maintenance Program (SMP) http://www.triconex.com/us/eng/trico nexSupport/aftersales/default.htm Practice As a manager in a company that produces drillpresses that are sold to manufacturing organizations you are asked to develop an aftersales support program for your customers. • Use the principles discussed in the 6 step approach. 1. Identify which products to cover 2. Create a portfolio of service products 3. Select business models to support service products 4. Modify after-sales organizational structures 5. Design and manage an after-sales services supply chain 6. Monitor performance continuously How can this method be applied to your current organization? Summary • 6 Step Approach – Key Points • • • • Focus on customer needs. Be flexible. Use multiple business models. Create hierarchies and priorities. Plan in order to react quickly to changing demands. “ . . . after-sales support is the longest-lasting source of revenues to sellers and requires the smallest investment. Companies that ignore the after-market do so at their peril.” Cohen et al 2006 Suggested Readings Morris A. Cohen, Narendra Agrawal, Vipul Agrawal. Winning in the Aftermarket. Harvard Business Review; May2006, Vol. 84 Issue 5, p129-138.