Three ways manufacturers can use after-sales service to survive Brexit uncertainty
Despite an optimistic start to 2017 for the UK manufacturing sector, the year ahead will not be without its challenges: the weak pound, higher prices of raw materials, lack of business and consumer spending confidence all contribute to changing and uncertain times. All of these factors are leading manufacturers to seek new revenue opportunities.
Demand for UK-made goods rose to a two-year high between November and February 2017, but momentum may wane as the weaker pound makes raw materials more expensive, causing prices to increase. The Brexit negotiations could lead to diminished consumer purchasing power and a slowdown in business investment for UK manufacturing. Economists forecast consumer price inflation, caused by the pound’s fall since the Brexit vote, is likely to hit almost 3 per cent by the end of the year, from 1.8 per cent in January. This is already impacting consumer spending as January retail sales figures show a marked slowdown and experts believe it may also affect manufacturing growth.
Now is the ideal time to tap in to a significant, but often underestimated area of opportunity for manufacturers. After-sales service – the service delivered after the initial sale of a new durable product – opens revenue streams that some manufacturers have only dabbled in. According to UPS research, 35 percent of manufacturers get more than half their annual revenue from after-sales service, but only 12 percent say it’s a key differentiator for their business. This means that revenue and profits from after-sales service could be a potential game-changer for manufacturers experiencing a drop in new product orders.
Here are three key ways manufacturers can navigate the constantly evolving landscape, and experience tremendous success.
Service parts inventory management
Inventory management throughout the supply chain has always been challenging for manufacturers. For service parts inventory specifically, the expansion of SKUs, the rise in e-commerce and heightened expectations for delivery time have made after-sales service more stressful and complex. But using the right technologies can help manufacturers ease the burden.
The good news is that a cloud-based service parts management solution can help companies increase both margins and revenue from often sub-optimised after-sales service businesses. It easily integrates into an existing ERP system, and allows manufacturers to track parts, eliminate excess and obsolete parts and forecast when new parts are needed. These practices are critical for meeting customers’ increasing service expectations and maintaining an edge over both direct competitors and third-party parts providers. Beyond keeping products in the right place at the right time, inventory management technology also reduces carrying costs – which are estimated at a mind-boggling 25 percent of the value of inventory that’s on the shelf.
Service parts pricing optimisation
While many executives are keenly aware that pricing is a very powerful revenue and profit lever, they often overlook the opportunities associated with optimising the prices of service parts inventories, which can frequently be measured in tens or hundreds of millions of pounds!
Status quo pricing approaches of the past are one of the biggest factors holding back the full optimisation of service parts. When it comes to pricing parts, simple cost-plus formulas and Excel spreadsheets are still the norm. But these outdated methods often cause manufacturers to miss out on substantial revenue and profit opportunities.
When determining part prices – especially in today’s “always-on” economy – manufacturers should be mindful of the different factors that can be used to enhance sales, including shopping data, region and demand. For example, after adopting a dynamic pricing structure in 2013, Amazon saw a 27 percent sales increase. The company has been pushing the boundaries of dynamic pricing ever since. If third party e-commerce vendors are pursuing dynamic pricing to such an aggressive degree, manufacturers must follow suit to remain relevant in after-sales service.
With service parts optimisation software, manufacturers can synchronise pricing at a global level, and easily and automatically adjust it if necessary.
Adopt the cloud
As decision-making becomes more immediate in business, siloes are now identified as “public enemy number one” for success. By switching over to a cloud infrastructure, manufacturers can keep their data and operations under one roof. This allows them to streamline workflows across an entire organisation, and use real-time business intelligence.
Cloud computing for the supply chain is expanding, and it’s projected to be worth $4.4 billion by 2019. A cloud-based system that integrates ERP, pricing and other after-sales processes, for example, allows manufacturers to make the best decisions for their business by linking all of the company’s available information together with minimal downtime. This stands to benefit all aspects of business, from customer satisfaction to production.
Despite current struggles, manufacturers shouldn’t hang their heads. Instead, they should pay attention to market shifts and realise the profits that can be gained by embracing and maximising the potential in the after-sales service space.
By Gill Devine, VP of Western Europe, Syncron