How to Reduce Aftermarket Services Cost
You can find cost savings and hidden profits in aftermarket services if you know where to look.
Many people may see this opportunity as solely involving parts inspection, repair or replacement. These same people most likely will benefit from a top-to-bottom review of aftermarket services. There are opportunities for cost reduction, just in the warranty service segment of aftermarket services, assuming the decision is to keep the service in-house.
Incoming logistics: no matter how the defective part arrives, there is a cost associated with it if the OEM is paying for it. To control costs for warranty returns, OEMs should…
1. Only accept warranty returns shipped by your contracted shipper and that have a Returned Merchandise Authorization number.
2. Rather than have a call center person assign RMA numbers, explore having a technical support person on the phone or via online chat. Parts returned may be in perfect working order but as the equipment is new, a minor install glitch or explanation of how the part functions maybe the actual problem. Solving the problem before a part returns results in several significant cost savings.
- no in-bound shipping or handling costs
- no labor costs expended inspecting a perfectly good part
- no out-bound shipping expense
Of additional consideration is the aspect of customer satisfaction associated with restoring equipment to service without a part exchange or a service call.
Nevertheless, aftermarket services are often not the strategic competency of most OEMs. In fact, aftermarket services are a different industry entirely. For this reason considering the outsourcing the entire function should not be overlooked - this means forming a partnership with a company that does all warranty repair for you. This includes:
- in and out-bound shipping
- repair or replace decision-making
- intense, warm and empathetic customer relations to attempt a resolution without a part or total piece being returned
Ideally, an OEM’s outsourced warranty service provider will have facilities strategically placed throughout the country to keep shipping costs low and turn-around time rapid.
Warranty returns and repairs are part of the old paradigm for aftermarket services that viewed aftermarket contact with customers as a necessary business expense. Smart organizations are viewing these same services today as a source of revenue.
A lucrative aspect of the aftermarket services is maintenance. Once again, this is ideal for outsourcing to a company that does maintenance work as a core competency. To keep warranties in effect, sell maintenance plans at the time of initial sale. Your contracted maintenance provider should have strategic country-wide locations to service your clients from, a stock pile of parts so that service is usually a single call to the customer and be kept up-to-date by the factory to make sure they know of equipment changes and/or known issues.
Extended warranties make for great upgrades at the time of purchase. The purchaser pays the company up-front for services that are not rendered until a future time. Using the same outsourcing techniques and completing the warranty transfer at the time of sale, gives the manufacturer more money. By paying the outsourced warranty, expense with today's dollars by contracting the work out, the time value and opportunity cost of money benefits the manufacturer.
Product installation is often included in sales price, but most folks consider it an aftermarket service. It makes perfect sense for the manufacturer to engage the same company that will do its contract maintenance and field service to perform installations. This creates a relationship between buyer and service provider from the start.
Disposal and recycling of parts and total product has become an important of the reverse logistics chain and aftermarket services. Manufacturers have to be aware of regulatory changes in their own industries, complying with those is hard enough. Environmental regulations regarding disposal and recycling is an extraordinary challenge, if it is not your core business. This function to be outsourced to a company that can do it for less and whom will assume all risk for non-compliance.
Aftermarket services are an increasing source of revenue for OEMs. Paradoxically, OEMs who outsource aftermarket activities can reduce the cost of providing services and increase profits too. Services that are excellent candidates for outsourcing include:
- Warranty repairs and replacements
- Extended warranties
- Service contracts
- Disposal and recycling
Many companies find it useful to engage consulting firms who have expertise in creating a strategy for maximizing returns on aftermarket service by creating tactics that reduce costs and improve customer satisfaction. A key component is any company’s drive to excel, is to look at aftermarket services as more than a cost of doing business but also as an opportunity to profit from.
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