According to a Deloitte study, aftermarket parts and services are an overlooked source of income for many manufactures. In manufacturing companies around the world, service businesses now account for 46% of profits. Additionally, the average profitability of service operations is 75% higher than overall manufacturing operations.
"It is evident that companies should no longer treat the service business as an afterthought," Jeff Glueck, Principal with Deloitte Consulting LLP said. "Instead, it should be managed effectively as a growth business and integrated into the manufacturer's core business strategy."
The research also showed a significant number of companies not only overlook their service operations, but do not have a standard in place to measure the impact of service and part operations on overall profitability.
Additionally, the survey showed only 40% of the service-related business come from a business's primary customers; 75% of the spare-parts business comes from primary customers and; few manufacturers have made advancements in selling service or parts to non-captive customers.
Overall, businesses that focus on building their service and parts business will benefit in three ways.
- Higher revenue and market share.
- Greater customer loyalty.
- Lower costs and better cash flow.
Glueck said that capitalizing on the service and parts opportunities is becoming increasingly complicated, requiring the attention of executive-level management. Five challenges for companies moving into this sector are:
- Outdated business models.
- Changing life cycles.
- The economy.