Driving Aftermarket Revenues and Profitability Through Engineering

Vivek Maladkar March 12, 2015

aftermarket_revenuesIt’s no secret that product sales directly affect yearly revenues for companies in various manufacturing industries. However, aftermarket services are an additional facet of annual revenue that many companies fail to optimize. In fact, in many slow-maturation industries, aftermarket services (such as reengineering or spare management) can drive revenue more than product sales altogether.

The following is a brief glimpse of the differences between product sales and aftermarket services, as most related to revenue:

  • While product sales are driven directly by market demand, aftermarket services are driven by Mean Time Between Failures (MTBF) and Mean Time to Repair (MTTR).
  • Profitability from product sales typically varies between 6-13% across various manufacturing industries; profitability from aftermarket services can typically reach 35-60%.
  • Product sales, as a main revenue source, require deliberate selling, which can be affected by availability, price and volume; aftermarket services, on the other hand, are a latent need for customer bases in virtually all industries.

Improved aftermarket tasks, product servitisation and spares are quickly becoming lucrative revenue streams for manufacturers around the globe. In this article, we break down how companies can drive aftermarket revenues and profitability through implementation of various engineering initiatives.

Optimizing Aftermarket Tasks for the Greatest Revenue

For the most cost-effective aftermarket services, companies must embrace product cost optimization (PCO) methodologies such as value engineering, part standardization and collaborative engineering. These are practices that help companies reduce ancillary spending and drive aftermarket profitability before the aftermarket stage in the product lifecycle.

A large portion of aftermarket cost is determined by the product design and engineering stages in the product lifecycle. By implementing PCO solutions to improve efficiency within these stages, companies can in turn drive their aftermarket revenues; it enables cost optimization throughout product development, from design to aftermarket support.

Engineering’s Effects on Aftermarket Performance

Innovation at the engineering level makes connecting products, gauging performance and measuring consumables much more feasible for manufacturers when products reach the aftermarket. This leads to increased revenues and maximized profitability, and directly improves aftermarket processes in the following ways:

  • Management of spare products and consumables; practices such as part standardization and modularization greatly limit excess during production
  • Limited aftermarket down-time and continuity throughout the entire product development process; engineering collaboration at all levels of production, between all involved teams, resolves many continuity problems manufacturers often face
  • Real-time performance intelligence, which drives future product features and modification decisions with field data
  • Increased aftermarket service effectiveness; solutions can often be identified before actual on-site assessment
  • Standardized spare products to lower the cost of holding, driving profitability
  • Simplified team training and service management, fueling productivity and in turn increasing revenue
  • Cost-efficient predictive maintenance, as opposed to expensive, unnecessary preventative maintenance

As a collective whole, the various engineering practices mentioned in this article all drive aftermarket efficiency, which directly increases manufacturing revenues and profitability intrinsically.

Product design and development is directly linked with aftermarket services; by implementing more effective solutions during engineering stages, companies can improve product support and services later on, to much more profitable levels.

 Industrial-Internet-of-Things

Topics Competitive Advantage Product Development Solutions