Recently, President Trump announced he's placing tariffs on steel and aluminum imports as part of his America First campaign promise to bring jobs back to the U.S. With a 25 percent tariff on steel and 10 percent tariff on aluminum, Trump says this will protect the U.S. from foreign competition, but some critics believe this could escalate into a trade war.
The primary concerns for those opposed to these new trade tariffs are the subsequent rise in costs for end customers and that the trickledown effect from these tariffs could negatively impact many other manufacturers across industries and verticals.
As imported raw materials increase in price, it’s inevitably going to cost more to manufacture new goods and products. From the steel used to build new automobiles, all the way down to the aluminum used in the canning of beer, the cost of creation is not only going to go up for the manufacturer, but, ultimately, for the end customer, as well.
A rise in costs almost always means a dip in sales of newly manufactured goods, so the margin-rich after-sales service portion of business has become even more attractive. For most manufacturers, the initial cost of product sales is negligible in relation to the business gained through future service. This is why modern manufacturers should redefine their after-sales service organizations, positioning service as the new product, to succeed.
For manufacturers to successfully navigate this changing market landscape, they must:
1. Shift to a subscription-based service model focused on maximizing product uptime. As more products are equipped with smart sensors, it is more important than ever to shift from a reactive, break-fix service model to one focused on maximizing product uptime, or preemptively repairing equipment before it ever fails.
To ensure customers rarely face equipment downtime – which results in lost revenue and productivity – manufacturers must leverage IoT data to ensure parts are pre-emptively replaced before they fail. It’s time for manufacturers to adopt sophisticated, cloud-based solutions and new business processes to optimize service parts inventory levels while maximizing product uptime, which not only will lead to improvements in revenue, gross profits and operational efficiency, but also the overall customer experience. In a time when manufacturing new products is becoming increasingly expensive, this uptick in revenue will be critical to future success.
2. Optimize service parts pricing. It may seem obvious that selling a service part for the optimal price is a key way to create competitive differentiation and increase financial performance, but unfortunately too many manufacturers are still using outdated methods like cost-plus or simple spreadsheets. With costs increasing on the new product side of business, competitively priced service parts will become more important than ever.
Modern service parts pricing technologies incorporate data from customers, competitors, IoT platforms and other legacy systems to create the optimal price – ensuring the end customer has a great experience, while the manufacturer is simultaneously maximizing revenue and margins.
3. Enhance service parts inventory management. The break-fix service model many manufacturers use today often leads to long customer wait times due to poor part availability, excess stock and part obsolescence. This ‘just-in-case’ way of doing business most often creates overhead that negatively impacts both the customer experience and the manufacturer’s bottom line.
Manufacturers must invest in both human capital and new technology to fully optimize the service supply chain. While legacy ERP systems may have been helpful for managing service parts inventory in the traditional after-sales service model, using these outdated tools is no longer sufficient to meet companies’ financial goals.
Cloud-based service parts management solutions easily integrate into existing ERP systems, allowing manufacturers to track service parts, eliminate excess and obsolete stock and forecast when new parts are needed. These practices are critical for not only meeting customer delivery expectations, but also maintaining an edge over both direct competitors and third-party ecommerce sites. Beyond keeping products in the right place at the right time, service parts inventory management technology also reduces carrying costs.
Regardless of industry, the world around us is changing at a rapid pace and incorporating new business practices will be critical to success. As changes like the proposed tariffs come to fruition, new product advancements alone will not enable manufacturers to have the competitive differentiation needed to ensure long term financial performance. Shifting from a product-led growth strategy – which has sustained manufacturers for many decades – to a service-led growth strategy will require them to embrace change, think differently, act differently and embrace technology to completely transform their after-sales service functions.
With a focus on keeping older equipment up and running with minimized downtime and reducing organizations’ reliance on new product sales, after-sales service will be a key factor in keeping American manufacturers afloat amid rising tides of an impending trade war.
Gary Brooks is CMO of Syncron.