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After-sales service: why do Capital goods and heavy equipment companies leave cash on table???.

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In industrial verticals like capital goods and heavy equipment, post sales service and parts sales contributions are significant. However, many companies do not seem to make enough investment to …

In industrial verticals like capital goods and heavy equipment, post sales service and parts sales contributions are significant. However, many companies do not seem to make enough investment to encash the revenues from offering better dealer integration and parts and service management. In this presentation, we share the reasons for loss of revenue, areas that needs improvement and what strategies must be adopted to gain revenue from after sales.

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  • 1. After-sales service: why do Capital goods and heavy equipment companies leave cash on table???. 7th Jan 2013Capital goods and equipment industry includes industrial equipment, earth moving and mining,power plant equipment, and industrial machinery including textiles, pharmaceutical and otherindustries.
  • 2. Capital goods sector Capital goods and equipment industry includes industrial equipment, earth moving and mining, power plant equipment, and industrial machinery including textiles, pharmaceutical and other industries. Good mix of domestic players (BHEL, L&T, BEML, Eicher, Thermax, LG) and MNC (Volvo, Komatsu, GE) affecting overall product development, industrial growth and local employment. Some segments are highly fractured, SME heavy, while others high concentration of large firms (top 6 companies in construction industry contribute to 63% of revenues, about 190 odd companies contribute about 37% of revenues). This is a strategic sector from national skill development and security perspective. Has multiplier effect on the economy. Contributes to about 15% of GDP and about 3 million direct employment (Planning Commission, 2012). Significant earner of foreign exchange (about INR 150,00 0 Crores). In recent times, affected by overall domestic economic sentiments.
  • 3. India’s economic pangs… India’s economy weathered the economic global meltdown of 2009, but has seen sucked into the vortex of slowdown from last two years. FY2012 growth tethered largely due to self- inflected policy inaction and negative sentiment. Government spending of key departments slowed down, corporates postponed capital investments including IT investments and the FY2013 outlook is not very encouraging. 3
  • 4. FDI: waning flows… Source: Ministry of Industries and Commerce FDI in India saw a decline in 2010-11, nose diving by around 58% in the first six months (14.6 billion $ in April – July 2011 and 6.18 billion $ in April – July 2012, as the economy lost momentum 4
  • 5. Industrial production slowing down…6% 4.1%4% 2.4% 2.2%2% 1.1% -3.2% -0.9%  Industrial production -1.8% -0.2% -0.1%0% in Oct 2012 was Jan Feb Mar Apl May Jun Jul Aug Sep Oct -5.1% the lowest-2% since 2001. Domestic Industrial Growth in CY 2012-4%  Factory outputs,-6% -5.1% utilities shrunk by 0.4 % , exports has also fallen by 1.6% I August 2012. Source: Planning Commission, GOI 5
  • 6. Capital goods sector pangs !!! Cost of doing business 18.5 18.3 Profits to net value 1870 63 6060 55 17.5 51 17.150 1740 16.5 16.5 16.23020 1610 15.50 15 2008-09 2009-10 2010-11 2011-12 2008-09 2009-10 2010-11 2011-12 Cost of doing business includes interest to value added, rent and wages to net value added. Profit margins are squeezed, as cost of doing business is increasing. Based on the sample of industrial equipment companies including MNC and domestic firms includes listed and unlisted companies.
  • 7. Spares and services contributions 90% 80% 70% 24% 60% 25% 50% 18% 40% 27% 25% 30% 19% 20% 29% 26% 60% 10% 20% 0% 50% Tunneling/Driiling Heavy Light machine construction 12% 40% 2010 2011 2012 30% 16% 7% 20% 8% Spares and services margins are getting stressed. 10% 20% 3% 11% 4% 4% Most affected are the Medium and small cos. 0% Tunneling/Driiling Heavy Light machine Indian companies have lesser earnings compared to MNC construction 2010 2011 2012 Based on the sample of industrial equipment companies including MNC and domestic firms includes listed and unlisted companies.
  • 8. Capital goods sector: after-market challenges20% 19%18% 17%16% 14% 14%14% 12%12% 11%10% 9%8%6% 4%4%2%0% Parts Parts Pars & Inconsistent On time Parts Cleanliness Others Originality availability service dealer delivery quality of dealer price service workshop Based on interview data of key customers, dealers, industry experts and OEM.
  • 9. Capital goods sector: how much cash is left on table 9% 8% 7% 6% 5% 4% 8% 3% 6% 6% 2% 1% 0% MNC India: Large & India: Small Medium Additional revenues to the gross sales & service revenue. Companies including MNC, large and SMB are leaving significant incremental revenues from sales & service because a significant gap in investment required for after-sales marketing and actual investments. Based on interview data of key customers, dealers, industry experts and OEM.
  • 10. Areas that need further investment25% 21%20% 18% 15%15% 12% 12% 12% 10%10%5%0% Based on interview data of key customers, dealers, industry experts and OEM.
  • 11. Customers woes with after-sales Their warranty clauses are absurd. In this segment, for large buys the parts and replacements are customized. The biggest problem is post warranty, I believe Indian companies are most honest. Their field service plan is not a win-win. Their service desk is attended by someone very junior. They have no systems to log in complaint and send the right guy to fix it. They charge Rs 700 for every visit and couple of these visits they have sent us untrained staff, or without parts. Ridiculous!. Their service advisors seem more interested in selling our company add on rather than addressing the issue of my machine. They just do not seem to have a control on their parts availability. My machine is down for a week at site, who is going to pay for it?. I am surprised a dealer of a global brand works with basic excel. They have no system connecting the dealer, machine and OEM simultaneously. We have serious issues in addressing the service bills as the terms of our purchase with the OEM are not available with dealer.
  • 12. Gaining after market revenue1. Integrate spares, parts and service across OEM, and Dealer. Invest in after market and dealer management system to seamlessly integrate the process2. Centralized ownership of Spares & parts. Define the charter and drive after sales, service and customer experiences.3. Define Genuine Parts program and drive it continuously. Invest in vendors and optimize the spare parts program to ensure OEM parts are available and spurious parts do not harm your brand experience.4. Incentives dealers to adopt IT systems and programs. Create co-ownership of the spare parts process, engage them beyond parts push and incentivize them for creating value for you.5. Invest in parts standardization and variety reduction. Parts help desk and spare parts standardization are important to reduce design-to-availability variance.6. Optimize field service management. An area that needs low investments, but has major impact on first call effectiveness and service efficiency.7. Simplify policies and procedures. Streamline Warranty claim, reduce dealer friction for replacement
  • 13. Thank YouFor any queries, please contact :Srinivas Sawkar157/A, II floor, 10th A MainJayanagar, 1st BlockBangalore. 560011PH: 91-80-2656 5164, 40951170ssawkar@browneandmohan.com 13

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