Aftermarket to Dominate Revenues for Equipment Manufacturers

Capital equipment manufacturers have reached a critical tipping point where service levels and innovation will dominate revenues and be the key competitive differentiator, according to Infor, a provider of business application software. Infor said its prediction is based on the key findings below of the IDC Manufacturing Insights’ white paper on the global capital equipment manufacturing industry.

Key IDC Findings:

Globally, just 12% of capital equipment manufacturers expect a substantial increase in revenue over the next three years. A further 30% expect some increase, with 30% predicting stasis and 27% forecasting a decrease.

In EMEA, just 15% of respondents expect a substantial increase in sales volume over the next three years, compared to 9% in North America.

Equipment service is set to be a vital tactic in countering the current market volatility and highly cyclical nature of new equipment sales.

With 70% to 90% of the total lifetime cost of heavy equipment to be found in maintenance and repair, services offer not only high profit margins, but also predictable annual revenues that can protect against market volatility. In addition, a comprehensive aftermarket offering enables a deeper, continual relationship, increasing customer retention and loyalty.

While cash-flow dominates the business concerns of 69% of equipment manufacturers globally, 67% of respondents are concerned about their ability to use service excellence as a competitive differentiator — the same level of concern as their ability to recruit, train and retain a skilled workforce.

Regionally, the top business concern in North America is managing cash flow (75%), followed by the ability to deliver service as differentiator (62%) and recruiting and retaining talent (60%). By comparison, the top three business concerns in EMEA are recruiting and retaining talent (74%), the ability to deliver service as differentiator (73%) and managing cash-flow (61%).

A holistic service-orientated product strategy is seen as the most critical improvement to attain service excellence, ahead of workforce training. A lack of top management commitment is seen as the main barrier.

Added-value services for existing products is favored over product service innovation, but equipment manufacturers remain hungry to develop growth by expanding into new markets and improving quality and reliability.

Market leaders who adopt a service-centric strategy, combining information, training and qualified personnel will capitalize on a wealth of developing opportunities. Accelerated investment in service excellence and the evolution from “products & services” to “service-centric” to “products as service platforms” is also expected. The ultimate objective is a balanced portfolio of services and products that delivers both consistent revenue and growth.

As part of this evolution, manufacturers will likely continue to invest in field service management, warehousing and inventory management, warranty and claims processing and procurement systems. This will be augmented by investment in mobile devices, machine-to-machine (M2M) communication, cloud-based information storage and delivery and analytic applications.

To download the IDC white paper click here.

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