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1、Why aftermarket and service are vital to OEMsand how to excelA comprehensive approach,supported by a strong enabling organization,can help B2B industrial manufacturers tap into the value of aftermarket and service.Simone VescoJune 2024Cover image Monty Rakusen/Getty Images.Introduction 3Part 1:Servi

2、ce excellence 6Innovation to market 8Market to order 15Order to delivery 20Delivery to cash 31Enabling factors 33Part 2:Tech-driven trends and innovations 44Offering a B2C-like customer experience 46Exploring servitization 47Collecting,analyzing,and monetizing data 50Softwarization of features 51Sus

3、tainability as a key to unlock new value pools 52Higher-than-expected maturity in remotization 54Localization paradigm 56Online marketplaces 56Building ecosystems around products 57Considering disruptions to the service workforce 58Conclusion 60Contents3Why aftermarket and service are vital to OEMsa

4、nd how to excel IntroductionWhether manufacturers serve consumers,other businesses,or governments,the aftermarket and service matter.For many OEMs,what began as a relatively unsophisticated side business selling spare parts now contributes to a majority of their margins:these can be up to four times

5、 as high as they are for new units.This pattern is evident among top market performers,as companies that have excelled in the aftermarket and service have been strongly rewarded over the past 15years,with double the TSR of companies that dont focus on service(Exhibit 1).The importance of aftermarket

6、 and service has been more differentiating and acute amid recent economic conditions,in which uncertainty,high inflation,and high interest rates have pushed many companies to postpone capital investments.Generally,capital expenditures are higher when investing in new production lines compared with a

7、ftermarket and service,such as maintenance or upgrades to the existing installed base.At the same time,the increasing prevalence of firmware-driven updates across industries has further reduced the usual need for up-front capital investment required for aftermarket and service,while also limiting di

8、sruptions to activities such as manufacturing.Consequently,companies facing budget constraints may prioritize spending on aftermarket and service purchases over investing in new units,thereby increasing the importance of aftermarket and service in their overall revenue-generation strategy.Despite it

9、s commercial and strategic value,aftermarket and service are often largely untapped.Service excellencedefined as an ongoing commitment to providing customers with outstanding and relevant support and services well beyond the initial salecan help.5Why aftermarket and service are vital to OEMsand how

10、to excel In part 1 of this report,we offer a five-part framework for how to divide the offerings for the aftermarket and service journey,from idea to payment:1.Innovation-to-market stage.This spans the development process and ends with launching an offering into themarket.2.Market-to-order stage.Thi

11、s covers the process from business development to the completion of a customers order.3.Order-to-delivery stage.This spans procurement,manufacturing,and product delivery.Exhibit 1Web Exhibit of Cumulative TSR for companies,index(2008=100)Total shareholder returns are higher for B2B services companie

12、s that focus on the aftermarket.McKinsey&Company02004006008001,000Companies with lowfocus on serviceCompanies with highfocus on service3.57:2 higher TSR20082010201220202022201420162018Economic downturnRecoveryCOVID-196Why aftermarket and service are vital to OEMsand how to excel About the researchTh

13、e perspectives in this report are drawn from a structured assessment of critical business dimensions to analyze company performance along the entire aftermarket and service value chain.The research involved interviews with practitioners from across functions(such as quality,procurement,and sales).4.

14、Delivery-to-cash stage.This completes the journey,with credit management that smooths the flow of payments from customers to manufacturers.5.Enabling factors.These ensure the success of the overall approach.In each part of the framework,we delve into the factors that OEMs should consider then discus

15、s the emerging trends and innovations in the field.For more on the methodology that informed this framework,see sidebar,“About the research.”At the same time,companies that lack a strategic vision for their aftermarket and service businesses often struggle to earn acceptable returns on the substanti

16、al up-front investments required.To lay a successful path for ROI in aftermarket and service,leading OEMs use their aftermarket offerings to expand while forging deeper relationships with customers and making their products work betterto achieve,for example,higher throughput,less consumption,and so

17、forth.In part 2,we overview the trends executives are prioritizing in this effort or might consider if they have not yet done so.This white paper brings together the best of McKinseys published thinking on OEMs aftermarket and service,with a focus on B2B companies.Drawing on the latest and most rele

18、vant news and trends and brought to life with real examples,this report aims to be a catalyst for new,energizing ideas.It is intended for a broad audience,from CXOs to those curious about the sector and seeking an end-to-end view.7Why aftermarket and service are vital to OEMsand how to excel Part 1S

19、ervice excellence8Why aftermarket and service are vital to OEMsand how to excel Three decades ago,the typical aftermarket offering for manufacturers was an afterthoughtit was reactive and transactional.1 The aftermarket was typically more of a simple response to customer queries,needs,or events,such

20、 as selling spare parts,conducting repairs,or providing training.While B2C manufacturers,particularly in the automotive industry,were early adopters of aftermarket and service strategies,B2B manufacturers have more recently recognized the immense potential and benefits of these offerings,especially

21、in terms of generating stable and recuring revenue streams.It was a gradual shift,but today B2B manufacturers are becoming true aftermarket partners with their customersfor instance,signing contracts that guarantee operational performance.Some manufacturers are even willing to share risks with custo

22、mers.2 McKinsey research has found that companies with a strong emphasis on becoming aftermarket providers and delivering exceptional service to their customers have achieved twice the TSR compared with their counterparts with a lower focus on service.The frontier of aftermarket and service innovati

23、on features robust use of modern technology such as advanced sensors,big data,and AI to offer predictive maintenance services,manufacturing consulting,and options for boosting productivity.For example,measurement sensors of physical parameters(such as vibrations or temperature)can be used to create

24、comprehensive databases on mechanical systems state of health,helping predict failure and minimize downtime with predictive maintenance.1 A version of this chapter introduction was published in the following article:Simone Vesco,“Aftermarket sales and service are vital to manufacturers strategies,”M

25、cKinsey,March 2023.2 For more on OEMs“right to win”in the aftermarket,see“Selling in the aftermarket:How to win the sales street fight,”McKinsey,February 14,2019.9Why aftermarket and service are vital to OEMsand how to excel In rail,a major rolling stock OEM leveraged its digitally-enabled aftermark

26、et service platform to reduce unscheduled maintenance while improving availability.As a result,maintenance costs decreased by 15 percent,an improvement in line with the McKinsey estimate of a potential 15 to 25percent efficiency gain in the rail sector through predictive maintenance.While this gain

27、does not inherently have to accrue to OEMs,they are well placed to keep customers in their ecosystems by knowing the products best and offering OEM certifications.Technological developments have also made it possible to offer product features as a service.Some car manufacturers,for example,have deve

28、loped aftermarket offerings in which they willthrough remote activation,for a feeincrease vehicle performance,enable its self-driving capabilities,or sell additional features or subscriptions.A useful framework for aftermarket companies divides the offering journey into five parts:innovation to mark

29、et,market to order,order to delivery,and delivery to cash,all of which are supported by a set of commonsense enabling factors.Part 1 of this report covers each of these stages in turn.Innovation to marketDuring product development,an OEM should already have a clear understanding of the role that aft

30、ermarket and service will play for the product.This includes,crucially,deciding whether such service would be a source of profitability at all based on product particulars and current customers,plus a range of factors including geographical spread,customer expectations,required investment,and cost t

31、o service.Indeed,aftermarket and service should not be viewed as a mandatory strategy to be pursued regardless of circumstances but rather as an additional lever to generate revenue.For example,a manufacturer of highly durable coffeemakers chose not to offer aftermarket and service because its produ

32、cts value proposition centered on not requiring such 10Why aftermarket and service are vital to OEMsand how to excel support or spare parts throughout the products extended life span.Naturally,such durability is out of reach of many industrial companies,such aircraft,machinery,or car OEMs,for which

33、aftermarket and service are an essential part of the customer experience.However,the durable coffeemakers experience is a reminder that a spectrum of approaches to aftermarket and service offerings should be carefully taken into consideration.Once the decision to move forward with aftermarket and se

34、rvice offerings is made,the innovation-to-market stage begins.Determining the right approach to aftermarket and service requires addressing a couple of critical factors:matching the aftermarket strategy to the product and tailoring services to customer needs.Matching the aftermarket strategy to the

35、product Different products will require different aftermarket and service strategies to ensure each strategy matches customers needs and OEMs ambitions.For complex products and equipment such as jet engines,turbines,helicopters,and tractors,maintenance contracts can be a significantor even the mains

36、ource of revenue.Properly structured,long-term binding contracts can be mutually beneficial for both customers and OEMs:customers benefit from OEMs expertise in servicing their own products,which can lead to optimized maintenance costs and pricing models that are directly tied to the equipments util

37、ization.OEMs are best placed to be a credible long-term aftermarket provider;no one understands these machines better than the original manufacturers.3 Aeroengine manufacturers were pioneers in matching an aftermarket strategy to their original equipment by offering pay-for-use,subscription-like aft

38、ermarket care for their engines.4 Commercial aeroengines are regularly sold at 3 For more on how to build winning aftermarket strategies,see Harold Brink,Senthil Muthiah,and Shane Rieniets,“The winning moves in project-based services,”McKinsey,February 6,2020.4 Filippo Gozzi,Giulia Palombi,Giulietta

39、 Poltronieri,and Simone Vesco,“How aerospace and defense players can win in aftermarket services,”McKinsey,September 21,2022.11Why aftermarket and service are vital to OEMsand how to excel or below cost for new aircraft orders but with aftermarket maintenance and service contracts based on effective

40、 flying hours.This effectively turns capital expenditures into operating expenditures for OEMs and delivers steady and predictable revenues into the future.Such contracts can be combined with other strategies to defend competitive advantagesuch as patented materials,complex parts,or other features t

41、hat make a machine best serviceable by its original manufacturer and reduce the market share available to other OEMs and service-only companies.However,if product complexity is created solely for the purpose of locking in customers and is not born of genuine product-related requirements,this approac

42、h is not mutually beneficial.In such cases,customers might opt for different providers of new units to avoid being locked into a restrictive service model.It is important not to assume that the goal of an OEM should always be to lock its customers into long-term service contracts and relationships.F

43、or example,a small-to medium-size airplane manufacturer,primarily catering to tourists in remote areas of the world,has decided to use commercially available parts for all components requiring regular replacement.The use of widely available parts helps ensure the manufacturers aircraft can be easily

44、 and quickly repaired in remote areas,from Southeast Asia to the Caribbean,where the manufacturer could not provide adequate service on proprietary components.Of course,such an approach strongly limits aftermarket and service revenue,but in this case,it delivers a desirable customer experience.The a

45、lternative to this approach is waiting for a replacement part on location or for transportation of the aircraft to the closest OEM service station,meaning the customer might have to wait days or even weeks for an aircraft to re-enter service.This delay and complexity could affect customers willingne

46、ss to buy new aircraft from the same OEM in the future.Geographic footprint is an important strategic factor for OEMs considering aftermarket and service offerings.The business 12Why aftermarket and service are vital to OEMsand how to excel Geographic footprint is an important strategic factor for O

47、EMs considering aftermarket and service offerings.13Why aftermarket and service are vital to OEMsand how to excel case for opening warehouses and service stations all over the world may not be profitable unless there is a sufficient customer base present in the targeted geographies.The above OEM opt

48、imizes its geographic footprint by recognizing it cannot provide all necessary servicing in remote areas,instead building planes with commercially available parts for all maintenance-prone components.This ensures that its small planes could easily be repaired in remote areas,where demand for such pl

49、anes creates strategically important markets.Tailoring services to customer needsHaving a compelling aftermarket and service offering is a basic requirement of the overall strategy,with customers now requiring solutions tailored to their specific needs.As an example,56 percent of aerospace and defen

50、se executives who responded to a McKinsey survey said their customers expect need-based solutions,and 66 percent said it was a critical element of a service offering(Exhibit 2).5 Once company leaders articulate their aftermarket strategies,they can refine their aftermarket offerings to optimize the

51、balance of profitability,market share,and market penetration.One useful approach is to segment parts and products according to their functional and technical characteristics for instance,whether a part is essentially a commodity,widely available on the market from various suppliers(such as the mirro

52、rs for an automotive OEM),or hard to find and mission-critical for customers(such as complex engine components for an automotive OEM).The strategic approach for each is,obviously,quite different.Focusing on commoditized parts will likely bring lower margins per unit due to higher competition,so OEMs

53、 can optimize these offerings by emphasizing high volume and operational efficiency to remain profitable while keeping prices competitive.5 For more on how to win in aftermarket services,see“How aerospace and defense players can win,”September 21,2022.14Why aftermarket and service are vital to OEMsa

54、nd how to excel Another way to segment parts is to use supply and demand data of parts across products and customers,such as how often customers order a part or product,to determine which products warranted inclusion in the aftermarket and service strategy.These segmentation analyses can be complex

55、and technical,but our experience suggests that the process tends to produce a manageable number of segments that help OEMs identify the right combination of offerings and terms.OEMs often already have the data on hand or can easily establish data collection to better understand trends.Finally,additi

56、onal services can help convert parts of an OEMs offering into an“as a service”(aaS)modelwithout having to completely revolutionize the product.Customers of aaS offerings do not need to ration products and services,and OEMs enjoy a more predictable stream of revenue and can plan capacity accordingly.

57、Some industries,especially the ones dealing with low volumes and high-complexity products,still Exhibit 2Web Exhibit of Key elements of a compelling service ofering,1%of respondents(n=50)Aerospace and defense companies are beginning to provide need-based solutions because many customers expect these

58、 oferings.McKinsey&CompanyNetwork of localpartners to sell and deliver servicesAdvanced contractschemes3Need-based solutions,customized for selectedcustomer requirementsAdvanced services2Required to meetcustomer expectationsEmerging as important elementof key ofering44565232826654281Question:“Which

59、of the following are key elements of a compelling service ofering?”Respondents were asked to think about what their customers consider to be a compelling ofering,as well as what elements are merging as important components of future oferings.2For example,health and usage,monitoring systems for predi

60、ctive maintenance,or virtual trainings and simulations.3For example,availability-or performance-based.Source:“How aerospace and defense players can win in aftermarket services,”McKinsey,September 21,2022;McKinsey A&D Service Survey 202215Why aftermarket and service are vital to OEMsand how to excel

61、lag behind other industries in this area for structural reasonsincluding long product life cycles and cybersecurity-related constraintsand perceived risks.But aaS offerings can help companies create significant value and achieve incremental top-line growth of 10 to 25 percent while increasing custom

62、er loyalty and satisfaction.6 As customers and their needs vary,OEMs must look beyond their own equipment and understand the customers end-to-end experience.These additional customer insights can inform more comprehensive value-added services.7 One automotive OEM expanded its maintenance and repair

63、services by offering tailored insurance policies.The company calculated insurance premiums using existing driving analytics data,eliminating the need to install additional hardware to track key inputs.Although insurance services are traditionally outside the scope of OEMs,the innovative approach unl

64、ocked significant margins.There are additional innovative examples across manufacturing and industrials.For example,an elevator OEM leveraged its maintenance expertise to service competitors products.Despite strict sector regulations that typically preclude such expanded services,the company establi

65、shed a dedicated reverse engineering division to gain the necessary product knowledge and roll it out to a large field workforce.This strategy enabled the company to realize economics of scale from servicing a higher number of systems,expand its customer base to customers not previously using their

66、products,and ultimately expand cross-selling opportunities across OEM products and aftermarket services.Finally,this virtuous circle also allowed the company to improve its predictive-maintenance solution by collecting more data to train predictive models,enhancing their accuracy and thereby the ove

67、rall customer experience.6“How aerospace and defense players can win,”September 21,2022.7 For more on leveraging digital tools and data,see“Five digital and analytics battlegrounds for B2B aftermarket growth,”McKinsey,February 17,2022.16Why aftermarket and service are vital to OEMsand how to excel A

68、n industrial battery-management company faced a similar situation.Its customers were facing high power-management costs stemming from large battery inventories and the numerous technicians needed for uninterrupted operations.The company implemented an Internet of Things platform enabling two-way com

69、munication between the cloud and local sites,providing identity management and insight into all the assets.This system allowed the company to understand the real operating conditions of its installed base andthrough automated analysesoffer predictive diagnosis tailored to each asset and client,optim

70、izing the battery lifetime and thus reducing power management costs.Finally,an industrial-equipment OEM that wanted to enhance revenue from new warranty solutions introduced extended warranties on specific parts.Customers could subscribe to have covered parts replaced or repaired quickly,provided th

71、ey purchased original spare parts from the OEM.This allowed the company to leverage its knowledge of the customer to forecast part repair and inventory needs while helping secure revenue and share of customer wallet.A crucial element of this approach was identifying the right parts to include in the

72、 subscription based on rate of failure and complexity of repair,selecting components that were least prone to failure but also the most complex and expensive to replace.Customers highly value this service because it protects them from major losses;meanwhile,it creates a strong lock-in on original pa

73、rts at a low cost for OEMs.Market to order The market-to-order phase spans the pre-offer period,from prospecting,business development,and scouting to when a client completes an order.OEMs have much to consider in this period,including estimating the commercial potential of aftermarket and service,se

74、tting up and using commercial nerve centers,and pricing aftermarket offerings.17Why aftermarket and service are vital to OEMsand how to excel Assessing the commercial potential of aftermarket and serviceAftermarket spending is starting to account for a significant share of revenues and margins for s

75、ome manufacturing companies,particularly manufacturers of large and complex products,such as aircraft engines,and construction equipment providers.These companies are using mature contract schemes to monetize their services.According to the McKinsey Service Benchmark,8 65 percent of revenue in the c

76、onstruction equipment industry comes from aftermarket and service,just ahead of aircraft engines and mining equipment(both 55 percent)and HVAC(50 percent).As more industrial companies recognize the potential of aftermarket and service,their leaders are carefully assessing the commercial potential.In

77、 our experience,successful aftermarket and service offerings can increase service sales by up to 40 percent in some areas in just a few years.But even early movers in the industrial space have struggled to capture the full potential of their aftermarket and service businesses.9 These difficulties ca

78、n be partially attributed to the challenge of sizing the market and identifying relevant commercial opportunities for aftermarket and service.Indeed,only half the companies in our sample say they regularly do so.The challenge is not necessarily starting the process;its committing to the high level o

79、f rigor and discipline required and iterating it over time.Aftermarket and service sit in the shadow of new-unit sales,which tend to be higher profile and the focus of both executive and sales teams.Overcoming this hurdle requires changing mindsets and even cultures so aftermarket and serviceand spe

80、cifically,sizing that businesscan become a high priority.8 A proprietary database that includes average and top-quintile values of share of aftermarket and service revenue for various industrial sectors,using more than 2,000 datapoints.9 For more on understanding the core value in the aftermarket,se

81、e“Industrial aftermarket services:Growing the core,”McKinsey,July 27,2017.18Why aftermarket and service are vital to OEMsand how to excel In many companies,critical data and knowledge that could propel the success of aftermarket and service offerings or enhance existing ones are dispersed across var

82、ious divisions and functions,making it challenging for companies to locate and tap into valuable expertise.Accurately assessing aftermarket and service,then,would likely require support from analytics and data management.Company leaders could consider three steps when sizing the market for aftermark

83、et and service:1.Create a reliable data set for the installed base(units currently in use).This effort may require collecting,cleaning,and consolidating information from multiple sources going back as far as decades.10 2.Understand customer maintenance cycles.Targeted interviews of salespeople,exper

84、ts,and customers can shed light on various aspects of maintenance,such as reliability,efficiency,and overall satisfaction.3.Match past service orders with the installed base,which will help build a comprehensive view of actual service penetration across the installed base.Once these steps are comple

85、te,leaders could divide the market according to the most significant dimensions for their companyfor example,by end user,product,or country.These insights could guide subsequent decisions about factors that help capture the market opportunity,such as sales targets.Establishing commercial nerve cente

86、rs A commercial nerve centerthat is,an agile,coordinated body that brings together members from across business functions such as sales,marketing,and program managementcan help companies achieve their strategic goals by bringing together the necessary data and knowledge to develop and execute key st

87、rategies.These commercial nerve centers can be dedicated to helping companies achieve their top-line goals in the 10 For more on making the data as usable as possible,see“How aerospace and defense players can win,”September 21,2022.19Why aftermarket and service are vital to OEMsand how to excel afte

88、rmarket,and effective commercial nerve centers can help build momentum in companies to catalyze action and deliver results quickly.Because aftermarket businesses are closely linked to equipment in the field,commercial nerve centers that focus on this area can benefit from gaining specialized knowled

89、ge of their customers operations,including how they manage theirfleets.Take the example of a leading equipment-solution OEM that sought to substantially boost its aftermarket and service sales by implementing a generative AI(gen AI)solution to clean sales and operations data,create a live aftermarke

90、t data lake,and generate leads.The company also used a virtual sales agent to automate personalized emails for its large customer base,increasing outreach capacity.The virtual agent could also help during the lead conversion process by recognizing customer intent and needs based on their responses t

91、o outreach,then passing those insights to the sales team.Additionally,the OEM provided comprehensive training for both inside and outside sales reps,focusing on proactive customer outreach and understanding customer needs in specific verticals.As a result of these initiatives,the company saw a 20 pe

92、rcent increase in generated leads,with a validation rate of more than 80 percent,indicating just how effective such an approach can be.Another example comes from a defense-systems company that launched an 18-month effort to boost top-line growth in the aftermarket.It developed a digital solution to

93、automatically generate opportunities and boost capability building to improve the effectiveness of its sales force.This training was essential because targets tied to new tools are often missed due to low adoption of those tools.The efforts paid off,with service orders increasing by 40 percent in on

94、e year and by 300percent in three years.A principal enabler for these solutions is clean and reliable data.However,OEMs often contend with scattered and incoherent client data sources,and this problem only gets worse when OEMs grow through multiple acquisitions,since databases are 20Why aftermarket

95、and service are vital to OEMsand how to excel often not uniform.Until a few years ago,organizing,cleaning,and integrating this data was an extremely time-consuming process that could take months or even years.But,today,service intelligence platforms have greatly simplified this practice by helping c

96、ompanies clean and integrate data from enterprise resource management and customer relationship management systems,and even external public documents such as environmental,social,and governance targets.The market is clearly moving in this direction,and many different platforms are already commercial

97、ly available.PricingThere are a number of different parameters that companies can consider when determining potential pricing for aftermarket and service:the value of rapid delivery(particularly for proprietary,high-value,or specific parts or services);the value of OEMs services;and the value of bes

98、t-in-class,responsive customer support.Pricing options available to companies also vary and include(but are not limited to)the following:Value-based pricing.In this model,pricing is correlated to the value delivered.This may look like tiered pricing based on service level,use,or outcome.Segmenting a

99、nd defining parts or customers up front can help leaders determine the appropriate combination of prices and terms.For example,complementary parts of a machine would need to be priced similarly,even if demand for the parts may not be identical.In some cases,parts that may not be inherently expensive

100、 because of their materials or complexity can have an outsize effect on the overall value to the customer,especially if the parts are critical to ensuring the availability of machines and meeting regulatory requirements.Bundling and upselling.Companies could analyze historical data to discover what

101、parts are often purchased together;they could then sell those parts in a single bundle.Meanwhile,upselling and cross-selling can help companies maximize revenues while also streamlining their operations by making production planning and inventory management 21Why aftermarket and service are vital to

102、 OEMsand how to excel more predictable and further ensuring competitive service tocustomers.Dynamic pricing.This generally involves applying analytics and market insights to determine the price in nearly real time,using parameters such as current demand,competition,and customer behavior.The analysis

103、 should balance profitability and market share.Another important factor to consider is the customer discount policy.For example,a helicopter OEM used to give discounts on standard aftermarket prices to more than 80 percent of its service centers and customers.While this approach contributed to high

104、aftermarket revenue,it also led to lower profitability than expected.To address the issue,the helicopter OEM adjusted the discount strategy based on factors such as numbers of units sold for service centers and fleet size for customers.As a result,top service centers and customers continued to benef

105、it from better pricing while others no longer negatively affected the OEMs profitability.Regardless of the pricing and discount approach,company leaders should ensure that prices satisfy customer preferences,are appropriate for the competitive landscape,create the right profit margins,and fit within

106、 a coherent pricing architecture.Order to deliveryThe majority of modern industrials companies purchase aftermarket products from a complex global supply chain.Meanwhile,OEMs maintain design and engineering authority over the products that are sold.Consequently,the procurement processes of these pro

107、ducts are of fundamental importance to both OEMs and customers.The order-to-delivery phase starts with comprehensive planning,encompasses manufacturing and procurement considerations,and concludes with seamless product and service delivery.22Why aftermarket and service are vital to OEMsand how to ex

108、cel Sourcing management When developing a winning sourcing strategy,company executives and leadership should consider an overarching procurement strategy as well as specific elements and tactics that enhance value.We have identified two critical steps to this process.The first is articulating the so

109、urcing strategy,such as deciding the target length of agreements and whether to use requests for proposals(RFPs),auctions,or spot buys.The second step is identifying ways to use cost and quality to maximize value.For example,company leaders might outline the optimal number of respondents to engage i

110、n the RFP process to optimize competition between suppliers or decide in advance how transparent to be in supplier negotiations.When it comes to implementing the sourcing strategy,five questions are particularly influential in the execution:1.How critical is the supplier to the OEMs business?2.What

111、type of sourcing event(for example,RFPs,auctions,market buys,and so on)is preferred,and what are thecriteria?11 3.What is the scope of sourcing?For example,is it an entire category of materials or multiple subcategories?4.Whats the duration of the procurement agreement?5.How and to what extent shoul

112、d the firm use intermediaries,such as fully outsourced procurement services,value-added partnerships for specialized services,or fully in-house procurement?Using analytics throughout the process can optimize costs,service quality,and lead time.However,our experience suggests that many companies are

113、underusing the valuable tools available to them,such as should-cost and cleansheet 11 For more on sourcing events,see“Publishing a sourcing event(non-IT),”North Carolina Procurement,accessed June 5,2024.23Why aftermarket and service are vital to OEMsand how to excel analyses.12 This is particularly

114、true for spare parts compared with new units;spare parts often cost much less,but even the cheapest items can represent a significant opportunity when considering the high volumes typically associated with aftermarket and service operations.Manufacturing In the aftermarket,many parts,products,and se

115、rvices are time-sensitive,with customers often eagerly awaiting deliverymaking short lead times crucial.Despite the fact that shorter lead times also mean converting orders into cash flows more quickly,long lead times remain a common challenge(Exhibit 3).A recent McKinsey survey found that the top c

116、hallenge faced by aerospace and defense companies is securing operations and competitive lead times.A comprehensive approach to identifying and mitigating production bottlenecks in manufacturing industries begins 12 For more on should-cost analysis,see Mike Parkins,Mukund Prasad,and Hans Tiedemann,“

117、In volatile markets,embedded product costs can be a hidden treasure,”McKinsey,August 2,2021.Exhibit 3Web Exhibit of Key challenges faced in aftermarket services,1%of respondents(n=50)1Question:“What key challenges are you facing in aftermarket services?”Source:“How aerospace and defense players can

118、win in aftermarket services,”McKinsey,September 21,2022;McKinsey A&D Service Survey 2022Aerospace and defense industry players face a range of common challenges in developing an aftermarket ofering.McKinsey&CompanyIdentifying customers to target and equipment on which to focusEstablishing a dedicate

119、d commercial focus and performance management systemDeveloping a compelling service oferingSecuring operations and competitive lead times6040343424Why aftermarket and service are vital to OEMsand how to excel with measuring cycle times to understand operational efficiency.Cycle times are derived fro

120、m analysis and shop floor observations;they are critical inputs to overall equipment efficiency(OEE)and overall process efficiency(OPE),both of which provide valuable insights into the performance of each machine and workstation.The best way to reduce lead times is to compress the duration of the en

121、tire sequence of events,from the receipt of a service request or parts to the service completion or when the parts are packed and shipped.In our experience,companies that adopt a comprehensive set of solutions showed an overall reduction in lead times up to 30 to 40 percent compared with companies t

122、hat only focused on one step of the value chain(Exhibit 4).Advanced digital tools can,of course,be crucial to the overall process.Consider quality assurance and packing,the final stage of the order-to-delivery process:remote quality checks,virtual reality,digital inventory,and 3D printing for spare

123、Exhibit 4Web Exhibit of Calendar days,baseline indexed to 100Order-to-delivery lead time in service can be reduced at every step of the process.McKinsey&CompanyTypical order-to-delivery processStandard leadtime in aerospaceand defenseBest-practicelead timeOrder incoming and processingRelease of purc

124、hase requestRelease of purchase orderSupplyIncoming and picking for deliveryChecking and packing5106070811712473545810373040%Diference in end-to-end order delivery lead time2313343510025Why aftermarket and service are vital to OEMsand how to excel parts can all support the process and the workforce.

125、If data is incomplete or inaccurate,OEE would need to be recalibrated.A suite of sensors could help estimate OEE using equipment available time,service or production volume,and observed cycle times.The results can help company leaders identify the most important opportunities to reduce cycle time.St

126、akeholders could remove bottlenecks from production lines quickly and efficiently by redistributing the workload.They could rebalance tasks among resources,an approach thats particularly effective for tasks performed by operators.The process can be meticulously modeled using spreadsheet tools,with r

127、esource allocation adjusted accordingly.Iterative testing on production lines,whenever possible,further refines the rebalancing process,optimizing both cycle times and OEE and OPE levels.To achieve future-state objectives,cycle time reductions necessitate an examination of current-state observations

128、 and the potential elimination of tasks within each cycleor at least a reduction in their duration.Concurrently,OEE and OPE enhancements are pursued through a comprehensive waterfall analysis aimed at reducing losses.Operator workloads are a focal point in optimization efforts,and in response to cha

129、nging production demands,careful rebalancing becomes imperative.For example,consider a scenario in which an OEM is transitioning from a seven-day to a five-day operation in one area and from five days to two days in another area:operator workloads,especially for the operators of those two areas,will

130、 intensify.This necessitates a strategic redistribution of tasksnotably,the transfer of activities such as pallet handling and manual transport to a third operatorfacilitating the achievement of takt time and operational goals.These key points are supported by lessons from the consumer goods and ret

131、ail sectors,which have long been chasing faster cycle times from customer order to delivery.Although the products may differ,the strategies that have made retail successful can be applied to the aftermarket,including understanding where speed matters the most to customers 26Why aftermarket and servi

132、ce are vital to OEMsand how to excel and planning accordingly,selectively investing in capacity and networks to reduce bottlenecks,and embracing real-time data analytics and automation to increase overall productivity.Supply chain and inventory management The most important,formative aftermarket and

133、 service supply chain decisionsfrom the footprint of the distribution network to sales channel strategiesvary significantly by business model,regulatory environment,and other factors.For example,in some cases,the distribution network is mandatory,with entities even purchasing spare parts and portfol

134、ios of initiatives to resell to customers.In other scenarios,the OEM directly handles sales,while intermediaries may only serve as maintainers or assemblers of parts.It is essential to recognize that depending on what the business model and sold products are,dynamics can differ greatly,and while the

135、re are key concepts to manage,companies should avoid generalizing.Optimized networksdesigned for each companys unique situationcould balance requirements such as cost and fill rates.Similarly,while the optimal inventory levels for service parts at each stocking location will vary,having them can hel

136、p minimize the lag between a customers order and when equipment is restored to normal working order.Consider the number of SKUs in the inventory.New-product supply chains typically involve a known number of SKUs with known start-and end-of-life cycles.By contrast,the aftermarket involves many varied

137、 field-replaceable units with intricate relationships,which results in more heterogeneity and unpredictability.This aspect is especially critical in sectors such as automotive,where the number of SKUs can reach the hundreds of thousands.For example,an automotive OEM was facing frequent part shortage

138、s because of reactive spare parts inventory management,which led to long delays and a deteriorating customer experience.Even with limited capital expenditures,it was possible for the OEM to implement new AI algorithms on its legacy IT systems to precisely estimate the demand of each SKU.This allowed

139、 the OEM to not only reduce 27Why aftermarket and service are vital to OEMsand how to excel shortages by 50 percent but also keep a very lean spare parts inventory,increasing it by just 5 percent.Distribution networks also differ significantly.New-product supply chains have multiple distribution pat

140、hs,encompassing direct sales,distributors,and resellers.These distribution paths provide redundancy and are unidirectional,focused on outbound logistics.Meanwhile,the aftermarket tends to operate with a single delivery network that must respond to unpredictable demand and provide inbound and outboun

141、d logistics.When it comes to inventory management,the focus for new products is on maximizing inventory turns.For the aftermarket,the focus is on maximizing fill rates so equipment in the field can return to regular functioning.Obsolescence and the two-speed challenge Producers of complex machinery,

142、such as manufacturers of heavy equipment,encounter a frequent time horizon dilemma.13 The products they develop typically have a life span of 30years or more,requiring ongoing supportincluding low-volume legacy parts and technical expertisethroughout the products life.However,some of the component p

143、arts of these systems,especially newer products such as semiconductors,electronic boards,and mechanical elements,may have much shorter life spans,lasting only a fraction of the time compared with the overall system.This“two speed”challenge can lead to difficulties in sourcing components over time an

144、d may result in their obsolescence as suppliers grapple with raw-material shortages or cease production altogether.Consequently,many OEMs devise substitutes for these outdated components,taking on nonrecurring engineering costs that escalate with the quickening pace of technological cycles and the g

145、rowing interconnection of supply chains.13“How industrial and aerospace and defense OEMs can win the obsolescence challenge,”McKinsey,April 14,2022.28Why aftermarket and service are vital to OEMsand how to excel The two-speed challenge puts additional loads on multiplefunctions:Operations.OEMs have

146、to redesign systems around new components to replace obsolete ones.The effort often requires building out an entirely new supply chain in a relatively short period of time.Inventory management.Any product redesign from obsolescence creates a cascading effect in inventory management.Many components i

147、n the inventory for the equipment will not be compatible with the redesigned product and will be turned into scrap.Commercial function,such as sales and marketing.The new,often one-time costs of designing a new component are often passed on to end customers by necessity,which makes for a less afford

148、able and less competitive product.Service.A discontinued component will no longer be available as a spare part.This increases the cost and complexity of delivery and reduces customer satisfaction.A proactive,methodical approach can help OEMs address this hard-to-avoid challenge.OEMs can take three c

149、ritical steps to minimize one-time engineering costs for obsolescence:1.Identify additional,alternate suppliers for any components that are ready for installation without a redesign.OEMs,distributors,and brokers can help identify and procure the right components.2.Identify alternatives to obsolete c

150、omponents that can be modified at minimal cost,avoiding a redesign.3.As a last resort,redesign the component to minimize costs and disruptions to the design of the product or system.Anticipating components obsolescence can forestall equipment-level or system-level problems.One good strategy is to co

151、ntinually scan for problems that could come from obsolescence.Resourcesspecifically,funding and 29Why aftermarket and service are vital to OEMsand how to excel processesdedicated to strategic purposes of at-risk components can help.Tools dedicated to consolidating OEMs in-house intelligence with mar

152、ket data can create a window into obsolete or at-risk components.These tools can also provide information on alternate suppliers,alternate components that could be similar enough in form,fit,and function,and the costs associated with them.To make full use of these tools,roles dedicated to obsolescen

153、ce can ensure that OEMs have champions of obsolescence-related considerations and a team thats ready to work with suppliers to refine the supply chain to counter the relevant challenges.There are also alternative options for OEMs to ensure continued availability for the long tail of product usage.In

154、 aerospace,some original-design OEMs sell the license to their legacy parts to trusted specialist partners to continue manufacturing OEM-specific parts and providing maintenance,repair,and overhaul(MRO)services.This approach allows for support throughout the life cycle of platforms and parts that co

155、uld otherwise be a lower priority for original-design OEMs and lead to poor customer experiences.This model offers benefits to both clients,who gain a focused OEM-licensed partner to deliver legacy parts and service quickly,and OEMs,which can monetize legacy parts through the licensing agreements an

156、d gain residual cash flows while ensuring continued customer support.Finally,OEMs should consider obsolescence at the beginning and factor component obsolescence into the R&D process.This effort will require cooperation between multiple stakeholders,such as engineering functions and suppliers.Stakeh

157、olders would also likely need to standardize interfaces and modular designs and minimize the use of specialized components.14 14 For more on obsolescence,see“How industrial and aerospace and defense OEMs can win the obsolescence challenge,”April 14,2022.30Why aftermarket and service are vital to OEM

158、sand how to excel Field workforce The field workforce has traditionally been at the center of the service and aftermarket sector,especially in relation to break-fix activities.Even as some activities shift to remote services,the field service will continue to play a vital role.By evolving their fiel

159、d operations,OEMs can improve service levels,customer experience,efficiency,and productivity,ultimately creating value for customers and potentially transforming their field workforces into an additional sales force.OEMs can take several approaches to improve field workforce performance and services

160、,with the most common involving performance management and process standardization in the form of standard operating procedures(SOPs).However,SOPs are only effective if correctly applied and if technicians implement process-based workflows.In this regard,companies can enhance their service quality a

161、nd procedure adoption in various ways,including creating clear progression paths toward better positions,instituting internal certifications for skill development,and establishing transparent selection criteria and incentives for employees.Linking progression to compliance with SOPs,for example,can

162、engage field operators and improve service repeatability.In addition to traditional levers,digital tools and analytics can strongly improve the productivity and quality of the field workforce.For example,a medtech OEM experiencing low performance and margins in its service business,mainly because of

163、 limited use of digital and analytics,increased its service engineer utilization to 75 percent,from 55 percent,in less than a year.The OEM achieved this by focusing its AI efforts on aligning field technicians to customer demand with a three-step approach:creating geographic clusters based on histor

164、ical demand;calculating headcount,including both work hours and travel time;and allocating resources to properly deploy technicians and also minimize travel time.After the initial signs of success of this first AI-enabled business case,the medtech OEM rolled out a full-fledged analytics program,incl

165、uding spare parts inventory,remote resolution,and advanced troubleshooting.31Why aftermarket and service are vital to OEMsand how to excel The telecommunications sector offers another relevant case study.One telco used to reactively perform installations,maintenance,construction,and back-office work

166、 through manual work planning,but it has since transitioned to a new operating model.This model includes task intelligencefocused dashboards to enhance productivity and engagement,AI coaches to help supervisors improve workforce efficiency,and AI-powered analytics for forecasting and scheduling main

167、tenance operations,considering both long-term capacity planning and short-term work planning.These operational process optimizations have resulted in significant improvements,including a 15 percent increase in capacity,a 30 percent reduction in required workforce,and a 10 percent increase in workfor

168、ce utilization.OEMs can achieve further optimization by leveraging gen AI,as in the case of a European machinery distributor that implemented a comprehensive solution to drastically reduce unplanned downtime and customer costs.The solution consists of two main blocks:a platform that integrates all s

169、ervice-related information and a module for a language learning model(gen AI).The platform serves as a centralized hub where technicians can access manuals,procedures,and guidelines,streamlining the troubleshooting process.AI chatbots,or“copilots,”act as conversational orchestrators of the service,p

170、roviding live collaboration through insights,recommendations,root cause analyses,reports,and documents.The implementation of this solution resulted in a 10percent increase in first-time-right resolutions,significant cost savings for clients,faster problem identification,and improved accessibility an

171、d efficiency for technicians.Last,field workforces and technicians can become a powerful extension of the sales team.By being in close proximity to clients and interacting with them and their products on-site,the field workforce is uniquely positioned to identify client needs,solve existing issues,a

172、nd prevent future issues.Given 32Why aftermarket and service are vital to OEMsand how to excel the right tools,they can build stronger and more profitable relationships with clients,adding value to the organization.15 Delivery to cashThe delivery-to-cash phase,the final segment of the journey for af

173、termarket and service,is primarily focused on the importance of cash management.Many industrial companies operate with around 90 days of outstanding receivables in terms of cash.While chasing receivables is often not the top priority of a company,reduced cash flows from nonpayment of receivables can

174、 nevertheless cause significant issues if not addressed.There are two priority delivery-to-cash activities that OEMs should consider:structural interventions that can help avoid or at least minimize past-due credits and the processes through which past-due credits are collected.Addressing receivable

175、s can be complicated and span the finance,commercial,and sales organizations,given the complex contractual terms and conditions often facing industrial companies.This includes complex processes that involve multiple intermediaries,bespoke contracts,and a significant number of invoices over a long du

176、ration.The most important actions to optimize the cash collection process in aftermarket and service for industrial companies include the following:defining target terms and conditions to be used in contract negotiations implementing comprehensive and simplified checklists to facilitate credit colle

177、ction developing training programs(including digital tools)and updating employee incentive schemes to increase focus on cash collection15 For more about turning the field workforce into part of the sales force,see Markus Forsgren,Sren Jautelat,Arno Montenbruck,and Maximilian Titze,“Industrial servic

178、es overlooked sales force:Their technicians,”McKinsey,May 18,2021.33Why aftermarket and service are vital to OEMsand how to excel These interventions are more relevant for aftermarket and service businesses compared with selling new units because of the higher volume of invoices and lower average tr

179、ansaction value in aftermarket and service,especially for spare parts.The complexity is further increased when intermediaries,such as spare parts distributors,are involved,which is a common situation in manufacturing industries.No single solution can effectively streamline the delivery-to-cash proce

180、ss,but companies could understand the specific factors behind their organizations long delivery-to-cash times.These factors could include unfulfilled deliveries to customers practices,incomplete documentation,and more(Exhibit 5).Exhibit 5Web Exhibit of Illustrative company exampleUnderstanding the c

181、ause of payment delay is crucial to accelerate collection.McKinsey&CompanyInvoice agreed or issued Invoice past dueConditions to pay recognized by clientPaid by end client Cashed inExamples of root cause Late deliveries leading to litigations on the application of penalties and other“complications”U

182、nfulflled or partial shipments(also due to client delays)Missing or incomplete documentation(eg,missing certifcates)Clients standard practice is to pay with signifcant delay vs invoice past-due date Missing or incomplete documentation to be received from client(eg,missing letter of acceptance)Critic

183、al geopolitical context Specifc problems related to the presence of intermediaries also acting as agentsNot agreed with end clientAgreed with end clientPaid by end client to intermediary Total past due credits5560%3040%510%34Why aftermarket and service are vital to OEMsand how to excel After assessi

184、ng the factors behind their delivery-to-cash performance in detail,companies could identify the best ways to speed up cash flow and free up working capital.One solution is to launch credit collection campaigns,which can effectively reduce past-due credits as long as stakeholders systematically track

185、 past-due credits and their causes.The resulting insights could help mitigate future delays.Enabling factorsTo achieve service excellence,organizations need the right structures,performance management systems,and digital capabilitiesall aligned to their strategies and business needs.The organization

186、As with any business,optimizing the aftermarket and service business requires the right talent and the right organizational structure.In fact,across industrial companies,several common but suboptimal practices can lead to revenue losses of up to 10percent,such as the following:viewing services as co

187、st centers rather than full-fledged business opportunities maintaining siloed processes for design and service,with products and services treated as separate entities allowing disjointed service sales and delivery departments,causing the sales team to overlook possible leads from field-based technic

188、al insights enabling excessive decentralization of delivery,leading to higher costs because of unnecessary geographical redundancy of functions.Due to the impact of organization on the performance of aftermarket and service businesses,company leaders would need to clarify their stance on two things:

189、level of integration and service function centralization.Level of integration.The first conclusion leaders should come to is how integrated the aftermarket organization should be 35Why aftermarket and service are vital to OEMsand how to excel with the core businessthat is,the aftermarket divisions s

190、tructure and how it relates to the rest of the company,the degree of influence it has,and how to set up the aftermarket division to minimize redundancies.There are three archetypes currently in use among aftermarket and service companies:fully integrated,hybrid,and separated unit(Exhibit 6).Each has

191、 distinct benefits and risks:In the fully integrated model,sales and services are integrated within the product business units.This organization structure offers businesses a holistic view of their products and services,enabling better planning and optimization.It also facilitates faster decision ma

192、king and closer alignment with customer needs,leading to improved satisfaction and competitiveness.However,leaders must navigate the risks,including a lack of accountability for services versus products,challenges with divergent methodologies and technologies,and missed synergies between business un

193、its.The hybrid model features a separate services business unit that assumes full ownership of service delivery while influencing services sales through a center of excellence.This approach has several benefits,including scalability,consistency across methodologies and technology,and maintained sale

194、s proximity to the market.Risks include reduced flexibility in addressing specific business-unit needs,potential organizational inconsistencies that slow down decision making and time to market,and the need for additional processes to ensure coordination.In the traditional separated-unit structure,a

195、 distinct services business unit maintains full ownership of its own profit and loss.This model provides organizational focus and scale,increased efficiency,fair pricing for services,and professionalized product development,making it particularly suitable for services with multiple business units.Ri

196、sks include losing sight of the full project life cycle,diffusing accountability,creating duplications,and making it harder to align the sales business units goals with those of the service business unit.36Why aftermarket and service are vital to OEMsand how to excel Exhibit 6Web Exhibit of There ar

197、e three main archetypes for organization and steering among aftermarket and service players.McKinsey&CompanyFully integrated:Sales and services integrated within the product business units Products are at the core of a business Service is mature and can be managed efectively within the product busin

198、ess units End-to-end ownership exists elsewhere Products are highly diversifed Customers are the same for both initial and service saleHybrid:Separate services business units fully owning service delivery and infuencing services sales Service is becoming more central to a business but is not yet cor

199、e Service is not fully matured and requires central coordination to drive execution consistency Products are highly diversifedSeparated unit:Separate services business unit with full ownership of services proftability Service is at the core of a business Service is immature and needs proft-and-loss

200、focus to drive execution excellence Products have common elements Service customers are diferent from initial-sale customersCEOProductbusiness unitProductbusiness unitRegionor countryRegionor countrySegment 1Segment 2ServicesCEOR&D,engineering,and manufacturingServicesbusiness unitRegionor countryPr

201、oductbusiness unitEquipment salesService salesService deliveryregional headsCEOServicesbusiness unitProductbusiness unitRegionor country 1Regionor country 2Regionor country 1Regionor country 137Why aftermarket and service are vital to OEMsand how to excel In choosing the right organization model,com

202、panies must consider several factors,such as target customers,workforce mindset and skills,leadership involvement,potential cannibalization,and the emphasis on new business development(Exhibit 7).While there is no single recipe for success,major companies have generally favored freestanding service

203、and aftermarket business units to ensure agility and relevance to the unique characteristics of such a business.Service function centralization.The second area to consider is the level of centralization across various service functions.Centralized models involve managing tasks and responsibilities f

204、rom a single responsible center,providing standardized Exhibit 7Web Exhibit of Considerations for deciding on whether to integrate or separate solutions and services salesThe extent of organizational integration depends on aspects such as customer interactions,employee skills,and leadership attentio

205、n.McKinsey&CompanyLevel of integrationCustomersEmployees skill and mindsetLeadership attentionCannibalistic nature of businessSelling to same clients within existing customersSame skills and mindsets required as selling existing productsNo extraordinary senior leadership time requiredMinimal canniba

206、lization of existing business for customers and sales peopleSelling to diferent clients within existing customersComplementary skills and mindsets required as selling existingproductsSome extra senior leadership attention and steering requiredSome cannibalization and overlap with existing businessSe

207、lling to new customer baseDiferent skills and mindsets required as selling existing productsHeavy senior leadership time requiredHuge cannibalization of existing business for customers and sales people+Business developmentMinimal focus on new business developmentSome focus on new business developmen

208、tLarge focus on business development38Why aftermarket and service are vital to OEMsand how to excel services to multiple locations or business units.This approach offers several advantages,such as economies of scale;standardization;specialized talent;cross-fertilization of data,knowledge,and experti

209、se;and more-effective prioritization of resources.It may also result in a lack of proximity to business units and a shortage of region-specific offerings.A regional model,in contrast,involves situating service functions in specific regions or countries,offering local expertise,flexibility,proximity

210、to business units,and regional capacity.However,the regional model may face challenges with standardization,leading to fragmentation and duplication of efforts.An organizations choice between the centralized or regional model depends on various factors,including product regional differentiation,the

211、distribution of the customer base,the average size of client companies,productions business unit footprint,and regulatory differences within the companys footprint.(Exhibit 8).A notable example is the supply chain,in which companies can take on a number of different forms.To determine the right stru

212、cture,leaders could consider the scope of the aftermarket supply chain,how difficult it would be to centralize the supply chain management function,and the most appropriate kind of supply chain for the company.For instance,a global company that works with complex parts for machinery may lean toward

213、a decentralized structure to better manage regional variations in demand and to have a buffer against supply chain disruptions.On the other hand,a company with a smaller geographic footprint and simpler products might find a centralized structure more efficient and easier to manage.Other measures to

214、 increase working capital could include negotiating and enforcing more-stringent payment terms,offering incentives aimed at pushing credit collection,and providing employee training for best practices for monitoring and managing past-due credits.39Why aftermarket and service are vital to OEMsand how

215、 to excel Exhibit 8Web Exhibit of There is no one-size-fts-all model for service organizations,which can be structured centrally or regionally.McKinsey&CompanyWhy choose it?Global customer base who interacts with multiple regions Signifcant operational overlap among regionsWhy choose it?Products are

216、 highly diferentiated across regions Region-specifc expertise can provide better customer service and provide a quicker feedback loop to product and commercial teamsCentralRegionalA.CEO of servicesB.ProductC.SalesD.DeliveryE.PricingF.New hardware oferings(including engineering)G.Digital oferings(inc

217、luding digital labs)H.Marketing sales and supportI.Parts salesJ.Service and repair salesK.Contractual salesL.Parts and supply chainM.Procurement(dedicated to aftermarket)N.Service centersO.Planning and schedulingBy subregionProft-and-loss ownershipBEFGHDLMNOCIJKAA.CEO of servicesB.Sales supportC.Dig

218、italD.Supply chainE.AmericasF.EuropeG.Middle East,North Africa,and TrkiyeH.AsiaPacifcI.PricingJ.Sales analytics and sales operationsK.Parts procurementL.Repair centersM.Parts warehouseN.SalesO.Execution tech forceAFGHBIJDKLMENOC40Why aftermarket and service are vital to OEMsand how to excel Performa

219、nce-management systemsMany aftermarket organizations have distributed structures and many layers.This means company leaders would need to put in continuous effort to communicate and ensure that the entire aftermarket organization understands its performance management system.For instance,aftermarket

220、 and service businesses productivity and cost efficiency could be measured through KPIs such as the number of panels produced per work week per full-time employee.Deviations from benchmarks and the ratio of used hours to sold hours(such as time spent repairing a part compared to the time sold to a c

221、ustomer to complete that repair)can be helpful measures of efficiency.In some cases,the effectiveness of quality and service delivery might be measured by the number of service cases per 100 installations,shedding light on the efficacy of service delivery.Safety might be measured by the number of si

222、te visits or the time elapsed since the last recorded accident,customer satisfaction measured with a customer satisfaction score,and employee engagement and organizational health measured by scoring workforce pulse surveys.Digital tools and capabilitiesDigital tools have been unlocking value for ind

223、ustrial companies for the past few decades and have done so more recently in service and aftermarket.AI,particularly gen AI,has the potential to reinvent how services are delivered,with a number of use cases emerging in recent years(for examples,see Exhibit 9).Industrial companies can apply these us

224、e cases across all steps of the service and aftermarket excellence journey,with the following examples being some of the most impactful:Innovation to market.Companies can implement digital twins to reduce development lead time and can reduce physical testing time in favor of virtual simulations(for

225、example,replicating years of deterioration of a spare part in minutes).41Why aftermarket and service are vital to OEMsand how to excel Exhibit 9Web Exhibit of Generative AI has reinvented how B2B services are delivered.Key functionsTraditional worldTech-enabled worldInventory managementExpert-guided

226、 spare parts selection and replenishmentAI-guided inventory replenishmentProactive part validation for specifc jobsJob deliveryJobs done based on individuals expertise AI-recommended next steps and synthesis of technical documentsScheduling and routingPeriodic job allocation subject to dispatcher ju

227、dgmentReal-time intelligent job allocationField serviceDemand planningAnalysis of historical job dataIntelligent forecasting using multiple data sources for optimal accuracyCustomer experienceCustomer experienceTraditional,mostly reactive customer experience managementCustomer experience metrics tra

228、cked liveReal-time tracking of parts delivery and repair24/7 customer careSales pursuitCustomer outreach mostly via sellers,focused on largest customersAI-powered lead-generating modelsVirtual sales assistants with hyperpersonalized contentSalesGranular opportunity viewManual lead generation and qua

229、lifcation using outdated or incomplete data setsGranular view of installed baseAI-driven lead identifcationGenerative AIpowered lead prioritization Price settingCost-plus pricingDeal-scoring engines and dynamic pricing Real-time negotiation guidance and predictive pricingMarketingOfering design info

230、rmed by customer profling and voiceAuto-generated dynamic content for targeted segmentsStandard broadcast materialOfering designProduct managementCustomer insight collected across full installed baseCustomer focus groupsGenerative AIenabled 42Why aftermarket and service are vital to OEMsand how to e

231、xcel McKinsey&CompanyKey functionsTraditional worldTech-enabled worldBack ofceManual paperwork processing Automated consolidation of sources,research,and documents in desired formatsSupport servicesAdministrative processesManual paperwork processing AI-automated order trackingRemote frstRemote monit

232、oringReal-time condition monitoring Equipment self-healing based on conditionOEM platformOnline platform with FAQ and search bar for troubleshooting guidesAI-enabled knowledge management(eg,intelligent search bars)Self-serviceEquipment-based supportControl panel displaying fault code Step-by-step in

233、structions for customer self-diagnosis of simple issuesAccelerated technician servicingSchedulingand routingHolistic performance feedback,informed by performance metrics and unstructured dataWeekly huddles using historical performance dataPredictive maintenanceFailure root causeReal-time predictive

234、analytics based on usage patterns(failure modes)Analysis of historical failure dataPerformance managementRemote troubleshootingPhone-guided or remote troubleshooting Remote troubleshooting via augmented and virtual reality43Why aftermarket and service are vital to OEMsand how to excel Market to orde

235、r.Companies can leverage AI to anticipate customer needs based on several factors,such as maintenance cycles and products usage,and can support the sales force to close better deals(Exhibit 10).Order to delivery.Companies can develop a remote offering for field services using augmented reality,often

236、 reducing both costs and lead time of intervention because no travel is needed.Delivery to cash.Companies can create dynamic digital platforms to monitor the cash flow situation at the item level(often many contracts with lower values)and the latest interactions with customers and suppliers for bett

237、er follow-up.Exhibit 101Natural language processingpowered.AI-enabled aftermarket and service organizations support the sales force across commercial capabilities.McKinsey&Company1Granular view of opportunity at customer levelGranular view of installed base and penetration by customer and assetAI-dr

238、iven sales leads2Ofers that meet clear customer needsMapped customer needs and willingness to payOfering design informed by voice of customer3Sales force relentlessly pursuing top opportunitiesBest-of-breed digital stack to automate customer outreach tasksLive digital dashboards for sales managers t

239、o coach reps4Right price to maximize valueDeal-scoring engine to support decisions on large parts dealsDynamic parts pricing to maximize value5Outstanding customer experienceNLP-powered1 virtual assistants answering customer questions on parts deliveries and servicesSeamless e-commerce storefronts f

240、or partsCustomer experience metrics tracked live44Why aftermarket and service are vital to OEMsand how to excel While the benefits may be obvious,deploying,using,and harnessing digital tools can be challenging.Many industrial companies are struggling across the boardfor example,in areas such as data

241、 preparation,cleaning,and warehousingand many lack the required internal capabilities and expertise to deliver effective digital capabilities,such as cybersecurity and software development.In a McKinsey survey for industrial companies conducted in 2022,respondents revealed that their most pressing c

242、oncern involved identifying the right software partners within the ever-growing landscape of established businesses and new,more agile start-ups.16 Because the importance of digital capabilities will continue to grow,this area will likely require even more attention in the future.16“How aerospace an

243、d defense players can win,”September 21,2022.45Why aftermarket and service are vital to OEMsand how to excel Part 2Tech-driven trends and innovations46Why aftermarket and service are vital to OEMsand how to excel In an era dominated by technological innovation,tech and tech-adopting companies have e

244、merged as trendsetters and reshaped the landscape of services across industries,from manufacturing to consumer goods.Harnessing and implementing new digital tools can help to grow revenues by 30percent.17 The pioneers experience offers ten pivotal lessons,illuminating how those companies are forging

245、 a new paradigm for the future of service industries:1.Offering a B2C-like customer experience.This includes expanding the product portfolio to encompass postsale products and services that are useful and offer easy-to-use experiences.2.Exploring“servitization.”This entails offering products as serv

246、ices,including through ongoing,performance-based contracts.3.Collecting,analyzing,and monetizing data.For example,companies can leverage data to drive predictive maintenance regimes and offerings.4.Pursuing“softwarization of features.”This involves improving product performance though a state-of-the

247、-art service offering.5.Accessing new value pools through sustainability.This is increasingly a requirement from both customers and regulators.6.Expanding on higher-than-expected maturity in“remotization.”Companies can leverage in the new normal the remotization maturity developed during the pandemi

248、c.7.Leaning into the localization paradigm.This ensures a consistent delivery model everywhere and resilience to supply chains disruption.17 Guy Benjamin,Markus Forsgren,and Nicolas Guzman,“From defense to offense:Digital B2B services in the next normal,”McKinsey,August 28,2020.47Why aftermarket and

249、 service are vital to OEMsand how to excel 8.Establishing online marketplaces.Such marketplaces are redefining the standard in terms of on-time delivery of quality products and can also be considered in a B2B context.9.Building ecosystems around products.Through ecosystems,users can fulfill a variet

250、y of needs.10.Handling disruptions to the service workforce.Disruptions push organizations to rethink their talent strategies.Offering a B2C-like customer experienceThere is a fundamental paradigm shift under way in aftermarket and service,characterized by the imperative to replicate the personalize

251、d experiences typically associated with B2C interactions.This sectorwide transformation has required companies to recalibrate their focus and allocate time and resources to providing more postsale products and services such as maintenance,accessories,product upgrades,and training.These services,like

252、 those commonly available and expected in the B2C spheres,are already helping B2B businesses maintain and enhance their product portfolios while providing customers with more-satisfying experiences.A 2023 McKinsey survey of B2B companies across sectors and geographies identified the implementation o

253、f the personalization(and hyperpersonalization)of marketing,sales,and products,akin to B2C experiences,as a primary differentiating feature for winning companies.More than half of companies involved in the survey that saw their market share grow by more than 10 percent had invested in tools,customer

254、 journeys,and products to deliver B2C-like personalized experiences for their B2B customers.18 For example,some leaders now offer specialized maintenance,cleaning,and restoration services,accompanied by bundled accessory offerings.Additional services,such as product engraving and customization,eleva

255、te the customer experience.18“The multiplier effect:How B2B winners grow,”McKinsey,April 13,2023.48Why aftermarket and service are vital to OEMsand how to excel Training sessions,both in person and virtual,empower customers to understand their products full potential.And the introduction of upgrade

256、options and vintage product trade-ins reinforces the commitment to long-term customer satisfaction and retention.These initiatives can also help improve internal processes.A leading heavy-equipment OEM,for example,developed dedicated digital apps to streamline communication with dealers(such as comm

257、unications regarding virtual showrooms,financial quotes,and the resale of used items),resulting in an up to 80 percent reduction in order deviations.This saved the company time and money in complaint handling.Exploring servitizationServitization enables companies to convert the one-off sale of produ

258、cts into recurring sales or subscriptions to better utilize those products,such as the leasing of machines,critical components,tools,or traditional services.Put another way,servitization is providing access to capital-intensive products for an agreed period of time.This transition offers profound va

259、lue for businesses that goes beyond the typical aftermarket propositions of simply selling spare parts or basic servicing.The provision of products as a service helps players expand their scope along the value chain and life cycle.One of the most prominent examples is the transformation of Rolls-Roy

260、ce from selling aeroengines to selling pay-by-the-hour contracts for engine operations.While servitization is a relatively straightforward concept,it can take on many different forms based on capabilities,products,and customer needs.Servitization has enabled players to broaden their reach into previ

261、ously untapped customer segments,particularly those that have a temporary need for the product or a shortage of resources to afford the full capital investment.Products sold as a service are generally bundled with additional features and services.For example,a subscription-based rental of heavy mach

262、inery often includes periodic maintenance,installation,and upgrades and can transform costly capital expenditures 49Why aftermarket and service are vital to OEMsand how to excel The rise of servitization underscores the importance of a customer-centric approach to the aftermarket.50Why aftermarket a

263、nd service are vital to OEMsand how to excel into operating expenditures financeable through cash flows rather than debt.Remote monitoring and predictive-maintenance service offerings also benefit OEMsthrough predictable future cash flows and data that can be leveraged in R&Dand customers,who can de

264、volve maintenance responsibilities to another organization with an expert maintenance workforce without having to manage one directly.Indeed,the rise of this model underscores the importance of a customer-centric approach to the aftermarket.Shaping the appropriate product-as-a-service and commercial

265、 structure requires a strong understanding of customers needs and purchasing behaviors;otherwise,there is a risk of losing rather than gaining competitive advantage.Furthermore,servitization offers the potential for a more stable and recurring revenue stream,shifting from one-time product sales to o

266、ngoing service contracts.End-of-quarter fire sales could then fade in intensity,smoothing cash flow and allowing for adjustments in pricing or pausing paymentsflexibility that can create added value for customers.An IFS survey across the industrials sector found that manufacturers that offer planned

267、 maintenance and service contracts were mostly likely to have profitable aftermarket services,with 62 percent reporting profitable service businesses.19 One leading industrial equipment manufacturer began offering hardware-as-a-service,when traditionally it had been sold as a product.This European O

268、EM develops,installs,and operates compressor systems at customer sites,providing maintenance and repairs bundled for a fixed fee.With ultimate control of compressors in the hands of the company instead of customers,faults decreased,improving security,and costs decreased thanks to better predictive m

269、aintenance.In general,many companies in many industries could benefit from embracing servitization.Recently,B2B companies that needed to automate their operations but were hesitant about 19 Charles Rathmann,Industrial servitization and field service technology,IFS,April13,2022.51Why aftermarket and

270、service are vital to OEMsand how to excel the investment opted for subscription models for autonomous robots in warehousing,mobile picking,delivery,and logistics.This commercial model gave these companies the flexibility they needed to adjust to changes in demand,reduce upfront costs,and stabilize o

271、ngoing costs thanks to the periodic subscription plan.As industrial companies expand into servitization,some have introduced advanced contract schemes,such as performance-based service contracts(the exact KPIs of which may differ but often relate to availability).About half of respondents to the McK

272、insey A&D Service Survey 2022 consider these contracts to be critical elements of a compelling offering.20 Done right,these contracts can foster better equipment and platform performance at lower and more predictable costs for end users while enabling companies to achieve higher margins,sign longer

273、contracts,and improve their knowledge of end users needs.However,there are many challenges in the servitization journey,including risk aversion,incomplete service solutions,suboptimal risk and contract management,underpricing,outdated commercial engines,and internal alignment issues.Addressing these

274、 hurdles will be pivotal as organizations navigate their unique path forward using all the potential commercial models at their disposal.Collecting,analyzing,and monetizing dataData collection,analysis,and monetization have proven transformative to the services sector and are likely to remain a cruc

275、ial pillar of future successes across the industry.Predictive maintenance exemplifies the potential of data-driven strategies.For instance,using AI to predict failures and minimize downtime in electrical systems,such as ball mills,is becoming increasingly commonplace for new sales and installed addi

276、tions to legacy equipment.This process involves several important steps,including analysis to identify failure 20“How aerospace and defense players can win,”September 21,2022.52Why aftermarket and service are vital to OEMsand how to excel probabilities,the evaluation of sensors to pinpoint those wit

277、h the highest correlation to time to failure,and the establishment of a predictive model using algorithms such as heat maps and power variance.A tier-one aerospace supplier providing aftermarket components and MRO services for aircraft employed an AI model to project ten years of repair events creat

278、ing aftermarket MRO demand.This model allowed the supplier to tap into uncaptured MRO revenues and build accurate long-term plans that reduced time spent on nonpriority components.Another prominent industrial manufacturer has taken the technologies,tools,and learnings from using predictive maintenan

279、ce to increase the uptime of its own advanced manufacturing production lines and created a new business offering for other manufacturers.It now offers sensors and a cloud-based analytics platform to develop predictive-maintenance regimes for third parties,with pricing based on the value of increased

280、 production uptime.Predictive maintenance is one of many applications of AI that can cut costs in not only services but also operations.In many areasincluding manufacturing,distribution,and inventory managementdata-enabled operations optimization can enhance service performance at every step of the

281、supply chain.Such optimization entails supply chain transparency for superior planning,improved forecast accuracy drawn from existing data,and streamlined field-service input costs through analytics-driven staffing and scheduling solutions aligned with real demand.21 Softwarization of featuresJust a

282、s servitization involves the transition of products into services,“softwarization”refers to the transformation of technology that is traditionally associated with hardware and 21 For more on harnessing data for analytics-based maintenance,see Harold Brink,Adam Krych,Orlando Ramirez Cardenas,and Sanc

283、hit Tiwari,“Establishing the right analytics-based maintenance strategy,”McKinsey,July 19,2021.53Why aftermarket and service are vital to OEMsand how to excel physical infrastructure into software-based solutions.This concept can offer significant benefits,including flexibility,scalability,and cost-

284、efficiency.Car manufacturers,for example,are investing heavily in the transition from a focus on mechanical features to differentiating electronic features.Not only has this helped to reduce costs overall,but it has also been driven by customer sentiment,with more than 80 percent of customers willin

285、g to pay for mobile services.This transition has ranged from replacing traditional physical buttons for user functions with a touchscreen to some OEMs exploring pilots of autonomous vehicles.In the service arena,this shift has resulted in an evolution of the skills needed to maintain cars,such as in

286、terrogating analytics rather than disassembling an engine,as well as the use of software rather than hardware updates or physical replacements to fix faults.Tesla has been a pioneer in this area,using softwarization as a strategic tool to retain clients and expand postsales revenues.Teslas value pro

287、position revolves around electronic features that enhance the customer experience,differentiating the company from competitors.The much-discussed Autopilot,a signature feature of Tesla vehicles,exemplifies this differentiation.All cars from 2019 are designed,from a hardware perspective,to include th

288、e autonomous-driving options.Customers can decide to purchase a car without any self-driving option installed initially and then later install the required software through their personal Tesla account.Sustainability as a key to unlock new value poolsSustainability has emerged as a pivotal key to un

289、locking new value pools,ushering in innovative approaches and practices.Companies are focusing on minimizing the carbon cost of products and are interested in increasing the circularity and overall materials cost.Two illustrative examples underscore this transformative shift in the service landscape

290、.54Why aftermarket and service are vital to OEMsand how to excel Sustainability is expected to become a defining theme in the automotive aftermarket,with a focus on“green parts”and sustainable material sourcing.Initiatives such as recycling programs for lithium-ion batteries,boasting recycling rates

291、 of up to 95 percent,are emblematic of this commitment.The adoption of remanufactured parts further contributes to reducing CO2 emissions,energy consumption,and the use of natural resources,aligning with strong regulatory mandates in the European Union.This is an area in which OEMs are well position

292、ed,with many automotive customers still preferring OEM parts over substitutes and more than half of customers open to refurbished or remanufactured parts.Green logistics practices,including more-efficient distribution and lower return rates,promise to spur sustainability even more.Green workshops ar

293、e becoming qualified to handle new technology incidents,enabling over-the-air updates and recalibrations to enhance efficiency.Leveraging analytics and technologies,such as digital twins and machine learning,aids in forecasting vehicle failures,optimizing maintenance effectiveness,and advancing sust

294、ainability in the automotive aftermarket.22 The second example illustrates the paradigm shift in the healthcare sector,particularly with the next generation of anesthesia machines.These innovative machines are designed to adapt to evolving clinic needs and offer a compact and cost-effective solution

295、,enhancing workflow for medical professionals.The approach prioritizes flexibility,enabling the addition and customization of applications per physician requirements.This approach minimizes environmental impact by reducing the use of disposables and cuts development costs via the utilization of exis

296、ting components.Notably,the product boasts more than 90 percent recyclable parts,significantly lower manufacturing costs,and sustainable materials,further exemplifying the fusion of innovation and sustainability in the service sector.22 For more on the trends in the automotive aftermarket,see Daniel

297、 Christof,Jonas Hofmann,Denis Hrner,and Sebastian Kempf,“Making every part count:A component view on disruption in the automotive aftermarket for light vehicles until 2030,”McKinsey,May 17,2021.55Why aftermarket and service are vital to OEMsand how to excel Higher-than-expected maturity in remotizat

298、ionA notable trend in the future of the services sector is the continuously growing maturity in the“remotization”of offerings.This has been particularly prominent in workforce management(WFM),including both strategic and operational planning aspects.WFM covers a range of functions,such as forecastin

299、g,scheduling,and the optimization of labor-related business processes,all of which have been affected by the remotization trend.This development is applicable across diverse workforces,ranging from store associates and call center representatives to field technicians and construction engineers.WFM p

300、rocesses have traditionally been predominantly manual,relying on statistical models rooted in historical trends and often subject to manual overrides because of entrenched practices.Errors in WFM can have significant business repercussions,including over-or understaffing,compromised service levels,e

301、xcess idle time,and increased overtime costs.The COVID-19 pandemic has exerted substantial pressure on WFM while simultaneously opening new opportunities for innovation.Changing workforce dynamics and the evolving nature of work require more-complex forecasting models that consider multiple variable

302、s to comprehend underlying drivers.This,in turn,has paved the way for innovative service models,harnessing sophisticated WFM tools.One compelling facet of this evolution is the emergence of fully remotized offerings for field services,with leaders implementing three main technologies:assisted activi

303、ties,featuring interactive step-by-step guidance for complex interventions and voice-controlled interfaces for hands-free operations;remote support,facilitated by video connections and augmented reality instructions;and video tutorials,available to the workforce on open platforms.These advancements

304、not only enhance operational efficiency but also ensure consistency and broad reach across the workforce,reflecting the maturation of remotization in the services sector.56Why aftermarket and service are vital to OEMsand how to excel One compelling facet of remotization is the emergence of fully rem

305、otized offerings for field services.57Why aftermarket and service are vital to OEMsand how to excel Localization paradigmThe localization paradigm is gaining prominence in the service business,with customers increasingly looking for local service providers for global brands.This trend toward localiz

306、ation may be new for many manufacturers,but it has been a familiar paradigm in the automotive industry for much of its existence,with OEMs building symbiotic relationships with their independent dealer networks in local communities across the world for years.The lessons learned from these partnershi

307、ps,which involve developing integrated strategies to create seamless customer experiences,are valuable for other industries as localization becomes more important.To deliver standardized aftermarket services through local workers or partners,companies are increasingly investing in extensive training

308、 programs.To ensure a consistent delivery model across various locations,this training can be in-house or for dealers and can be provided online or at dealer campuses.Additionally,companies forge partnerships with professional training vendors to provide comprehensive training solutions,while certif

309、ication courses align with customer expectations gathered from surveys and other expressed customer needs.This localization approach ensures standardized excellence in service delivery across the board.Online marketplacesTaking cues from B2C spheres,online marketplaces for B2B business have been gro

310、wing in volume and breadth as well.The importance of B2B online marketplaces has helped to redefine customer journeys and open new sales channels.Companies such as Aero-Bay are pioneering innovative platforms where end users,MROs,and OEMs can seamlessly trade aftermarket parts for a variety of aircr

311、aft and components.These digital marketplaces are streamlining the procurement and distribution of critical components,fostering greater efficiency and transparency.Such platforms 58Why aftermarket and service are vital to OEMsand how to excel offer a centralized hub for buyers and sellers,facilitat

312、ing cost-effective transactions,reducing lead times,and enhancing the overall supply chain ecosystem.As online marketplaces continue to evolve,they are expected to play a pivotal role in shaping the future of various service sectors,optimizing operations,and fostering collaboration.These marketplace

313、s can create both opportunities and threats.On the one hand,they offer additional sales channels and opportunities to sell into the aftermarket;on the other,they make it easier for sellers of non-OEM refurbished parts(for example,used-serviceable-material parts in aviation)or substitute parts(such a

314、s parts-manufacturer-approval parts in aviation)to find and sell to customers.Its therefore important to participate in these marketplaces with the OEMs differentiation at the forefront of the conversation.Building ecosystems around productsMany leading companies are investing in building ecosystems

315、 for their aftermarket offerings.These ecosystems are made up of interconnected sets of services that enable users to meet diverse cross-sectoral needs within a unified,integrated experience.Within these ecosystems,value creation occurs through the integration of customer journeys,addressing critica

316、l pain points with tailor-made solutions.This approach to building ecosystems around products has gained traction across various industries.For instance,telcos across geographies have made efforts to cultivate vibrant ecosystems around social networking,messaging,gaming,entertainment,financial servi

317、ces,and business tech solutions.These interconnected ecosystems keep customers engaged with the telco conveners,keeping them relevant and providing additional revenue streams beyond the core offering.In mobility,there has been growth in the use of digital platforms that facilitate the trading of rep

318、airs and spare parts.These platforms streamline the entire customer journey,enhancing the overall experience.Some automotive players are offering subscription-based services that provide all-inclusive 59Why aftermarket and service are vital to OEMsand how to excel packages(such as maintenance,tire c

319、hanges,and insurance)that goes beyond the traditional car-buying offer.They also offer third-party services,such as connections to mobile phone operating systems,mobile data subscriptions to power infotainment systems,and charging network and fuel subscriptions.While these might not all be core offe

320、rings for OEMs,they are relevant services for which OEMs have a right of first refusal to keep within their own ecosystems.Even the agricultural sector has embraced digital platforms.Manufacturers are now providing farmers with a wide array of administrative,consulting,and financial services within

321、a cohesive ecosystem,leveraging their deep and trusted relationships with customers.This shift toward building ecosystems around products reflects a profound transformation in how industries deliver value,enhancing customer experiences and fostering integrated,cross-sector collaborations.It does,how

322、ever,require increased attention toward the selection of the most appropriate partners or the development and integration of additional business units.Considering disruptions to the service workforceSignificant disruptions are anticipated in the service workforce,spurred on by the continued rapid de

323、velopment of technology.It is important to note that jobs themselves will not disappear but rather will likely undergo a transformation,with a change in focus and required skills.Many leaders identify having a skilled workforce as the primary barrier to implementing growth strategies,highlighting th

324、e critical role of finding the right talent.Automation,by leveraging existing technologies,has the potential to partially replace a number of aspects of current aftermarket service jobs.This includes a reduction in the required effort for diagnostics and fault finding,as well as administrative funct

325、ions.On the other side,increased digitalization is expected to change existing jobs and create entirely new jobs.This global change across industries will 60Why aftermarket and service are vital to OEMsand how to excel likely necessitate a shift in the skill sets required from the workforce.Therefor

326、e,the current workforce will need to transition to different occupations or undergo significant upskilling or reskilling within the next decade.Most global executives concur that upskilling and reskilling of existing employees should constitute a substantial part of their strategy to address skills

327、gaps.Given the scarcity of in-demand technology-based skills(which are often two to four times undersupplied),and in light of the costs and uncertainty associated with hiring and with shifting workforces,the business case for up-and reskilling employees is increasingly appealingespecially with the c

328、osts for providing such training decreasing.The continuing influx of millennials and Gen Z into the workforce brings in fresh skills,attitudes,and expectations,shaping the workforce of the future.Considering these recent developments,large tech firms invested significantly in the rollout of reskilli

329、ng programs through digital training and learning platforms to ensure that their workforce is future-proofed and that critical capabilities,such as technological,social,and emotional skills,are available internally.The rapid spread of gen AI has accelerated the need to onboard tech-related skills,bu

330、t it also provides a great opportunity for efficiency in aftermarket processes.Two main use cases apply to industrial companies:content generation to enable fast and automatic generation of contracts and reporting,with personalized communication advertisement reducing internal manual work and potent

331、ially speeding up processes customer and operator interactions to improve agent productivity and the quality of answers,referencing all internal technical reports(both software-and hardware-related)to significantly increase first-time-right responsesAgain,the workforce required might be reduced,but

332、on the other hand,setting up and maintaining these disruptive technologies will require workers in highly skilled roles.61Why aftermarket and service are vital to OEMsand how to excel ConclusionFor manufacturers of durable goods,the aftermarket has emerged as a crucial driver of growth and overall b

333、usiness success.By offering parts and services to customers after the initial sale,companies can tap into a lucrative revenue stream with profit margins that can be up to four times as high as they are for new units.A robust aftermarket strategy can not only increase operational cash flow but also mitigate risk and improve the customer experience.However,each company must tailor its approach based