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You are the vice president of manufacturing of a company that manufactures capital equipment. Your plant could be turning out industrial machines, medical devices, trucks, packaging equipment, airplanes, or some other product. And, of course, you also purchase capital equipment like machining centers, robots, paint booths, 3D printers, and various materials storage and handling systems. You are a capital equipment expert whom your friends and associates contact when making a CapEx acquisition.
On the other side of the organization chart, someone else is also an expert in capital equipment. They are less of an expert than you when it comes to acquisition but more of an expert than you for equipment lifetime support. This person is the vice president of service (support, aftermarket, field service, or parts sales). Depending on your industry, the vice president of service may be responsible for more significant revenue than the value of the products you ship and more likely more significant profit than the products generate.
The answer is straightforward. In most companies, the service organization receives some revenue for product installation and warranty support and all the revenue the company generates from your company’s installed base (the aftermarket). As long as the company has been in business for a while and the product has at least average reliability, the aftermarket business should be generating substantial results. This means the business has many years to harvest revenue while creating value for its customers.
When you see the word “average,” remember that half of the items are older than the average.
I like to break the services the OEM provides to its customers into two groups:
Businesspeople are generally familiar with the essential services offered by OEMs. And most have heard of services like refurbishing and remanufacturing, but their company does not offer them yet. And a smaller number of companies are creating customer value while also earning revenue and profit by extending the lives of older products. Here are three examples:
The last of the B-52s still flying were delivered to the Air Force in 1962. They cost the government $9.3 million each, or $89 million today. Quite a bargain.
Caterpillar has been in the refurbishment and remanufacturing business for many years. However, unlike many companies, Cat© has a global network for distributor agents that are large businesses in their own right. Their Australian partner developed a program to give an underground loader a new life.
The Cat©® R3000H Underground Loader was designed for 30,000-hour service life. It was also designed to be refurbished at the end of its service life, but WesTrac Bathurst had never refurbished one.
The result is a machine with a new serial number, a new product warranty, and another 30,000-hour service life. It cost the customer only 65% of the cost of a new machine, and it was out of service for only eight weeks. It will again receive all the recommended preventative maintenance and remedial services it received in its initial life.
WesTrac plans to upgrade five or six of these machines a year from the same owner and others in Australia.
This process is a win for the owners, Cat©, and, most of all, the environment. Cat© recently reported that its remanufacturing activities kept 127 million pounds of materials out of landfills, and 88% of eligible end-of-life returns were collected.
Caterpillar has been in the remanufacturing business for nearly 50 years and remanufactures turbine components and gas compressor components under the Solar Turbines brand and locomotives and railroad tracks under Progress Rail. And finally, Cat© has a remanufacturing business dedicated to serving military users under the Caterpillar Defense brand.
Medical devices seem to change frequently, yet many people get well after being tested or treated on an older model. This situation is powering the refurbished medical equipment market growth from $10.19 billion in 2021 to $20.15 billion in 2026 at a 14.7% compound annual growth rate.
According to the Refurbished Medical Equipment Global Market Report 2022, “the main types of refurbished medical equipment are medical imaging equipment, operating room & surgical equipment, patient monitors, cardiology equipment, urology equipment, neurology equipment, intensive care equipment, endoscopy equipment, IV therapy systems, [and] others.”
There are a few prerequisites to consider before you start:
If you have good answers to the above questions, you have three key steps to evaluate:
With satisfactory answers, you are ready to document your story, update price lists, train your service sellers, update the website, and communicate the plan to everyone in your company and the extended team — like manufacturers, agents, and resellers. Once everyone is on-board and the communications package is ready, it is time to launch the new service.
Image Credit: Oqbas / Shutterstock.com
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