Refocusing on the Aftersales Market

Increase Revenues and Reduce Costs to Achieve High Performance

Automotive manufacturers historically have had a ying-yang approach to the aftersales market: some view it as a perfunctory part of the business while others see it as a critical business function. And this is the case despite the fact that parts and service are major contributors to profitability and customer loyalty. Even in good times, the aftermarket business is considered recession-resistant. So why are more automakers not focusing on aftersales? Increasingly, they are. The prolonged economic downturn is driving a greater number of original equipment manufacturers (OEMs) to place renewed attention on the aftermarket as consumers put off new purchases and hold on to their cars longer. The challenge in aftersales, however, is that many OEMs struggle to achieve high performance in their operations.

OEM challenges in aftersales

The challenges are numerous. Transforming a global or regional service parts business or enhancing services to increase dealer and customer loyalty are complex endeavors. Major changes to existing organizations, processes and technology often are required to achieve the desired results. The parts business may account for only 10 to 15 percent of sales, but it typically averages 25 to 50 percent of profits. Additionally, profit margins on service contracts are around 50 percent, with strong impact on customer loyalty. Warranty costs can impact up to 3 percent (or more) of yearly net revenues. To enable dealer excellence in servicing customer needs, service operations require complex capabilities in terms of tools, processes and systems with no or limited revenue opportunity

for OEMs. Despite the significant financial and customer satisfaction impacts of the aftersales business, OEMs have historically given little attention to aftersales and done little to improve the performance of their aftersales functions. Automakers have been stymied by a number of challenges, including the diminishment of technological differentiation between competitor products, decline of product margins and rising cost of the service capabilities. The industry is certainly facing slower growth, while at the same time customer expectations for quality and service are increasing as are warranty costs as a percentage of product costs. The recovering economy, shifting consumer buyer values and strong financial pressure are pushing OEMs to search for value creation in new ways. Part of the solution can be found in the aftermarket business (also referred to as post-sales service

and service management). The financial value proposition of the service business is typically much more attractive than the vehicle side of the business. The combination of higher net margins and decreased capital requirements of the aftersales business leads to creating greater shareholder value. Selling vehicles often has little, or even detrimental, impact on market capitalization. Additionally, delivering world-class, post-sales service and support has a direct and positive correlation to improving brand image and repeat purchases. Use of outdated processes and technology is presenting many OEMs with the inability to deliver new capabilities demanded by their customers and to grow revenues. To realize aftersales value, OEMs need to focus on strategic and core imperatives and subsequently make major changes to existing organizations, processes and technology across the key areas

of service parts and logistics, service support, revenue management and warranty management.

OEM aftersales - related priorities

M  ajor

changes to existing logistics networks  Integration of brands and accessories  Complete supply chain planning (dealer through supplier)  Centralize inventory management and virtual warehousing concepts  Centralize and automate order management; integrate ordering/ catalog systems  Parts operational excellence (e.g. referrals, direct shipments, returns); multiple deliveries per day  New distribution channels (e-commerce, direct sales, ISPs)  Create additional services to increase dealer and customer loyalty  Pricing, placement, promotion - revenue maximization

 conomies of scale/economies E of skillmake vs. buy  Enhanced dealer support within services processes  Increase availability of information (product, technical, process) along the value chain (OEM, wholesaler, dealer, franchised workshop/service point)  Enable fix right first time to improve dealer service profitability, increase customer satisfaction and reduce warranty costs  Develop end-to-end performance monitoring capabilities to allow continuous improvement

economic and industry cycles, as well as over changes of leadership. In all the industries we have investigated, we found that mastery of three building blocks sustains high performance: Market focus and position Distinctive capabilities Performance anatomy

Building Blocks to High Performance

Accentures High Performance Business research and the insights it generates help businesses understand how to achieve high performance, which we define as the ability to consistently outperform industry peers over

Our research found that the automotive OEM high performers have implemented their specific strategies along the three building blocks more successfully than other manufacturers. The leading companies exhibited exceptionally lean and lowcost operations. They also have striven more successfully than their peers to develop customer-centric capabilities. Maximizing aftersales functionality not only addresses the high performance building block of Distinctive Capabilities by building a customer-centric enterprise, but also in developing a lean

Growth Market Focus and Position Successful identification of suitable growth opportunities achieved through tailored territorial footprint, product lineup and brand positioning

Lean Enterprise Distinctive Capabilities Optimized material costs combined with flexible and demand-driven manufacturing aligned with high product quality and back-office efficiency

Customer Centric Enterprise Rapid product development, utility-driven telematics, aligned with optimized multi-channel retail and zero time lost service experience

Centralized Control Performance Anatomy Strong and continuous leadership with centralized decision making

Customer Centric Enterprise Develop and retain talent base in a multi-polar world

Figure 1. Three building blocks of high-performance automotive OEM businesses enterprise with demand-driven manufacturing. Streamlining aftersales also supports OEMs in developing strategic, analytic and operative aftersales capabilities. A comprehensive, end-to-end aftersales approach presents a powerful opportunity to achieve high performance and generate significant value from parts sales, new services streams and reduced costs. It can also drive improved customer satisfaction and loyalty. years, Accenture has developed a comprehensive approach to help automotive companies improve profitability, customer loyalty and market share. Accentures approach brings solutions to every element of every major area in the aftersales life cycle: revenue management and commercial parts operations, parts logistics, service support and warranty management (see Figure 2). These four areas are supported by customer contact center operation, dealer extended support and information technology. To build this aftersales offering, Accenture leveraged its experiences with OEMs and identified marketplace benchmarks, leading practices, new processes, capabilities, systems and tools, distinctive assets and business process outsourcing solutions. Our experiences have shown that realizing greater value requires more than information technology systems, efforts also require better strategies, streamlined processes as well as better organizational structures. Many OEMs know what aftersales functions they want to target. Typically it makes sense to also perform a short feasibility study in any number of aftersales areas to determine whether the value is relevant. This evaluation includes internal and external analyses as well as automotive and other industry benchmarking that Accenture has compiled. The feasibility study identifies rapid operational and cost reduction activities that can free up cash fast to enable the OEM to invest in new capabilities in the areas that are most important to the company. Central to optimizing aftersales is the reevaluation of an OEMs strategy, particularly in terms of service offerings and policies/ procedures supporting aftersales operations (from parts discounts to warranty reimbursement). The development of a master plan is typically a first step in designing

The aftersales value proposition

Broadly defined, the aftersales business spans parts management, in particular commercial and logistics operations, and service management, specifically areas related to vehicle repair and maintenance. By having helped automotive and industrial equipment manufacturers rethink their approach to the aftersales business for more than the past 10

Accenture Aftersales Offering

Revenue Management
Pricing Optimization Analytics/ Benchmark Commercial Operations Governance Marketing

Strategy - Service Offerings - Performance Monitoring - Policy Setting

Parts Logistics
Parts Planning Parts Procurement Parts Warehousing Parts Trasportation Parts Order Mgt

Service Support
Technical Help Desk Technical Publications On-board Telematics Diagnostics Dealer Call Center

Warranty and Quality

Warranty Transformation Claims Management Extended Warranty Returns/Supplier Recovery Early Warning

Costumer Contact Center Dealers Extended Support Information Technology

Figure 2. Accentures end-to-end aftersales offering provides distinctive solutions across the aftersales value chain. an aftersales transformation in order to benchmark performances and to understand improvement opportunities. As a common layer supporting aftersales operations, the customer contact center (to manage customer complaints, support mobility and sustain campaigns), dealer extended support (from training and process coaching to dealer restructuring and turnaround), and information technology capabilities (such as SAP, business intelligence tools, dedicated solutions) are pillars to support operational excellence and drive effectiveness to OEM strategies. Accentures aftersales model goes beyond the basic set of point-of-entry capabilities that service businesses have employed for years, such as call centers, repair services, warranty programs and the like. Accentures model includes complex capabilities that are strategically developed to provide competitive advantage to a company. OEMs have used this model to successfully implement some very complex restructuring programs across all dimensions of change - processes, technology, people and the organization. We highlight each of the four key aftersales areas shown in Figure 2. intelligent price setting that takes into account external factors such as customer perception. Moreover, for OEMs, maximizing revenues (and profit) is directly related to the way in which an OEMs overall aftersales offering is shaped in terms of the way products are configured and services are designed to attract customers and maximize customer loyalty. For multiple European automakers, Accenture helped to develop and implement new aftersales strategies, leveraging benchmarks and dedicated methodologies and tools to develop a specific, industrialized process for smart parts pricing for each OEM. This process enables homogeneous list price setting that includes commercial and marketing aspects. A standardized methodology and specific supporting tools were developed for each OEM, and can enable them to achieve profit targets and rapid return on their investments. To help another major OEM generate

Revenue Management
For OEMs, the main source of revenue in aftersales comes from the parts business; potential revenues are also possible from service offerings or extended warranties. In parts management, list prices and related discounts to the distribution channel (dealers and service points) are typically managed in a traditional way, with a focus on higher sales parts and segmentation by technical family. Standard markup strategy on purchasing costs is applied for a large number of living parts (especially medium- or slow-moving). This strategy does not enable OEMs to get maximum benefits from

more revenues and profitability within its aftersales business, Accenture helped to implement a new parts pricing definition strategy. The strategy spanned from product definition to marketing and commercial functions, with the objective of maximizing revenues and profitability. The strategy implemented has achieved an average 15 to 20 percent of gains on a selection of medium-to slow-moving parts. The new pricing strategy leverages internal and external benchmarks and establishes standardized processes, and involved the implementation of new dedicated systems.

Parts Logistics
For many years now, OEMs have focused on continuous improvement in logistics operations due to the fact that an effective and efficient footprint can at the same time reduce costs

and improve service levels and customer satisfaction. Nevertheless, it is not uncommon for dealers to cite parts unavailability for causing delayed service, customer dissatisfaction or loss of customer loyalty. It is also not uncommon to see OEMs increasingly implementing new parts ordering systems to enable better forecasts and timed parts availability or implementing initiatives to review distribution flows, transportation routes or warehouse locations. Performance monitoring is increasingly becoming a key enabler for continuous improvement. Parts logistics excellence is a relevant objective for most OEMs since it enables multiple opportunities, including: nventory cost reduction I Distribution cost reduction  (transportation in/outbound)  Handling cost reduction (warehousing costs)  Availability and service levels

improvement (from suppliers to dealers) Accenture has worked with major OEMs at the global level to design and implement complex transformation initiatives within the parts logistics space - leveraging a unique set of solutions, assets, experiences and competencies. We are currently teaming up with a number of OEMs to help them achieve high performance in parts logistics. For any automaker, the following areas are potential targets for improvement/optimization:  Integrated parts planning to optimize inventory and service levels, through implementation of dedicated processes/systems  Distribution footprint/flows analysis and implementation, with the objective of optimizing logistics costs maximizing trade-off between costs and service levels  Dealer inventory management through dedicated system functionality and monitoring and support

 everse logistics analysis R and implementation (remanufactured parts, claims, warranties, etc.)  Parts transportation planning optimization through dedicated unit providing analysis and monitoring capabilities to implement routes/loads  Warehousing operation analysis and optimization  Integration of suppliers in logistic value chain (manage lots and lead time)  Logistics processes performance monitoring (key performance indicators (KPIs) and systems)

reducing distribution costs. The new logistics processes have significantly improved parts availability (first fill up to 98% as best-in-class benchmark), while reducing inventory (stock rotation >2 at central depot). In addition, restructured information technology (IT) systems have reduced IT operating costs, with Accenture assets enabling a quick jump-start and rollout.

Service Support
Service support consists of the possible initiatives, tools and methods that OEMs put in place to enable service effectiveness of the dealers. It is a key point for all OEMs to seek and retain high customer satisfaction and loyalty from the service experience, both for parts sales and for the new car buying process. A key element of enabling this experience is parts availability, but it is not enough. Automakers need

To assist a major OEM generate value from the companys parts business, Accenture teamed up with the OEM to reengineer the companys global logistics processes, including forecasting, procurement, warehousing and distribution, increasing the effectiveness and efficiency of the companys parts business worldwide, while also

to support dealers and franchised workshops to enable dealers to service increasingly complex vehicles and customers with higher expectations. Key capabilities from OEMs needed to support dealers repair ability and fix right first time goals are multiple: from the need to support dealers when they have to manage a complex repair or a difficult diagnosis (technical help desk), to the opportunity for the OEM to create and distribute technical publications (e.g., repairs manuals) in timely and efficient way, to the opportunity to sustain dealer processes through a help desk. Additionally, dealer efficiency and effectiveness can be further enhanced through on-board technologies that can improve service processes and provide better customer support. Accenture has collaborated with several OEMs to develop the service support function and industry-leading capabilities through consulting transformational projects

and industrialized services. For one global OEM, Accenture implemented engineering services dedicated to technical publication management through the Accenture Global Delivery Network, enabling industrialized processes at standardized high quality and reduced costs. For another OEM, Accenture implemented a dealer help desk to create a single point of contact for managing all dealers requests in aftersales (e.g. parts availability, warranty, diagnosis, etc.). Accenture now provides first-level support, integrated with other support levels within the OEMs organization.

Warranty and Quality

Warranty management is one of the traditional pain points for most OEMs. Closely linked are production quality processes (as espoused by Japanese methods) that fail to catch inherent incumbent

issues, dramatic recall campaigns and huge sums of warranty costs expiring. These critical business functions often receive little management attention - unless significant problems come to fore. Automakers seeking high performance need to view warranty management within its end-to-end value chain, since business processes from suppliers to dealers and multiple OEM functions are involved. Warranty costs account for 2 to 3 percent of net revenues for a typical OEM. Warranty costs are closely related to customer satisfaction, due to the young age of the car. Moreover, warranty data are an outstanding source of information providing OEMs with the potential to understand inherent quality issues in advance and to monitor repair ability. Accenture, working with major OEMs at the global level, has gained experiences and developed capabilities in the warranty area related to:  Warranty and repair processes

analysis by calculating statistical KPIs: this analysis enables OEMs to monitor dealer and product performance.  Review and optimization of warranty policies and procedures, also through external benchmarks.  Warranty audits to dealers not in line with peers on warranty performances.  Claim assessment services: leverage warranty intelligence capabilities to check and approve claims and to promote compliancy with OEM policies and procedures.  Implementation of IT systems to manage warranty registration and claims.  Product quality support: The centralized collection, cleansing and storage of data from multiple sources; standardized analysis methods and shared tools in order for quality engineers to identify root causes and provide feedback of required corrective action to take.  Implementation of systems and

processes to share warranty and other product data between the OEM and collaborative supplier teams to identify root cause of failure, determine responsibility and determine corrective action. In the area of warranty management, Accenture helped an OEM to save on warranty costs by introducing a rules-based system for monitoring incoming claims and standardizing processes to support and monitor the dealer network. The improvement is designed to enable the automaker to reduce warranty overpayments. In addition to lowering costs, the new warranty processes have increased customer service levels and enhanced the companys brand.

management are the prerequisites for higher genuine parts sales, also to target the independent repair channel. On service, dealers manage all the contacts with customers (reservation, car reception, diagnosis, follow-up) and directly reflect the brand image. Therefore it is key for OEMs to enable operationally excellent processes in the dealer networks by standardizing processes, suggesting tools and measuring performance. Accenture has collaborated with a number of OEMs to support their dealer network in performance improvement. A sampling of initiatives includes:  ealer training on commercial, D technical and operational content  Dealer coaching on site to improve performance across a variety of areas  Dealer profitability enhancements, through analysis of performance criteria and execution of an action plan  Dealer turnaround, to completely

reshape dealer operations  Dealer sales support (on parts), to assist dealers in better local channel management and new sales for independent repairer shops For OEMs, the foundation for dealer performance improvement is an operationally excellent system to monitor various performance metrics from multiple sources (parts sales, workshop profitability, warranty spending, etc.). And ultimately the customer experience is improved, which is critical now more than ever to building lasting customer relations. With regard to dealer performance monitoring, Accenture has developed specific tools dedicated to this area.

Dealer Network
In aftersales, dealers are a key enabler on both the parts and service side of the business. On parts, availability levels and local distribution channel

Customer Contact Center

The customer contact center (which for OEMs is one of the key points of contact with final customers to obtain customer satisfaction information and solve claims and issues) is increasingly

becoming a key lever for customer loyalty and new sales. Inbound calls are a source of information to understand customer expectations and meet demand; outbound communications are a way to test expectations and acquire new customers. To implement and manage

customer support and call centers, OEMs can turn to companies such as Accenture, a global leader within the customer relationship management (CRM) area across all industries, including automotive, for assistance with consulting and outsourcing services.

Contact
To find out more please contact: Luca Mentuccia Industry Automotive Global Director luca.mentuccia@accenture.com +39 011 507 7345

Conclusion. Drawing on more than a decade of experience in optimizing aftersales functions for leading OEMs, Accentures robust end-to-end aftersales approach is designed to position OEMs for high performance by optimizing the aftersales value chain with a holistic approach supported by processes, technology and organization. The approach also extends key aftersales processes to the dealer network, suppliers and customers largely through the application of new technologies. An area of the business often receiving limited attention, aftersales today represents a powerful opportunity to achieve high performance and generate substantial improvements in profitability, operating costs, parts inventory and service levels.

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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 181,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.58 billion for the fiscal year ended Aug. 31, 2009. Its home page is www.accenture.com.