Aftermarket Services May Help Manufacturers Stabilize Revenue
A new report by advisory services firm Deloitte explores the opportunities for manufacturers to use aftermarket business models to stabilize business revenue as the COVID-19 pandemic has created unprecedented challenges for the industry.
The report, Aftermarket Services: Transforming Manufacturing in the Wake of the COVID-19 Pandemic, includes data analysis of financial reports of major U.S. manufacturing companies. It also includes insights gleaned from interviews with 35 North American and European manufacturing senior executives and subject matter experts.
Deloitte’s key takeaways include:
- Demand for new industrial equipment is declining as companies focus on preserving cash and reducing capital spending.
- In response, industrial manufacturers are increasingly turning to aftermarket services as a consistent revenue source and profit stabilizer.
- Post-recovery, manufacturers who prioritize digital transformation to deliver long-term value and customer-centric outcomes may gain competitive advantage.
According to the report, aftermarket services are a stable revenue source with 2.5 times greater operating margins than new equipment sales. “The broad category, which includes the sale and delivery of maintenance, spare parts and other value-added services, will likely continue to deliver over 50 percent of a manufacturer’s profit with an upward trend in light of COVID-19,” the report states.
New product sales are expected to continue declining as customers defer or cancel new equipment deliveries during the pandemic. As a result, Deloitte says aftermarket services has emerged as a strategic imperative for industrial manufacturers to offset declines in new equipment sales.
“Focusing on aftermarket services has proven to bring manufacturers consistent revenue and stabilized profits through past economic downturns,” Deloitte Vice Chairman and U.S. Industrial Products and Construction Leader Paul Wellener said. “Today, adopting aftermarket services capabilities has become an imperative, not only to offset impacts from the pandemic and current downturn, but to capitalize on long-term changes in customer needs.
“Manufacturers that can leverage digital solutions to help ensure uptime for customers, while working closely with them to achieve targeted outcomes, should outperform peers in the long run,” he concluded.
Click here to read the full report.