Service Management: Building Profits After The Sale
General Motors' greatest return on capital does not come from selling cars. Although after-sale parts and services comprise a small amount of GM's sales, they are by far the largest contributors to shareholder value on a percentage-rate basis. In fact, an Accenture study of GM shareholder value revealed that $9 billion in after-sale revenue produced $2 billion in profits. Profits from the company's $150 billion in car sales were relatively lower.
GM's experience demonstrates why more companies are developing service management programs to boost profits and provide competitive differentiation. In the automotive industry, after-sale services and parts account for nearly 80 percent of all revenue opportunities, and more than 50 percent of the average automobile dealer's profits.
Across manufacturing companies, after-sale services and parts have been shown to contribute about 25 percent of all revenue, but 40 percent to 50 percent of all profits.
With nearly double the profit potential of first-time product sales, service management is the new frontier of competitive differentiation and profit enhancement, placing supply chain managers at the forefront of a major business-improvement opportunity.
Of course, capitalizing on the opportunity is not simple, since comprehensive service management can complicate the typical company's supply chain. However, new strategies, infrastructures and tools — combined with informed oversight — make it possible to create and deliver after-sale support more profitably than ever before. This paper examines the challenges, opportunities and go-forward approaches that define world-class, profit-maximized service management.
The balance of this paper provides more detail on:
- Scoping the Services Management Frontier;
- The Challenges of a Service-Centric Supply Chain;
- New Strategies, Infrastructures and Tools;
- Strengthening the Service-to-Profit Supply Chain
- The Path Forward
Michael J. Dennis is an associate partner in the Accenture Supply Chain Management service line, where he leads the service management practice for the electronics, high technology and communications industries His areas of expertise include service management strategy, parts planning and demand management, field service and depot operations, network strategy, and service alliances. Based in Atlanta, he can be reached at michael.j.dennis@accenture.com.
Dr. Ajit Kambil is an associate partner and senior research fellow in the Accenture Institute for Strategic Change. He has led a number of projects related to supply chain management, electronic markets, innovation and venturing strategies, and researched a variety of managerial and technical topics. Based in Boston, he can be reached at ajit.kambil@accenture.com.