Ecommerce and OEMs: three ways manufacturers can compete with Amazon on service
The company could see shares climb nearly 50% in the coming year as the company rolls out its Prime One...
Amazon continues to grow at an incredible rate.
The company could see shares climb nearly 50% in the coming year as the company rolls out its Prime One-Day Shipping programme in the US. For a long time, competitive fears around Amazon’s expansion have largely been limited to traditional retail categories such as clothing, entertainment and home goods. But with the e-commerce giant expanding into new markets, such as its highly publicised entry into the automotive aftermarket parts space, heavy equipment manufacturers are taking notice.
E-commerce has revolutionised the way products are purchased, where they are purchased and ultimately, the expectations customers have during the purchase process. Amazon’s success, coupled with the company’s ever-increasing efficiencies in shipping and customer service, is causing concern amongst OEMs over how they can compete. However, by reassessing their current operations, manufacturers can create the differentiation needed, not only to compete against Amazon, but also to increase financial performance and enhance the customer experience.
With this in mind, here are three key things heavy equipment OEMs should keep top of mind as ecommerce players potentially venture into service parts:
Service parts inventory management becomes a competitive differentiator
It’s no secret that Amazon is a powerhouse when it comes to logistics, with its vast distribution network and seemingly limitless access to products. However, ensuring all these cogs continue to tick over isn’t easy. Amazon CFO Brian Olsavsky has admitted that, while the company has experience handling large changes in its distribution and transportation logistics, expanding the company’s one-day shipping programme is a costly endeavour, leading to shifts in warehousing and inventory planning and generally reducing warehouse productivity.
If it is a challenge for a logistical powerhouse like Amazon, OEMs wanting to compete in the after-sales market must be prepared for significant organisational change and investment in technology. All too often, manufacturers’ after-sales service organisations are sub-optimised. And while service typically delivers high margins and revenue, now is the time to add efficiencies to processes, technology and resources.
The opportunity for OEMs lies in the demand for product uptime: today’s customers expect their equipment to be up and running at all times, which shifts the responsibility for maintenance from the end user to the manufacturer. This is an area in which Amazon cannot specialise and that creates an important opportunity for OEMs to take the competitive advantage.
To succeed in this field, OEMs must equip themselves to execute on repairs and maintenance before a failure ever occurs. Cloud-based solutions predictively identify when and where a failure will occur, and also ensure the necessary part is on-hand to execute on the repair. It is a huge shift from selling new products to synergising all processes throughout the after-sales service. Technology will enable manufacturers to optimise the service parts supply chain – from suppliers to distribution centres to dealers – to deliver exceptional after-sales service experiences.
Service parts pricing takes centre stage
It may seem obvious that selling a service part for the optimal price is key to maximising revenue, profits and demand. But many large, global manufacturers continue to use simple tools like spreadsheets and other manual methods to price their parts. As a result, these manufacturers are subsequently forced to continue using outdated pricing methods like cost-plus, opposed to more sophisticated, value-based algorithms. As both competition from players like Amazon and demands from customers increase, manual methods will make it even more difficult to optimise prices.
Modern cloud-based service parts pricing solutions incorporate real-time data from multiple sources: customers, competitors, IoT platforms and other legacy systems are all used to set optimal dynamic pricing, ensuring the end customer has a great experience, while the manufacturer maximises revenue and margins. As manufacturers mature to a more proactive, connected service model, their pricing needs will also evolve. So, OEMs must invest in pricing solutions with flexible architectures that can easily evolve and scale along with them as their needs change. In the future, when manufacturers are pricing service contracts and subscriptions, the complexities will be too much for manual systems to handle.
Data and analytics become a top priority
As the heavy equipment space becomes more competitive than ever, the need for OEMs and parts vendors to have a comprehensive view of their entire operations is paramount. Amazon invests heavily in data and analytics to identify customer behaviours and make the purchasing experience more efficient. OEMs must not only become data-driven organisations, but also ensure that the data is clean and accurate.
The success of any process or technology is only as good as the quality of data that’s put into it – even the world’s most sophisticated technologies cannot produce successful outcomes without a combination of clean data, the right processes, and equipping employees with the right skills.
As heavy equipment manufacturers compete with the likes of Amazon, they must invest in solutions to not only collect new types of data and analyse it efficiently, but also ensure that they implement the best processes to capture the right data. People involved in data analysis should understand how data is collected; people involved in data collection should understand how the data will be analysed and everyone should understand the impact that great data can have on end results. As more equipment is built with IoT-enabled parts, there will be more data available than ever. Acting on this data is the only way to achieve the service outcomes that an uptime-driven business model demands, so collecting the right quality of data, and analysing this efficiently with the latest technologies is a necessity for future success.
By Gary Brooks, CMO, Syncron
Image: Amazon Press.
UPS Posts Record Second Quarter with Revenues of $23.4bn
Growth across each of its core segments resulted in record results for UPS in the second quarter, with group revenues climbing 14.5% year on year to $23.4bn.
The global logistics outfit achieved consolidated operating profit of $3.3bn, up 47.3% compared to the same period in 2020. It is the second consecutive quarter of record profit, and a significant rise on Q1’s $2.9bn.
UPS Q2 Revenues in Brief
- Consolidated revenues: $23.4bn (+14.5% yoy)
- Domestic: $14.4bn (+10.2%)
- International: $4.82bn (+30%)
- Supply Chain Solutions: $4.2bn (+14.3%)
The US company’s domestic segment performed steadily with 10.2% revenue growth to $14.4bn. But it was its international and supply chain solutions segments where UPS saw the biggest gains. Strong demand in Europe led an increase in international revenues of 30% to $4.82bn. UPS’ supply chain solutions division saw revenue growth of 14.3% to $4.2bn, driven, the company said, “by strong demand in nearly all businesses”.
UPS’ steady growth throughout the pandemic has been led by the overarching vision of its chief executive Carol Tomé to do “better not bigger”, focussing on efficiency and high margin deliveries through its network over pure scale and volume.
“I want to thank all UPSers for executing our strategy and delivering high service levels, which fuelled record financial results in the second quarter,” she said. “Through our better not bigger framework, we are moving our world forward by delivering what matters.”
UPS Completes Sales of UPS Freight
The second quarter also saw UPS complete the divestiture of UPS Freight in a deal worth $800m - with a surprise result for the division, now called TForce Freight, under new owner TFI International.
“The second quarter was historically significant for TFI International, with the closing of our UPS Freight acquisition and record performance across the board,” said Alain Bédard, chairman, President and Chief Executive Officer, TFI International. “Particularly gratifying is the performance of TForce Freight, which has exceeded our operating ratio targets far ahead of schedule, and we have only just begun our work.”
In it first two months of ownership TFI reported that adjusted operating ratio (OR) was 90.1% for TForce Freight, far outperforming its forecasted OR of 96-97%.
“I wish to thank our entire team for their hard work and remarkable efforts, and officially welcome aboard our new TForce Freight colleagues who have seamlessly come under the TFI umbrella and are already making stronger than expected contributions,” Bédard added.