Capital goods and heavy equipment companies are leaving money on the table by not fully capitalizing on after-sales service opportunities. These companies could generate more revenue by investing more in areas like spare parts availability and quality, dealer management systems, and field service management to improve the customer experience with repairs and maintenance. Better serving customers' after-sales needs would help these companies maximize the lifetime value of their products and customers.

1. After-sales service: why do Capital
goods and heavy equipment
companies leave cash on table???.
7th Jan 2013
Capital goods and equipment industry includes industrial equipment, earth moving and mining,
power plant equipment, and industrial machinery including textiles, pharmaceutical and other
industries.

2. Capital goods sector
 Capital goods and equipment industry includes industrial equipment,
earth moving and mining, power plant equipment, and industrial
machinery including textiles, pharmaceutical and other industries. Good
mix of domestic players (BHEL, L&T, BEML, Eicher, Thermax, LG) and MNC
(Volvo, Komatsu, GE) affecting overall product development, industrial
growth and local employment. Some segments are highly fractured, SME
heavy, while others high concentration of large firms (top 6 companies in
construction industry contribute to 63% of revenues, about 190 odd
companies contribute about 37% of revenues).
 This is a strategic sector from national skill development and security
perspective. Has multiplier effect on the economy. Contributes to about
15% of GDP and about 3 million direct employment (Planning
Commission, 2012). Significant earner of foreign exchange (about INR
150,00 0 Crores).
 In recent times, affected by overall domestic economic sentiments.

3. India’s economic pangs…
 India’s economy weathered the economic global meltdown of 2009, but has seen sucked
into the vortex of slowdown from last two years. FY2012 growth tethered largely due to self-
inflected policy inaction and negative sentiment. Government spending of key departments
slowed down, corporates postponed capital investments including IT investments and the
FY2013 outlook is not very encouraging.
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4. FDI: waning flows…
Source: Ministry of Industries and Commerce
 FDI in India saw a decline in 2010-11, nose diving by around 58% in the first six
months (14.6 billion $ in April – July 2011 and 6.18 billion $ in April – July 2012, as
the economy lost momentum
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5. Industrial production slowing down…
6%
4.1%
4%
2.4% 2.2%
2% 1.1%
-3.2% -0.9%  Industrial production
-1.8% -0.2% -0.1%
0% in Oct 2012 was
Jan Feb Mar Apl May Jun Jul Aug Sep Oct -5.1% the lowest
-2% since 2001.
Domestic Industrial Growth in CY 2012
-4%
 Factory outputs,
-6% -5.1% utilities shrunk by 0.4
% , exports has also
fallen by 1.6% I
August 2012.
Source: Planning Commission, GOI
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6. Capital goods sector pangs !!!
Cost of doing business
18.5 18.3
Profits to net value 18
70 63 60
60 55 17.5
51 17.1
50 17
40 16.5
16.5 16.2
30
20 16
10 15.5
0
15
2008-09 2009-10 2010-11 2011-12
2008-09 2009-10 2010-11 2011-12
Cost of doing business includes interest to value added, rent
and wages to net value added.
 Profit margins are squeezed, as cost of doing business is increasing.
Based on the sample of industrial equipment companies including MNC and domestic
firms includes listed and unlisted companies.

7. Spares and services contributions
90%
80%
70% 24%
60% 25%
50% 18%
40% 27%
25%
30% 19%
20%
29% 26% 60%
10% 20%
0%
50%
Tunneling/Driiling Heavy Light machine
construction 12%
40%
2010 2011 2012
30%
16%
7%
20%
8%
 Spares and services margins are getting stressed. 10% 20% 3%
11% 4%
4%
 Most affected are the Medium and small cos. 0%
Tunneling/Driiling Heavy Light machine
 Indian companies have lesser earnings compared to MNC construction
2010 2011 2012
Based on the sample of industrial equipment companies including MNC and domestic
firms includes listed and unlisted companies.

8. Capital goods sector: after-market challenges
20% 19%
18% 17%
16%
14% 14%
14%
12%
12% 11%
10% 9%
8%
6%
4%
4%
2%
0%
Parts Parts Pars & Inconsistent On time Parts Cleanliness Others
Originality availability service dealer delivery quality of dealer
price service workshop
Based on interview data of key customers, dealers, industry experts and OEM.

9. Capital goods sector: how much cash is left on table
9%
8%
7%
6%
5%
4% 8%
3% 6% 6%
2%
1%
0%
MNC India: Large & India: Small
Medium
Additional revenues to the gross sales & service revenue.
 Companies including MNC, large and SMB are leaving significant incremental revenues
from sales & service because a significant gap in investment required for after-sales
marketing and actual investments.
Based on interview data of key customers, dealers, industry experts and OEM.

10. Areas that need further investment
25%
21%
20% 18%
15%
15%
12% 12% 12%
10%
10%
5%
0%
Based on interview data of key customers, dealers, industry experts and OEM.

11. Customers woes with after-sales
 Their warranty clauses are absurd. In this segment, for large buys the parts and
replacements are customized. The biggest problem is post warranty, I believe Indian
companies are most honest.
 Their field service plan is not a win-win. Their service desk is attended by someone
very junior. They have no systems to log in complaint and send the right guy to fix it.
They charge Rs 700 for every visit and couple of these visits they have sent us
untrained staff, or without parts. Ridiculous!.
 Their service advisors seem more interested in selling our company add on rather
than addressing the issue of my machine. They just do not seem to have a control
on their parts availability. My machine is down for a week at site, who is going to
pay for it?.
 I am surprised a dealer of a global brand works with basic excel. They have no
system connecting the dealer, machine and OEM simultaneously. We have serious
issues in addressing the service bills as the terms of our purchase with the OEM are
not available with dealer.

12. Gaining after market revenue
1. Integrate spares, parts and service across OEM, and Dealer. Invest in after
market and dealer management system to seamlessly integrate the process
2. Centralized ownership of Spares & parts. Define the charter and drive after
sales, service and customer experiences.
3. Define Genuine Parts program and drive it continuously. Invest in vendors
and optimize the spare parts program to ensure OEM parts are available and
spurious parts do not harm your brand experience.
4. Incentives dealers to adopt IT systems and programs. Create co-ownership
of the spare parts process, engage them beyond parts push and incentivize them
for creating value for you.
5. Invest in parts standardization and variety reduction. Parts help desk and
spare parts standardization are important to reduce design-to-availability variance.
6. Optimize field service management. An area that needs low investments, but
has major impact on first call effectiveness and service efficiency.
7. Simplify policies and procedures. Streamline Warranty claim, reduce dealer
friction for replacement

13. Thank You
For any queries, please contact :
Srinivas Sawkar
157/A, II floor, 10th A Main
Jayanagar, 1st Block
Bangalore. 560011
PH: 91-80-2656 5164, 40951170
ssawkar@browneandmohan.com
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