The specialty trade contracting sector has seen revenue growth of 4.4 percent in the last five years. But with forecasts for 2018-2023 anticipating lower revenue growth of 2.5 percent, it is important that contractors look to make their operations as profitable as possible.
With revenue needing to come from other sources, one answer could be to shift focus into new business areas such as aftermarket services. According to the McKinsey Global Institute, the percentage of maintenance and repair work performed in the construction industry in 2012 had already inched up to 45 percent of construction revenue from 36 percent 10 years before.
Alternatively, according to the Bureau of Labor Statistics, demand for heating, ventilation, air conditioning (HVAC), and refrigeration mechanics and installers is projected to grow 15 percent from 2016 to 2026, with demand for plumbers also set to grow by 16 percent. Contractors may already be gearing up for aftermarket work, but does the industry have the technology in place to manage aftermarket service contracts profitably?
Contractors lack tools to capitalize on success
A new study conducted by IFS suggests there are significant gaps in how well contractors in HVAC, electrical, plumbing, security, roofing and other trades can execute on contracts for aftermarket service.
The 2018 study conducted by IFS (http://www.ifsworld.com) found that among 200 trade contractors, 85 percent have maintenance contracts with customer-specific terms, pricing and service levels, but only 14 percent said their software facilitated these contracts “very well”.
According to Tom DeVroy, IFS Senior Product Evangelist, the task of planning for services required during the lifecycle of a product today should be largely automated.
“Companies should be able to use field service software to automatically generate all planned maintenance as a result of a contract,” DeVroy said. “This should include specific model or equipment-based tasking, including compliance or inspection activity, materials usage, part usage, and performance standards.”
Gaps in revenue generation, sub management
Technology barriers also prevent full realization of revenue from field service – just 15 percent of technologies empower field technicians to upsell or sell new service contracts and only 25 percent able to issue new estimates.
While 89 percent of trade contractors in the study said they use subcontractors, just over 10 percent give their subcontractors a mobile app to tie them seamlessly into their field service management software and value chain.
A progressive approach to enterprise technology is crucial. Digital Transformation ‘Leaders’ who said their enterprise software did a good job preparing them for digital transformation indicated they were much better prepared than Digital Transformation ‘Laggards’ who said their software prepared them poorly. Leaders were nine times as likely to say their software prepared them very well for service contract administration.
DeVroy states that companies using subs “need to manage skills assessment, control the bid process, work authorization, subcontractor performance, invoice approval, and not-to-exceed control. Ideally, they want subcontractor invoice approval to be checked against subcontractor reimbursement rates, original order authorization, part reimbursements, and returns managed when appropriate. Digital technologies will replace cumbersome methods of subcontractor communications going forward.”
Warranties and reverse logistics
Some service disciplines were beyond the reach of Laggards, who were half as likely to be doing warranty repair work and less than half as likely to be involved in reverse logistics.
Service contract administration becomes even more challenging when the terms and requirements of a contract are specific to each customer and subject to negotiation. Only 30 percent of Laggards from the study were even offering customer-specific contracts. These results suggest that a strong digital strategy can enable a company to adapt to new market and customer demands as well as profitably deliver aftermarket services their less progressive competitors cannot.
Next: IoT and 3D Printing
While companies today work on aftermarket customer satisfaction and revenue, more progressive technology is coming. The study found 25 percent of respondents predict that in five years, they will have IoT sensors that track component-level performance of products at customer sites in the field, and that these components would be able to automatically dispatch a technician when needed.
Looking 10 years into the future, 44 percent of respondents said they expect to have artificial intelligence in place for predictive maintenance and diagnostics. Perhaps more surprisingly, almost 33 percent said they expect to have 3D printers on technician vehicles to manufacture new parts on-site when needed, expediting the repair and logistics process. 30 percent also said technicians will wear augmented reality glasses to give them in-situ instructions on repair and service processes.
The race is on to realize revenue growth in the aftermarket. Not only will new revenue from aftermarket contracting drive growth directly, but contractors more capable in aftermarket services will become more desirable partners for the new construction that is happening. Enterprise software that enables digital transformation will be a critical factor in balancing competitive contract pricing, profitability and customer satisfaction.
Charles Rathmann has more than 25 years of experience in business-to-business journalism, primary research, industrial product marketing, media relations and sales and business development. Rathmann holds a degree in journalism from the University of Wisconsin-Oshkosh and is based in IFS’s Brookfield, Wis. office.