Special Issue 2018

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T he specialty trade contracting sector has seen marginal revenue growth in the last five years. And with recent forecasts anticipat- ing even lower revenue growth, it is important contractors look to make their operations as prof- itable as possible. According to the McKinsey Global Institute, the percentage of maintenance and repair work performed in the construction industry had already by 2012 inched up from 36 percent to 45 percent of construction revenue, compared to 10 years before. Contractors may already be gearing up for aftermarket work, at least on the human resources front. According to the Bureau of Labor Statistics, demand for heating, air conditioning and refrigeration mechanics and installers is projected to grow 15 percent from 2016 to 2026, and demand for plumbers will grow by 16 percent. LACKING THE TOOLS TO CAPITALIZE ON SUCCESS But does the industry have the technology in place to manage aftermarket service contracts profitably? A new study con- ducted by IFS, an enterprise software solutions provider, suggests there are significant gaps in how well contractors in HVAC, electrical, plumb- ing, security, roofing and other trades can execute on contracts for aftermarket service. The 2018 primary research study conducted by IFS found that among 200 trade contrac- tors, 85 percent have mainte- nance contracts with customer- specific terms, pricing and service levels. However, only 14 percent said their software facili- tated these contracts "very well." According to IFS Senior Product Evangelist Tom DeVroy, the task of planning for services required during the lifecycle of a product should, today, be largely automated. "Companies should be able to use field service software to automatically generate all planned maintenance as a re- sult of a contract," DeVroy said. "This should include specif- ic model or equipment-based tasking, including compliance or inspection activity, materials usage, part usage and perfor- mance standards." GAPS IN REVENUE GENERATION, SUB MANAGEMENT Technological barriers also still prevent full realization of po- tential revenue from field ser- vice. Just 15 percent empower field technicians to upsell or sell new service contracts and just 25 percent could issue new estimates. While 89 percent of trade contractors in the study said they use subcontractors, just over 10 percent give their sub- contractors a mobile app to tie them seamlessly into their field service management software and value chain. A progressive approach to enterprise technology is crucial. Executives from digital transformation leaders who said their enterprise software did a good job preparing them for digital transformation — indi- cated they were much better prepared those falling behind in digital transformation who said their software prepared them poorly. Leaders were nine times as likely to say their soft- ware prepared them very well for service contract administra- tion. DeVroy states that com- panies using subs "need to manage a skills assessment, control the bid process, work authorization, subcontrac- tor performance and invoice approval. Ideally, they want subcontractor invoice approval to be checked against subcon- tractor reimbursement rates, original order authorization, part reimbursements and re- turns managed when appropri- ate. Digital technologies will replace cumbersome methods of subcontractor communica- tions going forward." WARRANTIES AND REVERSE LOGISTICS Some service disciplines were half as likely to be doing warranty repair work, which requires technicians to deter- mine which work is covered by warranty and which is not, then manage the service process ac- cordingly. They were less than half as likely to be involved in reverse logistics, which involves taking repairable parts out of a piece of equipment and returning them to inven- tory, perhaps to a depot repair environment. Service contract admin- istration becomes even more challenging when the terms and requirements of a contract are specific to each customer, subject to negotiation. Only 30 percent were offering custom- er-specific contracts. This suggests that a strong digital strategy enables a com- pany to adapt to new market and customer demands and profitably deliver aftermarket services their less progressive competitors cannot. NEXT: IOT AND 3D PRINTING While companies 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 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 onsite when needed, expediting the repair process. Roughly 30 percent say technicians will wear augmented reality glasses to give them in-situ instructions on repair and service processes. The race is on to realize rev- enue 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 happen- ing. Enterprise software will be a critical factor in balancing competitive contract pricing, profitability and customer satisfaction. Charles Rathmann is senior marketing communications analyst at IFS North America. Do trade contractors have the processes and tech for aftermarket success? B Y C H A R L E S R AT H M A N N RACE IS ON 0% 20% 40% 60% 80% 100% Warranty Repair by Construction Discipline HVACR/Plumbing Building Controls Electrical Fire Protection Security Sliding Overhead Door Low Voltage Signage Roofing/Glazing Other Warranty Repair Yes No Future Trends 10 Years Out 3D printing for onsite creation of parts to reduce cost, shorten lead times or replace out-of-production parts Augmented reality or mixed reality glasses to increase asset information available to the technician Drones for system inspection Drones for parts delivery to expedite service work 18% 19% 30% 33% Subcontractor Communication 90% Phone 97% Email 13% Subcontractor portal in a field service management software solution 10% EDI – Electronic data interchange 10% Online/offline mobile app HVACPproducts.com HVAC & Plumbing Product News \ Special Issue 2018 18

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