Empowering Exceptional Aftermarket Service: Q&A with Syncron CEO Fritz Neumeyer
An article recently published in Dagens Industri was based on an interview with Syncron CEO Fritz Neumeyer. The full interview reads below:
What challenges does Syncron solve for global manufacturers and their distribution networks?
FN: Let us start with an example from everyday life: if you buy a toaster or a hairdryer, there is a pretty good chance you would throw it away when it breaks down. But that is massively different for a car, or an excavator, or an X-ray machine in the medical system, or an aircraft engine, or an elevator. Failure of these products, which are very costly and very complex, is extremely painful for customers, but also very expensive for the manufacturer and for the people who operate these products.
Think about an aircraft engine that has broken down and the full plane is grounded and cannot be flown – the costs are huge for not operating that plane. Or take, for example, an elevator not working in a hotel. I had a personal experience when I was staying at a hotel, close to the Stockholm Main Station recently – they had four elevators, three of which were broken. So that was not the problem of the hotel; it was the problem of the elevator. Consider the implications of this in COVID times as there were people queuing up.
These situations cause real pain – mentally, emotionally, and monetarily – and whoever produces these complex products have a material interest to provide world-class services around these products. In fact, if you think about it, for many of these companies that produce these complex products, the services have become the main source of profit. This is not new.
If you look at the automotive industry, it is a known fact that they do not make money from actually producing and selling cars; they make the majority of their revenue from the financing side, acting as a bank, and they make money from the services business around the car, the parts to be sold, and the service itself.
This is where Syncron comes in. We help these companies not only to provide good services, but also to make those services profitable. Syncron empowers exceptional aftermarket service for its customers.
Services continue to be increasingly relevant in protecting a company’s brand experience. If you look at Toyota, Mazda, or Ford today, when you drive these cars, you have a certain expectation about the experience, and an anticipation that the experience will be extrapolated for the full lifecycle of owning that car. Whenever you visit a premium automobile dealer, whatever the brand, you expect premium service.
However, this often becomes a challenge for the companies that work on global scale. When the industrial challenge is so complex and so geographically vast, delivering consistent premium service in every market is difficult. That is why they turn to specialists. And we are one of the leading specialists for helping companies with solving this challenge. That is our purpose at Syncron – helping these manufacturing companies provide all types of services. We help them make sure the parts are in stock, the service experience is positive, the price is properly set, and that the quality is maintained. Establishing all this makes service needs become predictive.
How do you plan to grow your market share in the face of increased competition and unexpected market forces?
FN: Well, firstly, I want to make sure I acknowledge what the company has done in the two decades since its inception, because I think it is phenomenal. To establish such a footprint, starting from scratch, and be able to call the most respected brands as our customers – that requires a strong vision, as well as a belief in that vision by the entire team in order to make it happen. Now we want to extrapolate the vision. It’s not that we are seeing ourselves in a much different cause than before; it’s probably more now to take the next step in industrializing the innovation and the way we’re going to do this.
As for growth, we are planning to massively hire and scale the team. We want to add about 50 percent to our staff in less than two years. And this all in the time of COVID when many of our customers and prospective customers pull the belts tight. We feel that what we do creates such a big opportunity for the customers that we need to invest now, in order to help them in the future.
As we are massively growing in our organization, the biggest growth we envision will be in our R&D and software engineering groups. There is so much more what we want to do and build when it comes to artificial intelligence, creation of better service experience from an end user perspective. For example, how can you make sure that the right technicians are in the right place? How can you make sure that a services contract is always being fulfilled with a warranty? There are multiple topics which we think about to support the companies for which the theme of services become more prevalent. That is something that keeps us busy, and why we are investing into our company.
We are continuing to build more solutions for our customers. We also want to stay true to the idea that we are experts in what we are doing. Our helping companies in the servitization arena is really our key purpose. For Syncron, the focus now is on how we can better help companies improve in the field of services management.
What do you see in the future for the entire manufacturing industry?
FN: It goes way beyond the idea of servitization, and I think there are strong implications for the services business. To start with a fairly obvious example, let’s take the automotive industry, because that’s one of our key focus industries, and other industries are similar, to a certain extent, that you can extrapolate from this. What is keeping the automotive industry busy today are topics of connectivity and electrification, just to name two. But there is also the whole topic of product individualization. The model cycles advance rapidly and, despite the need to produce platforms, it also means customer individualization.
These trends are going to transform the way the industry has been functioning, and some are doing it already. This is not something that will happen 10 years from now; it is happening today at a rapid pace. These new trends are fundamentally changing the business models of manufacturing companies.
With electrification, consider the infrastructure challenges – the costs, the economic models, and how easy and costly it will be to build engines. What will it do to the whole supply chain? An electrical engine, by far, does not have the same service intensity as a combustion engine. That will have implications on the whole services question. You could even argue that there is less service needed, because of electrification, on the parts. On the other hand, there are more services needed around the infrastructure, which you need to keep the cars operating. So, that is going to shift the importance of certain elements in the value chain.
Now consider the individualization element: we can all relate to the way we buy motorcycles, or cars, or even individual bags – we will have to configure it. We as people want to give it an individual flavor; we want to make it ours. What this means for the OEMs is they will have to maintain the complexity of millions, if not billions, of end consumers throughout the full lifecycle of a product. If I am buying a car today, I have an expectation that in 10-15 years, I can still get spare parts for it. Some of these parts, like platform parts, the OEMs will be able to produce. Some of them may actually be produced with 3D printing technologies down the road. However, certain parts will probably need to be maintained in their networks. And it will not be enough to simply keep it in some central warehouse, but as close to the user as possible, because the customer will not want to wait. They want to have that part available now because they expect that level of service.
We will also see a business model shift. I recently spoke with a Global Head of Engineering of an Indian-based vehicle manufacturer, and he was explaining to me that electrification in India caused the government to allocate funding for these manufacturers. They will get subsidies if they create electrical buses. However, the government also expects that these buses are not just new buses with electrical engines. The government will not pay for them as products; on the contrary, they want to actually pay by mileage. So, in this way, electrification is driving servitization. Therefore, these manufacturers must think about the question from the perspective of fleet managers, which they never did in the past.
Think about how service and the brand experience have changed in the past 20 years. I remember I was buying a small beautiful French car – it was my first car and I loved it – and it had a tiny diesel engine. I bought it from a local dealer, which was also selling a few other car brands. I thought it was just great that I could go to the dealer and they kind of understood what I needed. But at that point in time, it was also okay for me that the car was in the repair shop for a full week.
Today, that expectation is different. So, in turn the manufacturers need to adapt, and they are insourcing a lot of the dealership business, or at least they want to take more control of their dealer networks. And again, that is something that Syncron helps these companies do. Because we have software, which helps to create huge transparency on how often certain service incidents happen. It is so important now for these companies and their business model to massively change. It will not only be a challenge; it will create massive opportunities for these companies.
Doing it all in the cloud, you may rightly argue that you lose a personal touch, and I already miss that as a human being. However, in the long run it will also bring sustainability and environmental changes as it will optimize the utilization of goods and will therefore create less waste. I think the whole idea of optimizing the deployment of products will do this. I personally also believe in the electrification of the world. I enjoy being in Sweden, as it is really far ahead of many other European countries when it comes to adoption of electrification among consumers. I think it is great and it will help the world to become greener which is much needed.
How does Syncron help customers to innovate in the field of aftermarket service?
FN: We help them in many aspects. Mostly to make sure they have the parts where the parts are needed. That is a trade-off for all of these companies between costs and customer service. One could simply say, we put all parts and all warehouses very close. But nobody would ever do that because of the huge cost. That is the question all companies struggle with when deciding how to use all the data and intelligence they accumulate across the globe. It is not something human beings can cope with alone, so there is a need for AI and big data capabilities to analyze information. Companies need to deal with huge complexity, because the parts are not only in their own warehouse; they are placed at their dealers or regional warehouses. This is a massively complex task and yet still just a part of a bigger challenge.
There is also the service component that goes along with this. There is the question about how one can make sure that you create a service contract which is meaningful, profitable and covers all risks on both sides. If you look at the healthcare industry, there is no X- ray machine today, sold to a hospital, which does not come along with a certain guarantee that this X-ray is usable for certain number of hours. Manufacturers need to think how they will guarantee this, how to create a commercial offer for that, but also how to give back the proof to the customer that this promise has been kept?
Today, all our customers are dealing with such complex issues. That is why we are backing them up with technology – we are creating software solutions addressing that. To help them move from reactive, brake and fix maintenance, toward truly predictive maintenance with a step of prescriptive maintenance in between.
We are building software that has AI capabilities to analyze data streams coming from these hundreds or thousands of data sources. I think a car today already has almost 200 sensors that are prominently sending signals to the cloud. I predict that in five years there are going to be 1000 sensors, which of course means more data. We help build algorithms to support decision making based on huge data. The portfolio of Syncron is fully embedded in making sure that the service experience around all what these companies produce becomes more effective today.
We are quite cognizant and reflective of what is happening within our customers’ industries, and what latest technologies should be leveraged. We looked into AI already a few years ago, when this was not yet called AI or machine learning. But take the topic of this sensor data, you want to constantly observe the health and condition of a machine and be able to send it to a repair shop before something really breaks or explodes. And you would have thousands of machines to observe. Manufacturers need a software solution that manages all sort of new connections and understands the patterns. These are the challenges that human beings cannot do anymore – it is too complex, and it is too much. We are heavily investing into software, knowledge, and capabilities that address this for our customers.
How do you help companies through the ebbs and flows of the global economy?
FN: During COVID, what we noticed was that none of our customer turned away from us. They all acknowledged what we do for them. For us, that was really important because with SaaS licences it is easy to terminate a subscription. But none of our customers unplugged their systems. That shows us the relevance of what we are doing for them.
One of the most immediate things, a quick fix that we can add to the profitability of our customers, especially in the short term, is making sure that they optimize the price balancing supported by our Syncron Price.
This is something that sounds fairly trivial to people, but simply pricing parts more accurately based on competition, geography, as well as supply and demand, manufacturers can make more money.
This is one way to fuel these companies in the short term, and with intelligence that is important for them now, it will really help them to fully transform their business model in the future.
One could argue, that looking into profits from price optimization, it would be at the expense of the consumer, but I would argue that it is not the case. When I have a problem with the product I own, no matter if it is a car, crane, or aircraft, there are some circumstances when I would decide that it is a big problem, and it needs to be fixed immediately. I would then not look at the price of a part, but more at the value of having my car, crane, or aircraft operational.
Another example from the construction world, which is an important industry for us: think about a construction site in downtown Manhattan. We can agree that there is no storage space in Manhattan. Now think about an important crane having a material problem with the lifter, and the whole machine stops working. The site stops and the cost of this you can count by the minute, especially with deliveries scheduled to keep coming. From a parts perspective, if you are a supplier of cranes, it would be justified to charge $15,000 for a critical part (regardless if it costs $5,000 or $10,000) because we will make sure that this part is going to be delivered at the construction site and the client can be assured that the emergency replacement is done immediately.
Still, you cannot charge $100,000 for the same part; you need to know there is a limit. Our software, with all its capabilities, helps customers to find these limits. Syncron enables our customers to apply the value-based pricing in their services, and in times of COVID-19, when manufacturers must tighten their belts and every dollar is being turned twice, they are extremely grateful for every dollar they can earn. If you optimize your pricing, you actually make more money and you protect your profitability, which means you survive easier in troubled times.
This optimization game helps our customers survive because they can preserve more cash. Cash and profits are what they need right now. We help these companies to become in better control of the cash, and we help them accomplish that not only through pricing exercise, but also by inventory optimization.
We have a customer, that is one of the world’s largest car manufacturers, and they have thousands of dealers. These dealers do not even know which parts are needed in the market, nor how often. We have proven to this company that if they optimize their stock within certain dealers, they can sell more parts because they know where and when they will be needed, and they do not lose customers who would normally go elsewhere if a part was out of stock. For them, this is a huge value we have helped to create in a very short term.
We look at all our industries, not only to note what keeps them busy today, but we try to really understand what will keep them profitable and growing in five year and ten years. That is tough to predict. If we only build products for the current environment, we would not innovate early enough for our customers to embark on a new business opportunity, or a new business model. That is why I think there is a strong focus on business models and industry understanding at Syncron, which directly translates to our innovation capabilities.
Innovation does not only come from a cool technology; you must have a view on how you translate this technology into something meaningful for the customer. And you must dare to occasionally do things that are a little bit ahead of the market. COVID-19 has created some new necessities and that is where true innovation comes from. It is an exciting time for our customers, which means it is an exciting time for Syncron.
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