Aerospace Soars into CRM
The aerospace industry provides a unique backdrop for CRM in many ways. Compared to most other manufacturing sectors, its unit volume of sales is low, its product complexity high, and this complexity is reflected in a demanding sales process.
Many aerospace products are engineered to customer specification, which places a unique burden on CRM systems. The sale, as well as subsequent product support, are heavily dependent upon knowledge and expertise. "These [aerospace] companies already know pretty much which customers are in their pipelines," explains Jim Wilson, product director for enterprise software vendor Cincom's iC Solutions group. "There are generally fewer opportunities, but they are higher dollar-value opportunities. The critical bottleneck is not the size of your sales channel, but the level of expertise you can provide for the customer."
"In aerospace, there are so many different features and options that go beyond the basic product that you can get into things like spatial analysis and where things are going to fit," says Judy Andoloro, senior CRM analyst at AMR Research, a Boston-based market research company. "The sales process really becomes an engineering effort."
Wilson notes that aerospace also has a long and complex sales cycle, with many people involved in the development and consummation of the sale, including engineers and the back office as well as the sales organization. That requires coordination of information between many customer-facing touchpoints.
And the after-sale customer relationship is critically important. With consumer goods, a manufacturer's connection to a product often disappears once its warranty card is filled out. With the long life cycles of aerospace products, the product and the customer remain on the radar screen much longer. The sales cycle must be viewed as a project, not just the delivery of a piece of capital equipment.
"No one is going to buy a Boeing 767 while they're in line at the grocery store. It's not an impulse purchase."
Did Aerospace Come Late to Dinner?
Despite their high-tech orientation, aerospace companies were relatively late adopters of CRM. As the CRM market evolved, software vendors initially addressed high volume consumer goods sectors, and aerospace manufacturers did not have the need for the horsepower and volume capabilities of the traditional CRM package. However, Eric Carasquilla, senior product marketing manager at Clarify, points out that this doesn't mean they do not have customer relationship challenges. Carasquilla says, "No one is going to buy a Boeing 767 while they're in line at the grocery store. It's not an impulse purchase. It's all about building relationships and tracking them. I think, in terms of SFA and CRM, that aerospace is a great candidate. They just haven't utilized it that much."
Not only was CRM software initially not focused on the aerospace industry's needs, the industry had internal issues to resolve as well. For example, because of the high cost of manufacturing aerospace products, the aerospace industry initially focused on lowering manufacturing and related internal process costs with implementation of ERP systems.
Randy Clark, vice president of marketing at Enigma, a CRM software vendor with a number of aerospace customers, agrees that ERP was probably more important to aerospace than CRM. However, CRM becomes a real asset in an increasingly important part of the other aerospace business: aftermarket parts and services.
John Mangan, director of Life Cycle Navigator Product Services Systems at Cincom explains that aerospace products can have a life cycle as long as 12 years, and many services are needed to keep the product going. Studies show that OEMs of large capital equipment are shifting their business model away from a build-and-sell philosophy in which a company's obligation to the customer is over when the unit is delivered.
Mangan refers to a Harvard Business Review article citing tremendous margins obtainable from the aftermarket for large capital equipment manufacturers. (See Harvard Business Review, "Go Downstream: The New Profit Imperative in Manufacturing," September-October 1999.) One example in the study shows that the aftermarket for locomotives, a manufacturing model similar to jet engines or aircraft, has a total expenditure 21 times the cost of the product. "You can go from about 5 percent margins to 15 to 25 percent," Mangan says. "It's a lot more profitable business."
Because of the aftermarket margins, CRM solutions loom on the horizon as a must-have for aerospace companies emphasizing customer loyalty. "CRM addresses this in the long term," says Mangan. "If you want to keep your customer loyalty to get returned sales, what better way than to be in control of all their services."
The concept of selling a product and then maintaining and servicing it throughout its life cycle led to the term power-by-the-hour (PBTH) to signify that the aerospace company is selling not just a product but uptime. In aerospace, uptime is critical. Clark comments that with large capital equipment users, downtime is measured in the thousands of dollars a minute. "In an off-shore oil and gas rig, a company could lose $11 million a day for down-time. I think it's $10,000 dollars a minute for a locomotive not to be moving. And there are similar figures for aircraft."
Supplying PBTH becomes a competitive tool. Clark says, "There is a strategic first-mover advantage. The first company to do it [supply PBTH] gets recognized by the customer as probably being the lowest cost provider of higher valued services. If I can promise more power-by-the hour, you can't compete against that."
"... the critical bottleneck is not the size of your sales channel, but the level of expertise you can provide for the customer."
CRM Products Can Save the Day
The complexity of aerospace products requires that a strong knowledge base be built as a component in any solution. Wilson relates, "I know of a jet engine manufacturer where a significant proportion of time is spent simply researching the material trying to determine which service bulletin applies to what." Wilson adds that there is a huge need to capitalize on knowledge in this space and that a company's ability to grow and expand depends on how well it capitalizes on the knowledge and makes it available throughout its sales and support channel.
Rob Lang, vice president customer care/commerce technology practice at eJiva, a systems integrator, says that one promising application of knowledge tools is for product configuration. "The sales person can go to a meeting and design the product the customer wants on the fly, and then send it back to corporate and place the order in real time," Lang explains.
Cincom's iC Configurator is a knowledge management tool that can be applied to the life cycle management of a complex product, which leads back to the project concept of an aerospace sell. "With our iC Configurator," Wilson explains, "we have applied knowledge to configure projects."
Cincom's product suite is called iC Extended Enterprise. The concept of iC Extended Enterprise is that CRM has to extend beyond the sales organization and into the back office. There are three components in the suite. iC Configuration Solutions is a KM tool to create a knowledge base that can be deployed to the sales organization, dealers, resellers or the support organization. iC Sales Solutions is a tool for the direct sales organization. Finally, eChannel provides contact and opportunity management, product catalog and interactive selling over the Web with an interface for distributors, dealers and resellers.
Litton Life Support, a producer of breathing supplies for military flight crews, uses the Cincom iC Solutions as a sales automation tool. Bruce Gerth, director of product support and information services at Litton Industries, says, "One of the reasons we chose Cincom was because of the cost estimating of Cincom iC Solutions." Contract and product cost accounting issues were strong drivers for their selection of Cincom.
Now Litton uses Cincom iC Solutions to generate sales proposals in batches, rather than one at a time. "We probably create an average of 50 proposals at a time," says Annette Bott, cost administration supervisor at Litton Life Support. "I can do that work now in about 45 minutes to an hour. If I were to do those 50 estimates individually, it would take a couple of days."
"[In aerospace]... the sales process really becomes an engineering effort."
Other Aerospace CRM Solutions
Many variations of CRM packages can help meet aerospace manufacturers' needs. Publishing software can form a vital link between an aerospace product manufacturer and its customers. Enigma provides OEM publishing software for several aerospace companies. Enigma's product, INSIGHT, automates the production and distribution of complex Web-site content for a manufacturer's intranet that can link technical information with eIPCs (electronic illustrated parts catalogs) and ERP systems. Enigma also offers Xtend, a product that allows end-user organizations to incorporate custom content into OEM-supplied e-publications.
Enigma's Clark explains that many manufacturers with complex operations want to publish technical manuals and illustrated parts catalogs. Such products need to be functional from an end-user perspective and should include intelligent search, intuitive navigation, bookmarking and annotation. At the same time, companies want to automate the publishing process. Clark says that, "not only do they want to deliver the information to help do the maintenance, but they want it to help drive spare parts business."
Clark states, "Basically, the users are maintenance people who don't wake up in the morning knowing that they need a fan blade. Having gone through the textual information or by performing some procedures, they see that the fan blades have had 20,000 cycles and need to be replaced. They want to be able to look that up in their inventory system that's the link back to ERP, and then if it's not there, actually purchase it."
Enigma's products are used at Rolls-Royce, where they implemented an INSIGHT solution. Rolls-Royce formerly published 50,000 to 70,000 pages for each jet engine overhaul and maintenance manual. This material was updated manually, which became time consuming and expensive. INSIGHT enabled the company to transform everything to an electronic version.
With INSIGHT, complex text and graphics are electronically published, with intelligent searching and navigation functionality and update capabilities, allowing customers to find the information they need through full-text and topic-specific searching. Bob Cole, the Rolls-Royce publications services manager states that, "we realized that our electronic publishing solution must support us into the next century."
The value of intelligent electronic documentation cannot be over emphasized. Clark comments that, "the studies that our customers have done show that on an average, 10 to 20 percent of the field maintenance people's time is spent looking for information. With these products, inventory costs go down, defect rates drop, incorrect orders are reduced and customers are happier."
Allied Signal is another aerospace company that recognized the power of CRM products. Allied Signal had challenges similar to other aerospace manufacturers-complex product offerings, need for faster response to customers and managing multiple customer interfaces. To meet these challenges, Allied Signal launched a comprehensive CRM initiative, termed Atlas, in 1998.
Allied Signal used Deloitte Consulting as the integrator and Siebel software for the CRM system. The CRM system was designed to connect order management with ERP and product, service and reliability data, as well as financials, to provide a comprehensive solution. The CRM initiative at Allied Signal comprises their e-business strategy.
A Good Fit
"Aerospace numbers that we have say that we can cut field people's time looking for information in half," Clark reports. "For a $100 million operation, the bottom line savings is about 5 to 7 percent of the net income level. It's a very large number." Clark says that a typical airline will find a five-year improvement in net present value of $4.5 million by switching to digital publishing.
Although aerospace manufacturers may not have been early adopters of CRM, CRM is a good fit for them. Wilson comments, "Aerospace is really closer to CRM than the commercial sector. They have always been in the business of mass customizing, and they have always been in the business of personalizing. Everything they did revolved around that customer opportunity. Really, that is the vision and the goal of CRM-developing long-term profitable relationships."