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VLM Economic Impacts The economic benefits of Virtual Life Management impact every area of your business. The Virtual Life Management system changes everything. Deployed enterprise wide, the VLM system can have a positive economic impact on every area of the business: engineering, aftermarket care, sales, marketing, finance, and purchasing. But it’s also much more. As a CEO-level, strategic business tool, it enhances the value of every product the business makes, as well as the brand value of the business itself. Now, thanks to VEXTEC, before you develop, buy, or sell a new product, you can accurately predict its behavior and life cycle. This can be done very quickly, too, because VEXTEC’s VLM simulation software produces answers in a small fraction of the time it takes to perform physical testing. Being able to get this timely information will allow you to design products for the most favorable TCO – and offer warranty and customer support programs to match. You’ll be able to modify designs or components for optimum reliability before they ever go out the door. Your maintenance schedules will reflect reality, not conjecture. Because you won’t be guessing about what will happen to your products. You’ll know.
Most manufacturing companies already have much of what they need to re-engineer the way they forecast product life cycles and dramatically improve the accuracy of those forecasts. Unfortunately, it’s buried in organizational stovepipes throughout their enterprise (and very often called something else). Analyses and test data in the engineering stovepipe. Vendor and cost information in the purchasing stovepipe. Warranty data in the finance stovepipe. Customer data in the marketing stovepipe. Aftermarket data in the maintenance stovepipe. Rarely is any of this information assembled, combined thoroughly and shared with the intention of looking at product behavior and life cycles from the same perspective the customer sees – holistically, over time. Until now. With the VLM system, historical data is assembled—along with models of how new parts will behave—to simulate the behavior and life cycle of the entire system, right up to the product lot or fleet level. With VLM, designers and engineers aren’t building parts in the dark, hoping their products will perform as promised, or spending months or years testing them for a couple of parameters. They can make better, more informed decisions about how to make better parts, every single time.
As a company builds more reliable products – as in the automobile industry, for instance – resale value and customer confidence go up and while maintenance costs go down. In fact, by using the Virtual Life Management system, product reliability forecasts can be shared with sales executives before the first product is ever built. As a result, the accuracy of sales forecasting can be improved as well, because the reliability of the final product is no longer a surprise to everyone at the company. More informed product price points can be established because you will accurately know what to expect in TCO. Sales costs can conceivably be lowered, too, since it follows that not as much time, effort, money, or advertising are required to sell a better product
Companies that struggle for market share typically resort to expensive gimmicks such as interest incentives and rebates to spur sales. Obviously, these techniques reduce margins on every product sold, perpetuating the vicious circle of the market share losses, layoffs, cost cutting, and more lower quality products. But when the market perceives your product as “best in class,” you no longer need to pay consumers to buy your products. For instance, building a better product—and knowing how much better it really is—enables you to reassess warranty strategies. If every company in the marketplace is offering 3-year warranty coverage, you will know you can sell X% more simply by raising your warranty coverage to 4 or even 5 years. These are the kinds of decisions company marketing leadership can make, but only if they have the facts in a timely manner. Facts that only the Virtual Life Management system can provide.
Winning a reputation for building better products is like putting money in the bank every day. Customers accord your brand a price premium, your company becomes more attractive to employees and prospects, and competition has to work harder to unseat your leadership position. But these values, while tangible, are difficult to quantify. So let’s look at some benefits with hard dollars attached to them: building better products means decreased warranty payouts. That money goes directly to the bottom-line, increasing profitability, freeing cash flow, and last but not least, increasing shareholder value. Looking to the future, reducing your warranty costs means you can reduce the size of your warranty reserves. Likewise, aftermarket engineering reserves, usually a separate budget item from warranty reserves, can also be reduced. Given this scenario, company management has a lot more choices about how to invest in the company’s future.
Currently, this is the way the purchasing process works in most companies. Engineering comes up with performance specifications for a particular component. Purchasing sends a bid proposal request to a select number of vendors. Those vendors interested in bidding on supplying the part tell purchasing that they meet all the stated performance specification requirements, including reliability. But rarely does purchasing have any way of knowing whether the vendor actually does, in fact, meet the reliability specs, so they’re left having to accept the vendor’s word at face value. In theory, all vendors that submit final bids are regarded as having equally acceptable levels of quality (after all, they all said they meet the spec). And in that case, the vendor with the lowest price generally wins. But Virtual Life Management changes all that, for the better. Now, as the design is being developed, purchasing has the capability to actually plug vendor quality and product reliability metrics into the VLM system so that the buy decision becomes a combination of cost and reliability impact to the overall product. Going further, since the manufacturer now has the capability to prove vendor impact on overall product warranty costs – before the contract is even prepared – an appropriate level of warranty sharing can be established. And in this scenario, vendors are likewise rewarded for improving their own product quality, instead of having to compete solely on their ability to build the cheapest part. The result is that products are built, sold and purchased on the basis of total cost of ownership—the same metric the customer uses when measuring the best value—rather than price, the least reliable indicator of value received.
In many industries, aftermarket, maintenance, or customer support mainly consists of spare parts needs supplied through warranty, and aftermarket parts sales after warranty. If we look at a different type of company, though, say one that manufactures heavy equipment, or jet engines, a significant portion of the company’s profit margin is linked to product uptime. In that regard, maintenance logistics, labor requirements, etc., are huge factors. VLM allows aftermarket executives to better predict future needs, better optimize logistics, plan for spare parts deployment, just-in-time purchases, maintenance schedules, and so on. All of which have an impact on profits worthy of management’s attention.
For more information about how our Virtual Life Management system can make your products and your business more valuable, contact us. We look forward to working with you.
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