STRUCTURING AND RUNING A SUCCESFUL AFTERMARKET IN RUSSIA

ЭКСКЛЮЗИВНЫЙ ДИЛЕР VOLVO CONSTRUCTION EQUIPMENT

YANINA YAKOVLEVA OCTOBER 25TH 2012

Agenda

I. Ferronordic Machines – introducing the company

II. Challenges of working on the Russian market

III. Structuring and running a successful aftermarket in Russia

I. Ferronordic Machines

• The biggest dealer of Volvo CE machinery in terms of territory in the world

• Selling and servicing Volvo CE machines on the Russian market since 2010

• Successor of the Volvo CE owned dealership in Russia

Khabarovsk

Krasnoyarsk

Ekaterinburg

St .Petersburg

Moscow

Krasnodar

Murmansk

Petrozavodsk

Arkhangelsk

N.Novgorod

4

Number of FNM outlets is planned to grow substantially

Network development map – August 2012

Vladivostok

Kazan’

Vologda

Voronezh

Chelyabinsk

Tver’

Perm’

Norilsk

Novosibirsk Stavropol

Surgut

Rostov na Donu

Sovetski

Velsk

(62) FNM year to date 2012 (9) SSK locations

V.Novgorod

Tyumen

Sochi

Tula

Yaroslavl

Volsk

Saratov

Saransk

Kaliningrad

Pitkyaranta

Lipetsk

Ryazan

Belgorod

Smolensk

Sikhtifkar

Koriazhma

Buinaksk

Pskov

Armavir

Currently: 62

2015: ~100

Ufa

Novokuznetsk

Bratsk

Irkutsk Chita

Abakan

Kemerovo

Neryungri

Novy Urengoy

Uhta

Samara

Kaluga

Volgograd

Yakutsk

Blagoveshensk Satka

Cherepovets

Cheboksary

Vladimir

Penza

Ferronordic Machines business

• New & used equipment

• Trade-in & rental

• Additional equipment, attachments

Ferronordic machines

sales

• Spare parts

• Service sales

• Soft products

Ferronordic machines services

Our product range

Wheel loaders VOLVO

Excavators VOLVO

Backhoe loaders VOLVO

Skid Steer Loaders VOLVO

Articulated haulers VOLVO

Motor graders

Road Construction VOLVO

Pipe layers

Ferronordic Machines Results since 2010

Number of employees

165

562

78

200

0

100

200

300

400

500

600

700

800

900

2010 2012

Mechanics

Employees

Number of locations and service vans

14

62 78

151

0

20

40

60

80

100

120

140

160

2010 2012

Locations

Service vans

Machine population growth

5200

7500

0

1000

2000

3000

4000

5000

6000

7000

8000

2010 2012

Nu

mb

er

of

un

its

Years

Machine population

Parts stock and turnover

12

57

3

13

0

10

20

30

40

50

60

2010 2012

Mill

ion

, EU

R

Years

Parts stock

Parts turnover

II. Challenges of working on the Russian market

What do we need to know about Russian market?

Territory and Infrastructure

• Country’s vast

territory

• Infrastructural issues

Business practices

• Accounting and business practices are cumbersome and requiring a lot of paperwork

• Be prepared to have more headcount and more working capital

People • Not enough professionally

trained people

• People are passionate about what they do and are fast learners

• Inefficient management styles are widely spread

More points to remember

• Instability

• Battlefield for big and small players from all over the world

• Opportunities to grasp market share

• Service culture being formed

• Traditions were continuously broken

Russia is not as scary as it may seem

III. Structuring and running a successful aftermarket in Russia

What is a successful aftermarket?

1.Profitable

2.Sustainable

3.Efficient

4.Flexible

1. Profitable aftermarket

• Commercial aftermarket not technical support

• The right products for the right customers at the right price at the right time

• Stable revenue and profit

1.2. Technical vs. commercial Technical aftermarket

Commercial aftermarket

Customer support

Profit generating business unit

Can be done from hub

Should be closer to customer

Limited number of people A developed organization is needed

No sales skills required Strong sales skills and commercial process within the team

Technical knowledge and expertise

Commercialized service products

1.3.Commercial process in aftermarket

• Aftermarket sales representatives- our sales force

• All other employees are involved in the commercial process

• Customer loyalty programs

• Marketing campaigns

• Customer events in aftermarket

• Soft products to meet the customer needs

1.4. Sales force in aftermarket

• Aftermarket sales representatives (ASR)– key person in the process

• ASR has a number of tools and standard product offers

• ASR is a guide and coach to all other roles in the region as far as commercial aftermarket is concerned

1.5. Products and tools

• Customer loyalty programs

• Marketing campaigns

• Customer events in aftermarket

• Soft products to meet the customer needs

1.6. Customer loyalty program

The program allowed us to achieve the following results:

• Create transparent customer discounts based on purchase volumes

• Promote our own service sales

• Effectively launch service contracts

• Build stronger partner relations with customers

Date

Date

Customer partnership status - additional incentive for customers

At the end of each we evaluate sales per customer vs potential and acknowledge the best customers with one of the following statuses According to their volumes:

• Level 4 Customer • Level 3 Partnership status Silver • Level 2 Partnership status Gold • Level 1 Partnership status Platinum

Benefits for customers with status will include : •Discounts for new machines purchase •Discounts for new attachments •Discounts for trainings •Care Track installation benefits •Participation in Volvo Construction Club •Status is valid for 1 year

Cap

ital

1.7. Aftermarket marketing campaigns

1.8. Listen to your customer

• Not only when you are selling something

• Organize aftermarket customer events

• Engage customers in soft product development

• Build traditions and framework for continuous communication

1.9. Aftermarket customer events

1.10. Common culture

Ferronordic Machines

Customer

1.11.Know your customers

• Profiling

• Business cycles and buying patterns

• Decision making

• Business models

1.12. Contribute to success of your customers

• Help your customers achieve their business

goals

• Minimize machine downtime

• Help them come up with new technology

• Customer expertise development

1.13.Customer operator training • Custom made operator trainings

• Launch of the ECO operator program

• Simulators

1.14.Caretrack Volvo telemetric system Allows tracking of machine condition Maintenance and repair planning Resource planning

Easier management of maintenance contracts Population control Spare parts stock planning

2.Sustainable aftermarket

• Organizational structure

• People

• Dealer infrastructure development

2.1.Structure your organization

• Uniform organizational chart across regions

• Clear job descriptions and roles

• Clear motivation (bonus) system linked to job description and role

• Clear KPI’s in line with bonus system

• Responsibility and authority balance

2.2. Standardized organizational structure

Region

Location Location Location

2.3. Invest in your people

• Schools for mechanics

• Train the trainer programs

• Training center

• Mentors and personal development plans

• Succession planning

2.4. Training center

Each mechanic on average receives up to 200 hours of training per year

Trained mechanics are the best asset of a service company

2.5.Invest into your infrastructure

• Parts warehouses = availability

• Service vans and tools

• Workshops

• Mobile service points

• Customer site set ups

2.6.Service center layout

2.7. Service vans

2.8. Warehouse layout

3.Efficient aftermarket • Tracking performance against KPI and

communicating it to the team

• Resource planning based on population

• IT systems (dealer management system, stock replenishment system, CRM, ordering systems, online portal)

3.1.Key Performance Indicators

Labor sales

• Sales Volume

• Margin

• Hours per mechanic

• Average price of 1 hour

• Utilization ratio

• Efficiency ratio

• Productivity ratio

• Absorption rate

• Machines per mechanic

Parts

• Parts sales volume

• Margin

• Parts through workshop and over the counter

• Stock value

• Stock turn per year

• Product mix by groups

• Backorder ratio

• Availability index

3.2. New Tools in efficiency tracking • Labor utilization tracking module, 1C based

4.Flexible aftermarket

• Uniform approach to all regions

• Different location modeling options (from regional hub to home based mechanics)

• Mobile service

• 7 days a week service 2 shifts

• 24 hours emergency call service

• Customer location set ups available

Different set ups

Picture of rented place Picture of container set-up Purpose built facility

1-2 year

10 lessons learned by us

1. Go for commercial approach 2. Structure your business model and organization 3. Invest in people (mechanics, line managers) 4. Know your customers and listen to them 5. Contribute to success of your customers 6. Invest into infrastructure 7. Be “around the corner” 8. Engage people 9. Be consistent and plan long term 10. Enjoy what you do!

We enjoy what we do!

And come we up with creative solutions!