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AUDIT
A auditing of four arrays of service: service product,
For a comprehensive aftermarket audit, we propose
service resources, service organization, and service
operations (Armistead & Clark 1991, Cohen et al.,
2006). This framework is based on Institute of Cost
and Works Accountants of India (ICWAI) 2009
guidelines for an internal audit. An aftermarket audit
ftermarket is an important is an appraisal of company’s aftermarket operations,
source of revenue for many companies. Aftermarket evaluation and monitoring of risk management,
involves any product, service or support provided over reporting and control practices. As an internal
the complete life cycle of end customer vehicle, after the audit, aftermarket audit provides inputs on: control
original purchase has been made (Bundschuh&Dezvane environment, risk assessment, control actions,
2003). After-market revenues come from repair and information and communication and monitoring of
maintenance of parts and service. Aftermarket revenue complete gamut of aftermarket activities. We therefore
contribution to OEMs varies between 30-50% and is also recommend an aftermarket audit to capture:
highly profitable, as the gross margins vary between
35-50%. Effective aftermarket offers other advantages Service product encompasses identification of
including customer loyalty, de-risk of business from what strategic parts does the organization want to
economic downturns and higher margin business. support, what are the service policies, aftermarket
However, aftermarket brings its own challenges. parts sales, committed free offerings, warranty
Proliferation of multiple brands, lack of parts cover, and the complete service plan.
rationalization, poor parts and inventory management
practices would need top management support and Service resources would entail the of field and off-
investment. OEMs are not only exposed to revenue field service resources, technicians, mobile service
leakages, but also ineffective customer and dealer vans, mobile tools and fixtures, and their work
experiences. According to a study by Genpact, revenue plans. Work plan administration also includes
leakage can cost a typical US$1 billion service provider workshop service, planned services, service
as much as US$80-100 million in missed revenues training and certification, Bay management, etc.
and US$10-15 million in lost profits. Revenue leakage
occurs at any step in an organization’s ‘revenue value Service organization refers to the dealer and OEM
chain’ which includes pricing, proposal, negotiation, support network including help desk, service desk,
contract management, order management, billing, parts desk, etc. Service organization would also
accounts receivable and collections. OEMs often lose out define the service standards, customer complaint
on revenue due to ineffective deployment of resources, management, campaign management, and CRM.
both products and people.
Service operations include the service
Aftermarket Audit: a comprehensive internal audit documentation, partner management for fill
There is a need for OEM’s to conduct a comprehensive rate, and availability, service protocols and service
audit of all aftermarket operations including its dealers, performance.
warehouse, warranty, people and service. . In each Figure 1 presents the scope and details of an
of these steps, contract terms and conditions must aftermarket audit. This can be used at either an OEM
be accurately captured and documented. Then the level or OEM and its constituents (Dealers, partners).
enterprise must act upon this information in a correct
and timely manner. Traditional recovery audits are not Aftermarket audit must capture
the complete answer, as they miss the root causes - i.e.
process inefficiencies. An effective aftermarket audit Lack of SOP adherence
must not only capture the process, but customer Operational problems
experience, supply chain management, sales and service Mismanagement
operations. Aftermarket audit is an internal audit, but Irregularities
can draw from some of the section of statutory audit Lack of controls
reports.
92 The Management Accountant l May 2017 www.icmai.in
