Kalmar Global, a part of Cargotec, is a Finnish industrial company that offers a wide range of cargo-handling solutions to ports, industries, mining, metal, forestry, and more.
Kalmar Global boasts a global service network with over 1500 service employees, about 1300 technicians, and 200 back-office support people. Kalmar is an industry-leading Original Equipment Manufacturer (OEM) for forklifts, dockers, container handling equipment, cranes, straddle carriers, and other equipment requiring a super heavy lift.
Kalmar also provides comprehensive service and maintenance solutions to ensure that its customers’ equipment is always in top condition and ready to handle the toughest jobs.
In addition to its core business, Kalmar is also investing heavily in the development of new, more sustainable technologies that can help its customers reduce their carbon footprint and operate more efficiently.
Recently, the company faced some major business challenges after it decided to electrify its entire portfolio, a commitment it made two years ago. The company realized that its growth had plateaued, so it had to make some major changes.
Although the move promised to reduce spare parts and electricity costs for customers, it also threatened to cut the most profitable part of Kalmar’s business.
To prepare for the potential decline in the spare parts business, Kalmar’s leadership team brought in a new Vice President for Parts and saw the need for a change. He started by interviewing every single employee in the division, listening to their issues, and identifying the problems.
There were several key problems that stood out.
1. Focused on Problem-Solving
The first problem that emerged was that the employees were caught in constant ‘firefighter mode’. They were constantly focused on fixing problems, and this was causing a major halt in growth.
Instead of focusing on how to grow and develop the business, employees were running around like headless chickens, chasing parts, and responding to angry emails in their inboxes.
Kalmar’s leadership team and CEO recognized that the company was not delivering on growth expectations and that problem-solving was taking over. This was a major block that was stopping the company from expanding.
2. Complex Portfolio
The second problem was that Kalmar’s parts portfolio was getting more complex every day, with engineering pumping out new parts and prototypes without fully thinking things through.
The company was not keeping its suppliers on a short leash and was not designing its products and machines for service. The moment the company delivered a product, it started a journey, often 15-20, sometimes 25 years long.
Therefore, designing products for service was critical for Kalmar’s profitability.
3. Parts Business Was Not Popular
The third problem was that the parts business was not popular and was quite underrated; many people in the company viewed it as a dead-end job. The team was disenfranchised, not led, and was the underdog.
The new leadership decided to flip this mentality, and started to see being the underdog as an advantage and set out to fundamentally change the business.
How Kalmar Overcame The Challenges
To overcome these challenges, the company had to take several key steps to ensure it would survive. First off, they had to fully model the potential impact of electrifying the entire portfolio.
They found that the potential for spare parts revenue would not hit immediately, even with a quick shift to EV. However, after 2030, the potential for spare parts revenue would decline very quickly. Therefore, the company had seven years to prepare for the 2030s when the potential for the spare parts business would go down.
To prepare for the potential decline in the spare parts business, the new VP for Parts set out to grow the business.
He leveraged the company’s underdog status to get away with lots of different strategies that would be hard to implement at a company with a different reputation.
There were three key strategies that were found to be most important to focus on, which were revamping the customer service team, making a transition to contracts, and focusing on e-commerce.
Revamping Customer Service Team
One of the key strategies that Kalmar implemented to overcome their challenges was revamping their customer service team. They recognized the importance of providing excellent customer service to maintain customer satisfaction and loyalty.
The company realized that not all customers were equally interested in spare parts. While customers expected the parts to work perfectly, they were less invested in them than in the machines themselves.
The company needed to make sure that they were prepared for any mistakes in spare parts, as that could affect customer satisfaction and willingness to return. The customer support team was revamped to handle the moments when things go wrong with the spare parts. The company invested in a dedicated team, new tools, and escalation processes with suppliers to ensure that the teams worked for hand in glove.
The company also realized that it needed to focus on better customer segmentation to achieve its 40% capture rate growth target.
They found that only 300-500 customers were contributing to 90% of the growth, so the company decided to focus on them. This would be more effective than calling all 9,000 customers.
To improve spare part sales, the company decided to implement a Parts and Service Sales Representative role. This would formalize the sales role and raise its status.
The company also recognized that dealer management was important. While dealers had not been focused on spare parts, the company had a lot of leverage with them. By working with them to increase their focus on spare parts, the company hoped to improve its sales.
Transitioning to Contracts
The company also realized that spare parts sales were a slow grind to success, so they wanted to transition from transactional spare parts sales to contracts.
The company saw this as a way to build long-term relationships with its customers. This involves understanding the lifecycle of the machines through building predictive maintenance models and lifecycle intelligence.
They are using data from their connected machines to estimate costs for contracts and plan for more advanced types of contracts in the future, such as uptime, reliability, and productivity-based contracts.
This would allow them to move from simple filters to more comprehensive maintenance programs. This would not only improve the customer experience but would also increase revenue and build long-term relationships with customers.
Focus on E-Commerce
Lastly, Kalmar realized the importance of focusing on e-commerce.
In the past, they had the wrong strategy. Their previous strategy was not focused on expanding into the e-commerce space, but rather just to simply digitize analog orders to improve efficiency and reduce costs. Previous leaders saw that their current customers weren’t interested in e-commerce and preferred in-person transactions.
However, the new leaders realized that many of these customers were on the cusp of retirement and that all of the new, younger customers much preferred online sales.
So they had to come up with a new strategy. They implemented a new strategy to compete with their online competitors and to guide their customers through their complex portfolio to find the right part. They are also using data to inform their pricing and make intelligent recommendations based on machine life cycle and operating hours.
They also put together a risky ‘carrot and stick’ approach to encourage customers to buy online by issuing an admin fee for offline orders. This may have frustrated customers at first, but has proven to be successful given their current e-commerce sales.
They express pride that now, 45% of their business is online, which is a good percentage for a B2B company.
As you can see, adaptation is the key to success.
What makes a great company is not having unique ideas, but executing better than competitors. By setting strategic priorities and organizing around them, investing in a strong leadership team, breaking down the strategy into initiatives, and building trust among the team, Kalmar was able to succeed despite the odds.
Kalmar’s commitment to sustainability, new technologies, and innovative solutions are commendable, as well as its focus on providing high-quality equipment, services, and comprehensive solutions to its customers.
The challenges that the company faced with electrifying its entire portfolio, along with the strategies it implemented, demonstrate the company’s resilience and adaptability to change.
Kalmar’s success story is a testament to the power of flexibility, taking risks, and proper execution.
SOURCE: Keynote presentation at Spare Parts Business Platform – Power of 50, Stockholm, February 9th 2023, Fredrik Fogelklou