The Impact Of Impending Labor Shortages On Field Service:

Three practical solutions for the labor shortage problem

One of the most pressing concerns among field service executives is the impending shortage of skilled workers. These concerns are well-founded. The U.S. labor market is expected to face a shortage of approximately 8.2 million workers by 2027, reports Thomas Lee, head of research at Fundstrat Global Advisors.

This shortage is fueled by two trends. The first trend is referred to as the “Silver Tsunami.” This is a term that describes the enormous number of employees who are reaching retirement age over the next 10 years due to population demographics. Within the manufacturing industry alone, nearly 2.5 million will have retired between 2015 and 2025, resulting in a 2-million worker shortage by 2025, according to the Manufacturing Institute, an arm of the National Association of Manufacturers.

The second trend is due to that fact that millions of people have dropped out of the U.S. workforce due to factors such as disability and opioid addiction or because of prison records that make it difficult for them to find jobs. In fact, the percentage of the adult population that are working or seeking employment has dropped by 4 percent since 2000.

Meanwhile, the U.S. population and gross domestic product (GDP) continues to grow while the unemployment rate remains at a 17-year low. The net impact is that the demand for labor is outstripping the supply of labor in the United States. What will this mean for field service?

Blumberg Advisory Group and Field Service Insights recently conducted an economic analysis of the U.S. field service industry. The study examined the demand for field service labor in 16 different vertical market segments. Currently, these segments employ approximately 12.6 million field workers. However, an additional 2 million workers will be required by the year 2021 to meet market demand for service and support.

Considering every industry sector is facing a labor shortage, field service organizations (FSOs) will need to adopt creative and innovative solutions to overcome this gap. Fortunately, several viable solutions exist.

Using A Blended/Variable Workforce Model
FSOs can turn towards freelancers as a strategy for responding to labor shortages. Many millennials prefer freelance work because of the flexibility and autonomy it provides them, while retired baby boomers also appreciate the ability to generate additional income by working freelance. In a recent study, we found that 77 percent of FSOs are utilizing a variable workforce to handle shortages, and two out of three are using a freelancer management system (FMS) to source and manage talent. Users of FMS platforms boast that greater agility, reduced costs, faster time to market, and improved efficiency are the benefits of this strategy.

Reengineer Service Delivery Processes
FSOs will need to learn how to accomplish better results with fewer workers. One way to do this is by reengineering the way in which service is delivered. For example, the typical way that most FSOs handle field service activities is by assigning new hires to a telephone technical support capacity and dispatching the more experienced field service engineer (FSE) to resolve on-site issues. This is counterintuitive when you consider that more experienced FSEs are the ones who are best qualified to provide remote support and guided technical assistance to new hires. By switching these roles, FSOs can leverage their workforce for better results (i.e., remote resolution, first time fix, etc.) and improve the customer experience.

Utilize Advanced Technology
Many FSOs are realizing that digital technology can play a significant role in resolving the labor shortages. For example, IoT enables an FSE to save time in anticipating and preventing problems. AR provides a platform that new FSE hires and end-customers can utilize to troubleshoot and resolve problems on their own or through the help of guided troubleshooting. Initial pilots have found that FSOs can experience up to a 20 percent improvement in first-time fix rate after deploying AR. Lastly, artificial intelligence and predictive analytics can be utilized to diagnose problems, isolate the faults, and recommend and implement corrective actions. In short, digital technologies enable companies to reduce and eliminate the need for human involvement in the field service process, permitting FSOs to do more with less.

The impending labor shortage is not a myth. FSOs must be prepared to deal with it. Within every challenge lies an opportunity. This situation is no different. With a little planning and innovation combined with effective execution, FSOs can achieve remarkable results with fewer people.

Value and Price: Understanding the Forces that Influence Service Revenue

This article was first published at Field Service News.

I am often asked by clients to help them implement strategies to grow their service revenue.

Often these engagements occur because a client perceives that they are not getting their fair share of revenue and it’s impacting the profitability of their company.

Developing new revenue streams does not happen by magic, a consultant doesn’t just waive his wand and suddenly sales take off. Increasing top line service revenue takes a little work but the results of this effort can pay off  handsomely.

All too often, Field Service management teams attempt to solve their revenue woes without first understanding their root cause.

They assume that the reason why more customers are not purchasing services from their company is that they price is too high. After all, that’s what their customers are telling them, so it must be true.

Companies that get caught up in this line of reasoning often find themselves implementing sales strategies based on some form of price concession, discount, or gimmick.

For example, charging the customer a small upfront contract fee for the right to purchase Time & Materials (T &M) service at a discounted rate, or treating service contracts as though they were a paid-up T & M retainer and allowing customers to carry unused portion of the retainer into the next year.

The assumption behind these pricing strategies is that more customers are likely to purchase the service because it is more affordable.

Unfortunately, the logic behind this line of reasoning is a bit flawed. Sure, the company may be able to secure more equipment under contracts through price adjustments. However, they will more than likely need to sell more service contracts to achieve the same gross margins as before the increase.

A company with a 40% Gross Margin target would need to generate an additional 35% in service revenue if they were to lower their prices by 10%.

For example, a company with a 40% Gross Margin target would need to generate an additional 35% in service revenue if they were to lower their prices by 10%.

At issue, price may not necessarily be the only reason why companies don’t buy service. This assumption would hold true if all customers are price sensitive. The truth is all customers are not. It typically a small percentage.

More importantly, customers will always point to price as their primary reason for not buying services if they are not presented with other compelling reasons to buy.

The reason many customers do not purchase service is because of the perceived lack of value.

Customers think prices are too high when they do not recognise or understand the value they will receive from the service provided.

The problem is that it is difficult to articulate the value of service.

Most companies, particularly manufacturers, don’t know where to begin.

The more distinctions that can be made about a service, the more tangible it becomes, and the higher the probability that more customers will buy it.

As consumers, we’ve all become accustomed to describing value in terms of the tangible aspects of a product. For example, its size, colour, workmanship, reliability and price. However, service is an intangible. How does one describe the value of something that is intangible?

The answer is by making distinctions about it. In other words, by describing the service in terms of the problems it solves, the outcomes or results it create, and/or the time it takes to complete.

Indeed, time is usually one of the biggest value drivers in field service.

Consider this, the more distinctions that can be made about a service, the more tangible it becomes, and the higher the probability that more customers will buy it.

Assuming no difference in price, which service offering sounds more appealing?

  • A) a service contract that simply provides parts and labour or,
  • B) one that provides 7-day by 24- hour coverage, parts, labor, same day onsite response time, remote support, and guaranteed uptime.

My hunch is that you picked B. This offering provides more value. Don’t you agree?

Unfortunately, most companies are not making these types of distinctions about their service offering.

It is should comes as no surprise that customers think the price is too high and don’t buy service contracts, and instead choose to take their chances and purchase service when needed on a Time & Materials basis.

Don’t misunderstand me, I am not urging field service companies to sell service features or outcomes they can’t deliver.

On the other hand, I am recommending those companies who are struggling with selling service contracts consider whether their service offerings or portfolios are defined with the customers’ perception of value in mind.

For the service to have value, it must be described in terms of the experience or outcome provided.

Does it save time or money? Does it increase machine utilization? Does it improve the quality or cost of operations?

By defining the portfolio in this way, Field Service companies can test different offerings through competitive analysis, survey research, and conjoint (i.e., trade-off) analysis.

They would, of course, need to ensure they can deliver on the promise of the portfolio prior to offering it to the customers.

Conducting this type of research, also allows companies to determine which service offerings are most optimal or in demand by their customer base.

All things being equal, Customers will always choose the service offering the provides more value as defined by more distinctions

In addition, distinctions provide the basis for differentiation and creating a competitive advantage. All things being equal, Customers will always choose the service offering the provides more value as defined by more distinctions then one that does not.

Some segments of the market may even pay a higher price for high value services particularly if they cannot purchase them elsewhere.

With the trend towards offering anything (e.g., products) as a service (XaaS) and Smart (i.e., IoT) Services, Field Service companies will need to become more adept at selling outcomes.

To do so they must be able to describe distinctions and articulate value. XaaS and Smart Services will not just sell themselves.

Field Service Executives are advised to start developing these skills now with service offered on existing equipment so they learn to be proficient at selling service contract when their XaaS and Smart Service programs are actually launched.

Data – The DNA to Developing Your X-Factor in Business

If in the past you interviewed any great business leader about what it took to build a great business, they would probably have pointed to three (3) basic elements:

  1. People – Comprised of all layers of personnel, from C-suite executives to the warehouse clerks, who bring vision, creativity, leadership, and passion to bringing products and service to market, and pleasing customers.
  2. Process – The structured and disciplined series of actions, steps, and procedures personnel must complete to perform the work of the company. These processes are only as good the people who design, manage, and perform them.
  3. Technology – Systemic infrastructure that automates processes, tracks and controls transactions, and reports on the company’s operational and financial performance.

This statement is no longer complete to model modern day businesses, especially those involved in service.   Why not?  The statement doesn’t include the most crucial elements of managing a service business; data.

Data enables service companies to forecast and anticipate when, where, and how often service will be required.  This in turn enables the provider to ramp up or scale down service resources (e.g., people, parts) based on demand patterns. In addition, it provides service providers with the business intelligence they need to guarantee specific levels of service to their customers.  Furthermore, data forms the basis of a service company’s research and development efforts.  By examining trends and patterns in the data, a service company can identify opportunities to help their customers in new and better ways.  More importantly, data allows a service company to optimize (i.e., make the highest and best use of) service resources, improve service productivity, maximize efficiency, and enhance the customer experience.

Typically, when service businesses face financial troubles it is because they do not appreciate the importance of data to their business.  Without the ability to utilize data to manage service capability, service quality (i.e., performance) suffers, customers become dissatisfied and eventually leave.   In addition, service providers miss the opportunity to offer high margin, value-added services to their customers, such as 4-hour response time, remote telephone resolution, or overnight delivery of spare parts.

Data becomes ever more important as we consider one of the most significant trends impacting the Technology Industry, “Servitization”.  This trend describes the transformation that many companies are undertaking as they move from primarily selling products to generating a sizable portion of revenue and profits from services.   Ultimately, the path toward Servitization leads companies toward offering anything as a service (XaaS).

To deliver on this outcome in the high-tech industry (e.g., copiers), the provider of the XaaS solution must ensure the machine is available and running at optimal performance when the customer needs to use it.  Otherwise, the provider cannot deliver on its promise.  Neither the provider nor customer can afford extended periods of equipment downtime, or else they lose money since their revenue is tied to outcomes.   This means the provider must be able to anticipate problems before they occur and avoid them, or quickly mitigate or resolve them once they do occur.   With this data in hand, the provider can ensure resources are available when needed and that the customer receives the outcome it purchased.

Given the crucial aspect of data to managing a field service business, it is no wonder that Artificial Intelligence (AI) is becoming so popular in Field Service.  These tools enable service providers to quickly and efficiency analyze large pools of data to diagnose, anticipate, and predict service events.  Data, leveraged by AI, provides field service companies with the unique X-factor they need to achieve achieve exponential growth, exceed customer requirements, and maximize financial returns.

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Service Contract Sales Secrets: Q&A With Michael Blumberg

This article was originally posted on Field Service Digital as in interview between Derek Korte and Michael Blumberg.  Michael will be hosting a FREE Webinar on February 28: Key Strategies for Increasing Extended Warranty Revenue. Click here to register for this event. 

Most service organizations know that long-term service contracts are one of the holy-grails of service revenue and profitability. Yet, despite their importance, many organization don’t know how to effectively market and sell them. Michael Blumberg, president of Blumberg Advisory Group, recently released new industry research with some key insights for service executives on this important topic. We sat down with Michael to ask a few questions about his findings.

What surprises you most from the survey?

The top take away is that the configuration of extended warranty and extended service programs has a tremendous influence on the sale of these programs. In other words, the length of coverage, level of customization, processes engaged and resources employed in delivering the warranty and entitlement levels offered play a key role in driving sales. This is an “eye-opener” because many companies have the view that a warranty is a warranty. However, our findings suggest that the more distinctions that can be made about the program, as defined through the configuration, the more effective the company will be at selling it.

Is there anything more important to service profitability than contract attachment and renewal rates?

Some field service executives may argue that KPIs associated with service costs and productivity such a first-time fix, cost per service event, mean time to repair, etc. are more important to service profitability. However, without service revenue there can be no profits at all. Contract attachment and renewal rates are the KPIs which measure how well a company is doing with respect to securing this revenue. The truth is that service contracts can be very profitable in and of themselves. One reason is because they provide an annuity for the service provider in the form of a recurring revenue stream. The second reason is because a sizable percentage customers who purchase a service contract require very little service or no service at all. This means the service provider doesn’t incur significant costs in servicing that customer.

How do companies successfully market and sell service contracts to customers? After all, they do little good if customers don’t buy them.

Most companies rely on sales aids (e.g. brochures) and direct sales. Usually, these activities occur at the product point of purchase. However, companies who continue to sell service contracts after the product sale are likely to generate additional service revenue. Other sales and marketing tactics which have proven to be effective include customer testimonials, reputation management, telemarketing (i.e., outbound sales), public relations (e.g., press releases, article placement, etc.) and analyst reviews.

You identify 50 percent attachment rate and 75 percent renewal rates as best in class. Why are so few service organizations able to achieve those levels?

First, service organizations need to adopt the right mind set about extended warranty and extended service programs. They must understand that service is separate, distinct, and unique from products. This means that service leaders must place as much time and effort into configuring, marketing, and selling service contracts as their counterparts in the product organization place on designing, marketing and selling products. After all, service won’t sell itself. Just because the customer owns the product doesn’t guarantee they’ll buy the service. Second, the service organization must have the right systems and processes in place to market and sell service contracts. For example, processes and systems that facilitate a company’s ability to configure, price, and quote customized service contracts. It is astonishing to learn that approximately, one-third of the survey respondents utilize spreadsheets to perform these functions.

How do you envision new technologies (e.g. IoT) impacting traditional service contracts — and how will smaller firms keep pace?

These technologies will either make selling service contracts a dream or a nightmare for service providers. While recent technologies like IoT, AI, and big data will make it possible for companies to deliver outcomes, it is the service contract that defines what exactly the outcome will be. It provides the terms and conditions, the hours of coverage, the level of availability, the resources provided, and the processes engaged in delivering the agreed upon outcome to the customer. In many ways, selling an outcome based contact is no different than a traditional service contract. That’s why companies of all sizes need to become proficient at configuring, marketing, selling, and managing service contracts. Gaining mastery over this function is how smaller firms can keep pace.

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Sales and The Field Service Engineer

Questions from Kris Oldland, Publisher of Field Service News

The following is a compilation of a 4 part series from Field Service News called ‘The Big Discussion’ All four questions with the answers from Michael Blumberg appear here to give you a clear picture on his views of the role of Field Service Engineers in sales to existing customers.

“In the Big Discussion we will take one topic, bring together three leading experts on that topic and put four key questions to them to help us better understand its potential impact on the field service sector…”

It is often said service technicians are the greatest salesmen – what are your views on this?

Service technicians bring a perspective and outlook that makes them great at sales in certain situations. For example, where the sale solves a critical problem for the customer.

Basically, customers appreciate the fact that service technicians are problem solvers and place the customer’s need first. As a result, the service technician has trust and credibility with the customer.

In turn, the customer is highly likely to act on the service technician’s recommendations. Sometimes, the only way a technician can solve the customer’s problem is by having them buy something new like a spare part, new piece of equipment, or value-added service offering.

In these situations, the sale is not viewed as a sale at all by the customer but merely as an attempt by the technician to solve the customer’s problem

Is there a difference between selling service and selling products?

Yes, there is an enormous difference.

Selling products requires the salesperson to focus on the form, fit, and function of the product and how it meets the customer’s needs. Selling products is about selling the tangible.

Selling services requires the salesperson to focus on how the service can help the customer solve a problem, improve their situation, or achieve a better outcome.

More importantly, it is about selling the intangible.

Is incentivising service technicians to “sell” opening up new revenue streams or putting their “trusted advisor” status at risk?

Technicians represent a ready and available channel for generating incremental service revenues.

After all, they are at the customer site almost every day.

However, service technicians may become over-zealous or pushy about selling, and jeopardize their “trusted advice” status, if they lack proper sales training or if their performance measurement system and company culture are too focused on sales.

What impact does the rising uptake in outcome based services have on the relationship between service and sales?

Selling outcome based services requires greater collaboration and communication between service and sales than ever before. Service needs to understand and support the solution that the sales force crafts for the customer.

The sales force needs to have a clear understanding of the capabilities of the service team to craft the right solution.

Basically, service and sales must work as a team. In addition, the service organization must be proficient at sales so they can add-on additional services to better meet outcomes as these opportunities present themselves.

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Protecting Your Brand in the Secondary Channel

A True Case Study

This week’s blog is a guest post by Fizah Jadhavji, CEO of Vivitech Solutions, Inc. — a major player in Reverse Logistics, closeout, excess and obsolete products marketplace.

Every major OEM brand selling to big box retailers such as Walmart, Target and Costco must accept customer returns- this is a challenge that all companies in today’s marketplace face. Poor return management practices can easily eat up your bottom line as well as damage a brand’s reputation. Many OEM’s are apprehensive about liquidating returned products due to fear of channel conflict, interference with sales of new products and dilution to the brand’s reputation.  In fact, top-tier branded products that are sold within online channels deeply discounted as “new open-box” often are the result of ineffective return procedures.

When these “at-risk” and returned inventory stocks that are liquidated for 10 cents on a dollar show up on Amazon and eBay, it opens the door for the end-user to claim warranty for a product that you already liquidated! Consequently, many OEMs are left in a position where they may issue return credit on the same item twice!

How do you efficiently manage the product return cycle if you are a major brand selling thousands of products and multiple categories across the USA? How can you best handle returns without having to spend more capital just trying to control your exposure in the market?

THE MILLION DOLLAR PROBLEM
This was the million-dollar question an OEM client of Vivitech Solutions was facing in managing their returns. At issue, the OEM was offering advance return allowance to retailers, which in-turn allows the retailer to charge back a certain percentage to the OEM on every invoice to cover returns. This initially seemed like an economically feasible solution because the OEM was able to cut costs. Retailers constantly need space and by receiving advance return allowance, they have the right to dispose of unwanted returns anywhere they choose. However, the OEM soon realized their product kept popping up everywhere at extremely low prices. They were constantly competing against themselves, and they were being double-dipped on the warranty side as well.

The OEM also noticed that some products being returned that had already come through their return center once, meaning that the OEM issued a refund or exchange twice for the same unit. Their legal team did some research and found that returned products were starting to show up online as “new open box” products with prices below market value. Thus, the OEM’s warranty center started receiving phone calls from customers who were misled into buying a used product as new. The OEM’s’s first reaction was to immediately stop the bleeding – so they stop offering advance allowance and asked all their customers to start shipping the product back to the OEM’s distribution center. The OEM would audit the RMA’s to ensure accuracy, and then destroy the units – allocating additional time, labor and financial resources to ensure that returned products were being properly reported and disposed of.  The OEM quickly realized that this process was not financially feasible, and was directly cutting into their profit margin. As pressure started building for our OEM client, top management realized they needed to find a creative solution.

THE MILLION DOLLAR SOLUTION
Vivitech Solutions solved the OEM’s problem by creating an end to end solution for managing returns. Vivitech was appointed the exclusive National Return Center and authorized repair center for the OEM.  All shipments from the retailers where sent directly to this location where they were audited.   In addition, Vivitech provided  a data-driven approach which allowed for  a triage analysis of the product, costs, and market prices to achieve the highest return by refurbishment and servicing. Vivitech also remarketed  these refurbished goods in secondary channels and smaller retailers. This helped to prevent channel conflict and protected the OEM’s primary product line.

THE MULTI-MILLION DOLLAR RESULT
This solution has been in place for  three years and the OEM is very pleased with the program’s performance. The OEM was once spending six figures annually just to handle the logistics of the return process, only to end up destroying these products in landfills afterwards. They have now off-loaded the headaches of handling returns themselves and  significantly reduced overhead costs in exchange for benefiting annually from a seven-figure secondary source of revenue.

Basically, Vivitech created a secondary market and constant revenue stream for their OEM partner. In fact, the OEM’s sales team & outside reps now offer and sell Vivitechs’ “factory-serviced” products to customers as second-chance discounted products.  This case study shows how by outsourcing the reverse logistic function, a process that was once depleting profit margins,can result in a higher profit margin, recurring  revenue, and higher ROI.  Truly a win-win for all parties involved.

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The 8 Solutions & Benefits Driving the B2B Extended-Services Marketplace

This week’s post were are pleased to share an article by Ron Giuntini, Principal and Remanufacturing/PBL/Outcome-Based Product Support Subject Matter Expert. Blumberg Advisory Group and Giuntini & Company recently performed an in-depth global survey of the configuration and marketing of Extended-Services agreements, with a primary focus upon the B2B marketplace. 

Ron Giuntini

As defined in this post, an Extended-Service is a:
  • B2B standard or customized agreement bundled as a
  • portfolio of services engaged in the
  • maintenance management of
  • specified-machines for a
  • defined-period at a
  • fixed-fee with
  • entitlement-assurances
A brief example of an Extended-Service agreement:
  • commercial buyer will be committed to a 3-year agreement at
  • $1,000/month fixed-fee in which the
  • seller will manage a portfolio of services engaged in the
  • maintenance management of
  • 3 specified-machine units located in San Diego
  • Two of the services within the portfolio are:
    • Supplying all technicians, parts and tools employed in the correct-failure (e.g. break/fix) unplanned maintenance process, but the buyer will be overseeing the process. There is an entitlement-assurance that the resources will be on-site within 2-hours of a buyer’s request, within any 24/7 period.
    • Supplying technicians and tools employed in the annual inspection planned maintenance process, as well as overseeing the process. There is an entitlement-assurance that the resources will be on-site within a 2-week window of the planned event and that the process will be completed within 4 hours during a period other than 0700-1600 from Monday to Friday.

Extended-Services are not only applied to the top level of a Bill Of Material [BOM], a machine model, but as well as for lower levels (e.g. subsystems, components). Note that the parts suppliers of an Original Equipment Manufacturer [OEM] often have developed their own Extended-Services solutions independent of the OEM or the OEM’s distribution channels. For this post, all Extended-Services will be referred as applying to the top BOM level of machines, though they will as well often be applicable to lower level BOMs.

The 8 Solutions Driving the B2B Extended-Services Marketplace:
  1. Attachment 
    The sale of the Extended-Service is “attached” to the transaction supplying a specified-machine to the buyer (e.g. machine sale, lease, & sharing). The limited manufacturer’s warranty is bundled into the Extended-Service.
  2. Warranty-In-Effect Conversion 
    An Extended-Service is offered to an enterprise without an Extended-Service agreement attached, but with specified-machines under a limited warranty that has yet to expire. The remaining life of the limited warranty is bundled with the Extended-Service.
  3. Warranty-Expiring Conversion 
    An Extended-Service is offered to an enterprise for specified-machines without an Extended-Service agreement attached; machines are under a limited warranty that is expiring.
  4. Warranty-Expired Conversion 
    An Extended-Service is offered to an enterprise for specified-machines without an Extended-Service agreement attached; machines are under a limited warranty that has expired.
  5. Up-Selling 
    Extended-Service revision in which deliverables have been expanded.
  6. Down-Selling 
    Extended-Service revision in which deliverables have been reduced.
  7. Cross-Selling 
    Extended-Service revision in which an expansion of specified-machines has occurred.
  8. Renewal 
    Extended-Service agreement expiring in which a new agreement is developed for the specified-machines covered by the previous contract; up/down-selling and or cross-selling may occur as part of the renewal solution.

Recently, Blumberg Advisory Group and Giuntini & Company performed an in-depth global survey of the configuration and marketing of Extended-Services agreements, with a primary focus upon the B2B marketplace.

Below is the survey’s key findings related to B2B Extended-Services solutions:
  • 36.5% of the machines supplied by an enterprise are attached with an Extended-Service agreement.
  • 19.9% of Extended-Services sales occurred after the attachment period; when a limited warranty was either still in effect, expiring or expired.
  • 56.5% of machines supplied were covered by an Extended-Service sometime during their lifetime.
  • 72.4% of expiring Extended-Service agreements were renewed
  • 59.6% of existing Extended-Service agreements were revised as a result of an up-sell, down-sell or cross-sell.
  • Majority of the sellers of Extended-Services anticipate higher sales over the next two years as a result of intensely targeting renewal rates and configuring more customized solutions.
  • Note that some of the statistics above would need to be modified if the Extended-Services seller also engaged in cross-selling specified-machines that they did not supply to the buyer.

It is my belief that an enterprise should strive for at least a 75% of the specified-machines they have supplied being engaged in an Extended-Service agreement throughout the lifetime of the machine; the caveat is that to reach such levels there are many strategic and tactical issues that the seller of Expended-Services must address.

The Seller’s Benefits of Extended-Services are the following:
  1. Recurring Revenues 
    Provides a significant repeatable source of cash flow; a hallmark for investors to favorable assess the financial stability and in turn market value of an enterprise.
  2. Profits 
    Provides a level of profit margins that are higher than that of the transaction supplying the machine; again attractive to investors.
  3. Relationships 
    Creates a long-term relationship between the seller and buyer. Increases the “stickiness” of the relationship that enables greater opportunities to sell a stream of Extended-Services throughout a machine’s lifetime.
  4. Production Learning Curve Mitigation 
    Provides the recurring revenue positive cash flow to support the production losses of machines in their early production life cycle stage due to the “production learning curve.”
  5. Data Collection 
    Provides a stream of valuable detailed information acquired from the seller’s service operations; design flaws employed by design, poor parts quality from suppliers for purchasing, poor quality of assembly for production and more.
 The Buyer’s Benefits of Extended-Services are the following:
  1. Operating Expense [OpEx] assurance 
    Expenditures incurred in machine maintenance processes defined in the agreement are fixed. Note that “supplemental” charges, incurred as a result of activities performed that are outside of the activities defined in the agreement, can often become a point of contention between the buyer and seller.
  2. Investment reduction
    Direct investment in parts, and indirect investment in facilities, tooling, test equipment and more involved in managing maintenance processes are often materially reduced.
  3. Machine employability increase
    Incentive of seller, through entitlements related to machine uptime/availability, to achieve high levels of employability through robust management of maintenance processes.
  4. Regulatory compliance assurance 
    Seller’s Body Of Knowledge [BOK] regarding federal, state and local regulations is often more comprehensive than that of the buyer; avoids potential fines for buyer.
  5. Adjusted machine asset value increase 
    Seller’s records management of work performed and entitlements to manage adjusted machine values can decrease depreciation, and resulting in a favorable impact upon the income statement.  
In conclusion Extended-Services has evolved from a “minor” factor in the capital goods machine marketplace to one that is obtaining greater visibility within the financial community, in turn resulting in a greater focus by the C-Suite, and in turn resulting in a greater tactical focus of an organization.

Rethinking the Value of Warranties

I have had a problem with the media for a long time.   My issue is not their coverage of politics but the attention the media give to service and support.  I am talking about the mainstream business media like Forbes, Business Week, and The Wall Street Journal, not industry specific publications like Field Service Digital, Field Service News, and Field Technologies.  I think these latter publications do a great job.

My problem with the mainstream business media is that while they like to make it appear as if they understand the service economy, they really don’t.  It’s all lip service.  They blow any and every chance they get to promote the value of service and support to their readers.   It seems that in their minds the service economy is not important, or worse yet, doesn’t matter.  Come on now! This is how many of us earn a living.

A good example of how the mainstream business media miss the point is a recent blog and video post in Forbes titled, Warranties Are Not Part Of The Modern Customer Experience.  The article was by Blake Morgan, a writer, speaker, and adviser on Customer Experience.  The premise of Ms. Morgan’s blog is that warranties are no longer relevant in today’s business environment. After all, she claims, people can use their social media accounts as insurance. If they have a bad experience with a product, they can complain about it through social media. The brand owner of the product will of course see it and send a replacement product free of charge to satisfy the person with the complaint.

Given this business practice, Ms. Morgan questions whether warranties and extended warranties are good for business.  She postulates that it is better to be nice than right.  By enforcing warranty terms, the warranty provider is taking the we’d-rather-be-right approach.  The nice thing to do is to take care of the customer and replace the product.  Wouldn’t it create more long-term value to just take care of the customer, rather than rely on the money that could be made or saved from the warranty? After all, companies like Zappos and Nordstrom provide a replacement product if a customer is unhappy.

In my opinion, warranties and extended warranties are more important than ever. While I agree that you should always take care of your customer, you must also understand who your customer really is and what they bought.   For example, a large secondary market exists within consumer electronics markets like smart phones.  This means consumers can purchase a smart phone from someone other than the retailer, carrier, or manufacturer, such as through a company that re-markets or liquidates distressed inventory.   Does this mean the original equipment manufacturer must replace the phone if it is broken?  They may go out of business if they did!

Another issue is that both economists and our court system agree that service is a separate and distinct market from product.  Just because someone purchases a product it doesn’t guarantee service is part of the sale.  Lastly, the provision of extended warranties can generate significant amounts of profits for manufacturers and retailers. These profits may in fact subsidize the business and enable it to continue serving customers. Without this income stream, the company may no longer exist.  Where would the customer turn for support if that were to happen?

While I disagree with the basic premise that warranties are no longer relevant, the trend toward “servitization” may in fact support the argument for taking care of the customer regardless of the costs.  Under the servitization model, the customer pays for the output or outcome created by the product.  In other words, they pay for the right to use the product but not to own it.  This means the product must work properly.  If it doesn’t, the customer doesn’t pay.    In such cases, it may be in the manufacturer’s best interest to replace the product.  However, this is a different scenario than what Ms. Morgan seems to have in mind.

The real question manufacturers should be asking is not whether warranties are relevant but whether customers understand the value of a warranty.   It really comes down to a marketing issue.  Customers are more likely to purchase warranties once they understand the features and benefits of the specific warranty program and how it will help them if they have a problem.  Sure, there will always be complainers who use their social media accounts as a form of product insurance.  I think these are the exception rather than the rule.

Now it’s your turn to share.  Are warranties relevant? Do they create market value for manufacturers and retailers?  Let me know your thoughts.

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Measuring the Impact of Freelance Management Systems on KPIs

In a previous blog we presented the results of a survey regarding staffing for the Field Service Industry.  The  respondents of the survey included people who either staff or make decisions about staffing for companies ranging in size based on revenue, number of events staffed, types of technology supported, and the way in which the service business was run (i.e., cost center, profit center, etc).  The survey supported our idea that using a Variable Workforce and especially using a Freelance Management System (FMS) to recruit, hire and dispatch the Field Service Engineers (FSEs) is becoming a larger part of the industry with overwhelmingly positive results.

As in all industries, there are certain ways in which we measure success, so we looked at the Key Performance Indicators (KPIs) that are relevant in the Field Service Industry.  These included indices like  Service Level Agreement (SLA) compliance, Field Service Engineer (FSE) Utilization Rate, FSE Productivity , First Time Fix Rate, Time to first response, Gross Margin per Field Service project and per service call Time to recruit, hire, train and onboard, FSEs, Time to train FSEs, and others for the Field Service Industry.

On all 17 KPIs measured, at least 28% of companies saw an improvement with the greatest improvement noted in Geographic Reach (76%). And over 75% saw either improvement or least no change in all indices. Variable Workforce managed by FMS enables easier ability to recruit, hire and onboard specially trained Field Service Engineers. This also increases the ability to respond to seasonal and emergency needs of customers.

The survey shows that using a variable workforce model is faster, less expensive and more efficient than not using it. Because it is so efficient, this makes integration and utilization of FSEs faster. In addition, users of Variable Workforce and FMS are able to support more types of technology (4.3 vs 2.8). This means that not only is the overall function of the company improved, the use of FMS allows companies an opportunity for growth.

We also compared the results of several KPIs for companies using FMS to the Best in Class (BIC) Performance, which is an average of the top 5% of respondents for each KPI.  The results were quite encouraging:  Best In Class FMS users had an SLA Compliance Rate of 98.2%  vs 81.1% for the overall average; FSE Utilization Rate of 96% vs 94.5%; and First Time Rix Rate of 96% vs 77.8%.  In addition, FSE Productivity was the same among Best In Class FMS user versus non FMS users at 6 calls per day.

Not everyone who responded to the survey is has moved to using a Variable Workforce.  In fact, about a 25% of the survey participants are not Variable Workforce users.  What were their main concerns about making the transition?  Loss of control over service quality, coupled with concern about the reliability and capability of freelance technicians.  About a third of this group felt that their volume of service calls doesn’t justify switching to a Variable Workforce model. And 10% stated “We’ve always used a traditional workforce and will not change.”

Other than those who just are not willing to change, the reasons given by these companies for not changing were similar to those concerns expressed by many prior to making the jump to Variable Workforce.  As the survey results show, not only have the Variable Workforce adopters found that their business improved, but they also said that they will continue to use this model and increase the use of it as well.  The success of changing their staffing model seems to far outweigh their past concerns.

So are you are using a Variable Workforce? If not, what is holding you back?  Are you using a Variable Workforce but not using FMS to manage it?  This survey shows that the use of a Variable Workforce in conjunction with a FMS platform has provided overwhelming success for those who have made the transition.  Use of the Variable Workforce and FMS is growing and will continue to do so. It is helping companies to move into the changing market place while maintaining high quality standards.  Meeting and exceeding the needs of your customers, being agile and able to expand your geographic reach and service offerings and financial benefits mean that Variable Workforce and Freelance Management Systems are the way to go into the future in the Field Service Industry.

Best Practices In Selling Extended Warranty

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Augmented Reality State of the Art 

An Identification of Key Players 

ar-1

Considered to be one of the most defining technologies of our times, Augmented Reality(AR)  provides a live direct or indirect view of a physical, real-world environment and then augments (or supplements) this view with computer-generated sensory input such as sound, video, graphics or GPS data. AR improves users’ experience by enabling them to interact and learn from whatever they are observing.  Deployment of AR tools within a field service environment can have a measurable improvement on key performance indicators (KPIs) related to quality, productivity, and efficiency such as Mean Time to Repair, First Time Fix Rate, and Mean Time Between Failure.

The implementation of an AR solution requires integration of multiple components which must all function together to make the solution work.  First there is the viewer technology. Most often this takes the form of Smart Glasses or a mobile device such as a tablet or smart phone.  Next is the application which allows the device to read what the field service engineer (FSE) is seeing live and produce the additional content whether it be sound, video, graphics or GPS data.  In addition, many AR experiences rely on video from the onsite FSE to a control center or remote support personnel with special information or skills to assist the onsite FSE in completing the job.  Often the communication is done using a mobile device such as a smart phone or tablet.

In this blog we examine some of the key players in the AR space who have developed both use case scenarios and actual solutions for maintenance and field service environments:

APX

APX’s Skylight is an AR enterprise platform which integrates with smart glasses or other wearables.   It allows field service engineers to receive in-view instructions and obtain remote assistance with video from a central control center. It also has the ability to capture information at the onsite location and receive live data feeds to aid in field service.

AR Media

I-Mechanic is an AR application for smartphones that enable consumers or mechanics to perform maintenance on automobiles.  In addition it can provide consumers with useful information on closest auto repair and parts stores.

Epson: Moverio- Augmented Reality Glasses

The Moverio product uses sensors to provide onsite 3D Augmented Reality assistance while detecting issues and seeing images of what exists inside the components.  Additionally it provides one way video to a “control room” providing other resources for the onsite technician to successfully complete repair. One of the use cases for the Moverio product is the inspection and repair of HVAC systems  on cruise ships.

Fieldbit

An AR software platform allows for both 3-D overlay of information and remote instruction/collaboration with experts using video and smart phone technology. It also provides the ability to catalog issues and capture technical information enabling users to log and track reasons for equipment failure. Fieldbit is currently being used in maintenance of Print Equipment Manufacturers, Medical Equipment Manufacturers, Utility Providers, and Industrial Machinery.  Fieldbit recently partnered with cloud based, field service management software vendor ClickSoftware  to deliver faster, more effective field service repair resolution once the workforce arrives on site.

iQagent

iQagent is a mobile-based AR application for plant floor maintenance.   It scans QR codes to provide maintenance related information such as process data, schematics, and other resource.   It can be customized to read an individual organizations data and information from its database.

Microsoft

HoloLens – AR glasses which can be purchased as part of a commercial suite allowing for customization for enterprise use.  Current partners include Volvo, NASA, Trimble, and others.

NGrain

NGrain consists of a suite of AR applications including:

ProProducer –  platform to create virtual training simulations;
Viewer – companion to ProProducer to view and use the virtual simulations;
Android Viewer – allows access to content created using ProProducer from Android devices;
SDK – allows building of 3-D imaging to provide AR experience including both surface of objects and what is inside and underneath.

NGrain has also developed a number of industrial applications for its AR suite of products including but not limited to:

Consort – for inspection and damage assessment;
Envoy – providing real-time updates and information to field service engineers and allows communication between technicians;
Scout – Use Case – Aircraft Repair shop floor – real time visual analysis with Floor Manager oversite improving efficiency.

PTC

ThingWorx Studio is an AR offering developed by PTC for use in Industrial Enterprise. It combines the power of Vuforia, an AR platform, with the ThingWorx IoT Platform. These technologies offer new ways for the industrial enterprise to create, operate, and service products. For example, this technology can be used to monitor machine conditions in real-time and provide step by step instructions on the operation, maintenance, and repair of these machines.

Scope AR

Scope AR offers several applications to facilitate an AR platform within a field service environment. The Worklink application allows 3-D images and instructions to pop up on mobile or wearable devices thus enhancing the FSE’s ability to get information on site. To see a video click here.

Remote AR  allows onsite technicians to interface with remote support personnel, sending video feed to allow for collaboration and assistance to the onsite maintenance team. To see a video click here.

XMReality

A Swedish company whose product, XM Reality Remote Guidance, allows onsite technicians to use video to connect to a central control center to receive visual instructions from qualified technicians with the information on how to fix the onsite problem. Their products include Smart Glasses, a Guide Station from which to provide the remote assistance, a tablet, interface with mobile phones, and a heavy duty casing for Microsoft Surface Pros to be used in the field.

Although the AR market is in its early growth stages, the vendor landscape for these solutions is already quite vast.   We anticipate that more vendors will emerge while others evolve into more robust solution providers as the market continues to mature. There are of course many other applications for AR as well outside of field service and maintenance such as retail, consumer, building and more.  We hope that you will join the conversation and let us know about your experience with these and other companies in this marketplace.

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