Best Practices In Service Parts Logistics

Navigating The Complexity Of Spare Parts Management

This article first appeared in the December 5, 2018 edition of Future of Field Service

 

Service Parts Logistics Management represents the largest investment and second largest operating expense within an Aftermarket Service or Field Service Organization (FSO). Service parts also represents one of the most critical resources required for ensuring high first-time fix rates and recurring revenue. Therefore, anything that a FSO can do to improve the productivity, efficiency, or quality of the service parts logistics pipeline will have a dramatic positive impact of financial performance and customer satisfaction.

To understand where and how to improve service parts management, let’s first examine critical operational issues that impact financial performance of the service parts function. Our research indicates that 60 to 75 percent of all service requests require spare parts to resolve the issues.  As a result, an FSO is likely to experience low inventory fill rates and/or low first-time fix rates if they do not have adequate systems or procedures in place to ensure parts availability where and when needed.

Another issue is that nearly 50 percent of the value of an FSO’s parts inventory can be found below manned parts depots or warehouses (i.e., vans/trunks, branch offices, or consigned to the customer site). The problem is that many FSOs don’t know exactly where this inventory is located or what the dollar value is at each location. Without this understanding, FSOs run the risk of having too much inventory in manned warehouses to compensate for their lack of information.

Before you click away, disappointed that I brought up something as practical and boring as time management, hear me out. My intent is not to crush your spirits.

One reason why spare parts are often located below manned warehouses is because the FSO has not implemented the appropriate controls to track these parts. Another is because the parts have not been returned through the FSO’s reverse logistics and/or depot repair operations when it is deemed defective or no longer required. Approximately 80 percent of the value of spare parts in the logistics pipeline fall into this category. However, it is also important to consider that 30 to 35 percent of parts returned to depot repair operations are actually good parts. The reason they are returned, if at all, is because either the FSO’s FSE misdiagnosed the problem or used the spare part as a test procedure. In other words, replacing a spare part in a problem unit to determine if the problem is indeed due to a defective spare part.      

Navigating The Complexity Of Spare Parts Management

As a result of these issues, spare parts management becomes a complex task. Having too many spare parts on hand can have a negative impact on the balance sheet and income statement; too few parts can result in degradation of service quality and customer satisfaction. Fortunately, there are several best practices that FSOs can implement to avoid these challenges. These include: 

  • Track and control spare parts: FSOs can utilize bar codes, RFID, and blockchain to track and control the volume and value of spare parts in all stocking locations whether manned or unmanned.
  • Leverage IT Infrastructure: Utilizing enterprise management systems and best of breed software solutions to manage, plan, forecast, and coordinate spare parts inventory can have a dramatic positive impact on improving first-time fix rates and inventory availability levels.
  • Expedite delivery to reduce logistics investment: By moving toward same-day or next-day parts delivery and storing spare parts in Forward Stocking Locations (FSL) that serve multiple FSEs or customer sites, an FSO can significantly lower their investment in spare parts.
  • Improve front-end diagnostics: Implementing remote support and IoT solutions to identify the problem, symptom, and root cause of a problem prior to dispatch will increase the probability that the FSE has the right part on hand and that he/she does not utilize spare parts as a form of test equipment.
  • Advance Depot Repair Operations: Transforming depot repair activities from a job shop to assembly line function, implementing test and screening procedures pre- and post-repair, and performing these functions in FSLs and Regional Return Centers will improve spare parts velocity (i.e., cycle) time and reduce inventory stocking level requirements.

Benchmark research by Blumberg Advisory indicates that significant improvements in efficiency and productivity can be achieved by implementing the strategies identified above. The average percentage improvement by key performance indicator is as follows:

By implementing these best practices, FSOs will also find they operate a stronger balance sheet, healthier profit margins, and higher levels of customer satisfaction. These strategies all have several things in common, namely a heavy reliance on data, technology (i.e., information systems), and process improvements. 

Companies that operate asset-intensive field service operations, in other words those that maintain a high investment in spare parts, should give serious consideration to implementing the strategies identified above.

This requires that FSOs examine how well their internal logistics management systems align with the state of the art, as well as assess the impact these systems have on KPIs related to Service Parts Management. In other words, conduct a benchmark evaluation of these systems, process, and KPIs against industry standards and best in class performance.

To learn more about Service Parts benchmarks and best practices check out Blumberg Advisory Group’s Operational Excellence consulting practice at https://blumberg-advisor.com/operational-excellence/

The Service Imperative

5 Reasons Why High Tech Companies Must Adopt A Service Oriented Culture

For several decades, economists have observed that Service businesses are playing an important role in fueling the economy.  In fact,  Services as a percentage of the US GDP has grown dramatically.  As of 2015, the service sector employed approximately 90% of US workers and accounted for 78.9% of  the US Gross Domestic Product (GDP).

Nowhere is the service trend stronger than in the High Tech Industry.   Most people outside of this industry do not think of services when they think of manufacturing and distribution of high tech products. However, companies engaged in these activities are generating a significant portion of their total revenues from the provision of service and support of high technology equipment and systems.

In general, consumers require a broad array services and support on the products they purchase to ensure these products work effectively.   For example, design & engineering, installation, integration, technical support,  and break fix services.   Consumers are also increasingly interested in purchasing value-added services such a predictive maintenance, analytics, and optimization which extend the life of the product, minimize downtime and disruption to their operations, and ensure better outcomes or yields for their business.

As a result of these requirements, High Tech companies have found that services can generate 10 to 20 times more value (i.e., revenue) over the life-cycle of the product than the actual purchase of the product itself.   This is compelling reason why many companies have developed  services offering and adopted a services mind-set.  Other reasons include:

  • Contribution to Corporate Revenue Profits: Services can account for as much as 30% to 40% of revenue and contribute upwards of 50% of more to the bottom line among best in class OEMs and Resellers.  As such, some companies remain profitable simply because of the financial contribution from their service business.
  • Customer Requirements: Increasingly customers require a broad array of service and support on the equipment they purchase.  Furthermore, customers expect and are willing to pay for additional support.   In some markets, a company’s service offering can represent a competitive advantage and in others, its table stakes.
  • Recurring Revenue Stream: Service & support provides companies with access to a recurring revenue stream for as long as their customers own and operate the equipment.  This also enables companies to establish subscription based revenue offerings through the provision of service contracts.
  • Sustainable Business Model : Product service businesses offer protection against economic downturns. Customers still need services to keep their equipment up and running during a recession.  More importantly, services can generate a profitable revenue stream independent of the sale of products.   Some companies, particularly those with very mature product lines, often turn to services as a strategy for subsidizing their core product business.  Others, having realized that service can be more profitable then products, have exited their product businesses entirely, in favor of building and growing their service business.
  • Builds loyalty and customer satisfaction: The provision of a broad portfolio of basic and value added services offers a way for companies  to build brand loyalty and customer satisfaction. Indeed, service business ensure this outcome by providing ongoing support to the customer and through their commitment to optimizing the customer experience.

Increasingly, product manufacturers are recognizing the strategic role and value of service to their business.  As a result,  they expanding their service force to include “Anything as a Service” (XaaS) business  models.  These business models have not built overnight.   They are often the last step of  a business transformation journey known as the “Servitization”.    The first step is making the commitment to managing services as a profit center.  Therefore, it is strategic imperative that companies adopt a services mindset and provide service offerings if they are going to survive in the future.

Embrace Your Competition: A Critical Success Factor

A client was recently the target of negative advertising by one of his competitors. The two-page ad depicted a cartoon image of a shark in business attire wearing a Rolex watch with the caption “Some Suppliers need a Vice President of Service because they depend on Parts and Service Dollars…”  The second page described how the advertisers’ product engineers are measured on customers use of their parts and services including a 5-year warranty,

From my perspective, these types of claims are troubling for several reasons:

  1. These type of advertisements “trash the competition”.   Sales and marketing professionals understand that going negative is not good for business.  Most manufacturers would not use this approach when it comes to selling their equipment in their primary market. Yet some believe anything is fair game in the Aftermarket.
  2. It demonstrates negativity on the advertiser’s part with respect to the role and value of service to the customer.  Their claim overlooks the importance of service to KPIs like First Time Fix rate or Customer Satisfaction.  This implies that service is not necessarily needed and not strategic to the customer or the manufacturer.  This is just flat out misleading.

I have also seen negative advertisements and claims made against Third Party Maintainers (TPMs) and generic parts manufacturers, and I don’t like it either.  Trashing the competition is just wrong.  The quality and reliability of products and services from these third party suppliers can be just as good or better as those form the OEM.   Furthermore, many OEMs also market and sell 3rd party services of their own.

The bigger issue is not about whether OEMs are better than TPMs, or if genuine parts are better than generic, or even if creating a VP of Service and/or operating service as a profit center is good for business.  Rather, the issue is competition is good for both business and in the Aftermarket for several reasons:

  • Legitimizes the market– Markets are defined by the presence of competition. To win business, competitors must actively market their products and services. As a result, customers are aware of options available to them.
  • Creates choice– Competition offers customers the freedom of choice. The theories of capitalism and free trade are built on this basic premise.
  • Improves quality & efficiency– Competition in the Aftermarket forces third parties and OEMs to continue to find ways of improving the quality of products and services offered while at the same time finding ways to cut costs and improve efficiency.   In other words, competition raises the bar and results in better prices for customers.
  • Leads to innovation– In addition to raising quality and improving costs, competition drives service providers to become innovative. Without competition, it is hard to know whether service providers would focus on finding ways to add value. Would service providers be just as compelled to invest in new systems and technology like SaaS, Mobility, and IoT if not for the impact that competition has on innovation?
  • Leads to greater cooperation– OEMs have the choice to subcontract service to TPMs/ISOs. This helps them improve their cost structure, service delivery and obtain capabilities that they may not otherwise be able to build themselves. Under this scenario, OEMs and ISOs can gain knowledge from each other and use this towards driving innovation, reducing costs, and improving quality

In summary, competition provides benefits for the customers, OEMs and third-party providers. Technology vendors can also benefit from competition in the Aftermarket.  Based on my perspective, if a company resorts to trashing their competition, they are probably troubled in some way.  On the other hand, if a company is concerned about their competition, they should probably focus within their organization to find ways to leverage forces to their strategic advantage and develop a higher value proposition.

Post your comments or questions below!  

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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Sell More Service By Providing More Value

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Over the last month I’ve spoken to over two dozen Field Service Executives about challenges they are facing when it comes to generating additional service revenue for their companies.   I observed several common themes.  First, every executive I interviewed indicated that they would like to sell more service contracts.  However, they were experiencing resistance from customers as evidenced by low contract attachment rates.   Second, these executives were concerned about whether or not their prices were too high or if their customers really needed service contracts.  After all, this was the feedback they were receiving from their sales teams and even first hand from the customers that had spoken to directly.

This is an all too familiar problem for me.  I’ve encountered this for the last twenty five years as a management consultant. It is also a challenge that many field service executives face.  Seldom is price the real issue why companies struggle to sell service contracts.  In market research studies that I have completed for clients in a wide array of technology service industries, I have found that price is often low on the list of criteria that end-users consider when selecting and evaluating service providers.  Indeed, criteria such as quality of service, knowledge and skill of service personnel, breadth of service offering, and vendor’s knowledge of their business are perceived by customers to have higher importance than price alone.

The truth is “your price is too high” will always be an objection that customers provide when they cannot justify the purchase of a product or service.  In other words, they have no way of logically defending the value of the service being purchased.  Stated another way; they are not able to differentiate the benefits of service contracts from time and materials service.  The problem is that Field Service Organizations (FSOs) often attempt to sell service contracts without providing reasons why a contract is better than simply paying for service on a time and materials basis.   In order for end-customers to rationalize their purchase of service contracts, FSOs must be able to demonstrate the contrast between service contracts and time and material/pay as you go service.

In order to achieve this outcome, FSOs must be able to articulate the value of service contracts to customers as well as to their own sales people. They need to describe what’s included in a service contract that is not included in time & materials. This requires they do an effective job in defining the service contract and answering the question “What’s in it for me (the customer)?”  If the only difference between a service contract and time & materials is that the customer is able to prepay for service, then there is no value and no contrast.  However, if the service contract provides a preferred level of service (e.g., 4 hour response time, 7 by 24 hour coverage, parts, etc.) or preferred price structure then the customer is presented with some real value and contrast.

Ultimately, FSOs must be able to help customers defend their purchase of service contracts.   They do this by offering more value in a service contract than the customer could possibly receive through time and materials services.  Another way that FSOs can help customers defend their purchase is by letting their customers know why they offer service contracts in the first place, and why they prefer customer purchase them.   Usually, service contracts help FSOs do a better job at anticipating and managing service requests. It helps the FSO forecast and plan resources better.  As a result, service contracts benefit the customer which is something customers will understand and appreciate.

If your company is facing struggles when it comes to selling service contracts then perhaps it is time for a marketing tune-up.  A tune-up will identify where there are challenges in your sales and marketing process and more importantly, explain how to overcome them.  If you are interested in learning more, then contact me to schedule a free strategy session where I’ll describe what’s involved in a marketing tune-up, help you determine if it is something you need, and explain how you can get started. Isn’t it about time you stop leaving money on the table and start winning more business.

Got a question? Click here to schedule a free consultation

Turbocharge Your Service Business

Maximize Revenue through Market Research

race car

In my last series of blog posts I wrote about what it takes to build a Successful Service Marketing™ program.  To review, I described the strategic concepts of service marketing and introduced you to the 7 Ps. These are of course very important concepts. However, there are a few more concepts you’ll need to master if you are going to win at service marketing. If you’re going to be successful at service marketing or any kind of marketing, even if it is product marketing, you have to have good knowledge of your market.  You get that knowledge through market research. If you know who buys, what they buy, and why they buy then you can sell more to them and get them to buy more often.

Market research also provides the insight needed to communicate effectively with your current and prospective customers. It helps determine what messages, what images, what ideas will resonate with them and get their interest to want to buy from you.  Marketing is about taking a need and converting it into a want. You may need a watch to tell time but you want a Rolex because of the status and prestige associated with owning one.  So when you have really good market research of who buys, what they buy and why buy, then you can construct your message in such a way that you turn a need to a want.   In the field service world, you customers may need to know that they can get service on their equipment when it is down but what they really want is a guaranteed Service Level Agreement with a 4-hour response time.

Good market research not only helps in creating a service portfolio your customers really want but it helps in developing an optimal pricing strategy for that portfolio.  Chances are that you are familiar with cost plus and competitive pricing strategies. With cost plus pricing, you calculate what it costs to deliver service and then mark it up by an amount to cover you profit.  With competitive pricing strategies, you conduct market research to find out what your competitors are charging and then price your services at a lower amount.

A third type of pricing strategy is called value-in-use pricing. It basically involves measuring the economic value or loss to the customer of not having the service available in a timely manner.  This can be significant.  For example, a manufacturing facility may lose millions of dollars every hour its machines are down.  Therefore, they may be willing to a pay premium for faster service.  Market research can help you understand your customers’ value-in-use and determine whether or not you should pursue a cost plus, competitive, or value-in-use pricing strategy.   You’ll need to understand all three pricing strategies and how to effectively leverage market research to maximize service revenue and optimize profits.

The final aspect that you have to master to win service marketing is called ‘‘Invisible Selling”. This is based on the premise that you win business not by pushing your offers onto prospects, but by pulling customers towards you. One of the ways you pull customers to you is through indirect marketing as opposed to direct selling.  What’s an example of indirect marketing?  It’s an article or white paper that demonstrates that your company understands the problems that companies in your market are experiencing and that you have solutions to these problems.  It’s about using social media and public speaking opportunities to influence others to want have a conversation with you to learn more about what you do, and how you can help them.   It’s about positioning you and your company as experts and trusted business partners.   By the way, seeding your thought-leadership content with market-research data is a sure-fire way to build credibility with current and prospective customers.  Once you establish credibility they follow you and then it’s only a matter of time until they become your customers.

When you put all the elements of a Successful Service Marketing™  program together, when you fully understand the strategic concepts of service marketing, when you effectively apply the seven principles of service marketing, when you learn how to optimally price your services, when you use market research effectively, and implement an invisible selling strategy, you’re going to experience incredible results.  Your marketing program will be extremely successful, your sales will take off, and your business will skyrocket.

If you are really interested in achieving extraordinary results, then check out my online training course where you will learn strategies, tactics, and insights for Successful Service Marketing ™. As a starter, I’ve put together a brief video that describes the course content. You can access it here

Got a question? Click to schedule  a consultation.

Strategic Concepts that Fuel Revenue Growth

The Basics of Service Marketing Theory

Fuel Growth

It probably comes as no surprise that service executives are often focused on finding ways to increase top line revenue, boost profits, and expand market share. Indeed, these are usually among the most important initiatives that service executives pursue when it comes to charting the future of their business.

In order to achieve results, service executives need to master three fundamental or strategic concepts about service marketing.  It is important to understand these strategic concepts because they form the underling theory of service marketing, and – as you will read below – theory is what forms the basis of our reality.  By understanding service marketing theory, you can shift your perspective from product marketing to service marketing. Without this shift you can never expect to implement a Successful Service Marketing™ strategy.

One of the most critical strategic concepts of service marketing is that perception is just as important as reality.  Ultimately, the perception that a customer has about a service provider is what influences their decision to work with that service provider.  In other words, customers buy both perception and reality.  As a service provider, you must influence their perception of your capabilities.  Customers need to trust that you have the capacity to deliver service before you actually deliver it.  It’s not just the actual service that they are buying that creates value; it’s your ability to manage their perception that creates value.  Perception is what sells; your performance is what keeps them coming back.  Reality must equal perception otherwise you will have an unhappy customer on your hands.

A second strategic concept that service marketers need to understand is that customers pay more for services over the lifetime of a product than they do when purchasing the product itself.  In fact, they may pay as much as 8-10 times more for services than what they originally pay for the product. This may seem like an absurd statement at first glance. However, consider the fact that the customer may own or operate a piece of equipment for five to ten years or more.  Over that period of time they may require a broad spectrum of services ranging from installations, to remote support, to field service, to replacement parts, to training, and so on.  Clearly the dollars can add up over time.

The third concept has to do with understanding the relationship between “value in use” and time.  Value in use is about understanding the cost to your customer in absence of the service.  This is typically a function of time. Some services are mission critical.  If they are not performed in a timely manner, the customer may lose a lot of money by not having the service available.  You need to understand value in use in order to effectively price your services and articulate the value of what you can provide.  Most services are valued in terms of time. That’s because downtime equals money lost in the service world. The longer it takes to obtain service, the more costly it becomes for the customer.  The quicker the service is performed, the more valuable it is to the customer.  By understanding your customers’ wants from the standpoint of time, you can develop service offerings that meet these needs.  Furthermore, if you can meet the strictest of time requirements, than you can command a premium price for your service particularly if it is on a mission-critical product or application.

By mastering these strategic concepts you will begin to observe a shift in the way you think about service marketing.  This shift will help you become more effective in implementing marketing strategies that lead to higher revenues, greater profits, and increased profit share.  If you are really interested in achieving these outcomes, then check out my online training course where you will learn strategies, tactics, and insights for Successful Service Marketing. ™ As a starter, I’ve put together a brief video that describes the course content. You can access it here.

Please let me know what you liked about this blog and your key takeaways.  If you’ve found this blog of value and think your colleagues or business associates could benefit from it, kindly share it with them.

Strategies for Reducing Warranty Costs

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Warranty obligations represent both an expense and a liability to Original Equipment Manufacturers (OEMs). As a result, anything that an OEM can do to minimize warranty expenses and liabilities will have a significant impact on the balance sheet and bottom line. In the high-tech industry, warranty coverage often includes repairing defective products as opposed to crediting or replacing them. Warranties of this nature involve three (3) cost components: 1) Warranty Terms & Conditions, 2) Service Delivery, and 3) Product Reliability and Maintainability.

Service Delivery represents the largest of these three components and comprises approximately two-thirds of warranty costs. Approximately 55% of service delivery costs are attributed to repair activities. The remaining 45% of costs are evenly distributed between parts, logistics, and overhead (e.g., customer service, IT, etc.).

Among the three (3) different categories of warranty costs, service¬–delivery costs are the most difficult to manage and improve. By comparison, costs associated with warranty terms and conditions and product reliability and maintainability are easier to manage. OEMs can reduce warranty expense and liabilities by adjusting terms and conditions to make them more favorable from a cost-burden perspective. OEMs can also design and engineer better products thus reducing product reliability and maintainability costs. In addition, the time frame and investment required to plan and implement these types of improvements are smaller when compared to service delivery. On the other hand, these improvements may have a limited life span. In other words, an OEM needs to revisit terms and conditions as well as product reliability and maintainability issues with every new product release.

In contrast, a significant amount of time and investment is required to improve costs associated with service delivery. For example, it may take months or years of planning and hundreds of thousands of dollars of investment to realize service-delivery cost savings. However, the improvements are sustainable over a longer period of time because they don’t just affect costs associated with one-time product launches. Instead, they benefit subsequent product launches over a multi-year period.

The reason it takes more time to implement and greater investment to achieve cost savings in the area of service delivery is because it typically requires improvements in processes, infrastructure, and people (i.e., training). Examples of the types of strategies for reducing service delivery costs include but are not limited to:
Automating warranty claims-management processes to reduce warranty processing costs
Improving call management procedures to validate entitlement, troubleshoot and diagnose calls remotely, and avoid costly field service visits
Implementing dynamic scheduling software to improve field-engineer productivity and reduce travel costs
Adopting a Variable Workforce (VWF) model to lower field-service and associated overhead labor costs
Utilizing knowledge-management tools to improve resolution times, reduce No Fault Found rates, increase first time fix rate, and improve labor efficiency
Implementing advanced planning and forecasting tools to optimize spare parts stock levels and reduce inventory costs
Making it easier for field engineers to identify, locate and order spare parts thereby improving service efficiency and avoiding repeat calls due to lack of parts

In summary, the challenges associated with reducing service-delivery costs should not prevent a company from making the necessary systemic and procedural improvements since the gains in cost savings, service productivity, operating efficiency, and customer experience can be significant.

Service in the Sharing Economy

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The sharing economy is on the rise as more and more consumers conduct business transactions through platforms like Airbnb to find lodging and Uber for transportation services. These companies have experienced explosive growth in the last couple of years and their financial value is skyrocketing among the investor community.  Indeed, Airbnb’s valuation is at $25.5Billion in their attempt raise an additional $1.5 Billion in funding and Uber’s valuation of $50B is higher than 80% of the S & P 500 companies.

A sharing economy platform is one that leverages information to empower individuals and organizations with information that enables distribution, sharing and reuse of excess capacity in goods and services.

Sharing economy platforms take many different forms, including:

  • Product-service systems – privately owned goods that are shared or rented out via peer to peer market places.
  • Redistribution markets – pre-owned good are passed on from someone who does not want them to someone who does.
  • Collaborative lifestyles – people with similar needs and interests banding together to share and exchange less-tangible assets such as time, space, skills, and money.

 

I also think of a sharing economy platform as having a number of basic elements. First, it uses technology to create a peer to peer marketplace.  Second, they are “open” meaning anyone can exchange goods and services with anyone else.  Third, goods and services are available on demand.  Fourth, payment in full is often made only after the service is delivered in many sharing economy platforms. Fifth, fixed costs are converted into variable expense through the sharing of resources.

The success of Airbnb and Uber has not only led to the emergence of competitors in the lodging and transportation market but also the creation of sharing economy platforms in other industries.  “Uberized” has become a commonly used buzz word in the business world by industry analysts and thought leaders.  This word is often juxtaposed within the question… Is our industry the next to be Uberized?

To a large extent, High Tech Service & Support is far along the path to becoming Uberized. For example, product – service systems like Rolls Royce’s “power by the hour” form that basis of the “Servitization” trend which is gaining appeal in the High Tech Industry.   In addition, redistribution markets have existed for decades within our industry; just think about all the businesses in the IT, Telecom, and Medical Electronics industries that trade used and refurbished equipment.  Collaborative lifestyle solutions are provided through companies like Field Nation, Work Market, and PC-SOS that enable individual field service engineers and small businesses to become a contingent workforce for larger companies.

However, in many ways the High-Tech Service & Support Industry is not truly “Uberized”.  For example, the platforms/solutions I’ve identified above are not truly peer to peer.  They typically involve an intermediary or aggregator that manages the redistribution of products and services. Equipment owners (i.e., end-users) are not leasing or renting unused capacity to other users.  Second, some of these models are not truly open.  There is often a thorough vetting process involved in becoming a member or user of these platforms and solutions.  On the other hand, the on-demand, pay for performance, and conversion of fixed cost to variable expense elements of the sharing economy do exist today within the High-Tech Service & Support Industry

Regardless of where you think our industry is on the sharing economy spectrum there is certainly room for new innovation.   Now it is your turn.  I’d love to get you answer to this question…. Is our industry (i.e., field service, reverse logistics) the next to be Uberized? Please cite examples and share your thoughts on why or why not the sharing economy can work in our industry.  You can also feel free to schedule a strategy session if you have a great idea you’d like to vet or discuss with me in more depth.

Enterprise Service Management System Trends

 

enterprise-service-management2There has been a lot of attention given in recent years to the need to automate field service and related logistical processes through the implementation of Enterprise Service Management (ESM) systems.   Although the benefits from improved automation are well documented, there is still a segment of the market that is facing challenges to achieving measurable productivity and efficiency gains associated with key service performance metrics.  This shortcoming is due in part to lack of integration between Field Service and Reverse/Service Logistics functions.  The growing trend toward remote support combined with the increasing reliance on spare parts in the service resolution process places even greater demands on equipment service providers to ensure their field service and related logistical process are both integrated and optimized.   We conducted a survey among a cross representative sample of companies in the High Technology Service & Support Industry to validate these assumptions.  Over 250 respondents participated in the survey.  The survey results reveal a number of very interesting trends:

  • Greater reliance on Remote Support: The survey results support the fact that more and more service requests are being resolved remotely without the need to dispatch a field service engineer. More importantly, a large percentage of these remote activities are resolved by sending a replacement part to the customer site.
  • Best of Breed Solutions outperform Integrated Solutions: Despite the breadth of functionality found within integrated enterprise systems, our results indicated a higher level of satisfaction with Best of Breed solutions than with Integrated ESM platforms. We believe this is because best of breed solutions are more focused on the detailed processes and transactions involved in managing a field service and/or reverse logistics operation.
  • Perceived Gaps in Reverse Logistics functionality: Many companies perceive their ESM solutions have gaps in the ability to deal with Reverse/Service Logistics issues particularly when it comes to depot repair activities.
  • Integrated Automation is critical to success: The level of integrated automation between Field Service and Reverse/Service Logistics functionality has a direct impact on ESM effectiveness. More importantly companies with a high level of integrated automation perform better on key service performance metrics than those who do not.

 

In summary, our research findings reveal that companies who have been able to successfully integrate Field Service and Reverse/Service Logistics processes report a higher level of service performance than those who have not.  The most effective integrated solutions are those that incorporate best of breed functionality for both Field Service and Reverse/Service Logistics processes.  More importantly, the data reveals that these integrated solutions are not only highly effective in managing ongoing service requirements but essential to overcoming critical business challenges.

We’d like to thank IFS, a leading provider of Enterprise Service Management systems, for sponsoring our research study.  IFS has made available the results of our study in a 14 page whitepaper.  To better understand the implications of these findings to your organization or to define requirements for a best of breed, integrated solution, schedule a free strategy session with us today by clicking here.