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.

“Servitization”; A B2B Business Model That Will Be Embraced by the Machine Community in the Coming Decades

This blog post was written by Ron Giuntini, president of Giunitini & Company, a consulting firm focused primarily on the Configuration and Pricing of Quotes [CPQ] engaged in B2B Aftermarket agreements. Ron is also the founder of G35 Software, a prototype proprietary CPQ software tool.

Before venturing further, let us first define ”servitization”; it is a business model in which a machine (i.e. forklift, truck, order picking robot) is not sold, but is accessed by an end-user through a multi-year fixed-fee outcome-based service-contract. A servitization focused contract is primarily landed at the time of the delivery of a new or used machine. The service typically encompasses the following 15 elements:

  1. The equivalent of an operating lease is supplied; machine ownership is never transferred to the service recipient. Many of these machines in the future will be autonomous.
  2. The Intellectual Property [IP] of a machine’s embedded software configuration is not controlled by the service recipient, but by the owner of the machine.
  3. Solutions are supplied to maintain (i.e. break/fix) and improve (i.e. upgrade) a machine’s capability (i.e. lift 5,000 pounds), employability (i.e. 95% uptime in a 24 hour period) and deliverability (i.e. 8 hours of operation per day).
  4. An outcome-based fixed-fee is typically aligned with the customer’s revenue streams; in fact the fee becomes a variable cost. For example a public warehouse forklift user could be charged a fee of $3.75/ton for movements from storage to staging and loading of a vehicle; the fee would be directly aligned with their handling charge of $4.50/ton for the same movements to its customers.
  5. Solutions are delivered for a continuous period of time during the post-production life cycle of a machine; when over 1 year, revenue recognition financial reporting is required.
  6. The performance levels of solutions delivered are assured. For example technicians will arrive on-site for a break/fix event within 2 hours of being notified within any 24/7 period.
  7. Amendments are incorporated to the contract, such as up-selling or cross-selling; will often occur as a result of changes in the business environment of the customer during the multi-year contract duration.
  8. Contract renewal is aggressively pursued; it is a major end-game of the business model.
  9. A supplemental fee schedule is established; for solutions delivered that are not supported in the contract.
  10. Guidance for the price and configuration for quotes of the pre-landed contract is overseen by one entity.
  11. Higher profitability for seller; typically 25-150% higher than that of a product.
  12. “Stickiness” of buyer-seller relationships; continuous contact for years.
  13. Higher sales commissions for account managers; multi-year worth of booked sales.
  14. Optimized budgeting for buyer; converts CapEx to OpEx and reduces # of transactions.
  15. One “button to push” by buyer to address any performance issue with seller.

Currently, the decade-plus employment of the term of “servitization” has primarily been the focus of European Union [EU] based academia and EU OEM Board Of Directors [BOD] suites. In the last 2-3 years, EU-based OEMs have been touting the term in their US-based operations. Also a limited group of US-based academics and management consultants have been discussing the model as well. As of today, few US-based BOD, or investors are familiar with the term, but it is my belief that will be changing in the near term. Note that the terminology employed for the US-based business model may be different than that of the EU-based “servitization”; currently US-based firms employ terms such as “subscription” and “Product-as-a-Service [PaaS]” that encompass many of the elements of “servitization”.

In one perspective, the revenues generated from servitization simply shifts transactional-based revenues to that of the contract. For example, a Preventive Maintenance [PM] task is scheduled every 600 hours employing $1,000 of parts; this will be done either by the maintainer/owner purchasing $1,000 of parts in a transaction or having the parts bundled in the contract’s pricing of the fixed-fee per hour of operation. At this point there is little incentive for the seller to embrace servitization; it appears to be a zero-sum game.

The “magic sauce” of the seller of a servitization offering encompasses 4 major areas.

  1. Higher Profitability
    There is a powerful incentive to reduce costs incurred to deliver an outcome-based fixed-fee solution during the life of the contract
  2. Contracted Recurring Revenues
    The investor community is “excited” about such a recurring revenue business model; they reward the enterprise with highly favorable valuations that can exceed the Price/Earnings [P/E] ratios of their peers by 25%-50%.
  3. “Stickiness” of Relationships
    Engaged in a long-term relationship with buyer, providing opportunities for future renewal and up-selling/cross-selling revenue opportunities.
  4. Optimized Performance of Machine Models; Customer Success
    In order to meet outcome performance assurances, the seller will provide the buyer with continuous improvements in the capabilities, employability and deliverability of the machine.

Below are some of the factors that may hinder the embracement of servitization by the Commercial Machine community.

  1. The difficulty in changing organizational cultures of actors.
  2. The potential risks of large multi-year losses for seller.
  3. Challenges of sellers in educating the investor community of the new business model on the income statement and balance sheet.

In conclusion, it is not if the “servitization” business model will be embraced by the Commercial Machine community, but when. It will be difficult journey, of 10-25 years, but when early adapters demonstrate the financial and relationship benefits, the rest of the community will follow suit.

Would you like to learn how to effectively implement a “Servitization” business model in your company?  Schedule a FREE Consultation TODAY!

Is Now The Right Time To Replace Your Field Service Management Software?

 This article first appeared in August 20, 2018 online issue of Field Technologies Online 

The market for field service management (FSM) software market is large and growing. In 2017, the market for cloud- based applications was valued at $1.2 billion by Blumberg Advisory Group, and we anticipate that the market will experience a five-year compound annual growth of 22.8 percent. In other words, it will more than double by 2022.  

Given the size and growth of this market, it is no wonder that dozens of software vendors are vying for share. Each vendor claims that their software will help field service organizations (FSOs) transform operations, keep up with industry trends, adhere to best practices, increase profits, and maximize customer satisfaction.

These claims are prompting many field service leaders to evaluate if now might be the right time to replace their existing FSM solution.  Being rational business managers, field service leaders need logical reasons to upgrade or replace their software. Of course, there are many reasons but some are good and some are not so very good. With more than three decades of experience with this topic, let me share with you five good reasons why NOW might be the right time to make a change:

  1. Your current system is costly to operate and maintain. Lets’ face it, if you are spending too much to operate and maintain your existing system, then it is probably time to replace it. Typically, companies that operate antiquated, disjointed, and/or fragmented systems experience higher IT operating expenses than those who do not. I worked with one client whose IT operating expense were 12 percent of revenue (while best in class is 4 percent). The cost savings alone was enough to justify the purchase of a new system.  
     
  2. Your existing FSM software is hindering growth. Depending on its feature functionality, your FSM software can either facilitate or limit your company’s growth. A few years ago, I helped a client expand into a new service business. Unfortunately, their existing systems did not have the required functionality to manage the transactions and workflow of this new business. As a result, my client had to postpone the launch of the new business until they could replace their system.
     
  3. You can’t get good data from your current software. This is one of the most frequently cited reasons for replacing software. If you can’t obtain good data on your installed base, equipment service histories, field service engineer skill sets, cost of service, failure rates, etc., then your company is at a disadvantage because it lacks the business intelligence to effectively plan and manage resources. 
     
  4. Your current solution is impacting KPIs. Ultimately, the success of your FSO’s ability to meet financial targets and keep customers happy depends on its ability to manage service processes against KPIs. For example, first-time fix, SLA/response time compliance, MTTR (mean time to repair), etc. If your company’s performance trails significantly from industry average or best in class, then it is possible your FSM is to blame. Perhaps its time to consider replacing your current system with one that does a better job and drives performance gains?
     
  5. Your current solution lacks flexibility and scalability. It is important that your FSM software can scale up or down without a massive investment in capital or labor. In addition, it should offer flexibility in terms of how workers can share and access data as well as flexibility or openness in terms of the ability to add on third party applications.     

There will always be software vendors who offer new and innovative applications to the field service market. The desire to keep up with industry trends and best practices will also drive purchasing decisions. Implementing a new solution can be costly and time consuming, even if the ROI exists. Therefore, the decision to switch should not be made lightly. You can use these five reasons to provide an objective framework for decision making.  

What’s on Service Director’s Minds

Nick Frank is a Co-Founder of Si2 Partners and this article is based on one first posted in Field Service Matters.

With customer expectations on the rise, field service organizations are constantly fighting to keep up. The service industry has shifted from a cost-centric and reactive approach to a value-centric and proactive approach. But aside from more demand from the customer, the transformation has also opened up new opportunities for service technicians, process, and technology.

Recently, I met with service and operations directors from the United Kingdom’s biggest organizations gathered at Field Service Summit. Field service leaders from manufacturing, telecommunications, and utilities met to exchange ideas and discuss opportunities and trends. Here are the most important topics they addressed.

On dealing with near-impossible expectations

Thanks to on-demand services such as Uber, customer expectations are higher than ever. Your customers want faster resolutions, more visibility into their service, and real-time communication with their technicians. But disruptions happen, and sometimes the customer wants more than you can give them at that moment. Here’s how the experts are managing customer expectations:

Set realistic expectations & don’t over promise

What do you do when the customer wants more than you can handle? Start by setting expectations. Before the service visit, know exactly what the customer wants accomplished and when. You always want to strive for a quick, first-time fix. But don’t over promise if you can’t deliver.

Let’s say a customer wants a tech to fix their washing machine the same day they call, but your techs are already booked for the day. Since it’s not an emergency situation, let the customer know they’ll have to wait, and schedule them for a different time slot. They might be upset that you can’t help them as soon as they’d like, but they’ll be more upset if you’re unable to deliver on a promise.

Let the customer set their own (controlled) expectations

Better yet, give your customer a range of options so they can set their own expectations. Most field service directors at the summit found that their customers want to be partners during the service process. Involve customers by allowing them to set their own expectations for the service visit. Just make sure to do so within in a controlled environment.

For instance, give them open time slots to choose from before they decide on their own. And if they want a higher level of service that will take more time and labor, let them pay more for it. This way you’re giving the customer more control throughout the process, but maintain manageable expectations.

On developing service technicians

Most of the experts at Field Service Summit agreed that the people side of the service delivery is crucial. In other words, your techs, along with their attitudes and capabilities, determine the successful delivery of solutions for your customers. Think about it. Your techs make up most of your company’s interactions with your customers. As the face of your organization, it’s important that the tech makes a good impression. Here’s what the experts advised for developing technicians:

Help your techs become brand ambassadors

It’s crucial for technicians to have the right technical skills, but attitude and image are just as important. Coach your techs on how to represent the brand and company values during their service visit. They should be courteous, engaged, and dressed appropriately. Your customers should feel confident in their tech’s ability to solve their problems and think of them as trusted advisors.

Make customer feedback part of the service process

The best way to learn how your techs are performing is by asking the customers. Consider making customer feedback part of the field service process. Send your customers a survey immediately after the service visit so they can respond with the visit fresh in mind.

If the feedback is positive, send it directly back to the tech. In addition to learning what he or she did right, the tech will also feel good to know they had a positive impact on their customers. If the tech gets a negative review, have a manager deliver feedback. Set a meeting to discuss their performance and talk about ways they can improve for next time.

On the importance of service value over price

As products are commoditized, quality service and positive customer experiences become main competitive differentiators. Field service directors at the summit noticed that customers today are less competent technically, and care more about the outcome. Being said, it’s important to constantly communicate the value of your service, especially if you have not been as visible to the customer. Make sure they know what’s been happening in the background, and throughout the service process.  Here’s what the experts advised:

Demonstrate value with proof

As your company grows, be sure to document a service portfolio. Get your customer support team on board with your company’s value propositions and demonstrate them. Work with your customers to build case studies (with numbers) to use as proof points for potential customers.

Be a business partner

Just as customers should see techs as trusted advisors, they should see your company as a partner invested in their success. Customers are looking for more than just a fix — they want solutions. And they want advice on their assets in case the problem arises again. Let them know you’re always there for them, even when they’re not due for a service visit.

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Extended Warranty/Extended Service Best Practices

Attachment Rates and Renewal Rates

Recently, Blumberg Advisory Group and Giuntini and Company conducted a study about the Extended Warranty/Extended Service Market.  We looked at various aspects of sales process and specifically evaluated the Warranty Attachment rate (i.e., customers signing up for these programs) and Renewal rate (i.e., customers renewing their agreement during the warranty or at the end of the term)  as they are Key Performance Indicators (KPIs) that measure how successful a company is in marketing and selling extended warranties and extended service programs. Best in class performance would equate to companies achieving an attachment rate of 50% or higher and renewal rates of 75% or better.

We saw that only a small percentage of companies have been able to achieve these targets. Specifically, the survey results indicate that only 30% of companies have achieved attachment rates of 50% or more. In fact, 16.7% have achieved attachment rates of 70% or better. While the majority (59.5%) of companies experience renewal rates of 75% or more, only 22.5% have achieved renewal rates greater than 90%.

For companies who wish to improve their performance, there are several best practices that they can pursue to achieve best in class performance on KPIs related to marketing and selling extended warranties and extended service programs. Most significantly, service portfolio design plays a critical role in influencing attachment and renewal rates. The truth is that customers will purchase these programs if they see value, i.e., feel that they will effectively meet their needs. That’s’ why it is important to specify what’s included in the program from the perspective of features, resources, and coverage.

It is important to include both basic and value-added services as part of the program. The more extensive and focused the services, the more likely the customers will be to buy. Nearly all the companies surveyed (93.2%) provide basic corrective failure as part of their program. Only 50.4% include preventative maintenance. Less than 40% offer a broader array of value added services such as calibration, inspection, recalls, and disaster recovery as part of the portfolio.

Indicating the level of service commitment, the customer can expect to receive is also important when it comes to selling extended warranty and extended service programs. Only 58.1% of companies have defined onsite response times as part of their programs, 39.3% specify parts delivery times, 29.9% and 31.6% respectively commit to the repair time and remote resolution times, and 15.0% will provide a loaner unit if repair time target is not met. These components to the program provide added value to the customers as it offers a guarantee as to when the service will be delivered. With respect to selling extended warranty programs, almost half (49%) of respondents indicate that they sell extended warranty and extended service programs any time after the original product sale.  Making this option available at any time naturally increases sales of the programs which equates to higher attachment rates.

The way in which these programs are promoted can also impacts KPIs. Most companies surveyed rely on direct mail (74.8%) and brochures (68.0%) to sell extended warranty and extended service programs. Most respondents (58.5%) indicate that direct sales have been very effective when it comes to impacting attachment rates while only 26.6% believe that brochures are as effective. Interestingly, survey respondents agree that other tactics are just as effective. For example, 50% of respondents indicate that endorsements and testimonials are very effective as is reputation management (49.1%), telemarketing (32.0%) and public relations (28.9%).

Frequency of communication is also a critical driver when it comes to influencing attachment and renewal rates. Almost half (49%) of respondents indicate that they sell extended warranty and extended service programs any time after the original product sale which means the can capture revenue at any point in time during the product’s lifecycle.

Only 28.0% notify customers 90 days or more in advance of when their programs are up for renewal and 36.0% provide more than 3 notifications that there contracts are about to expire. More importantly, most (60%) respondents upsell their programs during the warranty entitlement process. Reminding customers of the opportunity to renew or extend their agreement provides results.

In summary, the survey findings suggest that best in class companies follow a structured and disciplined approach to marketing and selling extended warranties and service programs. They do not view sales of these programs as a one-time event to be made only at the product point of sale. Indeed, they sell beyond the original point of purchase and align attachment and renewals with the customer entitlement process. Furthermore, they promote their programs through a wide array of marketing communications tactics and rely on frequent and timely communication to get their message across. Most importantly, they ensure their programs are designed to meet the needs of their customer and are very specific about what the customer can expect to receive in terms of service feature, resources, and coverage.

Do you have a success story with marketing or selling Extended Warranty/Service programs? Share it with us and be part of the conversation.

The Most Empowering Question You Can Ask

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Have you ever felt stuck when it comes to growing your service business? For example, you feel that things are stagnant or perhaps just not going as well as you’d like.  If your answer is yes, then chances are that you have been doing the same thing over and over again and expecting a different outcome.  That’s called insanity!!

You know you need to make a change but you are not exactly sure how.

All of us in business have at one time or another felt this way.  Most people in this situation ask themselves…”What should I do?”  “What should I do to get better results?”   The truth is this is a poor question to ask.  It is a poor question to ask because it is a disempowering question.

Disempowering questions seldom give us new insights or perspectives that lead to real change.  This is because our mind always tries to find a way of answering our questions. When you ask yourself “What should I do to increase service sales?” you come up with a million different answers.  One answer may be advertising, so you spend money on advertising only to find that it doesn’t help. You may again ask yourself, what should I do to increase sales, and your mind answers…”invest in Search Engine Optimization (SEO)”.  You invest in SEO, yet still you observe little or no improvement.

You continue to ask yourself the same question over and over again and get answers like do more networking, do thought leadership marketing, do price discounts . . . but still no improvement.  Soon you find yourself running around in circles doing different things. You keep doing more and more different things in hopes of getting better results but nothing happens. That’s crazy!  If you keep this up, soon you are likely to hear a small voice inside your head say “Woe is me, what should I do, I don’t know what to do, poor me!”

Poor you is right!

Can you see why asking yourself “What I can do to increase sales?” is a disempowering question?  Asking this type of question creates a vicious cycle that you have to break before it breaks you.  You can break it by learning how to ask empowering questions.  The most empowering question you need to ask and answer if you are trying to grow your service business is, “What value does my company bring to the marketplace?” In other words, what is you value proposition?

The truth is you can’t improve your sales until you are clear about the value you provide. Without a clear value proposition, spending money on advertising, incentives, networking, and other forms of marketing is throwing good money after bad.

In order to define your value proposition you have to answer 3 additional questions:

  1. Whom do I serve?
  2. What problem do I help them solve?
  3. What results do I help them achieve?

These answers provide input to the value proposition formula, which goes something like this…l help X, solve Y, so that Z. Here, X is the answer to the question, whom do I serve; Y identifies what problem you help them solve; and Z clarifies the results you help them achieve.

For example, my value proposition is, I help service managers and executives gain access to new perspectives, strategies, and insights about service management so that they can increase sales, boost profits, and delight their customers.

Once you determine you value proposition and consistently apply it you’ll achieve better results:

  • You’ll gain clarity about whom you help
  • You’ll be more certain about how you help them
  • You’ll be more effective in finding more people like them
  • You’ll find yourself working with people who really understand and appreciate the value you provide them
  • You’ll close more sales

Remember, if you are feeling stuck in your business or career, and nothing seems to be working, you are probably asking yourself disempowering questions. Break the cycle of despair by asking empowering questions, instead!

Now it’s your turn.  Complete the value proposition formula (I help X, solve Y, so that Z) and share it with us in the Comments section.  We’d love to learn what you’ve developed and how you think it has helped or will help you company get more business.  If you need ideas about what to do now that you’ve developed your value proposition, schedule a free consultation today.

Servitization and Revenue Maximization

The Basics That You Must Master

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One of the first consulting projects that I worked on was for Johnson Controls, Inc. (JCI). Our firm was brought in the mid-1980’s’ to help this company develop a service business strategy. A new strategy was required as result of the company’s decision to create one service organization to service all the building equipment sold by JCI. Up until this time, each equipment division operated its own service organization.

The new service organization was structured as a strategic line of business. The management team was given responsibility for generating and managing service revenue. Prior to the creation of the new line of business, the service organizations within JCI did not have to worry too much about revenue. Basically they had a captive market since the product divisions were responsible for selling service contracts and installation projects along with the products they sold. The new organization was now tasked with the responsibility of marketing and selling services directly to the end-users. This was an entirely new concept for the management team of the new business because they could now offer services to any company regardless of whether or not they owned JCI equipment.

The management team came to us for help with developing a go to market strategy and business plan. More specifically, they needed to become crystal clear with respect to their market, their service offering, and pricing approach if they were going to succeed in building a service business. One of their biggest challenges was determining the size of their market. It was foresighted of them to want to know about the size of their market because they’ve gone on to become one of the largest service organizations to the building industry, and certainly a company that is far along the path toward Servitization. I’ve met service executives who skip over this question about market size in their strategic planning process because they struggle with finding an answer. When asked if they know how large their market is, they give a vague answer likes “It’s big” or “the product market is X billion dollars so the service market is some portion of this”.

In order for the JCI executives to get a precise view of the size and growth of the market, we had to help them determine their total addressable market. This is where JCI’s foresightedness came into play. In defining the total addressable market, we helped JCI understand the market was not just equipment manufactured by JCI but equipment sold by other manufacturers. We also asked JCI to consider what else they could service in a building and what types of services they could offer. This led them to expanding their market focus to include a broad array of value-added services on a wide range of building technologies like fire and safety, security systems, and elevators. The definition did not stop there; it also took into account vertical market segmentation and other demographic factors like square footage and age of building.

As result of this strategic planning process, JCI had a comprehensive definition of their total addressable market (TAM). More importantly, they understood their service revenue opportunity on a very granular level; by technology, by service offering, and by vertical market. The work did not stop there. JCI still needed clarity around its Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM) or target market. In case you were wondering, SAM is the portion of the TAM that a company can reach taking into account various constraints like breadth of its sales channel and competitive factors. The SOM is the percentage of the SAM that a company can realistically capture based on various assumptions (e.g., sales effectiveness, operating capacity, resource allocations, etc.)

Without the diligence that went into defining the TAM, I don’t think that JCI would have grown into the service behemoth they are today. The level of diligence that went into defining the TAM established the foundation for the SAM and SOM. It also became the basis for them to eventually expand into service of Data Center, Energy Management System, and Security and Fire equipment. More importantly, JCI’s results proved that the more distinctions you can make about a market, the more precise your plans can be for penetrating it. The granularity around the TAM and SAM enabled JCI to ask the right strategic questions about what business they are in and what must happened in order for them to maximize market share.

The key takeaway here is that a service business must pay close attention to how it defines its market. It is not enough to simply say the market is “big” or reference market data from an industry analyst, and leave it at that. Companies who achieve outstanding results when it comes to service revenue growth are those who are able to methodically determine the size of their available, addressable, and obtainable market. This is absolutely critical for any company on the Servitization journey.

Variable Workforce:

The New Field Service Paradigm

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The use of third party workers has become a common practice for Field Service Organizations. A driving force behind this trend is the economics of associated with managing a large pool of labor. Maintaining a field service workforce on a full-time basis represents a short-term, fixed cost for service providers. At issue, field service demand is variable in nature and becoming increasingly more volatile. This is occurring for a number of reasons including but not limited to the shift from reactive to proactive service, improvements in the ability of companies to resolve services issues remotely, cyclical events in the global economy, and technology changes (e.g., refreshes, consolidations, and upgrades).

One of the ways to deal with the peaks and valleys in field service demand is through a Variable Workforce (VWF) model. This type of model enables a field service provider to convert short-term fixed cost into a variable expense by utilizing third party workers. There are a number of options available to companies who want to implement VFW model. These include

1. Implement Master Service Agreement (MSA): with one or more companies: Under this scenario an OEM, ISOs or VAR, collectively referred to as the client, contracts with one or more field service organizations (FSOs) to provide on-site service as needed through a Master Service Agreement (MSA).

2. Manage subcontractors on their own: Another option is for a company to build its own variable workforce model. This requires that a company hire and on-board, independent contractors either directly or through a staffing company.

3. Turn toward a “Sharing Economy” model: Companies who are willing and able to manage teams of individual workers can turn to a sharing economy model. In this scenario, a company would use an Internet platform, also known as a Freelancer Management System (FMS), to recruit, on-board, train, dispatch, manage, and pay individual contractors.
The sharing economy model offers substantial cost savings to a company who is willing to pursue this course of action. Improvements in service quality and productivity are also possible as freelance contractors are typically more engaged and motivated since their income is directly proportional to the quality of work performed and number of assignments they accept.

The Freelance Management System Defined

According to the Staffing Industry Association (SIA), an FMS is a category of Workforce Management technology that enables self-management of a contingent workforce. To be considered an FMS, the technology most include the capability to 1) match freelance workers with assignments, 2)issue work orders, and 3)process payments to freelancers.

FMS solutions are available as either Enterprise systems or SaaS based solutions. At their core, they provide functionality to initiate, manage, complete, track, and evaluate work performed by freelancers. Additionally, they may include the ability to find and recruit freelancers through a marketplace functionality as well as additional services such as insurance coverage for freelance workers and the ability to manage work though mobile communications technology.

I recently authored a whitepaper, sponsored by Field Nation, titled “The Variable Workforce Model – An Optimal Solution for dealing with Field Service Uncertainties”. It discusses how FMS is creating improved outcomes for companies involved in field service. More specifically, it measures the benefits that can be achieved through an FMS platform and defines the key characteristics of an optimal solution. To learn more, download your FREE copy today.

4 Ways Service And Support Adds Customer Value

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This is a guest post by Sam Klaidman. He is a consultant focused on Service Marketing and Customer Experience. You can read his blog and follow him on LinkedIn. If you want to guest post on this blog, email me at michaelb@blumberg-advisor.com and write “Guest Blog Guidelines” in the subject field.

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service and support

Today, customers are looking to receive more value from their partners than ever before. The two primary reasons are:

  1. Customers are “crazy busy” and need relief because they are drowning in problems, opportunities, issues, and challenges. This relief is one form of value added by the supplier (partner).
  2. Partners see many “similar” situations at their customer’s locations and so should have a good idea about what will work to help the customer and can be implemented with little effort or risk, with a high likelihood of success.

Almost sounds like the customer wants the supplier to solve their problems and expect no more that a “thank you.” The first part of the sentence is correct but not the second part; smart customers are perfectly willing to pay for value added services if they understand the benefits they will gain.

Who is best suited to deliver value-added services?

For a number of reasons, service organization are best situated to deliver value-added services to existing customers. Here’s why:

Of the two primary customer-facing organizations, the “sales” department is generally charged with selling products. Their compensation plans are based on closed business; they have marketing breathing down their necks pushing them to turn leads into orders and their nature is to be hunters.

The other group, services, is totally different. Their role is to make the customers successful; they enjoy helping customers, frequently have little or no revenue objectives, are totally familiar with the products and, organizationally, have seen all the customers and how they have attempted to solve their problems

How can Service and Support add value to customers?

  1. Technical people understand their product’s capabilities and limitations. When they are talking with individual customers they should be asking questions like:
    1. What exactly are you trying to do with our product?
    2. What do you wish it could do but have not found a way to do it?
    3. Where in your process is our product helping you? Slowing you down? Making it impossible to do everything you need to do?
    4. Do you know of any other products that help you do your job?

 

As they get a better understanding of the customers jobs-to-be-done, they frequently can teach the customer how to use the capabilities they already paid for and did not know existed.

  1. When we see how our product is integrated into the customer’s job stream, we frequently can identify unnecessary steps. By sharing this with the customer, we add value because we help them do their job quicker and easier.
  2. Many hardware owners are totally concerned with uptime; they bought our product because they needed to use it when they needed to use it. However, the person who sold the service contract, or the one who actually purchased it, may not have discussed the critical uptime requirements and so only discussed the standard plan. When the Service Marketing person works closely with the equipment owner, there are frequently creative ways for the customer to increase uptime (for an additional price) while the service group provides unique services that can be integrated into their workflow.
  3. Finally, if your service and support people identify a value adding opportunity but do not know how to actually accomplish the customer’s needs, they should get the case into the hands of the product manager. He can then research the feasibility of adding the feature, assess the market size and implementation cost, and potentially move ahead in a future upgrade.

 

Your service and support team has a number of separate roles to play. Here they are:

  1. Fix the customer’s problem. This is Job #1. Helping them get full value for money for their purchase is critical; without it there is no business relationship.
  2. Collect information about product performance and put into a useful format for your Engineering or Manufacturing departments to use to improve the products.
  3. Identify opportunities for the business to add additional customer value. The front line service and support professionals should always be thinking about ways that your customers can squeeze additional value from their purchases. When they find opportunities they must not only help their immediate customer implement changes but must also spread the word throughout your company so other customers can take advantage of these new findings.

 

If not already in place, these behaviors must become part of your company’s culture. People must be able do these things as though it were it standard operating procedure so that everyone wins!