Category Archives: Product Management

The Complexities of Strategic Service Management

I first introduced you to Strategic Service Management in February of last year where I indicated that it was a proactive approach to making the customer satisfied and efficient while making a profit that balances strategy, resources, commitments, and pricing. It supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and helps to differentiate your offering from that of your competitors. And it is a practice that is growing rapidly at many consulting firms as it is a topic that is now become common in many boardrooms that are feeling the squeeze in both directions on the product front: production costs are rising rapidly but prices need to remain flat in order to move any product at all.

For many companies, Strategic Service Management is now the only way to increase profits – as it not only allows premium prices to be charged for quality services that are perceived as valuable by the customers, but can also substantially reduce service costs when the right product is in the right place at the right time to be put in the hands of the right technician to do the job. The fact of the matter is that poor service often translates into real losses – which go beyond the financial penalties specified in your SLAs. If the product isn’t available or is priced too high when a customer wants it, that can result in a lost sale as well as dissatisfaction that may prevent the customer returning to you in the future. If your service team is unresponsive, not only will you lose repeat business, but your brand can take a hit. And if you price too low, you’re losing profit.

So what is involved in Strategic Service Management? As I covered in depth in my piece on Strategic Service Parts Management a few months ago, a lot of it revolves around parts and price management – having the right product available at the right place at the right time and at the right price – and this involves forecasting, inventory management, and price optimization, but it also involves having the right technician available to install the part and get the repair right the first time and making sure the technician has access to the knowledge she needs to do her job – and this involves workforce management, scheduling, routing, and knowledge management.

In other words, good strategic service management has to address all aspects of the entire service value chain (that may also include other suppliers, distributors, OEMs, dealers / value added resellers, and after market services) and not just the part or the price of the service. It also has to go beyond just the short term issues of problem diagnosis, replacement part location and delivery, technician scheduling and dispatch, and price optimization and address the long term issues of regular re-orders of parts when inventory reaches threshold levels, appropriate workforce training and staffing, and performance monitoring to insure that price levels and service remain at optimal levels.

Furthermore, the fact that this has to be done across geographies, diverse customer segments, product types, various types of SLAs, various levels of customer commitments, and both company-owned and third-party resources, should be enough to convince you that this requires a dedicated solution designed to address strategic service management. A spreadsheet (despite the fact that Aberdeen found that 91% of companies still use spreadsheets to plan and forecast parts and service levels in its report on “The Emergence of the Chief Service Officer”) is NOT enough. Furthermore, neither is your ERP.

An ERP was designed for inventory control, work order processing, basic product tracking, catalog management, simple case management, and, maybe, basic call center management. Enhanced add-ons may also handle inventory forecasting and planning, replenishment planning, exception monitoring and analysis, simple GANTT scheduling, and work order tracking, but this barely covers stage 2 (operational control) of SSM (where stage 1 is firefighting) and doesn’t even begin to address stage 3 on the optimization of performance management, and definitely doesn’t even hint at stage 4 where true integrated service management is reached and strategic service management acts as a growth engine for your company. To get there, you need the foundational capabilities that include parts optimization, integrated PLM, order planning and sourcing optimization, manpower planning and optimization, knowledge management for issue diagnosis and resolution, and performance analysis which then enable multi-enterprise collaboration, integrated part location and technician dispatch; integrated parts, labor, and pricing optimization, contract and market profitability analysis, and integrated service offerings – the ultimate key to successful strategic service management.

As my previous entries on Servigistics and MCA Solutions addressed strategic parts, pricing, and warranty management, my next two contributions to this series will cover workforce planning and knowledge management for service success, and, specifically, Servigistics’ new offerings in these areas.

(Manufacturing) Design For X

The April 1, 2008 issue of Theory and Practice from Manufacturing Insights had a great article on “Design For X” – the practice of incorporating different tangential factors into the design of a product that are intended to better integrate the new product with downstream activity. One of the more familiar DFX practices is, of course, DFM – Design For Manufacturing – where engineers strive to produce a product to be easier, safer and less costly to manufacture.

However, DFM is not the only DFX discipline that product companies need to consider. There is also DFSC – Design For Supply Chain, DFS – Design For Serviceability, DFC – Design For Compliance (& Sustainability), and DFW – Design For Warranty, and each of these is important. However, in today’s economy where costs are rising and discretionary spending is falling, probably the most important consideration in product design is the end cost of production. Since early interaction between design and supply chain is key to making the right build-versus-buy and material selection before design decisions, and associated costs, are locked in – I’d argue that DFSC should be on top of every company’s mind. Especially since, as the article points out, DFSC leads to further optimization and agility in the supply chain and reduces the impact of inevitable late changes and quality problems.

Of course, you cannot ignore DFS, DFC, and DFW. There are always going to be failures, and DFS evaluates design modularity and supply chain alternatives in order to maximize serviceability and enhance the customer ownership with inventory and reverse logistics operations in mind. A good design considers the complex dependencies between product design, reliability, service, inventory planning, and reverse logistics. The expected frequency of repairs and the type of parts that need to be replaced will determine the reverse logistics, depot repair, and part restocking requirements in the supply chain.

Similarly, if you actually want to be permitted to sell your products, you have to adhere to product compliance regulations such as RoHS and WEEE for the European electronics industry and the TREAD act for the American tire industry as well as corporate accounting regulations and overall social responsibility. Compliance cannot be an afterthought – it needs to be taken into account during design, manufacturing, shipment, servicing and decommissioning of products through a total life cycle approach. For example, in RoHS if even one separable component contains more than a minute trace of hazardous material, the entire assembly could be banned – leaving you with millions of dollars of inventory that cannot be sold.

Finally, you need to consider what reverse logistics and repair activities will exacerbate warranty costs and insure that tradeoffs are made to minimize those activities that will be most costly in the design process.

In short, DFX is a total lifecycle design practice that takes into account the costs and benefits of each and every design decision in the different life-cycle phases of a product, considering both the short and long term ramifications, from a Manufacturing, Supply Chain, Serviceability, Compliance, and Warranty viewpoint.

Stacking the Supply Chain

Industry Week recently ran an article that asked the question “How does your supply chain stack up?” Written by the Director of Corporate Partnerships from the University of Tennessee, the article summarized the main lesson learned by the Department of Marketing and Logistics since they started offering supply chain assessments in 2006.

To date, the department has performed eight supply chain audits for companies across a diverse range of industries that ranged from 100M in annual sales to 30B. Although the firms were very diverse, they found that, to their surprise (but not mine), that all of the firms faced exactly the same supply chain problems.

Specifically, they found the seven following commonalities:

  • Too much product complexity
    Too many models and lack of a good process to eliminate underperforming products.
  • Too much slow-moving and obsolete inventory
    Sales doesn’t want to reduce price because they’re measured on margin – but products lose value over time while incurring inventory holding costs.
  • Supply chain considerations not part of the product design process
    Design teams rarely consider inventory, transportation, or warehousing issues – just to name a few.
  • No supply chain strategy
    Many supply chain organizations are so consumed with the daily battles of cost control, inventory management, and customer service that they don’t plan for the future – sometimes with disastrous results.
  • Ineffective matching of supply with demand
    In most companies, sales is driven by revenue generation while operations strives to cut costs.
  • Physical network problems
    Many organizations do not have an optimal network design. Warehouses need to be appropriately placed and transportation optimized.
  • Global issues and outsourcing problems
    Outsourcing decisions are made everyday, but few firms consider the total cost of an outsourcing decision.

Addressing just one of these problems can lead to millions in savings. For example, a hard goods manufacturer achieved 600M in cash-flow improvements through inventory and asset optimization and another manufacturer found 5M to 10M in savings simply by restructuring its distribution network.

So what can you do? Lots. And even though the article stopped short of specifying what you can do, this blog entry is not. If you have these problems, you can start by looking into these potential solutions:

  • Product Line Consideration
    Look to today’s modern auto-companies. Instead of giving you 30 different options, and letting you choose from 2^30 or 1B different configurations, some only sell three or four standard configurations of a car: the base model, the value model, the extended model, or the luxury model. Assembly is efficient and product complexity is minimized.
  • Pre-Launch Price Reduction Planning
    Model the inventory holding cost up-front, analyze historical price trends, and pre-determine dates where remaining inventory will be reduced, marked down, and cleared. If the product happens to be composed largely of raw materials that are increasing in price (i.e. steel) and has a scrap value that increases over time, you can take this into account as well and determine a formula that is to be run on predefined dates to determine the appropriate price decreases. This is very important if you are in electronics, where you can predict that in 6 months the product will have lost 20% of its value – that tells you that a 10% reduction in 3 months might be better than having to fire-sale the product in 7 months.
  • Include supply chain in product design
    When different options have dramatically different material, inventory, warehousing, or transportation costs – supply chain can point this out.
  • Sync the Plans
    Every time the business plan is updated, update the supply chain plan as well to meet the goals of the business plan. Don’t have a supply chain plan? Get one!
  • Forecast with Foresight
    Make sure forecasting is done by an integrated Sales & Operations Planning team that includes the head of sales, the head of marketing, and the head of supply chain – and that every department works off of the same forecast.
  • Network Modeling
    Model your current network, and re-run the network flow model at least once, if not twice, a year to optimize flow – and do a complete network re-design exercise every three years to determine the optimal network design and if any changes need to be made.
  • Outsource Intelligently
    Don’t outsource anything you haven’t optimized internally first – displacing a problem doesn’t solve it, it just makes it worse. If you need help getting your house in order, bring in an expert to help you.

Forecast with Foresight

A short while ago, Supply & Demand Chain Executive ran an article by Romit Dey and Joy Prakash Somani summarizing the results of an Electronics Supply Chain Association and Infosys Technologies Limited study on “re-thinking demand management”.

The study, which was designed to assess the impact of consumerization on major sub-segments within the high-tech industry, understand issues and challenges, and identify industry leading practices, found that 87% of respondents stated that consumerization had significantly impacted product proliferation and customer experience. The demand for new products at an increased product refresh frequency has put increased pressure on design and supply cycles and customer expectations on product customization and error-free operating performance have heightened considerably.

The study found that performance was still as critical as ever, but that 70% of the respondents did not consider their performance in forecasting to be satisfactory. The challenges identified included:

  • Poor Data Quality
    There is often a lack of synchronization on product numbers between manufacturers, distributors, retailers, and customers; a mismatch in the granularity of the expected demand data provided by retailers and customers; over-forecasting by optimistic partners; and POS data is not always available, especially in global distribution networks. Furthermore, raw data is often not adequate enough for many tools to provide a robust estimate.
  • Lack of Formal Processes
    There’s a lack of process for measuring forecast performance and generating feedback on current performance to future estimates.
  • Forecasting Tools are Not Fully Leveraged
    Sometimes this is because of a lack of integration into data sources, sometimes it’s because the available data is not considered adequate, sometimes it’s because data exchange is still paper-based, and sometimes it is because users resist switching to new and improved processes and tools.

As a result, the authors recommend a shift from passive/reactive demand management to a more active/predictive form of demand management that:

  • senses the demands of customers early & correctly,
  • influences the demands to favorably align to capability,
  • budgets for variability in demand during fulfillment, and
  • focusses on innovation to realize a first mover advantage.

Furthermore, they indicate that organizations should:

  • streamline information gathering and analysis,
  • formalize forecasting processes,
  • leverage demand shaping opportunities, and
  • collaborate within and beyond the organizational boundary.

The latter is a good start, but the article fails to point out that it is essentially impossible to correctly sense the demand of your target market before production begins – which is when it is most important. Nor does it provide you strategies to account for the unpredictable variability that is going to be incurred as a result of this inability to accurately sense demand early.

Why can’t you accurately sense demand early? Sure you can measure excitement about a new product announcement or highly anticipated feature, but this can change overnight when a competitor announces a new capability or rolls out a new stealth product that you had no knowledge of. As a whole, leveraging demand shaping opportunities, polling the market, and connecting with retailers to get a better sense of actual demand will greatly increase your forecasting performance across the board, and increase the chance of a big win, but, on a project basis, there is still the opportunity for a big miss, and it will still happen occasionally.

That’s why I’d recommend including the following two steps in the process checklist:

  • utilize advanced demand & price point prediction technology based on optimization and simulation (such as that employed by Rapt, which was recently acquired by Microsoft) to make sure you get a reliable demand prediction at a target price point and
  • focus on contracting capacity, not specific products.

What do I mean by capacity contracting? Your statistical chances of predicting the total number of cell phones, laptops, etc. that you will sell are much better than your chances of predicting the number of units of each specific cell phone, laptop, etc. that you will sell. If you’ve properly rationalized your supply base, you probably only have a couple of manufacturers making cell phones, and each is probably making multiple models. Instead of guaranteeing them 100,000 units of M1, 50,000 units of M2, and 50,000 units of M3, because you have a high statistical confidence that you’re going to sell at least 250,000 total units this year, guarantee them 200,000 units and allow yourself the ability to specify the actual order quantities at the latest date possible required to meet your turnaround time. Your suppliers win because they are guaranteed business. You win, because you don’t get stuck with a heap of unmovable inventory, which can happen if you incorrectly forecast which model will be your best seller. Furthermore, contract for a quarter or a year, not a month. Demand varies month by month, but is much more predictable quarter by quarter and year by year.

The 10 Worst Innovation Mistakes In A Recession

Are we in a recession? Unknown. However, you do know whether or not you believe we are in one, and if you do believe we are in one, you’re likely to go overboard on belt-tightening and cost-cutting. That’s why I want to point out a great article that appeared on Business Week last month on the “10 Worst Innovation Mistakes In A Recession” because, if you make these mistakes, you will be creating a self-fulfilling prophecy.

  1. Fire Talent
    Talent is the single most important variable in innovation. And innovation is the single largest lever you have to increase productivity and decrease costs.
  2. Cut Back on Technology
    The rise of social networking and consumer power means that companies have to be part of a larger conversation with their customers. This requires technology. Furthermore, the best way to insure you are getting the best price is to tackle the right categories, as identified by spend analysis, with strategic sourcing decision optimization to make sure you are making the award with the lowest total cost of ownership. It’s also important to make sure that all of your invoices are submitted in an electronic format that can be automatically matched against contracted rates to make sure you are being overcharged. This requires leading-edge technology.
  3. Reduce Risk
    Innovation requires taking chances and dealing with failure. Although it’s important to control risk, trying to eliminate it entirely will just end up eliminating any chance for innovation at your company.
  4. Stop New Product Development
    This hurts companies when growth returns and they have fewer offerings in the marketplace to attract consumers. And with today’s rapid pace of technological change, you could even lose customers in a recession to a competitor who keeps innovating while you stand still.
  5. Replace a Growth-Oriented CEO with a Cost-Cutting CEO
    Most recessions only last two or three quarters and, these days, are relatively shallow. Penny-pinching CEOs don’t have the skills to grow when growth returns. Plus, a penny-pinching CEO is the most likely individual to fire your top talent.
  6. Retreat from Globalization
    Emerging markets are sources of new revenue, business models, and talent. And, like it or not, emerging economies like India and China are soon going to have more buyers for your product than the countries you’re currently selling to.
  7. Replace Innovation as Key Strategy
    … With Systems Management and Cost-Cutting. Once focus shifts away from innovation, it can be very hard to get the focus shifted back.
  8. Change Performance Metrics
    Shifting employee evaluations away from rewarding riskier new projects toward sustaining safer, older goals. This leads to risk-averse behavior and stifles innovation.
  9. Re-inforce Hierarchy over Collaboration
    A return to command-and-control management. This alienates creative-class employees, young Gen Y and X-ers, and stops the evolution of the corporation. In today’s world, companies that don’t evolve die – and they do it quickly. The average life-span of a Fortune 500 company is shrinking every year.
  10. Retreat into Moated Castles
    Cutting back on outside consultancies is seen as a quick way to save money. Yet, one of the key ways of introducing change into business culture is to bring in outside innovation and design consultants.

Remember that winners always emerge out of recessions and they always win on the basis of something new. If you don’t always have something new in your pocket, you’re not going to win. And if it is a recession, and you don’t have something brand spanking new to pull out of your pocket when the recession is over, you could literally be toast. Furthermore, even a recession provides growth opportunities. People still spend money. They still need to eat, maintain their homes, and their life-styles. The difference is that they don’t spend as much money and look considerably harder for the best deal. This means that they’re much more likely to waver on brand loyalty if you can provide them a better product on a better price – and this means that you can still grow by taking market share away from your competition.

So don’t make the innovation mistakes. If it is a recession, then whether you come out of it a winner or a loser is up to you.

Furthermore, if it is a recession, and your company supplies sourcing and procurement technology and services, then this should be a major growth period for you! After all, how else is your average blind-in-one-eye company going to save money? This means that not only do you have to make sure that you don’t make any of the top 10 innovation mistakes, but that you invest for a growth period because, if you play your cards right, it will be. (And if you need a little help, remember what the doctor does.)