Category Archives: Services

The Value of AfterMarket Service in a Down Economy

MCA Solutions recently released a white-paper entitled “The Value of AfterMarket Service in a Down Economy” by Morris A. Cohen, the Panasonic Professor of Manufacturing and Logistics at The Wharton School of the University of Pennsylvania. In it, the author puts forward initiatives for your service business that he, and MCA, believes will generate revenue and profit for your business in 2009.

Aftermarket service presents some unique opportunities that make it a prime candidate for delivering value in the current financial climate. When you consider that many companies have slashed their budgets for new product and service acquisitions, it should be obvious that many companies will be looking to get more life out of their current products and services and looking to aftermarket service providers to help them.

According to the white-paper, increasing your market share of aftermarket parts and services will allow your company to generate a more predictable, high-margin revenue stream that will also increase customer satisfaction and retention. In addition, leading enterprises such as Cisco Systems, KLA-Tencor, Boeing and Tellabs have proactively undertaken strategic service management initiatives and have seen ROI benefits (in as little as two months) that include:

  • Cash flow improvements of 10%
  • Inventory reductions of 15% to 50%
  • Service level improvements of 5% to 20%
  • Customer retention through new and differentiated service offerings
  • Dramatically increased service revenues
  • Higher levels of global coordination

So what are some of the areas of opportunity?

  1. Reconfigure the Service Supply Chain to Respond to Changing Costs and Customer Requirements
    Best-in-class companies view inventory as a competitive weapon
    and typically employ multi-echelon inventory optimization and other resource deployment strategies to achieve superior product and service availability.     However, these days, service
    providers must also look to optimize the design and configuration of their service support network (locations, repair capacities, customer assignments, etc.) as a key strategy for achieving the lowest total cost and maximized customer service solution    .
  2. Reduce Overhead and Increase Time-to-Value Through Outsourcing and SaaS
    Service providers can expand their capability with a lower cost structure by outsourcing non-core capabilities to their suppliers. Logistics, warehousing, IT services, etc. can all be outsourced to low-cost, high-quality providers — freeing you up to focus on what you do best.
  3. Reduce Cost Through Optimization of Service Value Chain Resources
    Companies who use traditional planning tools developed for finished goods supply chains often hold far too much inventory with the wrong mix of parts. Getting the right mix of parts in the right places can lower overhead costs, improve service, and increase overall service profitability.
  4. Increase Revenue Generation with Customer-Focussed Service Offerings
    In a downturn, customers demand higher levels of performance from aftermarket service providers. This can be achieved through appropriately designed differentiated service offerings on a pay-per-performance model that will set you apart from the competition.

These are all great suggestions and each of them will help you save money while increasing the value you can bring to your customers. For more suggestions, as well as insight into how to approach each of these areas of opportunity, I recommend checking out the full white-paper that dives into these opportunities in detail. It’s worth a read.

The Strategic Sourceror’s (Supply Chain) Anti-Trends

The Strategic Sourceror was first to the plate with a trio of home-run anti-trends for 2009.

  • Strategic Sourcing Outsourcing Finally Gets a Good Rap
    The Sourceror notes that even though the list of anti-outsourced strategic sourcing excuses (just like the list of excuses for why we don’t need no consultants) goes on and on and on, this is the year that people who just made a big investment in (e-)sourcing software realize that software alone is not enough and you need to balance the tools with the human expert techniques.
  • Networking Costs You That Job
    Every time the economy takes a bath in the crapper, every person and his dog comes out of the woodwork with a list of techniques for landing that next job, and networking is always at the top of the list. And this time, the media has outdone themselves and convinced people that “networking” means getting in touch with every single person you have ever heard of in your life and bombarding them with your resume and story … every single day. Now, while you should contact everyone who you honestly think could, and would try to, help you, and while you should be persistent in your job hunt … there’s persistence, and then there’s good old fashioned harassment. Go overboard, and you might just find that you’re the first person blackballed next time something opens up.
  • Hasta la Vista to the Fat Cats
    This post is just too good to every try to summarize.

We Don’t Need No Consultants

Today’s guest post is from Patrick J. Horgan of Paladin Associates.

Why Some Companies Don’t Seek Needed Cost-Reduction Help

Cost-reduction is essential in today’s economy, but unfortunately many managers have little experience in these activities. Mistakes in cost-reduction can damage morale, productivity, and can even precipitate a corporate death-spiral. Experts recommend independent cost-reduction consultants, but most companies don’t seek external help. Their reasons sometimes make sense, but they are often emotional and thought through poorly. Here are some common rationalizations which prevent many companies from seeking the help and getting the results they really need:

“We don’t need help.”
“We can do cost-reduction ourselves”. Or, “we should be able to do it ourselves.” “We already have cost-reduction initiatives.” “We will soon have cost-reduction initiatives underway.” “External consultants will probably try to take credit for things we have already identified.”

“We don’t want help.”
“Consultants may find things that are embarrassing or that we probably should have found. We may be blamed for these things.” “We will not be able to personally control what they find or communicate.” “We are currently too disorganized to undertake such an initiative.” “We don’t want a lot of change and turmoil.”

“We can’t afford help.”
“Consultants charge a lot, usually up front.” “We have no budget for this.” “We can do it for less.”

“We don’t believe consultants can actually help.”
“Consultants just feed back what we already know. They don’t actually produce results.” “Consultants won’t understand our business.” “How would we know if we actually saved anything?” “We’ve had bad experiences with consultants and cost-reduction projects in the past.” “External consultants are against company policy, or require high-level approval.”

“We are not the decision makers.”
“We don’t really know who decides this, and we don’t want to ask.” “Someone else is in charge of this; it’s not our job.” “IT/Telecom has sourcing responsibility; not Sourcing.” “IT and Telecom are under different organizations, yet buy off of the same contract.”

“It is not in my personal political interest to support this.”
“Cost-reduction can be risky… might result in reorganization, reassignment, budget cuts, layoffs, new priorities, loss of power, change — could be bad for me personally.” “Our boss doesn’t want to do this.” Or, “Our boss might want to do this, but we don’t.” “If this doesn’t work out, we might be blamed.” (But maybe we should pretend to be interested and slow-roll this.)

“We don’t have or control the resources to support such an effort.”
“We have other priorities.” “We don’t have good data on costs and spending.” “We don’t have the staff for this.” “We have lots of contract leakage as internal components are organizationally fragmented.” “To capitalize on many initiatives may require cross-functional cooperation and coordination which we don’t control, and priorities which we don’t have.”

“We don’t want to disrupt our vendor relationships.”
“We already have great prices.” “We depend on our vendors for things other than price.” “The supplier has a personal relationship with the CXO.” “We really enjoy the annual Vendor Golf Weekend at Pebble Beach.”

The Real Facts
Sometimes these rationales are valid, but most often they are not. Companies may have excellent relationships with their suppliers, but it’s inescapable that continuous competition improves the breed and reduces cost. Cost-reduction falls directly to the bottom line, and should be pursued aggressively despite fuzzy reasons to the contrary.

Even though companies “ought” to be able to run effective cost-reduction programs themselves, in reality they frequently do not. For many reasons — budgets, staffing, expertise, priorities, timing, politics, whatever — the opportunities go unmined… and the potential savings go unrealized. Or they are done in an amateur fashion, often with unintended consequences. Most companies don’t and probably can’t have enough qualified resources to do this thoroughly.

Cost-reduction consultants do this for a living, not just during the occasional recession… they are experts and know all the tricks. External consultants can often help cut through internal politics and conflicts of interest. They can catalyze stalled activities and get them rolling.

Independent consultants can help analyze spending patterns, and specifically focus on and drive results… particularly if they are paid on a percentage of savings realized. This approach eliminates upfront fees, reduces risk, and insures an excellent ROI. The money saved can pay for fees many times over. External resources can accelerate cost-reduction savings. Additional bandwidth leverages employees, and gets more done, faster. Time is money.

External cost-reduction experts jump-start and insure execution of cost-reduction programs that can preserve a business in times like these. Cost-reduction programs should be win-win initiatives, structured and empowered to encourage cross-functional cooperation. They should be supported and regularly reviewed by high-level executives, not just lower-level employees who may fear blame or loss of status.

Thanks, Pat.

A Great Guide to Outsourcing Risk Management, Part IV

In Part I we discussed the starting point of your outsourcing project and how you go about selecting service providers to issue RFPs to. In Part II we discussed proposal evaluation and in Part III we discussed the dispute resolution process that needs to be addressed up-front in the contract. Today we will discuss the service level agreements, and remind you to check out the full series on outsourcing risk management by Alsbridge, as printed by SourcingMag.com, that this series is partially based on.

So What Do You Need With Respect to Service Level Agreements?

Vague, optimistic promises of a happy life together may work for some personal relationships, but they don’t work between two companies. Creating a well-defined SLA to define your organization’s needs and expectations has many benefits, including the:

  • provision of a common understanding of exactly what service is being provided (how, when, where, when, by whom, etc.)
  • definition of common realistic expectations
  • simplification of complex issues by focussing on what is important
  • reduction of conflict by eliminating what’s not important
  • clarification of the bonuses for exceeding SLAs and the ramifications for failing to meet delivery requirements
  • framework for later modification and improvement as the need arises

When deciding what to measure, remember that you shouldn’t measure anything that shouldn’t be quantified. For example, use phrases like “99.99% uptime” not “make our customers happy”. The first is objective and a measurement can be clearly defined. The second is subjective, and there’s no way to objectively measure it. Response time is important, but instead of saying “respond rapidly to customer inquiries”, define a maximum hold time of 10 minutes and then you can define a penalty metric if more than five calls per week exceed the maximum hold time.

Also be sure to clarify your responsibilities and the support a provider requires to meet their metrics. For example, if they are expected to investigate any issues that arise relating to the integration of their external systems with your internal systems, you must ensure that they have the right level of access at all times. Otherwise, they can’t be held responsible for missed delivery targets.

And make sure the number of metrics tracked is reasonable. Too few, and you can’t really measure how well the provider is operating (or define penalty clauses if more than a certain percentage of the metrics are missed in an evaluation period, since 20% of the metrics will always be missed every time the provider misses 1 metric if you only track 5). Too many, and the bookkeeping requirements are too costly and onerous for both parties. Somewhere between 10 and 20 is usually just fine if you focus on the right metrics. (And if you’re not sure what metrics to select to diagnose a sick patient, call the doctor.)

Finally, don’t forget that you need a baseline period. Typically, the first quarter is used to define a baseline and the provider is then measured starting in month four. (It typically takes two months of “transition period” where control is shifted to the provider and the “kinks” are worked out before you can extract a solid baseline in month three.)

When it comes to defining bonuses and penalties, you need to be somewhere between a new mug and a vacation in Hawaii for the former and somewhere between a slap on the wrist and the electric chair for the latter. Bonuses that are too trivial won’t entice the provider to step up their game, but bonuses that are too extravagant will end up costing you dearly as the provider will go out of their way to insure they do everything in their power for free money. Similarly, if all the provider gets is a slap on the wrist, they’re not going to care whether or not they hit a performance target or not. But if you threaten the electric char, if the provider even signs the agreement, you can be sure the fees for the service level guarantees will be exorbitant as they will have to build in a financial safety net. Be fair, and you’ll get the best possible deal.

In the next, and final part, of this series, we’ll talk about what you do after the contract is signed.

The Sourcing Maniacs 2008 Vendor Tour Part 19: Servigistics

Today’s post is a little length, so it’s been broken up into Survey, Service, and Servigistics.


Survey

 

Wakko in a pie shop, somewhere outside of Boston
What’s taking so long?
Dot It’s only been twenty seconds!
Wakko But I want my pie now!
Dot When don’t you want pie?
Wakko When I want baloney.
Yakko Figures.
So, Supplier Soft‘s supplier management applications, built on Salesforce were really cool.
Dot Who knew that SRM, like CRM, had so many fundamental similarities … that both required extensive information management capabilities.
So, where are we off to now?
Yakko Are we still on the S’s?
How about Saqqara?
Dot What do they do?
Yakko e-Procurement and Item Master Management I believe.
Dot Anything unique on the e-Procurement Side?
Yakko I think it’s primarily catalog and content management.
Dot Probably worth checking them out. Where are they?
Yakko They’re back in California.
Dot I’m still not ready to go back yet. Who else?
Yakko SciQuest?
Dot Aren’t they working with Emptoris now?
Yakko I think so. Maybe we shouldn’t bother. I’d hate to trek all the way back to North Carolina just to be shut out again.
Dot Do you really think they’d do that?
Yakko I don’t know. I do know that the doctor hasn’t covered them, despite the fact he thinks they’re important enough to make his Vendor Day listing, so I’m not taking that as a positive either.
Dot Okay. So we’ll leave them until we happen to be back in the area. Who else is there that starts with S? Didn’t the doctor tell us the name of a company that starts with S that we were supposed to check out?
Yakko I think he did! Let me check my notes.

Here it is … Servigistics!
Dot SERVIce loGISTICS? What on earth would they do?
Yakko I haven’t a clue. Maybe we should check out the doctor‘s posts for some background. I’m getting a little tired of looking stupid …
glaring at Wakko
Wakko What I’d do now?
Yakko ignoring Wakko
According to the doctor, in his post Servigistics – Tomorrow’s Strategic Service Management Today, Servigistic’s does strategic service management, particularly in the areas of parts, pricing, and workforce management.
Dot What’s strategic service management?
Yakko According to his wiki-paper, it is a proactive approach to satisfying the customer in a manner that is both efficient and profitable while balancing organizational strategy, resources, commitments, and pricing. Strategic Service Management supports the integration, optimization, and management of core business processes, adds to your overall business solution, and helps to differentiate your offering from that of your competitors.”
Wakko That’s a mouthful. What does it mean?
Yakko Good question. Just a sec …
taking out his cell-phone
bip-bip-bip
ring … ring
the doctor Hello?
Yakko Hello, Doc. We have a question. Let me put you on speaker.
Yakko activates the speaker phone.
Wakko We don’t want to look stupid.
the doctor We’ve been over this already, Wakko. I’m not *that* kind of doctor. You want a plastic surgeon …
Yakko No, no. What Wakko means to say is that we’ve decided to go see Servigistics and we don’t want to show up not knowing anything about strategic service management. We’re getting tired of looking stupid because of our ignorance.
We skip ahead a bit here. Part 16 filled in the blanks.
the doctor Okay. So what do you want to know?
Yakko When you say that “strategic service management is a proactive approach to satisfying the customer in a manner that is both efficient and profitable while balancing organizational strategy, resources, commitments, and pricing”, what do you mean.
the doctor That’s from the wiki-paper. Did you happen to read more than the first sentence?
Yakko The first paragraph …
the doctor If you’d learn some patience, and read the great materials that are available to you — at no cost, I might add– in full, you’d probably find that the wiki-paper answered most, if not all, of your questions.
Yakko Well can you give us the highlights?
the doctor I guess so. What, specifically, do you want to know?
Yakko Can you give us the nut?
the doctor But you already have Wakko.
Wakko Hey!

 



Service

 

the doctor Well, when I say that strategic service management is a proactive approach to satisfying the customer in a manner that is both efficient and profitable while balancing organizational strategy, resources, commitments, and pricing, what I am effectively saying, if you’re a procurement organization, is that services are as important to your cost management initiatives as direct and indirect goods, and that, properly managed, they are a point of savings and revenue generation, and not just a cost.
Dot But how does that work? Services require people — who cost money, and tools — which cost money, and parts — which cost money.
the doctor Let’s break it down.
Wakko Break it down?
the doctor Yes. Let me ask you this. How many people? What tools? And how many parts?
Dot What do you mean?
the doctor Let’s say you have 10 people, but you could provide the same level of service with only 7 if you managed them better, or, preferably, manage service for a customer base that is 40% larger with the same number of staff! Let’s say you’re using an expensive ERP-based enterprise CRM but you could get away with a SaaS solution based on open source. And let’s say that you currently stock ten 225 KVA three-phase transformers, when you only use an average of two in any given month. How much more are you spending than you need to?
Dot A few thousand?
the doctor Try a few hundred thousand. A good service professional, depending on what you’re servicing, costs you somewhere in the 50 to 150 K band annually; ERP-based enterprise CRM systems often cost in the millions annually when the TCO is fleshed out, while a SaaS solution will often cost less than 100K; and those transformers list for 15K a-piece, storing eight more than you need at an annualized overhead of 35% is almost equal to one person’s annual salary.
Dot So good service management can really save you a bundle.
the doctor And make you a bundle too. What do business customers pay for?
Dot Goods and services.
the doctor And what goods and services do they pay more for?
Dot Uhmm .. the ones that provide more value?
the doctor That’s right. And how do you provide more value?
Dot Better products and services?
the doctor Yes, and value-added services to be precise. Good service management will allow you to deliver a better level of service than you do now, for less than it is costing you to deliver your current service level. And customers will not only pay for that, but they’ll likely pay a little more for that if you reduce their workload.
Wakko So strategic service management is about managing your people, parts, and technology in a way that allows you to do more with less and deliver more with less, decreasing your costs while increasing your revenues. It’s strategic sourcing, on steroids, for services.
the doctor stunned
You’ve got it, Wakko!
Yakko, does that answer your question?
Yakko I think so. Now can you tell us what Servigistics does?
the doctor I don’t want to spoil your fun. Go find out!
click

 



Servigistics

 

Yakko So now that we know what strategic service management is, let’s see if we can piece together what Servigistics does. In his post Servigistics – Tomorrow’s Strategic Service Management Today, the doctor indicates that Servigistic’s does strategic service management, particularly in the areas of parts, pricing, and workforce management. Then, in Workforce Management: A Servigistics Approach, the doctor dives into workforce management and says it is “a software-based solution that optimally plans and dispatches field service technicians and their properly stocked vehicles to a customer’s location in a timely manner in order to deliver on their service commitments” and that it will “typically addresses demand management, workforce scheduling, workforce dispatching, and mobility solutions”.

Diving in, the posts says that the Servigistics “workforce planning component forecasts workload to determine the appropriate workforce size, the scheduling engine automatically sets and adjust optimal assignments based upon available data and available rules and updates those assignments in real-time if a higher-priority service call enters the system, the web-based appointment request feature allows customers to self-schedule, and the service mobility solution not only enables workforce communication, but allows the technicians to indicate where they are in the delivery cycle”.
Dot It sounds pretty sophisticated.
Yakko Sure does. Let’s go talk to them.
  the maniacs travel from Boston to Atlanta, Georgia
Wakko tap, tap, tap goes the mini-mallet
Hello. Hello.
Sharp Dressed Man a sharp dressed businessman opens the door
Hello … oh no!
Wakko looking around in a confused manner
What?
Sharp Dressed Man You!
Yakko You know who we are?
Sharp Dressed Man Of course I do! I read Sourcing Innovation every day. It’s the best blog out there! You usually spell Trouble with a capital T, and we’re a no-nonsense operation here!
Yakko We’re not here for trouble!
Dot We just want to learn more about strategic service management.
Yakko And how it can help companies.
Dot And what you do.
Wakko the doctor sent us!
Sharp Dressed Man He what?
Yakko Well, he didn’t exactly send us. He told us if we really wanted to learn about strategic service management, and what innovative companies are doing, we should consider checking you out if we were in the area. And here we are!
Sharp Dressed Man Yes you are. Well, the doctor‘s right in that respect … we can teach you about SSM … and if you really — really — want to learn, I’d be happy to talk to you. But you have to be good.
Dot We’re always good!
Sharp Dressed Man looking directly at Wakko
And put away the construction tools, roman candles, mechanical gadgets, and anything else that can be used for destructive purposes. Got it?
Wakko putting his mini-mallet away
Got it.
Sharp Dressed Man Okay. So, do you know what strategic service management is?
Wakko It’s about managing your people, parts, and technology in a way that allows you to do more with less and deliver more with less, decreasing your costs while increasing your revenues. It’s strategic sourcing, on steroids, for services.
Sharp Dressed Man Not bad. Do you know how we enable it?
Yakko You provide solutions for parts, pricing, and workforce management – the cornerstones of strategic service management. Your workforce management product, in particular, is quite extensive and includes workload forecasting capabilities, a dynamic scheduling engine, and a service mobility solution that service personnel can use to stay up to date in the field.
Sharp Dressed Man Not bad. But do you understand how these solutions provide value to our customers?
Dot They allow you to do more calls with less people through optimal scheduling, identify the most cost-effective tools and solutions to get the job done, and optimize inventory to maximize service levels while minimizing carrying costs?
Sharp Dressed Man Correct, but do you understand how we provide value to our customers? Do you understand why a customer wouldn’t just go out and buy a parts management solution from competitor Alpha, a best-of-breed price management engine from competitor Beta, and a workforce management solution from competitor Gamma?
Yakko I guess not.
Sharp Dressed Man We provide a holistic solution to strategic service management.
Wakko I like 3-D.
Yakko Not holographic, holistic — as in concerned with the whole and not just the parts?
Sharp Dressed Man Correct. You see, the full value of strategic service management only materializes when you tackle the whole problem. You can have the best workforce scheduler, but if they don’t have the parts, your personnel can’t perform the service. You can have the best inventory forceasting and management solution, but if the parts aren’t available where your service personnel need them when they need them, it’s for naught. And you can have the best pricing engine in the world, but you still need to have the parts available where the people are going to buy them.
Wakko So there’s no real value unless you look at the whole picture?
Sharp Dressed Man Correct. And that’s what we do. Through our Command Center, we unify our parts management, workforce management, pricing management, and knowledge management solution — which makes your workforce more productive — into one cohesive platform which doesn’t “improve” one aspect of service, such as workforce management, to the detriment of another, such as parts & inventory management.
Dot I never knew there was so much to good service management.
Sharp Dressed Man Now you do. And with that, may I bid you good day?
Yakko Since we’re here, we really should get an update for the doctor!
Sharp Dressed Man If it will get rid of you … and keep you OUT of my server room …
glaring at Dot and Wakko
I can do that.

Since we last spoke to the doctor, four big things have happened for us here at Servigistics.

First of all, we’ve made a number of updates to our workfoce management solution, including a web-based portal for customers to track their service status — think Fedex package tracker on a steroid shake; we’ve enhanced automatic e-mail notifications and the command center dashboards; we’ve added dispatch capability to TomTom navigation devices, e-mail, and SMS; and, probably most significantly, leveraged grid-computing technology in computation-intensive portions of the software for dramatic improvements in scalability.

Secondly, we’ve made some significant enhancements in internationalization. We now support 8 different languages, including double-byte Japanese, Mandarin, and Korean; we can add a new language in two to three weeks, and each user can see the same data in her language and custom date and currency formats.

Thirdly, we’ve added some specific aerospace functionality with respect to fleet provisioning, rotable pool planning, inventory consolidation, PBH/PBL cost-based planning, RTP and de-manufacture, scheduled maintenance planning with respect to repair BOMs, and replacement forecasting for life-limited parts.

Finally, in addition to netting a number of significant new global customers, we’ve also landed some very big aerospace manufacturers, carriers, and MROs

Anything you need elaboration on?
Yakko Uhmm … no?
Sharp Dressed Man Great! Thanks for stopping by. Have a great day!

Editor’s Note: At this point, we’ll be taking a short break for the 12 days of X-Mas, but we’ll return with the final two parts of the maniacs’ road tour on December 29 and December 30.