Category Archives: Services

Lean Services

Last week at Aptium Global’s private 10 Ways to Significantly Improve EBITDA and Reduce Operational Risk in Your Portfolio Companies, Lisa Reisman, Mark Pruitt, and Ara Surenian presented ten real-world examples of cost reduction and EBITDA improvement in small and middle market operations that proved that Lean can be used to save significant amounts of money even in categories where annual spend is in the low seven digits. Jason Busch did a good job of summarizing the event at the macro-level in his post “Small / Middle Market Private Equity Investments and Spend Management”* on Spend Matters [WayBackMachine], so, with the kind permission of Aptium Global, today I am going to detail the first of two case studies that serve to illustrate that not only can lean significantly improve operations in companies with revenue as small as ten or twenty million, but do so outside of traditional manufacturing operations.

This first example is based on the results obtained by Aptium Global for the US Division of a high-end manufacturer (in tubing) for the automotive market. This division was finding it extremely difficult to “baseline” services spending, such as machining or heat treating, which was generally based on price per piece quotes, compounded by the fact that many pieces were of odd sizes and shapes, and further compounded by the fact they are usually produced on the basis of capacity and/or geographic proximity.

By creating a pricing matrix that included piece grade, weight, and invoice value, Aptium Global was able to calculate a price per pound for each service to estabish a baseline. This allowed the division to source strategically as it allowed for a straightforward negotiation process, provided a way for savings to be monitored on an on-going basis, and fixed pricing going forward. Furthermore, since the baseline reduced sourcing confusion, it allowed the division to spend more time on quality control and develop of on-going process control methods to insure that quality issues were detected quickly, and the supplier notified promptly.

As a result of the implementation of this simple lean sourcing methodology, the division was able to realize an average savings of over 20% on services spending. Furthermore, the net operational improvements allowed the division to rationalize their supply base and reduce their three (3) day lead time to twenty-four (24) hours.

Next entry: Lean Commodity Sourcing

Servigistics – Tomorrow’s Strategic Service Management Today

In yesterday’s post, Strategic Service Management, I talked about the importance of making the customer efficient while maintaining a profit – something you are likely to only achieve in today’s highly competitive marketplace with strategic service management – a proactive approach to service management that balances service strategy, resources, commitments, and pricing that supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and differentiates your offering from that of your competitors.

Why is it important? Despite the huge investment in IT to support the front end of the sales cycle (which can consume up to 85% of the IT budget in some organizations), in today’s competitive market, you can still see declining sales without the right strategy – which today needs to involve services. After all, in a well run services organization, particularly in the durable goods and consumer goods verticals, post sales service can provide a nice margin of 20% to 50%, which not only turns service from a cost center into a profit center, but increases your profit while decreasing your costs (since you simultaneously optimizing your resource allocation).

So, how does Servigistics (acquired by PTC) tackle Strategic Service Management? Three ways: parts management, pricing management, and workforce management. What’s the difference?

Service Parts Management is the process of ensuring the right part is available at the right place at the right time. The alignment of planning, forecasting, and inventories, it makes sure you can respond to a customer need as it arises, without costly expedited shipping, unnecessary wait times, or financial losses (that can result from service level guarantees).

Service Price Management is the management and optimization of service parts prices by way of sophisticated pricing methodologies, advanced optimization techniques, and adaptive business logic to maximize revenue. Pricing is more difficult than you might think. It’s not about charging as much as you can – because that limits you to a few customers. It’s not about charging the most competitive price, because that might cut your margins to the point where sustainability is at risk. It’s finding the right balance that maximizes your customer base while maintaining profitability.

Workforce management is the process of optimal workforce scheduling to make sure that you have the right number of service professionals on duty and the right amount of service equipment (and vehicles) available to deliver committed levels of service 24 hours a day, 7 days a week, 365 days a year. This involves monitoring and adjusting your schedules on a continuous basis, optimally dispatching and routing service professionals as service calls come in, and aligning your workforce skill set to meet your evolving customer needs.

So, optimize the workforce to deliver the right part at the right time at the right price and you simultaneously minimize cost and maximize resource utilization and revenue opportunity. Does it address everything? Well, for starters, you still need a good strategy and product life cycle management tool to understand what might go wrong, when, and what you will need to fix it, so it’s not yet a panacea solution, but it is a great start. All you have to do is look at their customer list – a Fortune 500 who’s who of High Tech, Heavy Equipment, Automotive, and Aerospace – and the magnitude of savings a service management solutions suite has enabled for them. (As per a 2005 Business Week article, Avaya reduced service parts inventory from $250 million to $160 million, Sun Microsystems saved $40 million and Dell nosed out Hewlett-Packard for the top spot in the U.S. hardware support market, growing its service business unit by more than 20%.)

Strategic Service Management

As I’ve been mapping out the supply chain space, one of the oft-overlooked areas that I keep stumbling on is service management – and by that I am referring to customer service management, and not just outsourced services management. After all, I do preach Total Value Management (TVM), and unlike Total Cost of Ownership (TCO), TVM is concerned with all of the life-cycle costs associated with a product, and that includes servicing and customer returns.

I know I haven’t blogged much about this area in the past, in fact, my only post to date has been my post on The Art of Service Management back in November. In that post, I described P.T. Harker’s talk on the evolution of service management and how the new goal of service management is to make the customer efficient and how making the customer a part of the process helps to ensure that the product or service is what the customer wants, which in turn increases your chancing of selling the product or service to the customer.

But service management is about more than just making the customer efficient and sufficiently satisfied – it’s about making the customer efficient and sufficiently satisfied and making a profit at the same time. With enough effort, you can make almost any customer efficient and sufficiently satisfied, but if you spend more than you get, you will not stay in business very long.

How do you do that? Strategic Service Management. A proactive approach to service management that balances service strategy, resources, commitments, and pricing that supports the integration, optimization, and efficient management of core business processes, adds to your overall business solution, and differentiates your offering from that of your competitors. How do you get there? Well, as with any new initiative you find a partner to help you get to the next level. Who should you choose? That’s up to you, but one provider you should look at is Servigistics (acquired by PTC) – the second stop on my whirlwind virtual tour of Atlanta – and the subject of an upcoming blog post.

The Sorcerers of Sorcity

Another stop on my whirlwind tour of North Dallas was
Sorcity. My goal was to find out if they were an on-line auction platform, an e-marketplace, a combination of both, or something entirely different … since their site left me asking as many questions as it answered.

Founded in early 1999, it is possibly the oldest surviving stand-alone on-line reverse auction platform in the sourcing space (as most of the early major players have been acquired). [As a side note, Procuri (acquired by Ariba, acquired by SAP) is probably number two as it was founded in 1999 as well, and Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) is probably number three, as it was founded in early 2000]. In addition, it also serves as a marketplace with over 620,000 registered suppliers where you can potentially find hundreds of suppliers that could meet your needs. However, the real differentiator between the other online and on-demand SaaS reverse auction providers and other e-marketplaces is its managed services offering.

When you get right down to it, even with the best tools available, with finite resources, you can only conduct so many sourcing events on your own. The only way to conduct more events is to augment your team, either by hiring consultants or outsourcing part of the process – that’s where managed services comes in. With Sorcity’s platform, you can use Sorcity to assist with as much of the executable sourcing cycle (Preparation / RFX / Auction / Negotiation / Award) as you like … anywhere from just automating all of the time-consuming administration, negotiation, and analysis to having Sorcity conduct the entire event for you end-to-end.

With their tool alone, they claim you can save 1-12 days on the auction component alone, an additional 3-66% on price paid, and get anything you need with their very large supplier network. So they are definitely competitive with the service offerings of the on-demand providers like Iasta and Procuri. But as I just said, the real power is their managed services where you can outsource entire categories and events. Under this model, provided your bid is for 100K or more, you can successfully complete an event with just 1-2 hours over 1-2 weeks! Furthermore, it does not cost you anything – the fees are paid by the vendor who is awarded the business! (I believe they also have a consulting model, where they will help you for fixed fee, but, unlike most vendors, you only have to pay if they save you money. How can they do it? Years of experience has taught them where considerable savings are, and where they aren’t. So if they don’t think you can save enough money on a category / event to make it worth your while, they’ll help you find one where you can save enough to make it worth your while.)

So although I would hesitate to recommend their solution for in-house purchases (and I still believe all high-value and strategic purchases should be managed by a core team in one center of excellence under a center-led purchasing model) as I believe those should be executed under a platform that covers the entire sourcing cycle (and not just the executable sourcing cycle), I would certainly not hesitate to recommend that you consider them for those categories that are not critical to your business (and when you get down to it, the vast majority of your purchases are not, despite what you might think – if ten suppliers can make a part, it’s not strategic – only those components that can only be provided by a handful (< 5) of vendors or those components that can be, and often are, in short supply are critical, and therefore need to be classified as strategic). After all, the best way to do strategic sourcing is to strategically outsource everything you do not have a core competency for and everything you just do not have time to strategic source in house.

So check out Sorcity and check back to see if I am successfully able to convince their white-paper writer to guest author a post on why a managed services platform may also be appropriate for certain high-spend or strategic purchases.

Disaster Recovery Planning

In Managing Business Risk, we discussed Business Continuity Planning and how it is one of the best ways to manage risk, including supply chain risk. A major component of business continuity planning is disaster recovery planning, and after my recent posts on how Your Supply Chain is NOT Secure, diaster recovery planning should be at the forefront of your thoughts.

If you find planning for a disaster daunting, it never hurts to bring in some outside help, and if you think the costs of setting up a backup operation are prohibitive, then you might want to consider outsourcing that as well.

A recent article in the Outsourcing Journal, “Why Every Business Needs a Disaster-Recovery Plan”, demonstrates how it can be an effective option. It discusses how Citrix was able to literally move their factory from one side of the country to the other with the flick of a switch thanks to HP’s disaster recovery service which had the backbone and infrastructure needed to take over Citrix’s world-wide ordering and fulfillment process across all 670 SKUs.

Selecting a disaster recovery outsource provider is not an easy task, and Citrix spent 18 months interviewing and evaluating 20 firms globally before making a choice based on a 32-question report card. However, your process need not take quite as long if you heed Citrix’s advice and focus only on outsourcing provider willing to work with you and address your concerns. As the article notes, transition can be turmoil in most outsourcing arrangements, but if the company is willing to commit the necessary time and resources and work with you to make the transition seamless, it can be.

In addition, the provider should be comfortable with quarterly management reviews and clear metrics. Everybody should be looking at delivery performance, quality, customer satisfaction, and cost improvements every 91 days and identifying opportunities for improvements. Then, both parties should jointly choose two or three initiatives to work on during the upcoming quarter and follow through.

As per the article, done well, outsourcing has the following benefits:

  • Increases productivity
  • Increases mobility
  • Frees up resources to focus on core competencies and innovation
  • Provides business continuity and security
  • Reduces complexity and improves performance
  • Consolidates to create a single view into technology environment
  • Provides governance and compliance
  • Improves process
  • Reduces points of accountability
  • Provides accountability to service level agreements