Category Archives: Services

Cheating Metrics Does Not Make For Better Service!

Reading the fall issue of the MITL Quarterly from the McMaster Institute for Transportation & Logistics, I was appalled to hear that only one airline reported a tarmac delay of more than 3 hours was a US airline performance highlight for August 2010 (as opposed to 66 such delays in August 2009). One must remember that the DOT 3-hour rule, which mandates that passengers on domestic flights be allowed to disembark after three hours (provided doing so doesn’t create a safety or security issue or interfere with airport operations), came into effect on April 29, and that the fines for violating the rule can be as high as $27,500 per passenger, which works out to 3 Million or more for a stranded 737.

As a result, airlines now have a huge incentive to insure that a plane doesn’t sit on the tarmac for more than 3 hours — an incentive that is much bigger than the incentive they have to get passengers to their destinations on time. Do the math — at 27,500 a pop, the penalty for sitting on the tarmac can be up to 50 times the reward for getting passengers to their destination (as measured by the ticket price). Thus, airlines are not boarding until the chance of take off within 3 hours is as close to 100% as possible — which means that instead of sitting on the tarmac, passengers are now sitting in the airport instead. Plus, when there is an extended delay, the chance of a delay beyond 3 hours is now much greater because if the delay becomes extended, the airline will just cancel the flight instead of taking a service performance penalty. They change the metrics — and while it makes for “better service” from the Department of Transportation’s perspective, it doesn’t make for better service to the end customer.

After all, the statistics are still bad. If you go to the Research and Innovative Technology Administration Bureau of Transportation Statistics and search the airline statistics for the major airlines, you’ll find that on-time arrivals for the past year are still hovering around the 80% mark on average and, most importantly, that (well) over 5% of regularly scheduled flights are now cancelled by the major airlines. Two Thousand and Four Hundred (2,400) regularly scheduled flights were cancelled in October 2010 alone. I’m not sure what the average delay for each passenger that had to be rescheduled was, but I bet it was a lot more than 3 hours. And if 9.4% of flights were cancelled in October 2010, then, on average, only 70% of regularly scheduled flights are arriving on time. (And in June and July, over 200 routes were chronically delayed, that is, over 50% of flights were late by 30 minutes or more.) That’s very poor performance in my book.

I could continue to drone on about the fact that US airline performance is, despite low violations of the 3-hour rule, quite dismal, but I think this is enough make my point. If your service is bad, and you change the metrics, it’s still bad and you’re not going to fool your customers. While the airlines might be able to get away with it, as most major airlines will have an effective monopoly on a number of routes around their local hubs and you don’t have a lot of choice, you won’t. Unless you’re truly making a one-of-a-kind product that your customer cannot get anywhere else, which is not true for 99%+ of manufacturers, your customers have a choice — and if you give them poor service, when the contract is up, they’ll leave — especially if you try to report stellar performance when the truth is anything but.

Don’t repeat the airlines’ mistake.

Will CLM, SoW, and VMS Stem the Outsourcing Tide, or Will they Just Accelerate it?

One of the major areas of focus today in services management is the area of Contingent Labour Management (CLM) / Statement of Work (SoW) management, and Vendor Management Solutions (VMS). Big companies with big workforces, and especially big companies that use a lot of temporary labors, contractors, and service providers, not only spend a lot on people, but spend a lot on people who do nothing but manage the workforce — recruiting, hiring, support, project/contract management, layoffs / end-of-contract transitions / firings — as this has traditionally been a very time-consuming and cumbersome process (with all the rules, regulations, and firings, you can literally suffocate under the mound of paperwork you produce).

As a result, many large companies, in an effort to keep the process, and their spend, under control have elected to either outsource entire functions or hand over their management to a Managed Services Provider (MSP) [like Manpower or Kelly Services] that specializes in workforce management processes and can bring best practices and best-of-breed technology to its management. In some cases, it was the company’s only option as their area of expertise did not include staffing and their costs were spiralling out of control.

However, the state of affairs today is not like it was in years past. Modern CLM / SoW / VMS systems are streamlining the process by leaps and bounds, taming the beast, and allowing today’s HR personnel to focus on the people, and not the process. As a result, a task that may have been insurmountable for a small HR team ten years ago can now be easily managed today by that same team with the right technology and training. An organization that once had no choice but to outsource workforce management can now pull it back in house. But will they?

Or will they take advantage of the fact that your average MSP already has this technology employed, and in some cases, has a VMS solution that allows them to manage your workforce while keeping track of their performance. They’re used to it, they’ve trained on it, and they’ve already mastered the current best practices. They can be locked, loaded, and ready to go in a matter of days — as long as you’re willing to give up control.

So will the average organization take back control and bring their workforce management back in house with modern CLM / SoW / VMS systems, or will these systems just accellerate the outsourcing craze and the dominance of the MSPs? What do you think?

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Go Global or Go Home

No, this isn’t a post about my favourite topic of outsourcing. Or even about international buying or selling. It’s a post about operations, and it’s for the vendors. Really.

Those who do global business follow the sun. That way they can offer 24/7 customer service, and do it during normal business hours. Most people don’t want to work twelve hour shifts or work all night, and most companies don’t want to pay overtime or the higher wages that workers in many markets would want for the privilege.

However, the leaders have realized that if you want to stand out from the crowd, that’s not enough. You also have to support your suppliers 24/7 and be ready to take action as soon as something goes wrong — even if that’s 2 am Friday morning. As a result, many companies have started putting people on the ground in a local time zone near their suppliers. And it’s these local people on the ground who are doing most of the work. And they themselves want to be supported.

As a result, today’s leading customers care a lot more about where your support team is than where your headquarters is, where you account managers are, or whether or not you’re best in class (because many of them only need good-enough solutions most of the time, as long as these solutions are there when they need them). So if you’re planning to expand your operations as a supply management software or services provider, forget the global sales offices. Smart customers don’t care. They care about whether or not you’re there to support them when they need it. And putting someone on the ground there with them goes along way towards negating that worry — as more and more vendors in the space are realizing, and doing. (In fact, I recently talked with one CXO who said “I’m not hiring anyone else local. I’m here, and since most of my customers aren’t, why would I need anyone else here? I can support the few customers I have here by myself. I’m going to hire the people where they are needed.”)

In other words, if you think you’re the next vendor to cross the ocean, or the continental divide and you aren’t planning on establishing a local presence, think again. You’ll just be wasting your time and money. Customers don’t just want differentiating technology anymore (as they have enough of that), they want differentiating service — and if you can’t provide it in this increasingly crowded space, you won’t survive. Sorry to burst your bubble, but that’s just the way it is. Have a nice day.

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MCA Solutions – Bringing the Aftermarket Forward, Part II

In Part I, we re-introduced you to MCA Solutions, a Philadelphia, PA company that specializes in after market service (and service parts) optimization, and noted that they were still going strong despite some recent shake-ups in the market (and the noteable acquisition of Servigistics and Click Commerce by Marlin Equity Partners, who also acquired Emptoris not too long ago). We noted that, in addition to completing a strong SAP integration, they’ve also added a considerable amount of new functionality in the last two years around reporting, plan analysis, and reporting management.

Since we covered their new reporting and plan analysis solution in the last part, today we’re going to cover their performance management solution. Since you can’t manage what you can’t measure, and the best way to measure is often with a balanced scorecard, it’s based on scorecards, but since managers don’t like columns of numbers, it’s implemented using a dashboard, but since MCA agrees with me that traditional dashboards are inherently dangerous and dysfunctional, they realized that the only way the application would be truly useful was if it clearly identified not what was right, but what was wrong (since a goal of after-market service is exception-based management so that you only expend resources where needed). More importantly, the scorecard dashboard would only be useful if it allowed you to quickly discern what was wrong and do something about it. So what MCA built is a dashboard scorecard that not only highlights any metric that is out of bounds in red, but an interactive graphical scorecard that allows you to drill down into the metric retrieve all of the data associated with that metric in a single click.

Just like you can drill into a spend cube, you can drill into any metric on the scorecard. The first level drill will bring up all of the metrics the high level dashboard is composed of, and highlight which metrics are a problem. You can then drill into those metrics and bring up all of the associated raw data. So, if you brought up the scorecard and saw on-time delivery was only 80%, when anything under 90% is unacceptable, you could drill in and see the problem ports are LA and New Orleans and that San Diego, Washington, Vancouver, Boston, and Halifax were all meeting or exceeding their on-time delivery targets. You could drill in again and see that at these ports, most of the late deliveries were from West Coast Warblers and East Cost Easies and instantly know that either these suppliers have performance problems or that you’re not allowing them enough time in your inventory network design to transport the parts require to replenish your North American stock from your foreign suppliers. But since you can also drill into the application and the underlying model associated with any part, location, or supplier you can quickly determine if it’s a performance problem or a network design flaw. For instance, lets say you only allow 14 days for replenishment of goods in your LA warehouses from Shenzhen. Considering that sailing time is typically 12-15 days, and that it probably takes at least a day to get your goods unloaded at the port, and another for them to clear customs, get loaded onto the truck, and transported to your warehouse, there’s no way you’re going to get that part in less than 14 days by sea and it’s probably going to take at least 17 days on average, especially if these carriers are running slower ships. Then you know you need to adjust your model, and measure the supplier against a more reasonable delivery time. But if you are allowing 21 days, and your third party carrier is consistently late, then you have a supplier performance problem.

Moreover, the scorecard dashboard is completely customizeable. Each component is actually a dashboard report, and with their new flexible reporting capability, you can build any report you want. So you can design the dashboard to focus only on reporting problems. That way you can ignore the 90% of your network that is running smoothly and dive right into the 10% that isn’t running right, analyze the situation, revise the model, analyze the revision, implement an improvement, and see if the situation improves over time. If not, you can dive right in and try again. And if everything looks too good, you can define more metrics, more sanity checks, and find new problems to work on. Which is precisely what an actionable scorecard should allow you to do!

And your suppliers in China and Japan can use it too. The product is double-byte Unicode compliant and, in addition to a number of European languages, has also been translated into Mandarin and Japanese. With these recent improvements, you should be able to plug it right into your follow-the-sun operation and, once it’s configured and your data is complete, close the loop on your end-to-end after market service (parts) operation.

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MCA Solutions – Bringing the Aftermarket Forward, Part I

MCA Solutions, a Philadelphia, PA company that specializes in after market service (and service parts) optimization, is still going strong despite the recent struggles of a few of its direct competitors (namely Click Commerce and Servigistics who were recently acquired by Marlin Equity Partners). If anything, the recession (although it did considerably lengthen the sales cycle) only bolstered the need for after market service (as no one could afford new equipment) and optimization thereof (as everyone is strapped for cash and every penny counts).

As I indicated in my first post on MCA Solutions and their strategic service parts management platform, many large manufacturing, semiconductor, high-tech, aerospace, defense, and oil & gas companies often have tens of millions, if not hundreds of millions, of dollars tied up in inventory in their attempts to meet specified service levels, and every dollar in inventory costs them money in overhead. Since many of these companies typically have 10% to 20% more inventory than they need, they’re tying up tens of millions of dollars in working capital needlessly as well as throwing away millions of dollars in inventory holding costs — a situation which is easily remedied by a service level optimization platform that can optimize your multi-echelon parts inventory storage network such that your contracted service levels are met but your costs are minimized. Furthermore, as per the value of after market service in a down economy, done right, this optimization will also improve cash flow by roughly 10%, reduce inventory by 15% to 50%, and even improve service levels by 5% to 20%.

Since the last time I covered MCA in depth, which was almost two years ago, they’ve made a number of significant enhancements to their platform, the most notable being flex reporting, performance management, and plan analysis. Of these, flex reporting and plan analysis excite me the most, because the former lets you construct any report you can imagine (if you’re willing to write some SQL*) and the latter lets you build, optimize, and compare as many what-if scenarios as you want, which is the (one of the) most powerful feature(s) of any good optimization platform.

Their plan analysis tool not only allows you to define your service parts strategy (fill rates, inventory/investment caps, number of echelons to consider simultaneously in stock planning, etc.) and run an analysis on that strategy (to determine total cost and inventory distribution), and not only allows you to compare one strategy against another (how much do I save by sacrificing 1% of fill rate? how does inventory distribution change? etc.), but also allows you to define a rules-based sanity check that can be run against every model and the resulting inventory solution. For example, if the inventory levels change by more than 20%, the overall investment changes by more than 10%, shortages or excesses at any location exceed pre-defined maximums, etc., the product will immediately warn you that the new model might not be an acceptable replacement over the current one. Also, each of these rules can be defined by location, SKU (or family), or segment (or lane), which gives you a lot of flexibility in your analysis and sanity checks. (Other checks can include replacement rate, forecasting model [parameters], export mode, horizon, manual overrides, time factors, intermittence, thresholds, and other relevant measures tracked and/or computed by the platform.) Furthermore, they’ve also added the ability to generate plans by Average Customer Wait Times, which is becoming important in aerospace and defense, oil and gas, and other sectors where you have equipment that can’t be unavailable for more than a very short amount of time and service (availability) levels aren’t good enough.

While we’re talking analysis, they’ve also added a new multi-period budget report which is a system generated report that is very useful as it not only calculates total forecast, condemnation forecast, repair forecast, overall metrics, TSL, average inventory position, scheduled demand, new buy, and cost across your entire operation to anywhere between 12 and 36 months in the future, but does so using a successive series of automated optimizations where the output of one period is used as the input to the next. It will take anywhere from a few minutes to a few hours to run, but it clearly allows you to see the long term effects of any change to your aftermarket service (parts) strategy.

In the next post, we’ll talk about their new performance management solution.

* Yes, I’ll admit that I’m not your average user but I have to applaud them for acknowledging their expertise is not in the creation of report builders, that no set of canned reports, no matter how extensive, will please everyone, and that the right thing to do is expose the schema and let power users do what they want — which isn’t dangerous when you also give them the ability to make as many copies (partial or full) of the database as they want and to mess around with the copies, and not the production data.

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