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by Mike Landry 

As global competition and customer demands intensify, the service delivered after the sale of a product is now what truly differentiates competitors from one another. While products and features can be duplicated, after-sale service is difficult to replicate and can have a substantial impact on a company’s revenue, profitability, and customer loyalty.  

 
A recent article in Harvard Business Review, titled “Beating the Market With Customer Satisfaction,” featured a study by the University of Michigan’s National Quality Research Center that substantiated the connection between customer satisfaction and Wall Street success.  According to the research, “The companies with high customer satisfaction scores have blown the S&P out of the water. Not only have they produced higher stock returns, but their stock values and cash flows have been less volatile.”

Steve Simpson, senior director of Supply Chain Management at Sun MicroSystems, has witnessed the power of service as a differentiator.

“In the high-tech industry, which Sun plays in, there’s a commoditization of the hardware,” Simpson says.  “As products become commoditized, where do you compete? It’s in services. Customers look to services to help them make their purchase decisions. Well-served customers become repeat customers. Repeat customers create a continuous revenue stream for your company.”

So why haven’t all companies tapped this opportunity, especially when service margins are 30 to 200 percent greater than product margins? This is partly because service centers are mostly inefficient compared with manufacturing operations.

“We’ve had this fixation on the idea of the perfect order, getting the right product to the right place and the right quantity at the right time,” says Bruce Richardson, chief research officer, AMR Research. “What we’ve missed, on the other hand, is the idea of the perfect response. If a customer has a problem, a part’s not working and they need a replacement, we haven’t really, to date, been focused on, ‘How do I get the right person with the right part at exactly the right time to solve that customer’s needs?’ ” 

The delivery of post-sale service has been neglected due to a lack of investment in technology. On average, manufacturers funnel less than 10 percent of overall annual IT spending to the service side of the business. Even though a recent AberdeenGroup study (“Service as a Profit Center:  The CFO’s View,”  August 2006) reports that leading companies across durable goods industries achieve 25 percent or more of their total revenues from their after-market service business, most companies still lack integrated service systems. This inhibits efficient, effective service delivery.

To gain competitive advantage and boost market share, industry leaders are beginning to take a more strategic approach to managing their service business by implementing solutions that align all aspects of their service business to streamline operations, enhance revenue and profitability, and improve service levels—all simultaneously.  

Strategic Service Management (SSM) represents a fundamental shift in how manufacturers approach service. It’s about aligning service business processes onto a single, integrated view of the post-sale service operation, one that takes into consideration the planning and forecasting of service resources and the strategy and management of customer commitments, service partners, service pricing, and knowledge. It’s this holistic view that delivers dramatic performance improvements.

“Strategic Service Management is a concept where you bring all of the pieces that delight customers, making sure their after-sale support experience is the best it can be,” says Simpson.  “It’s bringing people, parts, systems, technology, and knowledge management together so you can capture that customer and make them a repeat customer.”

However, providing post-sale service is becoming more complicated than ever. Original Equipment Manufacturers (OEMs) are, by default, responsible for supporting all products currently being manufactured. They’re also charged with servicing all the obsolete products still in operation. This creates a service management challenge that’s much more complex than any supply chain planning problem faced by the manufacturing side of the business. For example, service organizations are expected to manage and track hundreds, if not thousands, of stocking locations. They have to work diligently to synchronize the service workforce in terms of both capacity and technician skills, based on the nature of each service call and changes in the installed base.  There’s also the complex issue of synchronizing technicians with parts availability. To ensure customer commitments are kept, both technician and parts planning and provisioning need to be tracked in real-time with the ultimate goal of solving the problem in the timeframe committed to the customer.

To add to the complexity, the number of partners used in service operations for most companies is growing, and every partner can either negatively or positively impact the customer experience. So, in addition to managing upstream suppliers and sometimes downstream dealers and distributors, managing partners (who provide technicians, maintenance and repair, or logistics services) only adds to the challenge. Visibility into partner operations is often critical to successful service delivery, yet few companies have the visibility they need to maintain control.

Given these inherent complexities, service operations present a fundamentally different set of operating challenges from those on the production side of the business. These challenges require an integrated, closed-loop approach that can provide a single view of all business processes involved in delivering, funding, and meeting service-level commitments.

Any successful organization is governed by separate but aligned processes that work together to achieve that company’s specific business goals. The SSM approach applies that same concept to a company’s service organization and focuses on aligning and improving the core processes that create a best-in-class service organization. Those processes are:

·         Service Resource Planningis a closed-loop process that helps companies accurately plan and forecast all their service resources across all locations. This means having the right technicians and the right parts available to successfully complete each service call, while ensuring the profitable delivery at the lowest cost and highest profit.

·         Service Commitment Managementis the process of automatically scheduling and monitoring resources to ensure service commitments are profitably met. Service commitments in jeopardy are quickly addressed.

·         Service Partner Managementis the integrated management and coordination of third-party service resource providers such as suppliers, maintenance, repair dealers and logistics providers, to forecast, monitor and optimize integrated service delivery.

·         Service Price Managementproactively maximizes profits and revenue by strategically adapting prices of parts, contracts, or service offerings to market conditions and customer demand. 

·         Service Knowledge Managementallows technical support organizations the ability to build and organize a complete knowledge base system in an unprecedented time while providing the tools to effectively maintain it over time.

According to AberdeenGroup’s report, “The Convergence of People and Parts in the Service Chain,” companies that align service labor and inventory processes are nearly three times more likely to have first-call service order resolution rates greater than 85 percent and asset uptimes of greater than 95 percent. While point solutions can add value to a company’s service operations, the SSM approach helps companies maximize bottom-line results because the solutions are designed for a company’s service business and not its general ledger, supply chain or point service problem.  

“Service is extremely strategic to Juniper [Networks],” says Steve Blaz, Juniper’s vice president of Global Service Operations. “It is about 20 percent of our total revenues on a yearly basis, so it is strategic from a monetary standpoint. It is also extremely strategic for our customers because we’re all about customer service.  We’re all about ensuring that the networks are running.”

The results SSM can bring speak for themselves.

Global communication systems leader, Avaya, designs, builds, deploys, and manages networks for enterprises at more than 90 percent of the Fortune 500 companies. As a 100-year-old company that has grown through numerous acquisitions, Avaya’s service organizations were operating as separate business units and their customer service levels were at their lowest. To improve service levels and remain competitive, Avaya needed to gain control over its inventory and improve service part availability.

Less than a year after implementing an SSM solution, Avaya:

·         Improved first-time fill rates by more than 35 percent

·         Cut its service parts inventory from $250 million to $160 million

·         Turned its customer satisfaction around in less than six months. 

Avaya is just one example of a leading company that has transformed its service operations with an SSM solution and recognized measurable business value in the form of dramatically improved revenue, profitability, and customer loyalty.   

Exponential growth at Sun Microsystems caused the company to over-stock service parts across four separate geographies to achieve their Service Level Agreements (SLAs) commitments, leading executives to recognize the need to improve their operational efficiency globally while reducing inventory. To achieve this, Sun decided to implement an SSM solution that would help it meet its SLAs, align its global service organization, reduce inventory and ensure profitable service contracts. In just 25 weeks, Sun streamlined its global service parts network and saved $45 million in less than a year.

So, in today’s frenetic market, companies have another way to step ahead of their competition. While new “bells and whistles” can be replicated, what can’t be replicated is the satisfaction of the customer who needs service and needs it now. Once that service is delivered without exception, that customer will repeat his or her business, leading to more revenue and more loyal customers. SSM, therefore, fuels service-centric companies by lowering costs, increasing productivity, and improving customer retention. SSM achieves the goal of getting the right person with the right skills and the right parts to the right location at the right time to resolve issues on the first visit.