By Ann Grackin
It may seem obvious to all of us, but the fundamental process
by which technology and equipment firms engage with clients
have somewhat opposing processes and needs. Modern service
best practices attempt to harmonize these goals.
On October 20th, I attended the annual Stanford/Wharton
Service Supply Chain Forum. At the outset, Morris Cohen of
Wharton set the stage for our cross industry / cross competitor
Said Professor Cohen, “Customers’ main goal
is to extract value from the goods and service they buy—and
in most cases, extend that value (use) as long as possible.”
Various panel members reinforced this basic concept.
The longer that cycle continues, the more likely the supplier
will have to institute and manage a so-called service business
to support them. A trillion dollars later—give or
take a few billions—the B2 Bomber is still in use,
the Under Secretary of Logistics of the DoD reinforced.
Less exciting, but also challenging to service, a tool
firm like Hasbro has equipment in the manufacturing facilities
built in the forties and fifties that still must give service
(no one has invented replacements for these).
There are a few key issues that service providers need to
understand if they intend to design and deliver products
and service that create and maintain that value:
on performance is the key metric—in the
customer’s eyes. Gone is the concept of response
time and fill rates, but rather Availability or
not about fixing broken things. But more important, it’s
about having a separate line item for inventory/part that
a customer pays for. Customers expect and will pay for
the performance, and leave the rest to the service provider.
We have several profound examples of firms attempting to
create these business models—Lockheed and Boeing
working with the DoD on PBL- Performance Based Logistics.
second key concept we learned was the need for total
life cycle integration for end-to-end knowledge sharing.
Service data or returns data holds many keys to product
innovation design, yet many firms’ supply chains
are highly outsourced, or pay little mind to returns, and
therefore never mine this
- Eco system innovation—the point of performance—using
and gaining value from goods and services—is
the result of a complex web of partnerships. With long
life value at
stake, the decision to buy products is beyond just feature/function,
but buying into architecture—a continual stream of
- Outsourced models of service frequently
put someone else in charge of the dissatisfier zone—using
the product for a lifetime. These models, we heard, are
with sales reach, supply chain efficiencies and cost in
mind...hmmm...how about delighting the customer? When we
heard the word customer
used, most frequently it related to the OEM. This is still
a huge issue in service models.
Study after study has shown that customers will pay for
extra service, yet the basic model for service puts all customers
on the same platform. One of the few things the customers
got right—special 800 numbers for Platinum customers.
High tech and a very bad rap with customers now with their
outsource services (referenced in other articles in this
month’s PV). Those who buy a $3400 laptop with a service
contract should get higher-grade service than those with
the $599 product. Yet, all wait in the queue to reach unskilled
service call centers where employees read through manuals
and notes. Shame! Shame!
The issue, as well as for the brand firm, is that this induces
a POOR RELATIONSHIP with the customer, destroying loyalty
and future sales.
Jim Molson says Selectron is thinking through these models,
and gave some insights on the insourcing or outsourcing of
services. Warranty dollars are shrinking, due to the lower
costs of the price of hardware. (But one would assume there
is still decent margin here, since the reliability has gone
Forces in Outsourcing vs. Insourcing
|Theoretic Central Control
||Access to new markets/geographies
|Customer access to developers and engineers
||Asset recovery/after market reselling
|Hardware prices are dropping- OEMs want to capture
all revenue opportunities
||Multi-vendor knowledge and leverage
Aligning goals between partners seems to work over time
since the hard definition of value—cash—is understood.
Yet the dissatisfied zone needs a lot of work.
One interesting discussion occurred about chemical services
vs. chemical sales in automotive.
The ultimate goal is not to buy and store chemicals, but
rather to have just enough to manufacture the car. Chemical
Service provides and charges for that outcome and managing
the supply chain, the disposal, recycle etc., and only charges
based on each manufactured car. Clearly, a lot of data drives
this process—end to end.
Integrating the chain is crucial to aligning the goals of
customers and provider. Left unsaid is who will be responsible
for integrating the channel. What also appears to be true
is the lack of dialogue and innovation at that last mile,
the dissatisfied zone.
Want to make more money? Be understanding and deliver
high-end care for the customer. Part of the analytic tool
help model this—again, that end-to-end data may have
some of the keys!
©2005 ChainLink Research, Inc.