Parallax View : New Lines of Insight

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 sharing of ideas.

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:

Focusing 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 uptimes. It’s 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.
The 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 knowledge.
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 long-term innovation.
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 designed mostly 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 up.)

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.

Conclusions:

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 kit can help model this—again, that end-to-end data may have some of the keys!