By Ann Grackin

October 23, we participated in the Wharton/Stanford Service Supply Chain in Philadelphia. This annual event attracts some of the most senior professionals who care about the Customer Service Chain.

Service has a broad based definition from traditional concept of aftermarket installation and repair to a more philosophic point of view expressed by the CEO panel—that possibly there is no distinction between product P&L vs. Services P&L—it’s about Customer Centricity. Ralph Roberts, Chairman of Comcast, went so far as to declare that if you serve the customer, you will be loved.

Having said that, many firms have declared that over the years the revenue shift for them has moved from product design and sales to ‘service’, though definitions of that are squishy.

What we think of as not squishy, or in doubt at all, is the stark reality that for many businesses the so-called product is free (or pretty close to it)! It’s all about the lifetime connections. Cell-phones, on-line auctions, etc., have led the way. But many industries have suffered extreme price erosions, appliances, etc., and we do not know what else will be next. A clever inventor will create the next disruptive technology and set an industry on a new journey. Unless I am a disruptor, I would not like being in the consumer electronics business. You’d better have price on your side—Kodak’s 5 Megapixal for $398 or brand on your side—Nikon’s 5 Megapixal for $1,200. But even these strategies only last for so long. Unless you have mastered the Armani factor, you’d better have other things to compete on—and caring for the customer is the eternal way.

OEMs like Unisys have about 70% of their revenue in service and growing. We guess that is where equipment guys might go (software as well). No one buys that much of your hardware, but you still can have a customer for life. But not everyone can do that. Unisys provides multi-vendor support on platforms such as Cisco, Dell and HP, and this is a highly competitive environment. You have to compete on price, availability and responsiveness. Firms like Rockwell Automation and Northrop Grumman now see the servicing ‘customer life cycle’ as their business. Wherever it takes them—from design to managing the IT systems. Reduce my risk-maximize my returns is the role of today’s service provider for their customers.

This begs the question; how to master the service network. Who owns it? Who can manage it? Who can create scale and responsiveness[1]. From OEMs, to dealers, to retailers, to 3PLs, the models here are diverse.

Figure 1

Clearly, users want and need service—and not just the big companies. The so-called So-Ho- small office/home office market is the fastest growing part of Cisco Systems service offering. And with the proliferation of Wi Fi, you have to be the master of the economics of this game, since there is no longer a fixed location or a customer who represents scale (large office complex) to service. You have to be really adept at managing that supply chain of parts, and service people to make money.

Another trend is that the service arena is to move away from the concepts of break-fix and measure providers—both the OEM who made the stuff as well as the service providers (assuming that they might be different organizations) on performance. Guarantee service, not get measured on parts depot inventory supply.

This change in management philosophy will be very good for customers. Not so good for equipment manufacturers, since over buying and building go on today in order to maintain planes in the air, utilities up and running, etc. If these things never broke, we would just need the right amount. However, the really smart OEM will see there is actually a value-adding shift here. They can manage the service—from goods to information—proving what the customer really wanted all along—continuous operation. And wouldn’t it be nice to reduce the piles of recycled obsolete materials in this world!

Fascinating New Spaces in Services

There are some great new ideas circulating in the Service arena.
These topics deserve their own article—or rightly so—books, to describe them. New technologies in production are changing the face of the service chain. To keep performance high, optimize the repair universe and avoid that most expensive event—disasters—these technologies are now being utilized in the top enterprises.

  • Proactive fault detection for avoidance, to maintain performance, uptime and continuous operation. Predictive technologies, by the way, are showing up in many supply chain functions.
  • Something called Autonomic Logistics-Engineer in, from the product up, the ability to sense and communicate its needs.

Lockheed built into the Joint Strike Fighter a concept called Autonomic Logistics. The F-35 comes equipped with a new circulatory system—like the autonomic systems in the human body. And this body can communicate its needs to an advanced network of services to proactively service it through the whole logistics chain. Fascinating!

Conclusion

I will leave you with some words of wisdom from the CEO panel.

“If you want to succeed in customer relationships, get rid of the filters that keep you from hearing what the customer thinks.”
- Keith Noshbusch- Rockwell Automation

“The only measures that count are in the eyes of the customer.”
- Mike Capellas- MCI.

“Push decision making closers to the customer and give your employees flexibility to make decisions that will be good for the customer.”
- Ralph Roberts- Comcast

I guess I am like Ralph Roberts; getting love is probably the new methodology to customer satisfaction—and shareholder value.

Figure 2

 


[1] ChainLink has an upcoming report on Logistics that address this issue.

 

©2003 ChainLink Research, Inc.