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The Silver Lining in a Troubled Economy

The Silver Lining in a Troubled Economy

02/04/2009 | Channel: Manufacturing, Business, E-Business / IT, Technology

Kevin Tingey, vice president and general manager EMEA, Servigistics looks into how strategic service management can be the differentiating factor

With the UK officially in recession, we can expect commoditised products to increasingly be bought on price. Whether these are cars, home entertainment equipment or electrical appliances, consumers are likely to be motivated more by price as a prime differentiator. So where does this leave manufacturers – particularly those whose cost structure is not geared for such a fight? They will need to attract customers through other means, namely after-sales service. One clear example is by offering competitive Service Level Agreements: by committing to fix a problem within a specified timeframe, consumers are offered an attractive alternative to buying on price, particularly on mission-critical (and cash-generating) equipment. The ability to deliver a functioning product over an agreed period of time (including repairs in the case of breakdown) is a compelling differentiator for a manufacturer.

But in reducing one risk another comes to the forefront. By sticking your head above the crowd and offering extraordinary service, a manufacturer exposes itself to costs and criticism, should it fail to deliver on its promises. So how can manufacturers mitigate this risk, reduce costs and ultimately deliver greater value to customers and shareholders Managementalike? In my view, a successful service strategy is the key to profitability; and investing in service (whether through time or resources) is all the more critical when cash is tight.

Dwindling margins
In February 2009, Honda UK was voted the top car company for customer service in The UK Satisfaction Index, where members of the public rate the performance of businesses across the company. Matt Gibson, head of customer service at Honda UK, commented: “In tough market conditions, great customer service is a key differentiator.” And in the face of dwindling product margins for commoditised goods, forward-thinking companies have seen how service delivered after the initial sale of a product can provide a key competitive advantage – and have built upon this for increased profitability.

Take Dell as an example. With a real-time business intelligence solution akin to NASA’s mission control, service personnel enjoy the required visibility not only into all outstanding service calls, but also into all events that could engender or impact future calls, allowing preventative measures to be taken where appropriate (including server back-ups as hurricanes approach), as well as optimising responses. Imagine a large regional map with coded lights indicating the status of 39each service call, and overlaid on that map is predictive weather and traffic data. As soon as a service request comes in, Dell begins the field technician and service part dispatch process. Every dispatch consists of a series of time stamps that track the technician and parts. If a service call is running tight against the customer’s commitment, then a yellow alert appears; and if the service call is going to be missed, then a red alert appears on the map. If bad weather holds up a delivery, Dell knows about it and can alert the affected customers and service partners that the shipment will be delayed, but that other service parts can be located and are on their way. No more wondering when the part or the technician
will arrive.

Critically, this is a key area where analysts such as AMR expect investment to continue. Research has shown that there will be “continued investments in business intelligence and performance management software to support decision making” (extracted from http://www.amrresearch.com/Content/View.asp?pmillid=22024) a solution that perfectly befits Dell’s system outlined above. It’s all about sticking to what you do best; providing the best possible support for your products to ensure that the customers who buy from you now will return in the future. Ensuring that your name remains synonymous with excellent customer service is paramount to such customer loyalty. While products and features can be duplicated (so much so that the ‘China effect’ is now the scourge of many manufacturers), post-sale service is very difficult to replicate and can have a substantial impact on a company’s revenue, profitability, and customer satisfaction and loyalty levels. After all, there are plenty of refrigerators of equal feature and function on the market, but customers want to know who will provide the best service on that asset and restore it to working order… in the event of failure, they won’t always be able to rely on the winter cold to step in.

Standing out from the crowd
It’s all a matter of risk management, both for the consumer and the business. The risk for the consumer is clear: buying a product on price alone with no guarantee of after-sales service means that the potential risk of costly call out fees and repairs, or the price of a replacement model are potentially high, and near impossible to forecast – for the business, the risk runs deeper. By committing to an aggressive Service Level Agreement, manufacturers tempt consumers away from buying on price alone. A compelling argument is made to suggest that the cost of maintaining a product over time without support is greater than the price of buying from a brand with a reputation for good service.

But without the right approach, this can be costly for both the buyer and seller. The inability to deliver on commitments can seriously damage brand, reputation and ultimately future sales, taking far longer than any service call to remedy.

So as you fight to compete in a tough economic climate, is the solution to drop prices for short-term gains, ensuring cash-flow but risking long-term brand damage? Or is it to risk standing out by not dropping prices and maintaining good service, but having to ensure that promises made are delivered?

The bad news is that you may feel you cannot sacrifice either option; the good news is, you don’t. With the right tools to manage this risk, there is, in my opinion, one way which will not only maintain brand reputation, but will improve efficiencies, turning your service business from a necessary evil to a profit centre.

A different way to do business
To achieve this, businesses must commit to a strategy built around the understanding of the power and value associated with delivering on the service commitments made to their customers. Strategic Service Management, or SSM, optimises the strategy, processes, human resources, technology and knowledge involved in the delivery of service. The aim is to control, monitor and evaluate the service supply chain risk, which will serve to safeguard and maximise profitability. For example, Sun Microsystems, a manufacturer of servers, storage devices, and microelectronics, saved $47 million in its first year after implementing SSM by reducing inventory and eliminating purchases. That’s an enormous saving in any economic climate; and one which can help you absorb the short-term cost reductions while your superior service delivery continues to enhance your brand value.

As the AMR Research blog demonstrates, without SSM the service supply chain is fraught with risk. In an environment where commoditised products no longer represent a barrier to switching suppliers, business-to-business customer commitments pose an even greater risk due to the harsh penalties for failure to deliver on that commitment. With SSM, instead of the service chain being a liability or a risk centre, it can become a profit centre if all of the processes are aligned in order to provide a ‘single version of the truth’.

The SSM approach is as critical in a tough economic climate as in more prosperous times. To some extent, it requires a leap of faith from your customers to trust the ongoing delivery of excellent service that your company has a reputation for delivering. But it is the customers who have returned time and again, not those who take up a one-off special offer, that will continue to do so, and drive your future sales, through word of mouth recommendation. And these are the kind of profitable customers you want to attract.

As with any key business decision, a short-term (or short-sighted) outlook, where immediate gains stack up against long-term survival, will neither win over the board, nor your customers. And making changes now, while times are tough, may just be the silver lining which lays the foundations for long-term gains. So, where’s your focus?

About Servigistics
Servigistics is the worldwide leader in strategic service management software. The company’s award-winning solutions include service parts management, field service workforce management, pricing management, customer commitment management, and knowledge management, all operating together on a single platform and data model to enable companies to transform their global service operations by dramatically increasing profitability, cash flow, and customer loyalty. Servigistics’ Oracle Fusion and SAP Netweaver-certified solutions have been deployed and proven globally by a highly referenceable client base of market-leading companies across industries in high technology, aerospace, motor vehicles, telecommunications, medical equipment, and consumer and industrial products. Servigistics is a privately held company headquartered in Atlanta, with regional headquarters in the UK, Japan, and India, and sales and service professionals around the world.

www.servigistics.com

Kevin Tingey
Vice president and general manager, Servigistics EMEA, Kevin Tingey serves as the general manager for Servigistics European (EMEA) headquarters in the UK. He is responsible for all sales, marketing, services and partner relationship within the region. Formerly of QAD, Kevin has a proven sales and management record in the international enterprise software industry. Kevin received his BSe in Mechanical Engineering from the University of Aston in Birmingham