Part 1 of this series analyzed the phenomenon of the service economy or the increasing importance of the service sector in industrialized economies. Especially in a sluggish market, the service delivered after the initial sale of a product is what can truly differentiate competitors.
The service opportunity is also there, since after-sale service is quite difficult to replicate. Thus, while durable (hard) goods orders decline and product-based profit margins diminish in maturing and commoditized industries, service margins remain very healthy. When consumers or businesses focus more on maintaining what they have vs. purchasing new products, after-sale service can have a substantial impact on any company’s revenue, profitability, and customer loyalty levels.
Thus, Part 1 asserted that one saving grace for the economies of these developed countries (the Group of Eight [G8] and beyond) could be the post-sale service or aftermarket business model in which services to repair, maintain, and optimize products are sold to installed bases. Part 2 then discussed the accompanying service lifecycle management (SLM) software category and the potential benefits of using mobile computing technology.
We might want to note here that the word “resource” throughout this series refers to any type of mobile field worker including engineers, technicians, inspectors, surveyors, gang, crew, shared vehicle and so on, while “job” or “task” refers to any type of work that these resources perform. Given the apparent market growth opportunity, service chain optimization would be about putting the right resources in the right places at the right times to deliver superior service to customers while keeping costs down.
As simple as that, right? Well, not really (and thus the Scylla & Charybdis reference).
An All-too-common Customer Experience Scenario
How many of us have not had an experience similar to what the 2009 article in the Integrated Solutions magazine, entitled “The Field Service Paradox” and written by Israel Beniaminy, Senior VP at ClickSoftware Technologies, talks about? In a nutshell, why is it that faceless call center agents know much more about customers (e.g., the product, its warranty status, cross- or up-sales opportunities, etc.) than field workers do when they show up on site?
We have lately seen call center improvements in personalization, multiple inbound and outbound channels, automated phone systems/interactive voice response (IVR) that understand the customers’ voice, and continuity of interaction across diverse business processes (such as purchasing, subscribing, installing, billing, and supporting) and across products and services. These features not only give customers better service, they also reduce costs for service organizations while creating opportunities for higher revenues (i.e., additional sales, offers, and costs customized to customer type).
But then the field person who arrives at the door does not know what the equipment is, does not have the parts on hand needed to fix the malfunction, or is not trained on maintaining the product in need of repair. Alternatively, the customer tells the field technician that this is the umpteenth time the same problem has occurred, but the technician still asks the exasperated customer to repeat the problem description.
Finally, the field person tells the customer that the problem he/she is experiencing is a common one, but the repair team does not have the necessary part(s) to fix it. All he/she can say is that the headquarters will call the customer back to schedule a new appointment. Why was the field person not equipped with the proper part when the customer has already given the problem description to the call center? Why can the new appointment not be made on the spot?
Why Is This Confusion Happening?
For one, the call center and field service workforce are typically managed by separate groups, using different and disconnected point solutions and processes to do their jobs and recording different information about the customer and service incidents. Secondly, call center service is conducted a few minutes at a time, in a single step: the phone rings (or the Internet chat window pops up) and the interaction starts.
Conversely, depending on a complexity of the issue, a field service task may take between several minutes and several hours. The process involves up-front planning of several steps such as getting the right parts, dispatching, and routing. Therefore, there are many more opportunities to lose information or miss a crucial step.
Last but not least, and as mentioned in Part 2, field technicians need sophisticated mobile computing applications to reach the level of real-time information accessibility and usability that the call center has, which is not always the case. Field resources need to know about their schedule, and both the back office and field personnel need to communicate frequent changes from the initial plan. Neglecting to invest in mobile communications can greatly reduce the expected payback from service operations.
Obviously, this service paradox is a lose-lose situation resulting in unhappy and frustrated customers, also frustrated (and embarrassed) field personnel, wasted customer time, and negatively impacted service workforce productivity. Needless to say, multiple unnecessary trips to the same location increase travel costs and harm both the environment and the bottom-line (as discussed in Part 2).
Juxtaposing Manufacturing and Distribution Supply Chains vs. Service Supply Chains
Before getting into the details of service chain optimization, consider “ordinary” manufacturing supply chain optimization, which everyone, as consumers, tends to take for granted. Manufacturing supply chain optimization focuses on having the right quantity of inventory (stock) available in the right place to meet the expected demand at the right time.
For example, each time a customer enters a store to buy some product or stock-keeping unit (SKU), he/she is the last step of an entire supply chain optimization process. Previous customer demand planning (CDP) and subsequent optimization decisions have affected that product’s availability and stocking level. If the store gets this wrong, there are the following possible bad implications:
Optimizing the supply chain therefore requires the store to find the optimal balance between satisfying customer demand, maintaining product availability, minimizing delivery lead times, maximizing customer satisfaction, and reducing costs. To deliver effective customer service, the store needs to stock the right level of inventory, at the right place, and at the right time to meet customer demand. This helps to maximize customer service.
While not easy to solve, the idea of the perfect order, or getting the right product to the right place in the right quantity at the right time, has been enabled by many supply chain management (SCM) solution providers. Technology, and particularly smart software that uses appropriate algorithms to make efficient decisions, is used in the background to help manage this difficult challenge.
Many articles at TEC (and elsewhere) have focused on those software solutions. To mention a few, here are recent blog posts by my colleague Khudsiya Quadri entitled “How to Reshape Your Supply Chain Network (and Why You Need to Do It Now),” “Can You Bring Cost Down through Better Inventory Management?”, and my blog series on long supply chain tails.
What Additionally Complicates Service Supply Chains?
But when it comes to service supply chains, we are rather talking about the idea of the perfect response, rather than the perfect order. Namely, if a customer has a problem (e.g., a part is not working and has to be replaced), to date not many software solutions have been focused on how to get the right person with the right part and knowledge at exactly the right time to solve that customer’s needs.
One may be rightfully wondering how the aforementioned manufacturing and distribution supply chain challenges relate to service chain optimization. Well, in a service business, to deliver effective customer service using field resources the company must employ the right number of people, with the right skills and parts, who are available in the right place, and at the right time, to meet the customer demand.
By balancing all these additional factors service businesses can maximize customer satisfaction. But if the service manager gets this wrong, there are the following possible bad implications:
The similarities between service chain optimization and the corresponding manufacturing and distribution supply chain challenges are clear. With both, maximizing profitability and customer satisfaction is important. But one of the big differences between manufacturing supply chain optimization and service chain optimization is that the service chain deals with people and the use of their time, rather than with stocking raw materials and subassemblies or work-in-process (WIP).
One Cannot Store (Let Alone Reverse) Time – Use It or Lose It!
While both supply chain types have network locations (nodes) to contend with, the physical movement of service resources is more dynamic than the stocking of inventory. Moreover, even though customers’ appointments and service levels may be unpredictable, every customer still expects to receive the same high level of service (nobody wants to be that neglected customer).
But the biggest difference of all is that one cannot store time like one can store stock. Organizations who are involved in manufacturing products must optimize their supply chain where the primary resources include machines and the commodity of raw materials. Many of these materials can be stored on the shelf until the day they are required.
If the company happens to have too much stock, the excess can often be sold on at markdown prices to recover some of the inventory investment. In the service world, the commodity is not raw materials but rather people’s time, and how the company uses it.
For instance, a service business employs 100 resources who are each available for 8 hours per day for servicing customers. This gives a total capacity of 800 hours, and at a rate of $50 per hour, the company is managing a daily operating cost of $40,000. As soon as the day begins, the clock starts ticking and those hours and minutes of capacity start melting away. For every minute that a resource is productive and tending to a job, some value is created. But every minute a resource sits idle or spends traveling is unproductive time with no value being created.
So Similar, Yet So Different
In addition to people, 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, not only from a capacity standpoint but also from a technician skills standpoint, based on the nature of each service call and changes in the installed base.
As mentioned in the earlier service paradox example, there is also the complex issue of synchronizing technicians with service 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 within the timeframe committed to the customer by the customer service representative (CSR).
To add to the complexity, the number of third-party service providers used in service operations for most companies is growing, and every partner can either negatively or positively impact the end-customer experience. As such, in addition to managing upstream suppliers, and in some cases, downstream dealers and distributors, managing partners who provide technicians, maintenance and repair, or logistics services only adds to the challenge. Needless to say, visibility into partner operations is often critical to successful service delivery.
In its Service Lifecycle Management (SLM) pitch, Servigistics (formerly Strategic Service Management [SSM]) points out a dozen or so major differences between the manufacturing SCM and service SCM focus. For example, manufacturing operations mentality is about being cost averse and just in time (JIT) vs. service being risk averse and just in case.
The manufacturing focus is more about customer acquisition as compared to customer retention in the case of service. Forecast and actual customer orders (that are in higher volumes and more predictable) are the drivers for manufacturing vs. the unpredictable and low volume equipment failures and service level agreement (SLAs) in case of service. While production and distribution supply chains’ performance is measured via inventory turnovers, service supply chains’ performance is based on fill rates and service levels.
Moreover, in addition to the “build or buy” sourcing options for manufacturers, service companies have additional options to source via repair and recovery (salvaging). By the same token, in addition to time-phased procurement logic in manufacturing, service procurement logic also adds a trigger-based option. This reverse logistics creates a dynamic two-way inventory flow in service operations vs. the largely one-way flow in manufacturing.
Is it then small wonder that most service businesses are quite inefficient, especially when compared with manufacturing operations? One major reason is that service operations are tremendously underinvested in enabling technology. On average, manufacturers reportedly channel less than 10 percent of overall annual IT spending to the service side of their business.
The (Increasing) Power of the Customer
Service chain optimization is important for balancing resource levels with costs and customer satisfaction (service level). The customer plays a vital role in this because the world has changed dramatically over the past few decades. Customers now have more choice and flexibility than ever before, and ever-higher expectations.
Service businesses must manage change to keep their customers happy because change mostly favors the customer. Below are a few examples of how the power in customer relationships has lately shifted to the customer:
Recognizing the Challenge
In a nutshell, these changing market dynamics, where the customer now holds so much power, are increasing the pressure on service businesses to provide reliable, flexible, and almost faultless service to their customers. Yet, many service businesses still provide nothing more than lip service to customer satisfaction and customer relationship management (CRM).
Wouldn’t at least Toyota’s ongoing product recall debacle confirm that now is the time to take customer service issues seriously? What damage has been done (almost overnight) to the brand name that has long been a poster child for how lean manufacturing (and entire lean business) should be done?
In the context of the service chain, optimization is all about getting the most productivity from service resources at the lowest cost, while sticking to the goals of the service business. The key to successful service chain optimization lies in the efficient use of time and how the service business responds to changes during the day.
Service companies must focus on the customer, but not necessarily at any cost. Namely, if one wants to take customer service level too far, for example, by employing so many resources that every customer can be visited immediately (within an hour), the service organization will quickly find that it has an unsustainable cost base. Focusing on the customer at an acceptable cost is the essence of the service chain optimization challenge.
The key performance indicators (KPIs) that service companies must measure and the goals that they must set will drive the behavior of the entire service business. For example, if the company only measures the number of jobs that are completed each day, it may find that too many are being followed by a repeat visit to the same location the very next day. In this case the number of jobs KPI is deceptive without the KPI that measures the first-time fix percentage.
Do It Right the First Time
Just as vehicle efficiency is measured in “miles per gallon,” service efficiency should be measured in “service tasks successfully delivered per engineer/day.” When one aspires to the highest performance, it is not enough to deliver more work more successfully; one also must do that while saving on costs.
Service organizations should scrutinize their costs as well as their service quality. Let us take one example of a major cost driver: repeat visits. Whenever a task is not completed, the result is the dreaded “repeat visit.” Customers dread it because they have to wait that much longer for their problem to be solved, and have to wait at home yet again for the technician. Service managers dread it because such visits increase the mileage well beyond the expected costs.
The calculation is brutally simple: if five percent of service tasks are not completed on the first site visit (and therefore generate repeat visits), field resources are driving five percent more miles than they should have done. Much worse: they are completing five percent fewer new tasks than they could have accomplished. We have to accept the fact that repeat visits cannot be completely abolished, but given this calculation, even a gain of just one percentage point would translate into substantial improvements in customer satisfaction.
A future blog post series will explain the logic behind service chains’ planning and execution. In the meantime, please send us your comments, opinions, etc. We would certainly be interested in your experiences with this software category (if you are an existing user) or in your general interest to evaluate these solutions as prospective customers.
I thought your article was very good. I especially appreciate your attention to the differences between traditional manufacturing planning and the unique requirements for the service supply chain. Many of our our clients have come from an environment where service parts planning was done under the umbrella of manufacturing planning. The same planning tools and total stock needs were shared under one roof. As the realization of the importance of service parts availability has grown, so too has the rate of departure from manufacturing approaches. Smart service managers are now using specific service parts planning tool sets to ensure the optimum balance between customer service levels and the cost of carrying inventory. At Baxter Planning Systems, we use a total minimum cost model that balances the potential cost of a stockout with the cost of carrying inventory. As you point out in the article, the cost of a stockout can be many things, not the least of which is the customer’s disappointment. The stockout costs also include the cost of the technician to make a repeat call, the logistics costs for expediting the part and even the travel costs associated with driving the additional miles. There’s also a differentiation that can be made between the customers who are potentially affected by that stockout. Does this customer have a 2-hour, 4-hour or 8-hour response contract? Is the customer one of the company’s “A-list major accounts”? These are other amplifiers to the cost of a potential stockout.
In the service stocking world, it may be “just in case”, but the more you know about the probabilities of stockout and the costs to your organization, the better equipped you will be to make optimum stocking decisions.
VP, Baxter Planning Systems