Reverse Logistics Today Blog

Reverse Logistics Innovation through Smart Trust

Tue, 14 May 2013 13:32:00 GMT

What impact do your Reverse Logistics policies have on the customer experience? If you think it doesn't matter, then think again. I recently participated in round table discussion where I heard a Reverse Logistics professional talk about the challenges he faces with respect to managing the returns of defective tablet computers that are covered under warranty. The company where this individual works has an advanced exchange policy for defective units. However, the customer must provide their credit card number, even though it was used to purchase the product in the first place, prior to obtaining authorization for an advanced exchange unit to be sent out. The credit card charge is reversed, of course, if the unit is returned within the 14 day period as stated within the company’s return policy. The rationale for this practice is that it will prevent fraudulent claims. After all, customers who learn that they can get an advanced exchange may not return their defective unit. Even worse, the customer may simply try to take advantage of the policy by requesting a replacement unit; sort of a 2 (or more) for 1 deal.

The problem with this practice is the company has begun to receive numerous complaints from customers claiming they have been falsely charged for failure to return their unit. Some customers have even accused the company of charging them multiple times for the same return. The RL professional who expressed his concerns faces more challenges because many customers purchase their product with a pre-paid credit card or gift card which makes it difficult for the company to charge the return fee. Ironically, the RL professional told us that his company prides itself on providing a “great” customer experience.

There are many ways in which this company, who will remain nameless, could deal with their concerns to minimize the cost of returns and ensure high levels of customer satisfaction. In planning their returns program, they could have conducted a risk analysis to determine the level of fraud they could expect. They could then mitigate this risk by building the average dollar loss into the component cost of their warranty and subsequent market price of their product. This practice is a form of customer funded self-insurance. By this RL professional's own admission, the fraud rate is under 1% so the incremental cost to self-insure is low. However, what is most striking to me is not the return fraud itself but the fact that this company designed their policy to protect themselves from those who they distrust. In return, they have created a self-fulfilling prophecy where their customers distrust them. This is evidenced by complaints of false credit card charges.

This discussion really hit a nerve for me because I had just finished reading a great book titled Smart Trust by Stephen M.R. Covey and Greg Link. The premise of the book is that organizations who systematically and institutionally build an environment of trust find that their customers, employees, suppliers, and shareholders experience more energy, prosperity, and joy. Smart Trust takes the position that most people are trustworthy and will do the right thing. Instead of building systems to keep dishonest people out, they design processes that create loyal employees and raving fan customers. Sure there may be a few bad apples in every barrel but those who follow the principles of Smart Trust see these people as the exception rather than the norm. Furthermore, Smart Trust companies create systems and processes to discourage negative behavior and reward positive behavior. The authors of the book provide case studies of companies who are successful at building Smart Trust.

Zappos (www.zappos.com) is one of the companies profiled in this book and a model company for Reverse Logistics professionals. As many people know, Zappos has a 365 day return policy and their customer service desk is open 24/7. Furthermore, Zappos will send an advanced replacement before they receive the original unit back. The customer has up to 14 days to return the original product before their credit card (you know the one they used to place their original order) is charged. Zappos tries to avoid this situation from occurring and sends reminder emails if they don’t receive the product back within this timeframe. It is rare for them to charge a customer and when they do it usually occurs after multiple attempts over an extended period of time (i.e., several months). They follow this same policy even with pre-paid credit cards and gift cards.

Zappos grew from a start-up in 1999 that almost went bankrupt in 2002 to a company with over $1B in revenue. Tony Hsieh, founder of Zappos sold the company to Amazon in 2009 for $1.2 Billion. While many business analysts point to the Zappos’ customer service and employee friendly culture as its source of its success, it’s the founder’s commitment to Smart Trust that underpins everything. Zappos is truly a role model organization for RL professionals.

How can RL professionals build Smart Trust solutions? First, look at systems and policies in place today. Have they been designed to keep the “bad” people out instead of attracting the best customers? Assess the impact these policies have on sales, culture, and customer satisfaction. Next ask…what if we change our perspective and consistently encourage positive behavior in our employees and customers? Then determine how to design your systems and processes to achieve these results. I guarantee the answers to these questions will facilitate innovation and once implemented they will produce more fulfillment personally, professionally, and spiritually for all those involved.

I encourage you to read Smart Trust if you haven’t done so already. I also invite you to send me your thoughts and comments about how you’ve seen Smart Trust in action and the benefits it has created, in either your own company or those with whom you’ve done business. Please feel free to call me if you are still stuck and we can brainstorm ways to implement Smart Trust in your organization.

Service Marketing: Keys to winning share in a new market

Fri, 12 Apr 2013 15:46:00 GMT

With the economy in a recovery, many organizations are now interested in growing their business by moving into new markets. In a recent study that we conducted among service executives, over 70% of the respondents indicated that finding new service markets to enter is a top priority. We have found that service providers are typically motivated to enter a new market when one or more of the following conditions exist:

Service Revenues (and profits) have plateaued or declined in the heritage market

Legacy products are replaced by new and emerging technologies

Utilization levels are low but resources must remain fixed to support existing installed base; exapnsion into a new market improves resource utilization

Shareholders desire a faster rate of growth.

For many companies, entering into a new service market is not as easy as it seems. A majority of firms fail miserably. This is because they don’t take the time to understand the dynamics, requirements, or competitive landscape of the new market. Quite often, they take a tactical approach to a strategic problem. In essence, they just market and sell their services without understanding whether a market exists or how to best serve it.

To succeed, companies must think and act strategically about entering a new market. The same level of due diligence must be given to entering a new market as investing in a start-up or acquiring a new business. So here are five (5) steps that you can follow to ensure successful entry and long-term growth within a new market:

Gauge the market – You probably wouldn’t dive head first into a pool without knowing its depth or temperature. The same is true when it comes to entering a new market. You need to understand the size, dimensions, and direction of the market. What a stage of the lifecycle is this market in? Is it mature and declining or small but growing? By gauging the market, you will get a better idea of how much market share you can expect to capture and when to enter.
Know your prospective buyer - You can’t close new sales without understanding the buyer’s needs and behavior. You will need to understand who the buyers are, what they buy, how frequently they buy, and how the buying process works. Equipped with this knowledge, you will be effective in winning and keeping business for the long term.
Understand who else they buy from - Your prospective customer will likely have other options to choose from. You’ll need to know how your service compares to these choices and determine why they should buy from you versus brand X. Without a clear understanding of competition, it is difficult to develop a compelling value proposition and articulate how you are different so they will buy from you.
Determine how you will go to market - You’ll need to determine your outcomes for the new market launch and what strategies and tactics you need to implement to reach these objectives. Most importantly, you need to figure out how your plan will be funded. Sometimes this involves an iterative process where you adjust strategy based on available budget and vice versa. The devil is in the details. You need to have a clear and precise plan for sales, marketing, and operations. Will you partner or go at it directly? How much will you spend on marketing and what type of marketing will you do? Will you need to hire more sales people? Will you need to invest in new tools and technology? Where will the investment come from, acquisitions, debt, equity raise? These are some of the questions your plan most answer to ensure long term success and viability.
Manage your launch & measure success – You’ll need to have a structured and disciplined launch into your new market. Taking the “go get ‘um attitude” isn’t going to work. You need to educate your team on the market and train them on the offering, sales process, and value proposition. It is important that you have clear and process goals and objectives for your team that are calendar based. Obtain metrics on all the critical aspects of the sales and service delivery process. It will help you understand what’s working well and what needs to be improved.

To be successful at implementing these 5 steps you need access to good market data, be willing and able to think critically, and hold yourself accountable for results. This is no small task and it’s easy to get discouraged or frustrated. An experienced consultant or business coach can play a key role in keeping you on track and getting you to achieve your desire outcomes in the new market.

The Future of Reverse Logistics

Mon, 11 Mar 2013 00:11:00 GMT

My thoughts of Reverse Logistics Association Conference & Exhibition Las Vegas 2013 were rekindled this week after reading my friend Jonathan Pine’s blog titled Fear and Loathing on the Reverse Logistics Trail. I can‘t believe that it has been a month since this event. Time sure does fly by. I know most of my colleagues and associates have spent the last couple of weeks absorbing what they have learned and following up on business situations they uncovered at the show.

The conference is a major Industry event for my firm and this year we were proud sponsors (Bronze). It has become a standard drill for me each year to lead workshops on the subjects of Sales & Marketing and Best Practices, and moderate a panel. This year’s panel was on the subject of “How OEMs are finding new sources of profits from their RL operations.” I had a distinguished group of individuals on my panel which included representatives from Renova Technology, RLA, Samsung, and CSDP Corporation who shared their views on automation, warranty management, outsourcing, and performance metrics.

Like many people attending the event, I was there to gain visibility, promote my cause, and conduct business. To be honest, I did not attend many of the conference sessions since I was there primarily to meet with friends, colleagues, customers, and business partners. For me, the show is about the people not the content. As such, it always produces an exceptional amount of value for me. However, I am always interested in what attendees have to say about the content they’ve seen and heard.

The response I received from many is that they need to hear something new from the speakers and panelists. They felt that they’ve heard much of this stuff about RMA, Returns, Asset Recovery, and Electronic Recycling before. Is the industry stagnating or is this a matter of there’s nothing new under the sun? Neither, I think the issue is that the Reverse Logistics Industry has matured. The last couple of years have seen an extensive amount of growth in both outsourcing of Reverse Logistics operations and consolidation of 3^rd Party Service Providers. It had been a go-go time and companies became overconfident in their exuberance.

With industry consolidation and plateau in the growth of outsourcing, industry leaders must anticipate the future and make more committed choices when it comes to operating their businesses. They need to have laser sharp focus on results. The truth is doing more of the same is not going to work. In the past, it has been about what we need to do to manage Reverse Logistics and how to do it. Now we need to focus on why we do things, and continuously ask if there is a better way. We need to ask questions like: What business are we really in? Who is our customer? How do we continuously add value and create raving fans? These questions need to be asked by all participant, not just 3PSPs but OEMs, Retailers, and Distributors. By doing so, we can develop innovations and broaden our perspective of what’s possible. In essence, the discussion needs to change from a focus on tactics & operations to that of strategy and systems.

On that note, I wanted to highlight one of the sessions that I did attend. I was on the subject of Mobility and presented by Bryan Maguire of Jabil Aftermarket Service. The session titled “ Bring Your Own Device (BYOD) and Its Impact on Business Models” did a great job in identifying trends in mobility device proliferation and examining how the traditional service & support model may change in light of BYOD. I valued the fact that the presentation was strategic in nature and dealt with market facing issues impacting the Reverse Logistics Industry. It also raised the question about what type of systems & solutions would be required to support BYOD environments in the future.

I am grateful that Jabil was willing to share their perspective on the future of mobile devices since this is a topic that I am following very closely. I also admire the fact that Bryan did not claim that Jabil had all the answers. In fact, he encouraged discussion among the participants; many of whom were his direct competitors. Clearly, Jabil is an industry leader and understands the role and responsibility they have toward advancing knowledge about this industry. This presentation was not about Jabil or how great they think they are but about the industry, and where it’s headed.

Why am I lavishing so much praise on Jabil? I am sure many of you reading this think that I have an ulterior motive. You are right. I do and it’s not what you think! My motive is to provide guidance on how to advance the Reverse Logistics Industry. I personally think that all trade shows are a microcosm of the industry they serve. The Reverse Logistics Association Conference & Exhibition is no exception. If too many presentations seem stale, it’s because no one is willing to discuss advancements or innovations. If it seems like there are little contributions being made, it’s because everyone is there for themselves exemplified by the common theme of trying to get business. If sessions have low attendance, it’s because too few people are there to listen and learn. So how do we improve the culture within our industry and thus the RLA conference? We need to see ourselves and leaders and role models, and make our participation about professional growth and contribution. That’s how things will advance and change for the better.

Now it’s your turn. What was your experience at RLA like? Let me know where you think the Reverse Logistics Industry is headed. What do we need to do to ensure continuous improvement? Please share with me your perspectives.

The Secret To Exponential Service Revenue Growth

Tue, 05 Mar 2013 00:23:00 GMT

One of the challenges that most companies face when it comes to selling Aftermarket & Reverse Logistics services is that they presume their prospects are ready and willing to buy at any given time. In reality a very small percentage (3%) of the population is ready to buy now and have often made their decision prior to reading or hearing your marketing message. The remaining population is either open to it, not thinking about it, think they are not interested, or definitely not interested in it. As such, a marketing program centered on your service capabilities, or the “what” and “how” of what you do, will have little or no impact in winning over new customers.

Source: The Ultimate Sales Machine; Chet Holmes 2007

The goal for your company then is to develop a strategy which grabs the interest and attention of those who are not ready to buy today and increase the chances that they will become buyers tomorrow. More importantly, your message most convey why you are in business. The best way to do this is through an Education Based Marketing program that focuses on market data rather than company information. The market data must be strategic in nature and deal with overall market trends your customers’ business in order for it to be effective. At the heart of the Education Based Marketing program is the “Meaningful Message”, also known as Unique Selling Proposition (USP) and headline. An example of a headline is "Uncovering hidden profits in Reverse Logistics” The elements (e.g., headline, message) within the Meaningful Message" focus on the challenges facing your customers’ business, and provide insight on how to overcome these challenges without ever pushing your own product or service. A great headline will grab the attention of your best buyers; a “Meaningful Message” will keep them engaged,

A well designed Meaningful Message meets the following objectives:

Provide an analysis of industry trends and business challenges in key market segments of interest
Identify and measure the impact of critical industry challenges on Reverse Logistics operations
Examine alternative strategies for resolving these challenges
Identify the optimal solution
Demonstrate benefits and advantages of optimal solution in quantifiable terms
Create market awareness for your service offering
Positions your company as the preferred solution provider

By incorporating your Meaningful Message into an Education Based marketing strategy you position yourself as an expert. This in turn provides buyers with a compelling reason to do business with you. Prospects believe they have found an ally who really understands their issues. Once this relationship is established, the Meaningful Message helps to define the buying criteria for your type of solution and demonstrates how your company meets or exceeds these standards. When they feel that you understand their problem they will listen, when they feel you have a solution they will buy.

The Meaningful Message also provides education for your sales team to be more effective in winning new business. In essence, you can educate your staff on the key issues facing the market you serve and on the solutions available to sovle the problem. You staff now understands why the company is in business and the role that is is playing in solving customers problems. Furthermore, the information in the Meaningful Message forms the basis of an integrated marketing communications strategy. In essence, it provides the content for brochures, white-papers, web conferences, presentations, press releases, etc.

How effective are you in selling Reverse Logistics services? Let us know what strategies and tactics you've employed to increase sales.

Reverse Logistics benchmarks to watch in 2013 - Part II

Sun, 24 Feb 2013 20:06:00 GMT

In our last blog post we identified that No Fault Found (NFF) is one of the most challenging and costly issues facing the Reverse Logistics Industry. We pointed out that NFF rates are typically higher when dealing with high volume, low margin products such as Consumer Electronics (CE) than with low volume, high margin equipment like Network Infrastructure technology.

The reason for this variance is that technical problems associated CE products are typically handled through a telephone support strategy. Quite often Consumers lack the technical sophistication necessary to trouble shoot and resolve a problem over the telephone. Many times the support organization cannot get to the cause of the problem in a timely manner and in the spirit of expediency issue an RMA. This practice tends to be most dominant when the product is sold and supported by channel partners. In many instances the channel partner lacks the training, documentation, or processes to resolve the problem remotely. Sometimes, the channel partner finds it more expedient to return the product to the manufacturer and avoid the costs associated with lengthy product support. The truth is the returned product may have nothing wrong with it. However, the service provider bears the cost associated with supporting the returned products.

Manufacturers often deal with this issue of high NFF rates from the channel by using either the “carrot or the stick” strategy. The carrot approach involves implementing programs that upgrade the skills and proficiency of channel providers in their attempt to diagnose and troubleshoot problems remotely. This could range from training courses, to documentation, to Knowledge Management and Problem Resolution tools. Some manufacturers provide private label technical support programs that channel partners can resell to their customers. The stick approach involves charging channel partners a penalty/diagnostic fee for any products that are returned NFF. Manufacturers must evaluate the impact of these “carrot or stick” strategies on future product purchases, customer satisfaction, market share, channel loyalty, and return on investment prior to implementing anyone of them. The optimal decision involves consideration of many variables.

NFF can be just as high when the product is supported directly by the Manufacturer. Best practices in service management suggest that NFF is impacted by the ability of the support organization to properly trouble shoot and diagnose the problem. The best strategy involves implementation of effective call screening and avoidance procedures prior to the dispatch of a Field Engineer or issuance of an RMA. Ideally, the process should identify the problem-symptom-cause and corrective action. The use of advanced technology such as Knowledge Management Systems can help automate and facilitate this problem.

High rates of NFF may also be the result of a practice known as parts "polling". This occurs when a Field Engineer (FE) tries to resolve a problem by swapping parts. When one part doesn’t work, the FE will try another part, and another part until the problem is resolved. At issue, the FE may assume that all the parts that didn’t work the first time are defective and send all back to the depot repair organization. These parts are deemed NFF, of course. This issue can of course be resolved through better training and improved diagnostics prior to dispatch and while at the point of service.

In a majority of cases, NFF can be reduced through systemic or procedural issues described above. However, there are instances when NFF is due to chronic failures or rogue parts. Intermittent failures are the most common form of chronic failures and dependent on the condition of the machine or network. Service providers are advised to invest in test equipment or develop a laboratory environment where they can recreate the condition causing the intermittent problem in the first place. For example, a service provider can conduct a vibration analysis test to determine if the failure is the result of the machine movement. Chronic failures may also be the result of variances in manufacturing or software enhancements to the original product. As such, it is important to capture and track as much data as possible about machine performance and service history. This will facilitate and expedite effective root cause analysis.

As discussed above, high NFF rates can be very costly to service organizations. While the symptoms behind NFF may be varied, the resolutions are similar. By capturing and analyzing service performance benchmarks on a periodic basis, a service provider can reduce costs and make continuous improvements in service quality. Ultimately, the majority of NFF issues can be resolved through the implementation of process improvements and state of the art management systems.

Reverse Logistcs benchmarks to watch in 2013 - Part I

Sun, 06 Jan 2013 20:33:00 GMT

Are your Company’s Reverse Logistics practices positioned competitively with other companies in your industry? Could there be room for improvement? What are your pain points? Are you addressing the right Reverse Logistics and Aftermarket service processes?

According to the respondents in a recent benchmarking study within the Telecommunications and Consumer Electronics industries the two of their main pain points of Reverse Logistics professionals included No Fault Found and the overall length of the depot repair cycle.

Blumberg Advisory Group found that No Fault Found (NFF) remains one of the most cost prohibitive issues for manufacturers. 80% of respondents stated that they are looking for alternative solutions to combat high levels of NFF. All of the respondents stated that they are looking into new processes to implement in 2013 to bring down the number of NFF’s. NFF rates typically range from 5-11% within the Telecom sector while NFF’s ranged from 10-95% for Consumer Electronics Devices.

As stated above, the overall length of the depot repair cycle is of vital importance to respondents for two basic reasons: first, timely depot repair is essential to operational readiness and sustainability, and repair is typically the most responsive and least-costly option for supporting customer requirements. Second, because of the high unit cost, significant inventory investment results from the length of the depot repair cycle time. A number of best practices apply to many Depot centers. According to respondents the vendor compliance program goes hand in hand with advanced shipping notification. You want notification of repairs ahead of time, and you also want to communicate with 3rd party vendors exactly how the products should be handled. This may include specific labeling requirements, and standard case quantities for each individual item. Manufacturers also require real-time visibility into the return and repair processes of their 3^rd Party Repair vendors. This enables to them to monitor performance and obtain inputs needed for planning of other logistical process related to depot repair such as inventory availability and warranty reimbursement. Best practices Depot Centers integrate operations with their vendors and suppliers. This way, suppliers help them achieve maximum throughput and maximum efficiency, in a minimum amount of time.

These are only two of the pain points discussed during this study. For additional information on Best Practices, Third Party Vendors, Reverse Logistics or info@blumberg-advisor.com or call Michael Blumberg directly at 855-643-9060 Ext. 703.

Six Tips for Effective Benchmarking

Mon, 12 Nov 2012 16:10:00 GMT

It is part of our human nature to compare ourselves to others. In business this practice is known as benchmarking. A good criterion of an effective benchmark project is that it provides objective data to answer specific questions about a company’s performance relative to others in their industry. It is important to have a clear outcome and purpose in order to get good data. Here are some guidelines to help you achieve the best results:

Benchmarking is a means to an end – it is not an end unto itself. Quite often, managers and executives want to use the data to prove a point. Benchmarks are nothing more than a measurement. Like most measurements we need to do something with the information. Often times the benchmark results raise new questions, usually about strategy or operations that must be answered and acted upon. Have a clear objective of what you are measuring and be even more clear about what you are prepared to do once you review the results.
Improvement not validation - Don’t go into benchmarking with false expectations. The results will do far more than validate how you are doing; it will provide insight on where you can improve. Rarely does a company engage in a benchmark study only to learn that everything is fine and dandy with the current status quo. Don’t for a moment think that there is nothing new to learn either. I’ve worked with many companies who commissioned benchmark studies to validate the need to make a change in one area only to learn that the perceived issue was only a symptom associated with a different problem.
Scratch below the surface - Thoroughness is the name of the game when it comes to benchmarking. Often times the answers are hidden well below the surface. It is the job of the benchmark analyst to be an agent of change. This requires that they dig deep and go wide. Performance in one area may be directly related to performance in another. There are a number of factors that impact performance. Quite often these factors are the root cause of the problem and/or a function of the underlying systems and processes being measured.
Look for relationships – You must understand relationships in the data if you are going to interpret it correctly. You also need to be good at spotting patterns. The goal of benchmarking is to get to the root cause of the problem and identify where improvements need to be made. Quite often only one or two corrective actions are needed to make significant performance improvements in multiple areas. This is only possible if you can effectively observe patterns and relationships in data.
Seek advice of an expert - Let’s face it, benchmarking can be a complex task. Work with someone who has been there before. Find someone who has understands your business and the industry you are in. More importantly, make sure you find someone who understands what’s possible within the realm of reason so that you can innovate. Ideally, you’ll want to compare you company not only to direct competitors in your market but to best practice companies in any industry or market place with similar characteristics. After all, your customers will do this. Why shouldn’t you? It is likely you will want to hire or retain an experienced industry expert to help you with this analysis.
The answers are within you – There are times when their will be anomalies in your data and sometimes these anomalies contain tons of answers as to why things are the way they are. The only person who can explain this is you. Also, one thing for certain is that even the greatest expert in the world can’t make decisions for you. Only you can do this. You’ve completed your benchmarking efforts, now it is time to make real change. Whether you use a consultant to help you make this change is up to you. It is all about being resourceful and we all have this capacity within us.

Takeaways - Benchmarking is a strategic endeavor that must be part of every executive’s tool kit. As the old adage goes, that which gets measured gets improved. This is the primary objective of any benchmarking effort. The ability to effectively analyze patterns and relationships in data is critical since the root cause of performance is often systemic or procedural in nature. The experience and perspective of an objective third party advisor can ensure quality results and an efficient process. While experts can’t make decisions for your company, they can serve as a valuable guide in helping you find answers.

Reverse Logistics & Aftermarket Services: A Strategic Differentiation

Mon, 27 Aug 2012 13:44:00 GMT

As part of aftermarket services, reverse logistics seldom receives much attention unless something goes wrong. This is especially surprising because:

The average manufacturer spends 9% to 15% of total revenue on returns, according to a 2010 Aberdeen Group study.
Improving reverse logistics can help firms increase revenue up to 5% of total sales.
Additionally, 95% of customers will not buy from a company if they have a bad returns experience.

Source: Recovering Lost Profits by Improving Reverse Logistics 2011-2012

Given the substantial positive effect reverse logistics can have on your business, why do so many ignore this found money that can be mined from improving operational cost cutting and increasing sales, while securing customer loyalty.

It appears that the answer lies in the result of a poor planning process. This is sheer insanity. Companies fail because they don’t understand:

Market opportunity & dynamics
Customer requirements
Competitive approaches
Go to market execution
Service delivery

And the insanity of it all Albert Einstein said it best, “Insanity is doing the same thing over and over and expecting a different result”

So how do we stop acting and going insane.

It’s really very simple, Effective Planning = Excellent Outcomes. We know one thing for sure the current way of thinking is not providing a competitive advantage.

Source: Patrick Burnson, Executive Editor. Logistics Management. Strip the risk out of reverse logistics. June 2012

From the chart above we see that 43% of hi-tech companies view aftermarket services and reverse logistics as a cost center supporting product sales and creating competitive differentiation. Obviously many companies are passing up significant opportunities for cost savings, profit growth and the ability to build loyal customers. Aftermarket services and reverse logistics must be recognized as competitive differentiators and proﬁt centers.

Now let’s take a look at the pain of this insanity of nonexistent or ineffective planning is having on OEM’s. OEM’s currently spent up to 4% of cost of goods sold [COGS] on non-value-add distribution functions like returns and reverse logistics.

Effectively managed, reverse logistics can enable organizations to increase profits, minimize liabilities and improve customer satisfaction. The key is to manage supply chains at the strategic level. This is an imperative why? Because…

An average of 4% to 6% of all retail purchases are returned, costing the industry about $40 billion per year
Up to 7% of an enterprise’s gross sales are consumed by return costs.

Customers returning electronics products will cost U.S. consumer electronics manufacturers and retailers nearly $17 billion this year, an increase of 21% since 2007.

Source: A "Returning Problem" - ProQuest.

So what’s the solution?

1. A properly integrated and efficient Reverse logistics system is the golden ticket to success.

In a recent survey of over 160 companies in computer, consumer electronics, telecom, aerospace and manufacturing, those using best-in-class reverse logistics processes report:

93% average customer satisfaction rate (vs. 86% industry average)

4.4 average days parts return times (vs.14.5 days industry average)

21% decrease in cost per return materials authorization over a 12-month period (vs. 6% industry average)

Source: “Reverse Logistics: Driving Improved Returns Directly to the Bottom Line;” Aberdeen Group (February 2010).

2. Making the strategic commitment to move from reverse logistics as a cost center to a revenue generator.

Electronics giant Cisco partnered with a third-party provider to revamp its reverse logistics processes.
What was an $8-million loss for Cisco in 2005 became a $147-million revenue generator by 2009.

Source: Medical Electronics Manufacturing Trends 2012

3. Increased recognition of service as a new revenue stream

Aberdeen's State of Service Management: Forecast for 2012 revealed organizations are transitioning their service businesses from cost centers to profit centers.

68% of 215 organizations polled by Aberdeen Group in 2012 indicated they were operating service as a profit center, compared to 61% the previous year.

72% indicated that they will run service as a profit center in 2012, highlighting the continuation of the business transformation trend.

Source: Aberdeen Group. State of Service Management: An Industry Perspective. March 19, 2012.

4. Closing the collaboration gap is a win-win for both manufactures and distributors

Shippers need to be more open to collaborating with 3PLs to address their top challenges.

And

3PLs must do a better job of selling the quality and value of their capabilities to electronics customers.

Source: 2012 THIRD-PARTY LOGISTICS STUDY. The State of Logistics Outsourcing. 2012 16Th Annual THIRD-PARTY LOGISTICS STUDY.

Effectively managed, reverse logistics can enable organizations to increase profits, minimize liabilities and improve customer satisfaction. While the cost of processing returns is less than 4% of total logistics costs, high-tech companies can average a recovery value of 28% on returned assets and enjoy a 12% competitive advantage in overall customer satisfaction with best-in-class reverse logistics.

Take Away
We can help you design a methodology to assess ROI and create a model to justify investment and deliver profits contact us now!

Strategic Options for Reverse Logistics

Tue, 07 Aug 2012 20:18:00 GMT

What are the best strategic options for reverse logistics firms to sustain or grow sales and profits in the teeth of an economic slowdown? Given the slow rate of growth for the overall economy, what are your strategic options to not only survive but hopefully grow in this economic business cycle?

Here are some strategic options for reverse logistic firms to grow top line and bottom line revenue.

Cut Costs without Cutting Value
While the first reaction to every economic slowdown is to cut costs in the economic environment that we find ourselves in today, it is quite likely you have already executed significant cost cutting at the beginning of this recession and now into years of agonizing slow growth there isn’t more to cut. Or is there?

Your first cost cuts were likely broad and sweeping. Now is the time for a more thoughtful and careful dissection of your business processes and operations to find strategic cuts or reorganization. This approach will position your company to sustain a longer term recovery and be position to grow faster than the economy when the economic picture brightens. A small investment to build a burning platform could trigger a significant contribution to weathering this storm. Be wary of those that say we can’t cut more. On the other hand, there could be areas where you need to make an investment by re-allocating existing resources. Most importantly you need to understand your current financial and operational performance as it relates industry standards and best practices. Turn to a neutral observer like a strategic consultant that can objectively assess your situation and advice and guidance on where to make change.

Grow Revenue Organically
This is what everyone wants to do, but given the economic realities this is the biggest challenge. First, revenue growth must be achieved in spite of the overall economic climate, but how? The life blood of organic growth is repeat business from satisfied customers. You may want to conduct some independent market research such as a customer experience assessment to quickly understand your strengths and weaknesses from your most satisfied customers.

Equally as important is to survey those companies who you are not working with today or who may have once been your customer to gain a new perspective on what you need to focus on to win them back or keep them. This is based done by an independent third party in order to avoid bias and obtain completely objective results. As you know, quality control and customer service are critical growth components so focus you research methodology on these twin pillars for growing revenue.

Another key aspect of organic growth is to actively manage your market perception. You have likely cut your advertising budget but now you may want to reorder marketing communications priorities. Focus on your public perception and execute more inbound marketing activities that are more cost effective and qualify new customers faster. Beef up your PR effort in terms of communications messages; use your website and social media to drive positive company perception about how your firm is helping its customer’s through this difficult economic time. Remember to test, test, and retest these assumptions through customer interviews and discussion with other industry participants (e.g., vendors, suppliers, competitors, etc.)

Grow (or Exit) Through Merger or Acquisition
Mergers and Acquisitions are a logical way to increase revenue and market share on a profitable basis. Indeed, there has been a surge of acquisitions lately in the reverse logistics and aftermarket service industry. High profile strategic buyers include Arrow Electronics, Avnet, Liquidity Services, and Ingram Micro all who have make acquisition of companies with capabilities in Reverse Logistics and Aftermarket Services. Divestiture to a strategic or financial buyer also represents an optimal exit strategy for the seller. The majority of the acquisitions we have observed in the last year were completed not because the owners wanted to retire with a big pay day but because they recognized they strategic value, growth opportunities, and scalability made possible by becoming part of a larger organization with access to more operational and financial resources.

What strategic value or services add could your firm benefit from? Improving customer value and service will position your company to benefit immediately and grow faster when the economy improves.

Improve Service Mix
The first step in improving your service mix is to understand your current situation and evaluate your sales relative to the industry. Service mix is often something that just evolves as opposed to being forged from careful planning and analysis. This often results in not being able to maximize profits.

The best way to do that is to conduct a neutral assessment your service mix examining each service in terms of these attributes:

Sales Volume

Gross Profit

Cost

Sales Costs

Net margin

This may shed some valuable insights into which services are really the most profitable and those that are less profitable. Armed with a blueprint of where you stand are now and where you want to be will allow you to execute a rationalization of you service mix that could lead to reduced sales volume but increases in profitability.

Create More Value
When new sales are hard to come by in slow economic times you may want to turn to adding value to the services you currently offer. They can be standalone services or they can incorporate existing features of your current services. Examples of creating more value might be offering:

extended warranties to existing products

adding service contracts to new purchases

e-waste recycling

advanced exchange

bundling services together in a contract

Any way you can provide an add services or convenience to your services for your customers adds value. Adding value to your clients can help differentiate you from your competition to increase sales.

Take Away
There are many ways to increase sales and profits in a tough economy. The most important action you can take is to develop a strategic plan that may incorporate some or all of these strategic options. Enlisting a professional strategic management consultant expert in reverse logistics with the depth of experience and available relevant databases can minimize cost and maximize result, contact us.

Why You Need A Strategic Management Consultant

Wed, 25 Jul 2012 19:11:00 GMT

Many business people respond with a knee-jerk reaction to the suggestion of hiring a strategic management consultant. Resistance to “not invented here” is common and expected. But when the strategic plan is: “it worked before it will work again,” it may be time to rethink hiring a strategic management consultant.

Consider if you were a company who needs to increase their revenue and would like to do that by expanding into a new market with existing services or by offering a new service to their existing customers, what would you need to know? You would need to know a lot and yet, many companies move forward without strategic planning just because they think it is a good idea or because a competitor is doing it and therefore they need to do it too.

The risks of moving forward without a strategic plan are many. Here are a few problems not having a strategic plan would result in:

Not knowing where you are going.

No responsibility or accountability.

Not having sufficient resources available and not knowing what resources will be needed to meet your goals.

Insufficient marketplace and competitive information to plan and make smart strategic and tactical decisions.

Without a strategic plan for your company’s new venture, everything that could go wrong likely will.

Lack of goal setting and failing to set benchmark standards will result in execution chaos and cost escalations leading to project failure.

Lack of leadership means no responsibility and accountability and would result in a lot of peopled fired and could jeopardize the core business.

Lack of a resource plan will result in project completion delays, cost overruns and reduced or non-existent ROI contribution.

Lack of marketplace and competitive information will result in your company introducing the new buggy whip for the 21st century.

Managing Change

Change in most organizations is the least important activity on the minds of the organization. In fact, change is rarely embraced let alone integrated into the daily operation of the organization.

Though 79% of today’s top executives say responding quickly to change is the only way to survive our current economic challenges, only 1 in 3 of executives are even able to identify the threats before they strike.
Progress Software/Economist Intelligence Unit, 2012

So, if you want to make changes in your organization you may want a fresh perspective with the professional discipline to manage that change, someone who can, “see the forest for the trees” and commands the experience and knowledge in planning organizational change in your industry. A strategic management consultant will help you identify and manage successful change.

How is the market changing?

What are the performance gaps in the industry we can capitalize on?

Are we changing to meet market needs and wants?

What are the internal changes we need to make to compete and win?

If you want to create sustainable revenue growth and profits it is imperative to manage the business for today and be prepared for tomorrow. This means having the best information possible to make smarter business decisions.

So what’s the best way to identify a strategic management consultant?

Set up criteria of what to look for in an expert consultant in reverse logistics specializing in strategic management of aftermarket services operations like depot repair, field services, returns, e-waste, and distressed old inventory management. That can offer the above essentials.

Demand a comprehensive solution provider that can service after your initial success of dealing with reverse logistics such as:

Strategic Business Planning, including development of growth strategies, mergers and acquisitions, identification, and plan implementation

Market Research, including market surveys, customer satisfaction audits, market structure analysis and evaluation

Productivity & Efficiency Improvement, focusing on improving organization, operational, and systems productivity and efficiency

Service management systems design, development, and implementation

Partnering with the right expert can turn reverse logistics headaches into gold.

Many consultants specialize on marketing of electronic products or the operational aspects of reverse logistics, and are limited to one technology area such as computers or channel segment like retailing computers – but it’s more productive and cost efficient to find an expert like Blumberg Advisory Group that specializes in the whole picture for success.

Those that only specialize in certain areas force you to get another consultant or expert to fill in the gaps, or worse yet, make guesstimates of the right answers – costing you more time and money. By integrating all these areas into a single point of contact that understands the whole industry and knows every part to optimize you can save significant money.

Take Away
Hiring a strategic management consultant makes the most sense to help you manage change. As change agents, they can help you with the most critical aspect to manage and orchestrate business success. If you would like to get and stay ahead of change in your business contact us now.

Related Information

Service Market Audit

Strategic Market Analysis - Uncovering the Performance Gap

Strategic Market Analysis – Uncovering the Performance Gap

Fri, 13 Jul 2012 19:47:00 GMT

The game changer in smarter business decisions is a professional strategic market analysis.

In order to evaluate the best channel partner for one of our clients, a supplier of Reverse Logistics Management Software Systems, we conducted a strategic market analysis on the current trends in the reverse logistics solution industry’s installed base. The study quantified the following:

types of solutions used

how they are used

and for what purposes

In addition, we evaluated:

opinions & perceptions of currently installed solutions

benefits anticipated from new solutions

opinions on self-training/self-help modules

overall challenges towards implementation

We surveyed key individuals who are involved in the solution purchasing decision in one form or another to ascertain the role that the respondent plays in their company’s reverse logistics system purchasing decision and who plays each role within the organization. Everything from:

purchasing decision

identify & recommend capable vendors

responsible for evaluating vendors’ proposals

specify needs

negotiate contracts

develop functional requirements

select the ultimate vendor

authorize payment

We surveyed respondents with diverse roles within their companies, ranging from c-level executives, to functional directors, to mid-level managers, to entry level analysts and interns. Functional departments are also diverse, from business development, to customer service, to operations/logistics, to marketing.

The companies which the respondents represented also varied greatly related to size, number of monthly transactions, industries and different functionalities such as OEMs, retailers and 3rd Party Providers.

Armed with a view of the market we then benchmarked the current trends in the marketplace in order to evaluate the best channel partner or partners for the reverse logistics install base solution.

Current Use of Reverse Logistic Solutions

Reverse logistics solutions are used for a wide variety of business purposes. The most common purposes are:

Strategic line of business

Cost center

Revenue contribution center

Profit center

Additionally respondents reported the types of systems used for reverse logistics purposes also vary widely and the business functionalities which reverse logistics support are also very diverse.

Benefits Anticipated from New Systems

Another important finding was the data surrounding key strengths, weaknesses and capabilities that the respondents were providing regarding their current system, and the high percentage of respondents stating that they were at least somewhat likely to replace their current solution within the next 12-18 months.

The most important capabilities respondents look for in a new solution show that expectations from a new solution are significant – the average expected improvement on any one particular feature exceeds 20%. The top organizational improvements which respondents expect after installing a new solution include:

better customer service/customer satisfaction

improved integration with other external & internal business units

leaner overall operations (shorter cycle time, better inventory management, improved turnaround time, leaner logistics operations, etc.)

better planning

more customization according to customer requirements

improved accountability

improved cash flow

improved visibility

reduced general personnel costs

Alongside capability importance, respondents were also asked to evaluate their current solution’s effectiveness regarding five capabilities:

Collaboration between supply chain partners

ability to efficiently add new supply chain partners

scalability

visibility into processes & functions

ability to prevent fraudulent returns

The ability to prevent fraudulent returns was rated as the least effective capability by a substantial margin.

Given the marketplace insights gained from a professional strategic market analysis the game changer is to uncover and identify opportunities to exploit marketplace weaknesses to your advantage. Here is just one example of the power of strategic market analysis.

Our research revealed that in spite of the fact that many organizations already have a reverse logistics solution in place there is still room for improvement, providing opportunity for those that can fill the performance gap.

The Performance Gap

Our research has found that this gap is the difference between the level of importance (the percent of those who listed the particular feature as at least somewhat important) and the level of effectiveness (the percent of those who listed the particular feature as at least somewhat effective).

The larger the gap, the greater the business opportunity exists for new suppliers. We found that the gap in the ability to prevent fraudulent returns was among the highest, indicating that if you can supply an effective fraudulent return prevention solution, it stands to reap substantial returns.

From the gaps that were identified, one could easily see that quite a few firms involved in reverse logistics operations still have areas that can make their operations leaner. The business opportunity lies in identifying these performance gaps and then targeting the organizations that need help in filling some of the gaps in order to reap substantial economic reward.

There were other important findings in this market analysis that were also strategically and tactically important. They related to the benefits that respondent’s desire from implementing new systems and the challenges to executing a new solution.

Take Away
A professional strategic market analysis often reveals hidden aspects to the marketplace that are not discernible without a deep dive into the market data and experienced analysis. Identifying the performance gaps at any level is the reason to continually probe the market to find real opportunities that can be exploited is the value of strategic market analysis.

Want to validate our findings by sharing you experience with existing suppliers, upgrading or replacing their systems, and in evaluating and selecting new suppliers contact us.

Strategic Market Analysis – Aftermarket Services

Mon, 25 Jun 2012 17:22:00 GMT

Strategic market analysis is the foundation for smarter aftermarket decisions.

Our last blog, “Business Intelligence for Service Providers” discussed how business intelligence is a decisive tool in the ability to improve operational and service performance on a daily basis in aftermarket services.

In this article, we will be discussing another important tool for service business success, strategic market analysis. Sometimes confused with business intelligence, strategic market analysis focuses on knowing:

the size of the market
market forecasts & trends
market wants and niches
market segmentation
your competition

Strategic market analysis also assists your operational and tactical efforts as well as the proper allocation of strategic and tactical resources. The key point here is that Strategic Market Analysis and Business Intelligence are best employed as one integrated tool and not as stand-alone marketing tools.

Strategic Market Analysis is the Foundation for Smarter Decisions

Strategic market analysis is the solid foundation from which to build your business intelligence. Having careful, objective and professional analysis of the market place, competition, internal resources and capabilities and assessing future trends built on hard data and evidence is paramount.

All Companies have a critical need for strategic market analysis. Strategic market analysis provides an understanding of the market you are competing in to be successful. Here are a few of the questions you can achieve insights into:

What’s the total market opportunity?
What is our current market share?
Who are our main competitors?
Is this a market we should be investing in or planning to exit?
Should we consider merging, acquiring or selling?
What market trends can we take advantage of, or do we need to address to grow?
Does our business plan reflect market wants?
Are their market niches we are missing, or should be growing?
What are the market segments that are growing, or declining?
Are we missing any important market segment opportunities?
Do we have a deep understanding of our competitors that will allow us to exploit their weaknesses?

Planning and Allocating Market Analysis Resources

Planning and allocating resources for strategic market analysis is essential whether your needs are for proprietary or off-the-shelf research. The value proposition in making a sound purchase decision should come down to the strategic value of the information vs. the cost.

The place to start is with the most accurate and up-to-date information you can get your hands on when trying to make decisions that will produce a desired result. Outdated or bad information will result in a cascading effect of bad decisions. Because of this, allocating sufficient resources for strategic market analysis and business intelligence is absolutely necessary. Their costs are insignificant compared to the capital, assets, and business failure you risk by making bad decisions based on flawed or obsolete data.

One note of caution, you should be aware is that lower cost off-the-shelf research when not used for its intended purpose of broad view and general trend information will likely cost more than proprietary research.

Proprietary Research or Off-the-Shelf Research

The important key to whether proprietary custom or off-the-shelf research is best for you depends. It depends upon answers to questions like these:

Why do you need the data?
Are you simply in need of broad trend data?
Do you need it to plan and allocate operational resources?
Do you need specific information on sub-segments of the market?
Is having a deep dive on the competition required?
Will you need data to enhance buying & decision making processes?
Do you need strategic and market analysis?

Bottom line proprietary market research is the choice for comprehensive and specific information that allows you to make informed operational and tactical decisions. Also when you need more data points like:

Market size and forecasts by product or region
Deep dive competitive information
Understanding market behavior, needs and wants
Analyzing your capabilities to deliver market needs
The help of a market expert to leverage industry data from a proprietary database

Off-the-Shelf Research market research is best for a broad view of the market without a lot of specifics. This type of market research attempts to satisfy the needs of most people wanting to gain a cursory view of a market or industry.

When off-the-shelf or Internet research is chosen for the wrong reason, usually cost this can be fraught with issues like:

quality of the data
old data, freshness of the data
not getting the whole picture
comparing apples to oranges

This approach is like trying to build a jig saw puzzle with pieces from different puzzles. And, it becomes the foundation for your decision making?

Take Away
No matter the type of market research, the important point to remember is that no successful business goes to market without all the market research it can obtain and continues to utilize market research on a consistent basis to remain successful.

Business Intelligence for Aftermarket Services

Fri, 22 Jun 2012 13:31:00 GMT

Companies that offer aftermarket services have a critical need for business intelligence. BI provides an understanding of service performance that allows businesses to make improved operational and performance decisions in services offered by aftermarket vendors. These include:

Opportunity for service growth
Development of new services
Profitability of services
Improved services delivery execution
Improvement in meeting customer satisfaction levels

Business Intelligence Makes for Smarter Decisions

There is no magic involved in BI for aftermarket services. Catalogs of data are available for virtually every industry that provides aftermarket services. Your business needs to capture this data and benchmark your company’s performance to industry standards. Data points include a wide variety of issues such as:

Problem resolution at first service call
Incomplete service due to lack of parts
Revenue per call
Cost per call

These and many other data points are available from companies that can either provide your company with a turn-key business intelligence solution or perform a BI assessment for you. Either way, not knowing how you to compare to your competition weakens you competitive advantage and is a sure sign that your decision making can be improved. An example of why you need this data is your company is aware that customers frequently complain that service is not completed on the first visit. Your company wants to fix this problem – but what is the cause? Is it poor scheduling, poor inventory control of parts carried on the repair vehicles or poorly trained personnel? Without knowing what is causing an issue, resolving it is impossible.

Plan and Allocate BI Resources

The BI function is so vital to aftermarket service providers that planning for continuous BI and allocating sufficient resources is unquestionable as the benefits are so great. These benefits include:

Sufficient information for smart decision making
Improved profitability
New opportunities for profit
Better scheduling of staff – reduced overtime and expenses
Better inventory management
Improved customer service and concurrent better customer satisfaction

Proprietary Research or Off-the-Shelf Research

BI for aftermarket services is dynamic and needs to be current so that operations can be fluid and change as need demands. This usually means that off-the-shelf research is rarely appropriate or of significant value for use in aftermarket services. Frankly, BI that is stale is useless. Paradigms in aftermarket systems change quickly, information therefore must be current.

In obtaining BI by analyzing off the shelf public records an enormous amount of manpower must be used for data collection. Primary public sources of information are Annual and quarterly reports files with the Securities and Exchange Commission. Some information may be readily available for some of your competitors and hardly touched upon for others. Trade magazines may be used for information about a company or industry but accuracy and age may be in question. After data is collected from public sources it needs to be organized and analyzed, another massive manpower effort. Then a data collection method must be created for your own company so that comparisons can be made. There is significant cost in manpower and time.

Companies exist that have large data libraries organized by industry. They help companies to conduct BI by providing a ready-made, industry specific data base for you to compare your company’s aftermarket services to. Many companies store this data in the cloud where it if update frequently and accessible to you.

Take Away
Finally, a custom BI program is a turn-key affair. Accordingly, data collection techniques are already part of the program and easy to input. Many businesses find that using a proprietary research program is the most advantageous way to implement an aftermarket BI function.

Benchmarking Best Practices for Aftermarket Services

Mon, 04 Jun 2012 17:36:00 GMT

Benchmarking is the key to understanding aftermarket services and reverse logistics performance and identifying areas for improvement. Benchmarking best practices apply to a company meeting industry standards for a particular task or service or group of tasks or services it provides.

Benchmarking is the process of comparing a company's business processes and performance metrics (e.g., cost, cycle time, productivity or quality to see how an individual company compares to the industry standard. For example, installation of a main frame computer occurs, 90 percent of the time by the industry within 3 days of delivery. If your company averages better than 3 days 100% of time you exceed the industry standard, if you only install within 3 days of delivery 65 percent of the time you are below the industry average.

Benchmarking is vital to any company, but companies that provide or are newly providing aftermarket services, including reverse logistics, need to implement a benchmarking program to see if their goals of improved quality and profitability of aftermarket service.

Benchmarking Can Be Provided On A Turnkey Basis

Many businesses often do not have the resources to do a professional Benchmarking study. They can turn to outside consultants who provide a turnkey program in an economical and expert manner. This is possible as databases already are created, all major after service markets are sampled and the program can provide critical data sorted by industry average, best in class or critical threshold. A benchmark database study allows companies to compile data in real time that provides a snap shot of current performance levels. Moreover, where critical needs to improve existing performance are identified, the data will support the development for creation of a "Burning Platform" for change.

Aftermarket services and reverse logistics are closely related and often overlap. Aftermarket services create a profit center for a company while reverse logistics are often treated as cost centers. Companies seeking to improve profitability try to convert as many reverse logistic costs into profit centers.

An example of this is a company that routinely disposes of a client company’s old computer hardware when they provide new hardware. There are costs associated with disposal of old computer hardware. Adding an electronic waste removal fee turns this cost into a profit center – making it optional does not force the client to purchase the service from the seller, but, the seller now avoids the cost of removal and disposal of old hardware if the client chooses to handle disposal himself.

Why Benchmark Best Practices

Benchmarking is important as companies that consistently under perform in Aftermarket Services and/or Reverse Logistics are at a competitive disadvantage. An example is the best way to illustrate its importance:

In this example, the service arm of an Original Equipment Manufacturer (OEM) is questioning if they are competitive in the area of field service. They decide to purchase a turnkey Benchmark study and quickly discover that there were several areas where they are falling short of industry standards:

Excessive investment in spare parts compared to industry
Excessive travel time of service personnel
Excessive abandoned calls caused by lack of proper spare parts
Excessive number of calls incomplete compared to industry

This Benchmark Study then provided the company the impetus to build a “Burning Platform” (a burning platform is a situation that requires a company to respond quickly to a known problem or suffer consequences worse than the problem) to invest in appropriate technology that allowed for minimizing gaps, cost reduction and better quality of service. By purchasing the software needed to optimize the inventory of service parts and allow for dynamic scheduling of field service personnel, the company is able to realize a reduction in operating cost by reducing unneeded inventory and reducing overtime labor costs.

Moreover, since they now have an original set of benchmarks, after rollout and adjustment of operations, the company can perform a second Benchmark study to evaluate if their improvements are working as designed.

Take Away
Benchmark your company's performance against key operating metrics and financial benchmarks in your industry, then leverage this information to identify areas for improvement & strategic change.

The Blumberg Advisory Group benchmark database has more than 40 parameters on which we can analyze your company's financial and operating performance against industry average best in class metrics in aftermarket services and reverse logistics. We have information from over 350 small, medium, and large companies which service and support computers, office automation products,medical equipment, building and plant automation, telecommunications and network products, and medical electronics. Contact us for a free 30 miniute consulation to discuss your needs.

Strategic Assessment of Outsourcing Part IV

Wed, 16 May 2012 00:19:00 GMT

In our final installment of this series Strategic Assessment of Outsourcing Part IV, we will be reviewing the vendor selection process and summary recommendations.

We begin with outsourcing vendors and a recommendation of selection factors to consider in making the best vendor selection possible. A plethora of vendors are available to support customers’ outsourcing needs; and with so many alternatives available, it becomes increasingly more difficult to select the "best of the best" when outsourcing. Once the decision has been made to use an outsource vendor, a systematic approach is also needed in selecting one.

Outsourcing Vendors Selection Factors

The first step is to determine what skills, activities, and physical assets will be required to perform the function. This must be evaluated in terms of:

personnel requirements
experience levels
technical capabilities, tools, information systems assets
skill levels

Once defined, the outsourcing firm now has an understanding as to exactly what the specific function requirements are to buy from an outside vendor.

The next step is to determine the goals and objectives of outsourcing. For example, by outsourcing, is the company trying to:

minimize overhead and technology costs
grow its customer base through service expansions into a lucrative market with limited competition

Once the outsourcing firm understands its function requirements needs and what results it is attempting to achieve, it can now begin to evaluate alternative vendors. In evaluating vendors, it is important to understand why outsourcing deals can fail.

Why Outsourcing Deals May Fail

the vendor lacks depth and breadth of service capability
lacks the experience
cannot provide the day to day data and information that customer needs to monitor quality of service
cannot provide the full array of services to support all the components of the function being outsourced

In essence, outsourcing contracts fail because vendors cannot deliver on their promise. Qualified outsourcing vendors should possess the following characteristics (see Figure 9):

The most important characteristic is financial solvency. Because outsourcing deals can be long-term, it is critical that the vendor has financial strength. Knowledge of the customer’s business is also an important criterion. It is not only important that the vendor is skilled and experienced in performing a function, but that he understands his customer's goals, objectives, mission, and culture. Above all, the outsource relationship requires collaborating.

In addition to possessing these qualities, the vendor must be able to provide outsourcing customers with a commitment to quality improvement and customer satisfaction, as well as the commitment to technological innovation. These commitments need supporting with a requisite level of performance guarantee and include incorporating new technology in performing the functions as the technology becomes available. The vendors should be able to provide and demonstrate an understanding of your business and offer customer references to demonstrate a record of accomplishment of success.

More Vendor Differentiating Features

A further means of differentiating superior vendors from average ones is to determine whether the vendor possesses any unique service capabilities. This may include a leadership position in developing a specific technology or possession of expert knowledge in performing an industry-specific, narrowly focused task relevant to the function. The vendor’s knowledge of dynamics and requirements of specific markets is also a key differentiator (i.e., vertical market focus).

In addition, the ability to provide a full-range service portfolio can be a distinguishing factor in the end, especially if the customer has plans to outsource additional activities in the future. The quality of the vendor’s information system can also be a make or break factor, since the vendor is viewed as an extension of the outsourcing company’s business and must provide visibility into day-to-day transactions and service performance metrics.

Finally, the vendor’s long-term commitment to the outsourcing market should be the prime differentiator. Look for evidence of historical presence, current commitments, and articulated long-range mission, vision, and strategy.

Vendor’s Perspective

From the vendor’s perspective, it is good to understand that customers are always delighted when they receive more benefits and results than they expect. This is a critical rule in outsourcing since there is a lot at stake when a function is outsourced.

Customers trust the vendor to run a portion of their own business and will expect more from the outsource vendor than they will of their own employees. Good outsource relationships provide the customer not only with short-term solutions, but they produce measurable results and improvements in both short and long term. Winning outsource contracts (see Figure 10) express this principle.

FIGURE 10

They offer shared savings from improvements in technology and specify the commitment to technological upgrades as they become available. However, it is good business for the vendor to describe anticipated improvements in general or qualitative terms, rather than in quantitative terms, unless there is absolutely no risk to the vendor or customer in achieving these goals. A final point of advice is that good outsourcing contracts should offer flexibility by enabling customers to modify or terminate contracts under specifically pre-defined circumstances. Good outsourcing deals provide for a sharing of risks and returns between the two parties.

Summary & Recommendations

In summary, most large service organizations and many middle size groups are now engaged in an in-depth analysis and evaluation of the opportunities for cost reduction and productivity improvement through outsourcing and downsizing, and many outsourcing vendors are moving into this market.

Overall, the possibilities and options created by outsourcing have affected our traditional notions and approaches to conducting business. The conventional wisdom for many decades has been to maintain tight-fisted control over all the functions, activities, and processes operating within an organization. Economic uncertainties, corporate downsizing trends and competitive pressures, have forced managements, executives and gurus to re-think this philosophy.

Executives must now evaluate business functions and processes based on productivity and efficiency contributions, and more importantly, consider their strategic value to the organization. Outsourcing provides a means for an organization to continue to operate functions necessary for business survival but delegate the burden, responsibility, and risk to an outside party.

In the past, “make versus buy” decisions were focused at the activity level when costs were an issue. Today's economic reality has moved the “make versus buy” decision from a tactical consideration to a full-blown strategic analysis and evaluation of the cost and benefits of operating a function internally versus contracting with an outside party. On the other hand, market dynamics permit greater options than merely subcontracting commodity-like activities to an array of vendors with similar qualifications.

Today, an organization can outsource to a broader array of providers, not to mention, of course, their own competitors. Likewise, the vendors themselves can outsource, and/or collaborate, with other vendors to create customer solutions. In essence, outsourcing has created a paradigmatic shift in the way we conduct business by permitting our competitors of the past to become our customers of today, and our customers of the present to become our partners for the future.

Recommendations

However, it is essential for the service organization, which is considering outsourcing to understand the need for a quantitative, in-depth, professional, and objectively conducted consultative evaluation process, as broadly outlined in Figure 5, in order to arrive at the optimum decision and solution with respect to cost reduction and efficiency and profitability improvement, relating to:

growing the service organizations to achieve significant economies of scale
outsourcing and/or subcontracting of key service functions and processes to reduce costs
forming a joint venture/partnership relationship with another service organization to gain both economies of scale, and the ability to sell excess or unutilized time through an increase in the direct business base and service portfolio

Take Away
It is clear that the general trend towards service outsourcing and downsizing will continue as service organizations attempt to improve their productivity, efficiency, and profitability. Our Strategic Outsourcing series provides a decision-making framework, key points, and concepts that professional consultants employ in evaluating outsourcing options and alternatives. If you would like guidance in executing your next outsourcing decision, please feel free to contact us for an insightful free 30-minute consultation.

Related Information

Strategic Assessment of Outsourcing Part III

Strategic Assessment of Outsourcing Part II

Strategic Assessment of Outsourcing

Strategic Assessment of Outsourcing Part III

Wed, 09 May 2012 19:36:00 GMT

Strategic Assessment of Outsourcing Part Three examines the best practices for strategic management decision making regarding outsourcing. In Part II, we continued to explore insights into the strategic assessment of outsourcing for OEMs, distributors, and third party service providers.

Now in Part III we will be examining the overall process for decision-making support of the strategic issues of service outsourcing and downsizing.

In running and managing a business, executives typically examine a function from the perspective of cost and capability to determine, which tasks and activities can be performed efficiently and proficiently by internal personnel, and which tasks and activities an outside party could more effectively handle. In essence, executives conduct a "make versus buy" analysis at the task or activity level, in order to determine whether to contract with an outside vendor. Some people will point out that this process is a form of outsourcing. However, outsourcing involves much more than subcontracting individual activities to reduce costs.

A more accurate definition of outsourcing would be contracting the management function and its associated components to an outside party who can perform it on a more proficient and efficient basis than the outsourcing firm. This slight distinction is evident in the example of a Fortune 500 company who contracts with a third party to manage mailroom operations and maintain related technology versus a firm who contracts with the manufacturer of postage meters to provide hardware maintenance and support on this equipment. In essence, outsourcing involves delegating to a third party, the responsibility and authority for managing and operating a portion of the outsource firm’s business at an agreed upon fee for a fixed time.

In essence, the key approach to determining the optimum outsourcing and downsizing strategy to improve general efficiency, effectiveness, and reduce cost, is outlined in Figure 4 below.

The first step is to determine the criticality of the service to your core business based on an evaluation and analysis of service performance benchmarks and customer satisfaction data. If the service is critical and performance is excellent then all that is needed is to develop an action plan that will continue to optimize that service business.

If the service is not critical or a poor performer then it is a candidate to consider outsourcing or subcontracting all or parts of that service business. The next part of the decision tree focuses on the efficiency of the business. A low efficiency, service business assessment would suggest subcontracting all or portions of the service functions out to an experienced subcontractor or third-party vendor.

If the service is operating at high efficiency then considering a joint venture with an experienced efficient, service provider maybe the best option for the business.

Both, the low or high efficiency, service business evaluation will require an optimum action plan and schedule of activities to close the loop on a successful action plan in making the best decision possible.

Under this process, information is collected on trends, service performance benchmarks, customer installation base, levels of service, perceptions and assessment of service criticality, and "best in class" vendors, viewed from the perspective of the service end-user.

FIGURE 5

Key Decision Model For Use In
Outsourcing & Reducing Service Costs

In figure 5, we see a decision structure necessary to evaluate the appropriate course of action based on the results of both an external market survey of customer requirements and a benchmark survey of internal productivity and efficiency versus industry standards.

This leads to the ability to assess these findings based on the customer perceptions in relation to the efficiency and productivity of the service business versus industry standards. Armed with this knowledge a company can now make the best decision possible to maximize service profitability.

The pursuit of the process methodology, as outlined in Figure 6, by an experienced professional consultant or consulting organization working closely with the client company, should result in a rapid assessment and evaluation of the options and alternatives.

Take Away

Decisions related to outsourcing, subcontracting and downsizing should begin by first analyzing and evaluating customer requirements and service criticality. The next step is to conduct both an internal survey/benchmark analysis and evaluation, and an external survey of the customer or user base. These first two steps establish the key parameters to evaluate your survey and benchmark database to formulate various decision models producing a rapid assessment and evaluation of the options and alternatives. Need help, we can guide your evaluation process for decision-making support of the strategic issues of service outsourcing and downsizing contact us now.

Related Information

Strategic Assessment of Outsourcing Part II

Strategic Assessment of Outsourcing Part I

Cloud Services and Mobile Computing

Wed, 25 Apr 2012 05:01:00 GMT

Everyone is talking about the influence of cloud services and mobile computing on industry communications and business. Here is what I just heard.

One quick note, for those that have been following our series Strategic Assessment Outsourcing we will retun to the next installment in that series in our next post.

I had the pleasure to attend the CompTIA Annual Member Meeting earlier this month. The buzz at this conference was on the subjects of Cloud Services and Mobile Computing. Obviously, these issues are ubiquitous throughout industry. In the past, most of the conversations have been about how great the technology is and what it can do for us in terms of delivering services. To be honest, up until this event I have not heard much discussion about how the nature of IT Services would or could change in this new environment. The CompTIA meeting was refreshing because it did address these issues.

As far as the Cloud is concerned, many conference participants believe that the Cloud is here to stay. However, rather than viewing Cloud as a threat, most people are bullish that the market will adopt private cloud solutions as opposed to public cloud. Perhaps, this is a dream? With a private Cloud, IT service providers can continue to offer billable IT services to their customers. On the other hand, the public cloud poses a risk to this income stream. Conference participants noted that the migration toward private cloud will also require some degree of creativity in terms of creating new billable service offerings. New skill sets will also be required to sell and deliver these new services.

With respect to mobile computing, the CompTIA audience recognized that smart phones and tablets are proliferating and in some cases replacing traditional computing devices like, Handheld Computers and Desktop/Laptop computers. There was also recognition that many employers are enabling BYOD, (Bring Your Own Device) environments. Given these trends, there was speculation among the CompTIA audience as to whether mobile computing represented an opportunity for IT Services Provides. Concepts such as Mobile Device Asset Management (MDAM) and Mobile Application Management Services were receiving a lively discussion as billable services appropriate for B2B customers.

On the other hand, some claimed that the proliferation of enterprise mobiles apps and BYOD eliminates the need for these services altogether. Can both environments exist simultaneously? Are we trying to solve a new challenge with an old school solution with MDAM? Is it really just a matter of time before, before all organizations adopt BYOD policies and deploy mobile enterprise apps solutions? Let me know you thoughts.

Take Away
Cloud and Mobile Computing are not necessarily disruptive to the IT Service Market and do not have to be viewed as such If they, create opportunities for new billable services. However, new skills are needed to market, sell, and deliver these services. A management consultant who understands the marketplace needs and has experience with cloud and mobile computing technologies could help you monetize these services quickly. Please feel free to contact us for more information.

We'll be back shortly with our Part III of Strategic Assessment Outsourcing.

Related Information

Impact of Cloud Computing on Reverse Logistics

Field Service Cloud Computing Survival Strategies

Service in the Clouds: A new paradigm for Aftermarket Service- Part 1

Strategic Assessment of Outsourcing Part II

Mon, 16 Apr 2012 05:01:00 GMT

How to evaluate the decision to outsource consider the pros and cons a strategic assessment of outsourcing.

In Part I of this four-part blog series we helped organizations to outsource Aftermarket & Reverse Logistics services, as well as review the key steps and decision paradigms and parameters that support the decision making process in the strategic assessment of outsourcing.

In Part II, we continue to explore insights into the strategic assessment of outsourcing for OEMs, distributors, and third party service providers.

A. Outsourcing May Not Be for Everyone

The concept of outsourcing is not for everyone; as shown in Figure 2, there are both advantages and disadvantages.

Figure 2

Pros and Cons of Outsourcing

There are a number of risks in outsourcing which may create perceived disadvantages. However, these disadvantages are mostly of a psychological nature and if managed effectively, do not lead to financial losses. For example, collaborating with a third party introduces a host of new outlooks, personalities, and demands that can produce new problems. These challenges include:

a more complicated level of communication

insecurity in the workforce

the risk of alienating customers

Therefore, systems and procedures must be put in place to monitor and evaluate the performance of vendors. However, developing these systems can be a difficult task for some.

The biggest obstacle to outsourcing is that it requires a change in management mindset. Many managers fear the loss of control or conflict of interest and fail to compare the cost and benefit of using outside suppliers with the cost and benefit of using internal support organizations. Managers faced with an outsourcing decision often construe the financial cost and loss of control over individuals as their justification for not outsourcing, but fail to consider the long-and short-term improvements and results, and the indirect financial benefits and long term savings to the organization.

Furthermore, good outsourcing agreements allow the client to request the employee or service provider be replaced if they are unhappy with them. Unfortunately, motivating employees and effecting change within internal support organizations is not as easy. In essence, the risk associated with outsourcing can be offset and controlled if managed properly.

B. OUTSOURCING DECISION CRITERIA
Obviously, a number of good reasons exist and arguments can be made for outsourcing, particularly because outsourcing can lead to a 20-40% reduction in costs. This benefit is among the major reasons why so many companies in a downsizing or rightsizing mode have become involved with outsourcing.

However, outsourcing is a good management tool in a number of other scenarios. Companies operating labor-intensive businesses who experience sharp, steep learning curves can find benefits and requirements change very dramatically because of seasonal or cyclical factors.

Many companies are enamored by the perceived benefits of outsourcing and are planning to outsource. Other organizations are stepping on the outsourcing bandwagon because it seems as though it is the "thing to do" under current economic conditions. An initial perception is that just about every function and activity in the business can be outsourced, ranging from technology-oriented functions such as:

Field Service

Depot Repair

Call Center

Print Services

to pure service functions such as supply chain management & accounting

In light of the number of potential pitfalls and disadvantages discussed above, not every function should be outsourced. However, except for conventional wisdom of supporting core businesses internally and outsourcing functions that are not central to business, very little guidance has been provided to executives on optimum outsourcing and decision criteria.

In essence, conventional wisdom does not help an executive determine what functions are “core” to his business. For example, in the high-tech equipment service business, depot-repair center functions were considered a primary center to firms providing field maintenance and support just a few years ago. Now many firms in this business are questioning whether depot repair is a “core function” to the field maintenance business.

This has been a very difficult question to answer; particularly in light of the fact, that many companies have opted not to perform these functions internally. On the other hand, this trend does not necessarily mean that depot repair is not a core business function to all organizations operating within the general industry. Some equipment service organizations may find a competitive advantage by performing depot repair functions through internal operations, while others may find no economic justification for doing it themselves. Clearly, some level of strategic business planning is required; otherwise, outsourcing would become a haphazard process at best.

A strategic approach for evaluating the decision to outsource against several key factors is shown in Figure 3. These factors should be evaluated in a logical sequence as follows:

• Customer view of function

• Capabilities and physical assets required to perform function

• Technological requirements

• World-class abilities

• Performance and delivery capabilities versus
competitive alternatives

• Time and cost required to close performance gaps

• Long term commitment

Figure 3

Outsource Decision Criteria

In evaluating a business function, companies should elect to perform internally, when the following criteria are met:

1. Customers are concerned or affected by the process of the functions performed. In essence, the function creates a key differentiator.

2. Specialized capabilities and physical assets are required to perform the function for which there are few qualified independent providers.

3. Performance of functions requires relatively high technology and possession of that technology can be a clear advantage to the owner.

4. Resources and capabilities exist to achieve world-class performance.

5. The organization maintains a leadership position versus alternative sources of delivery.

6. The internal source is clearly at a competitive cost advantage over external suppliers and/or the rate of improvement in any performance gap is relatively high.

7. A long-term commitment exists by senior management to provide this function internally.

On the other hand, outsourcing becomes a more viable consideration under the following circumstances:

1. Customers are concerned with the outcome of the functions performed and
pay little attention to the process

2. Capabilities are readily available in the mass market and proximity or access to the customer is not an issue

3. The technology to perform the function is very stable

4. World class performance is not a critical success factor

5. External vendors are clearly more competent

6. Significant capital & resources are required to improve any performance gap

7. Organizations have plans to harvest or exit the business in the near future

Takeaway
The fact that other organizations within the market choose to outsource is of no consequence. However, a vendor who can provide a consultative approach to existing customers to make the optimum outsourcing decision is more likely to gain new business than a vendor who does not. However, this approach requires an investment and commitment to a long sales cycle. Although an opportunity exists to provide planning services to perspective outsource customers, this item appears to be a “loss leader” at best.

Stay tuned Part III of our series is coming up.

Related Information

Strategic Assessment of Outsourcing Part I

Strategic Assessment of Outsourcing

Mon, 02 Apr 2012 12:37:00 GMT

Insights into the strategic assessment of outsourcing for OEMs, distributors, and 3rd party service providers.

This first part of a four-part blog series will help organizations to consider outsourcing options, as well as review the key steps and decision paradigms and parameters that support the decision making process to outsource Aftermarket & Reverse Logistics services. We will address the perspective of both, the outsourcing firm and outsourcing vendors.

The Theoretical Decision Structure in Considering Outsourcing In Service

The issue of outsourcing and downsizing is more complex than most describe. It is not simply a matter of deciding whether to outsource or not. This is particularly true of service issues, the usual focus of outsourcing. The question of outsourcing requires carrying out a strategic assessment and evaluations in which a number of factors need consideration, key among them are:

The importance of service to the organization's customers & users
The market or the use community’s observed perception of the vendor’s service quality & responsiveness
The current levels of service efficiency & productivity compared to other equivalent service organizations in the market

These key issues in turn will determine whether an organization would be prudent to make any strategic changes (to outsourcing) in order to significantly reduce the firm’s costs and improve flexibility, efficiency and performance. In fact, there are three ways to do this:

1. Significantly grow the service operation beyond the areas of product support. Specifically, the company would develop product lines or new technologies to build a comprehensive multi-vendor service (MVS) service concept. The result of this action should be a significant increase in the economies of scale and, therefore, reduction in cost.

2. Outsourcing or subcontracting all or part of the services under the following circumstances

- Service is not critical.

- The current level of productivity and efficiency of the internal service organization
is not commensurate within industry standards, benchmarks, and performance.

3. A joint venture with or divestiture to another service vendor currently in or is considering the outsourcing market. The objective of this strategy is to:

create a larger organization with immediate economies of scale
create a framework to significantly increase the portfolio of services
reduce the price to the company’s own end-user constituency.

In substance, the process of reducing costs and improving efficiency can be achieved through a variety of ways, including outsourcing, downsizing, or growth, and can be implemented through a number of different mechanisms.

The Description of the Actual Outsourcing Decision Process

To outsource or not to outsource that is the question. This is definitely the question on the minds of almost everyone, from Chief Executive Officer to entry-level employee. Outsourcing has a number of real and perceived benefits, as well as disadvantages.

While outsourcing seems to be an activity that just about everyone is doing, few organizations who consider it really know exactly what it is, or how to do it effectively. Likewise, vendors who have read the "writing on the wall" that the outsourcing market is large and growing, desire to take advantage of these opportunities, but are not quite sure exactly how to do it.

The most common perception of outsourcing is that it is a process of contracting with an outside party to handle a portion of a client's business. Some people view outsourcing as nothing more than hiring a series of outside specialists or service groups to replace full-time management and personnel.

The concept of outsourcing in information technology is now at least three decades old. What appears to be a new is that outsourcing is gaining ground in such areas as clerical functions, delivery services, and back room operations.

A. OUTSOURCING BENEFITS AND DISADVANTAGES

The general conventional wisdom of many companies is to provide as many functions, tasks, and activities as possible through internal personnel. The rationale behind this mode of thinking is that internal operations, particularly through centralized management, can provide the greatest amount of management control over efficiency and productivity. However, new competitive pressures and a troubled world economy have forced a number of organizations to re-think their strategies of building up internal organizations.

According to management guru, Peter Drucker, in-house service and support activities are defective monopolies, which have little incentive to improve their productivity. For example, in-house staff may respond to a service problem by hiring more people or an outsource vendor, or respond by insuring that customers get what they need without extra high costs.

The most obvious reason (Figure 1) behind outsourcing is that it provides very effective means of reducing costs by contracting with a third party who can provide better service and high quality at a lower cost. By reducing costs through outsourcing, you gain the ability to improve operating efficiency, increase return on assets, and improve profitability.

FIGURE 1

REASONS WHY COMPANIES OUTSOURCE

Rationale	Description	Benefits
Cost Reduction	Outsourcing to a Third Party to Reduce Cost of Operations	Improve Efficiency Increase Return On Assets Improve Profitability
Revenue Generation	Contracting with a Third Party to Provide Products or Services that the Contracting Firm Cannot Offer on Its Own	Reduce Risk Improve Efficiency Increase Revenue
Hybrid Situations	Collaborations, Alliances, Partnerships, Etc., with Two or More Like Parties in the Same Business Line to Offer Complimentary Products or Services	Investment Increase Capability Utilization Create Economics Of Scale

Outsourcing is also an effective means of generating new revenues. For example, the firm that outsources can contract with a third party to provide products and services that it cannot offer on a profitable basis. This form of outsourcing enables a firm to test market demand for a service or product in a less risky, more cost-effective way than creating the service internally with scarce resources.

Outsourcing can also occur in the form of collaborations or alliances with two or more like parties in the same business line to offer complimentary products or services. These hybrid situations enable the two organizations supporting the same market to share resources and increase revenue through synergistic relationships. Benefits of these hybrid situations also include the ability to:

increase capacity utilization
improve return on investment
create economies of scale.

Takeaway
Outsourcing can create a number of economic advantages:

eliminating investments of fixed infrastructure
allowing for greater quality and efficiency of services
cost savings

In addition to hard dollar benefits, in both the long-and short-term, outsourcing provides soft benefits such as increased access to functional expertise and freeing up management time to focus on the priorities of a strategic nature.

Related Information

Field Service Outsourcing

Aftermarket Service as a profit center-Part IV: Technology is Key

Aftermarket Service as a profit center-Part III: The Cost of Revenue

Reverse Logistics Industry Update

Mon, 26 Mar 2012 13:17:00 GMT

Reverse Logistics industry insights and directions from recent industry events.

The first quarter of 2012 has been a whirlwind for me. I was fortunate to participate in and deliver presentations at several key Aftermarket Service and Reverse Logistics industry conferences:

Reverse Logistics Association Conference & Exhibition Las Vegas 2012
CompTIA – IT Service & Support Winter Conference
Service Industry Executive Summit

In fact, I have a new mantra …”Every day in every way I am finding new ways to add value to the industry”

In keeping with my affirmation to grow professionally and contribute to our industry, I thought I would share some of the insights that I learned at industry conferences over the last three months:

1. Cloud, Business Intelligence, & Mobility trend are having a significant impact on the IT industry. These trends are providing service providers with better tools and technology for delivering service on a highly productive & efficient basis. At the same time, this technology is changing the complexity and landscape of the service environment in terms of what is technology, is service and how it is serviced. On the other hand, these challenges create new revenue generating opportunities for new and innovative services.

2. Increased interest in acquisition - Arrow and Avnet, two of the world’s largest wholesale distributors of components and equipment have entered the Reverse Logistics & Aftermarket Services Market through acquisitive strategies; Waste Management as well. Announcement of their transactions has triggered many companies to evaluate their growth strategies. Companies are now acknowledging that size is a key success factor. Not only are other large companies like Jabil and others pursuing acquisitive growth strategies, so are a number of many middle market companies. At the same time, many small & medium size companies are considering to merging or selling their businesses to larger companies in order to gain access to a larger market share and revenue opportunities.

3. Strategic initiatives to deploy Service Lifecycle Management (SLM) Systems - Advances in cloud computing combined with the recognition that SLM is critical to building a profitable, predictable, and sustainable business has led many Service providers to undertake new initiatives to purchase and deploy new technology. There are growing numbers of vendors who offer best in class solutions to the market. As such, companies looking to deploy new solutions can ensure optimal results by taking a structured and disciplined approach to selecting software vendors. Knowledge of the available state of the art and development of detailed functional specification is fundamental to the evaluation process.

4. Expansion into new markets & services - More and more companies realize that revenue growth is dependent on the ability to expand into new markets and services. As such, we see a number of companies who are have found profitable growth opportunities by either expanding their service portfolios or expanding into new technology segments. For example, asset recovery companies who have developed depot repair capabilities and vice versa; or companies who repair computers that have now expand into consumer electronics and cell phones.

5. Greater focus on marketing & thought leadership - Revenue growth, regardless if it is through market expansion or market penetration, requires an effective marketing strategy. Those companies that have been successful in generating new business have been those who can effectively articulate how they add value and use thought leadership-marketing strategies to pull customer toward them.

Key Takeaway -these are exciting times for companies involved in Aftermarket Service & Reverse Logistics. There is more opportunity than ever before within this industry. To capitalize on these opportunities, it is important to have an effective road map. A management consultant with decades of experience and access to comprehensive business intelligence on the industry can also facilitate successful outcomes. Please feel free to contact us for more information.

Related Information

Reverse Logistics Market Size & Forecast

How to Increase Services Revenue

How to Reduce Aftermarket Services Cost

How To Increase Services Profits

How to Increase Services Revenue

Mon, 27 Feb 2012 06:01:00 GMT

Aftermarket services revenue can boost profits and increase customer satisfaction and loyalty.

Market forces that increase their costs are always squeezing OEMs. Raw materials, fuel, supplies and shipping are big expense items. At times, companies are reluctant to pass these costs on as they fear customers will look for alternative sources of their products.

Often overlooked by smaller OEMs, is the profitable aftermarket services they can provide. Some of these are offered as free services and others may be new services for an OEM to offer. However, aftermarket services revenue can help boost profits.

End users are keeping equipment in use longer. While this presents a problem for OEMs when it comes to selling new equipment it also creates opportunity by providing additional services after equipment is sold.

Before undertaking a shift to selling services in the aftermarket arena, it is necessary to do research on your existing installed base. The following questions need answers:

What equipment will you service?
Where is it located?
Who is the owner?
How many units are in the installed base?
Who will be the customer?
What is the quantity of customers?
Where are the customers located?
How many of the installed base will buy our service and how many installed units do they have?

After the above questions, an OEM can determine if it makes sense to offer maintenance and repair services directly to their customers. An analysis of existing customers must be undertaken. If there are thousands and thousands of units installed and working, then it may be sufficient to perform a sampling survey.

Companies with little experience in aftermarket services ought to consider the services of a consulting firm that specializes in the High Technology Service Industry. They can provide expertise in determining which services to offer and how best to provide them. Many times outsourcing these services makes the most sense and provides the highest profit. An aftermarket services consultant can advise you on contracting with a 3rd party outsourced company to provide the aftermarket services that you want to provide.

1. Service contracts: Offer service contracts to your customers. Who can provide better maintenance of a piece of capital equipment than the company who manufactured it? Your existing company base is a very valuable asset to market this service to. It makes sense to most people that manufacturers can best service the equipment they manufacture. If as a manufacturer you do not have an outside service department, explore outsourcing. It will be cheaper for you to provide "factory authorized" service by outsourcing. Periodic service will keep your customers confident in their selection and they will come back when they are ready to buy again.

2. Repair service: Many smaller manufacturing companies do not provide factory service unless an item is returned to the company. For large items, this may be impossible and for all equipment, it is an inconvenience. Here again your existing customer base is a built in market for paid on-site service. Even a single site manufacturer can provide on-site service by outsourcing. If your call center handles the service call by getting the appropriate information, and then dispatches the outsourced repair company, you have an opportunity to make a great impression and keep your client base happy.

3. Outsource installation: Often, companies do not provide installation services. However, if you make this one of your aftermarket services and use a company that you outsource to as the installer, writing installation into the sales contract is easy.

4. Waste disposal: When you get your oil changed in your car there is usually a fee for disposal of your old oil. You generally do not even have a choice, either pay it or take your old oil home! Today, manufacturing companies are trying to comply with environmental laws and build a good community reputation. Selling a piece of equipment or as a replacement charge a disposal and recycling fee. Of course, this is part of the sales contract but is actually one of the aftermarket services that will help build your aftermarket services revenue. This is an easily outsourced way to make more profit.

Takeaway
As your organization evolves greater sophistication in aftermarket service, your company can provide other services. Today IBM makes more money from its global services (aftermarket) then it does from sales of hardware and software combined.

Related Information

Aftermarket Services as a Profit Center Part II

How to Reduce Aftermarket Services Cost

Service Mobility for Efficient Aftermarket Services

How to Reduce Aftermarket Services Cost

Mon, 20 Feb 2012 06:01:00 GMT

You can find cost savings and hidden profits in aftermarket services if you know where to look.

Many people may see this opportunity as solely involving parts inspection, repair or replacement. These same people most likely will benefit from a top-to-bottom review of aftermarket services. There are opportunities for cost reduction, just in the warranty service segment of aftermarket services, assuming the decision is to keep the service in-house.

Incoming logistics: no matter how the defective part arrives, there is a cost associated with it if the OEM is paying for it. To control costs for warranty returns, OEMs should…

1. Only accept warranty returns shipped by your contracted shipper and that have a Returned Merchandise Authorization number.

2. Rather than have a call center person assign RMA numbers, explore having a technical support person on the phone or via online chat. Parts returned may be in perfect working order but as the equipment is new, a minor install glitch or explanation of how the part functions maybe the actual problem. Solving the problem before a part returns results in several significant cost savings.

no in-bound shipping or handling costs
no labor costs expended inspecting a perfectly good part
no out-bound shipping expense

Of additional consideration is the aspect of customer satisfaction associated with restoring equipment to service without a part exchange or a service call.

Nevertheless, aftermarket services are often not the strategic competency of most OEMs. In fact, aftermarket services are a different industry entirely. For this reason considering the outsourcing the entire function should not be overlooked - this means forming a partnership with a company that does all warranty repair for you. This includes:

in and out-bound shipping
repair or replace decision-making
intense, warm and empathetic customer relations to attempt a resolution without a part or total piece being returned

Ideally, an OEM’s outsourced warranty service provider will have facilities strategically placed throughout the country to keep shipping costs low and turn-around time rapid.

Warranty returns and repairs are part of the old paradigm for aftermarket services that viewed aftermarket contact with customers as a necessary business expense. Smart organizations are viewing these same services today as a source of revenue.

A lucrative aspect of the aftermarket services is maintenance. Once again, this is ideal for outsourcing to a company that does maintenance work as a core competency. To keep warranties in effect, sell maintenance plans at the time of initial sale. Your contracted maintenance provider should have strategic country-wide locations to service your clients from, a stock pile of parts so that service is usually a single call to the customer and be kept up-to-date by the factory to make sure they know of equipment changes and/or known issues.

Extended warranties make for great upgrades at the time of purchase. The purchaser pays the company up-front for services that are not rendered until a future time. Using the same outsourcing techniques and completing the warranty transfer at the time of sale, gives the manufacturer more money. By paying the outsourced warranty, expense with today's dollars by contracting the work out, the time value and opportunity cost of money benefits the manufacturer.

Product installation is often included in sales price, but most folks consider it an aftermarket service. It makes perfect sense for the manufacturer to engage the same company that will do its contract maintenance and field service to perform installations. This creates a relationship between buyer and service provider from the start.

Disposal and recycling of parts and total product has become an important of the reverse logistics chain and aftermarket services. Manufacturers have to be aware of regulatory changes in their own industries, complying with those is hard enough. Environmental regulations regarding disposal and recycling is an extraordinary challenge, if it is not your core business. This function to be outsourced to a company that can do it for less and whom will assume all risk for non-compliance.

Aftermarket services are an increasing source of revenue for OEMs. Paradoxically, OEMs who outsource aftermarket activities can reduce the cost of providing services and increase profits too. Services that are excellent candidates for outsourcing include:

Warranty repairs and replacements
Extended warranties
Installations
Service contracts
Disposal and recycling

Takeaway
Many companies find it useful to engage consulting firms who have expertise in creating a strategy for maximizing returns on aftermarket service by creating tactics that reduce costs and improve customer satisfaction. A key component is any company’s drive to excel, is to look at aftermarket services as more than a cost of doing business but also as an opportunity to profit from.

Related Information

Service Lifecycle Management: What's a Lifecycle Worth?

Service Lifecycle Management: Benchmark Findings

2012 Opportunities In Aftermarket Services

How To Increase Services Profits

Mon, 13 Feb 2012 06:01:00 GMT

Astute aftermarket services firms are quickly finding new profit opportunities that come after the sale.

Businesses are seeing pressure on their profit margins and customer loyalty remains difficult to maintain. Manufacturers of high-tech equipment are especially prone to volatility with their end-users.

Whether its computers, cars, or high-efficiency heating and air conditioning units, the first company with the newest technology has an advantage in getting new customers. The actions of consumers then puts a strain on companies with a large installed base, but no products near release, Wisely, these manufacturers have turned to aftermarket services to provide additional profit and maintain customer loyalty by establishing an extended relationship with the customer.

Aftermarket services goes by many other names including, After Sales Services, Post Sales Service/Support, Product Support, and Service Life-cycle Management. It does not matter what a company calls it, Deloitte completed a study back in 2007 that showed at that time the aftermarket services profit was as much as 75 percent greater than the profit from manufacturing, even if one were to include selling repair and maintenance as well as parts and accessories.

What Comprises This Profit?

With ongoing and speedy technology advances along with rapid deployment of new and more complicated products there is increasing demand from buyers for numerous additional services such as installation, maintenance, repair, extended warranties and consumables. One estimate pegs expenitures for consumables at five to 20 times greater than the equipment purchase price.

Astute manufacturers are quickly moving to take part in profit opportunities that come after the sale. However, others are missing out be not paying attention to basics. These manufacturers are tolerant of the high costs created by requisite after sale functions such as:

1. Recall

2. Disposition

3. Returns management

They do not have the vision to see that the reverse supply chain need not be an expense, but a way to create new profits by value recovery and profit creation. Those manufacturers who do not challenge the ordinarily costly expenses found in reverse product flow are failing to take money off the table.

Inefficient Reverse Logistics

Without a strategic view of the supply chain, dealing with the flow of products coming back as returns, repairs or recalls are some of the most costly processes found in the after sale supply. Companies usually regard these costs as part of the routine cost of doing business. This is shortsighted.

The Reverse Logistics Council of The USA has found that:

up to 15 percent of manufacturers expenses are spent on reverse supply chain activities

inefficient reverse supply chain management can further increase the cost

a manufacturer's profit can be affected by up to about thirty percent

Reverse supply chain costs can be managed better of that there is no doubt. In the past few years, aggressive efforts to transform forward supply succeeded by supporting new service tactics and taking advantage of new contingencies. One example, postpone and build to order. The same imaginative solutions could squeeze the costs of rebound product supply chains.

Planning strategically for reverse supply chain logistics can…

make the processes run more smoothly

be more easily managed

result in higher profits without higher costs

All at once, service response time is improved, customer satisfaction increases and brand loyalty soars - all things that stimulate returning and new customers.

Failure to Recover Value in Excess Reverse Assets

With growing demand for aftermarket services, the value and volume of products and parts found in the reverse supply chain increase proportionally and threaten the value of capital assets. These assets can be in the form of:

Unwanted product by customers

Returned/repaired inventory

Obsolete items

Unsold, new products

Sadly, the great majority of items in the reverse supply chain go un-recovered despite having significant value.

Smart manufacturers will monetize parts of aftermarket services such as product disposal previously just absorbed by the company. Customers will pay for installation fees and maintenance contracts, not as part of the initial sale, but by aftermarket specialists who will tailor programs, including reverse logistics and upgrades, into aftermarket service packages.

Takeaway
The key to keeping your customers happy is exemplary aftermarket service. Companies that are operating at top efficiency recognize the key role that reverse logistics plays in aftermarket services and will streamline, enhance and profit from them.

Related Information

Whitepaper: What is a Lifecycle Worth?

Whitepaper: Service Lifecycle Management: Benchmark Findings

How To Improve Your Reverse Logistics Service

Wed, 08 Feb 2012 06:01:00 GMT

How To Improve Your Reverse Logistics Service

Does your reverse logistics service enhance customer satisfaction, build loyalty and boast profits?

Returns cost businesses billions of dollars every year. Moreover, return policies and experience significantly affect customers’ future purchasing choices across all industries. Given the exponential increase in online consumer conversations about customer service – good or poor – it is more important than ever to ensure your reverse logistics services support customer satisfaction and loyalty.

All types of companies can benefit from increasing the efficiency of their reverse logistics processes, not just to boost customer satisfaction but also to reap cost savings, stand out from the competition and meet increasingly stringent environmental protection standards.

3 Ways to Improve Your Reverse Logistics Service

1. Integrate and streamline.

Establish a single company-wide reverse logistics center to capture functional and overhead efficiencies.

Speed up the process to get products back into the “for sale” side of the equation. This reduces or eliminates waste due to product usability problems or obsolescence.

Integrate advanced technology wherever possible. Using pre-printed shipping labels that contain detailed customer and product information makes it easier and faster for customers to return items and facilitates quicker, personalized customer notification of return receipt and disposition.

Implementing online Return Merchandise Authorization (RMA) lets customers themselves alert you they are returning items and why. Advance information about incoming returns allows warehouse efficiencies such as eliminating the need for sorting and better labor scheduling.

Continuously look for opportunities to improve every step of your system, especially the triage process. Increasing the percentage of aftermarket services options that enable you to retain or create sales minimizes your need to use the worst-case option, disposal. Even tiny details can make a big difference – one company incorporates a sensor that can indicate feasibility of repair or refurbishment if products are returned.

2. Track and analyze.

Understanding the total cost of your supply chain requires detailed knowledge about the reverse logistics portion. Better visibility into your system can identify opportunities to make aftermarket services more effective -- finding and solving problems earlier, improving customer satisfaction, and uncovering new ways to increase revenue.

Capture and track detailed information every step of the way, and carefully analyze that data. Evaluating individual customer accounts can help you reduce financial exposure when downstream distributors or retailers return unsold goods.

More and better feedback helps improve quality of products as well as service. It can also help you identify and perform repairs for resale. Ultimately, reducing reasons for returns lowers your return volume, a substantial cost savings. Some companies have even turned their reverse logistics center into a profit center.

3. Consider outsourcing.

For many companies, contracting with a Third Party Logistics (3PL) firm accelerates and enhances processes all along the reverse logistics chain. Outsourcing can provide customized aftermarket services for specialty industry sectors. Often, 3PL companies are better able to dispose of materials in compliance with existing environmental protection and sustainability regulations.

However, outsourcing is not always the best alternative. It is important to weigh the benefits versus working in tandem with your existing supply chain partners to devise and execute your own unique reverse logistics system.

Whether you choose outsourcing or retain product reverse lifecycle management in-house, a carefully designed and implemented system can establish your company’s reputation as a leader in sustainable supply chain management and enable you to realize cost savings, enhanced customer loyalty and perhaps even the potential to generate revenue from aftermarket services.

Takeaway
Reverse logistics is a necessary component of doing business, and the cost can be substantial. However, it does not have to be unavoidable. By improving efficiencies in your product lifecycle management, you can turn this “back end” of your supply chain into a profitable, marketing and environmental sustainability asset.

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Service Mobility For Efficient Aftermarket Services Management

Mon, 30 Jan 2012 06:01:00 GMT

Knowledge about the location, user or a service anywhere - anytime, this is service mobility for an efficient aftermarket services management.

There are a number of organizations involved in field service trying to boost the efficiency of their workforce and reduce the costs of operations. The only way to do this is to manage the process in a better way. Service mobility applications can enhance aftmarket service operations significantly by providing you with more support including service lifecycle management.

Aftermarket consulting specialists can provide your business with a better understanding of service lifecycle management so that you can begin choosing better service supply chain solutions to help you save money. This includes looking at all of your service opportunities as a lifecycle as opposed to a single series of events. By combining all operations together, you can improve upon your costs in a more effective manner.

Service mobility has become so significant, that the IQPC has a Conference in the Middle East purely dedicated to discussing topics that revolve around how post sales service/support can be enhanced by different solutions. The conference has established that thousands of organizations around the Middle East are spending significant dollars towards scheduling, dispatching, tracking and data management simply because it is the best way to improve business.

There is a lot of service mobility technology that makes it easier to do all of the scheduling, dispatching and overall management by streamlining the process out in the field. By having mobile computing solutions in the field, it is possible to know where all workers are at any given time. This provides more methodical dispatching that can actually make call times faster and reduce fuel costs and improve the customer experinece.

Faster Service

Using GPS applications, customers receive services faster too. Installed on mobile phones, tablets and in various other products these applications can:

make it easier for the employees to get the information
management and customer service to know tracking details
inform customers when the service will arrive to them

More Efficiency

By creating better workflows, your company can actually begin to experience more efficiency in the way in which work is being done out in the field. This makes contract management:

more effective & productive
helps minimize returns & improve repair center cycle time
improves inventory turns and spare parts planning

Service mobility can facilitate a better management process. Post sales service/support may be a profit center, but it can also be a better way to offer customers or clients a way to get what they need, reducing the number of returns and repairs. Service lifecycle management improves significantly by getting to the root of the problem and offering technology to help with the logistics.

Throughout the consulting of after sales services, your company needs to understand what the desired behavior of your customers and clients. This means that if you want your customers to avoid experiencing delays to identify a problem, then aftermarket services needs a plan to deliver product support is readily available to them. By sourcing customers and clients to take part in the process, it can actually eliminate a number of problems in your plan and implementation strategies.

The service mobility technology that is available will provide effective ways for consumers to take advantage of the aftermarket services offered to them. More importantly, it can help streamline the service supply chain workflow so that the information that is critical to the success of the organization is getting into everyone’s hands sooner that will ultimately reduce costs.

More and more people are turning to implement service mobility solutions in the field because they are completely customizable. Aftermarket consulting experts are best equipped to get to the root of a company’s issues, identify the workflow and recommend proven automated devices that will improve the efficiency of aftermarket service processes and affect service lifecycle management in more positive manner.

Takeaway:
Service mobility is crucial to building service satisfaction, both with the customer and your bottom line.

Related Information

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SLA Compliance

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Reverse Logistics Innovation through Smart Trust

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The Secret To Exponential Service Revenue Growth

Reverse Logistics benchmarks to watch in 2013 - Part II

Reverse Logistcs benchmarks to watch in 2013 - Part I

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Reverse Logistics & Aftermarket Services: A Strategic Differentiation

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Why You Need A Strategic Management Consultant

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Strategic Market Analysis – Aftermarket Services

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Strategic Assessment of Outsourcing Part IV

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Key Decision Model For Use In
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