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If you’d like to hear about the latest topics of interest to those involved in Reverse Logistics, as well as how OnProcess Technology’s proprietary combination of People, Process and Technology work together to continually improve your returns cycle and your entire post-sales service operation, please join us by registering here.

We look forward to seeing you in Amsterdam on June 19th!

By THOMAS CRAIG, President

LTD Management

www.ltdmgmt.com

Outsourcing is a viable option for companies. Businesses outsource for many and varied reasons-increase shareholder value, reduce costs, business transformation, improve operations, overcome lack of internal capabilities, keep up with competitors, gain competitive advantage, improve capabilities, increase sales, improve service, reduce inventory, increase inventory velocity and turns, mitigate capital investment, improve cash flow, turn fixed costs into variable costs and other benefits, both tangible and intangible. To the maximum, and if done correctly, outsourcing and business process outsourcing can be used to create a viable virtual corporation.

3PLs. 3PLs have led the way in logistics outsourcing. Drawing on its core business, whether it be forwarding, trucking or warehousing, they moved into providing other services for customers. Creation of a 3PL presented a way for a commodity-service logistics provider to move into higher margin, bundled services.

Customers, anxious to reduce costs, want what 3PLs have to offer. The potential market opportunity for outsourced logistics service providers, whether domestic, international and/or global is huge.

But something has happened on the yellow-brick road. The reasons are varied, but the bottom line is many have failed at their own business transformation. Some 3PLs have not moved past their core commodity service to become true multi-service providers. Or international 3PLs have not understood how to provide domestic services; or domestic ones have not succeeded at venturing into international logistics services.

Others have failed to differentiate themselves against the competition. Certain 3PLs have not done a good job positioning and defining themselves in the marketplace. Or the parent company has not given them the resources, especially sales and sales leads, to penetrate even their existing customers. And, sundry have commoditized their 3PL service, as a result undoing the very purpose of their 3PL. These setbacks have slowed down the growth of some 3PLs in terms of both customer retention, especially, and new customers. Fragmentation of the 3PL sector reflects both the uncertainty of how 3PLs view themselves and the diversity of customer needs.

As a result, customers have had to compare apples and oranges in their RFP replies. Shippers share some accountability with an overemphasis on cost reduction as the key metric and without a clear definition of their requirements for services they need and how it will all work within their company. They looked for silver bullets and quick answers to complex needs.

4PLs. Into the service vacuum created by 3PLs, the 4PL has emerged. Using a 4PL, fourth party logistics service provider, is different than the traditional 3PL. Much on 4PLs discusses technology. Technology is not THE answer; it is part of the answer. It is one element of success of process, people and technology. 4PLs see the process and what is required to make it succeed.

4PL’s combine process, technology and process to manage. The 4PL is a Business Process Outsourcing, BPO, provider. This lead logistics provider will bring value and a reengineered approach to the customer’s need. A 4PL is neutral and will manage the logistics process, regardless of what carriers, forwarders or warehouses are used. The 4PL can and will even manage 3PLs that a customer uses.

Business process outsourcing is traditional outsourcing and more. Outsourcing is often taking a set of work, tasks, responsibilities or functions and transferring them to an outside service provider. Business Processing Outsourcing (BPO) involves that and more. A BPO service provider brings a different perspective, knowledge, experience and technology to the existing function and can and will work with the firm to reengineer it into an improved or new process. It is an outcome-based result, not just a pure cost reduction issue. The new process will interact or be integrated into the company in a way that can bring value, even bottom line and shareholder benefits, to the client.

A good 4PL will have the shipper perspective and experience in what he does and offers to prospective customers. That means a better understanding of the complexity of the customer’s requirements, present viable solutions and to have customer satisfaction and retention.

“A 4PL, with real world supply chain experience, can present a way for customers to take control of their supply chains. They can structure the relationship and the process in a way that best meets the requirements of the customer, rather than the customer having to accept what the outsourcing provider has to offer.”

The firm sees the relationship, not a chunk of freight. Instead the BPO provider seeks incentives and metrics to define the relationship and collaborates with each customer as to goals and outcomes. A 4PL wants to position itself as an extension of and part of its customer. This BPO provider recognizes the role of and need for information technology in managing the process.

A successful 4PL should have both the strategic and tactical capabilities. He should have real world logistics experience, especially on the “shipper”/customer side. Experience lets you see real issues and hidden agendas that are present. They also give you the ability to develop the process, people and technology that are needed because they have “been there, done that”. They understand meeting the needs of their clients because they have managed and been responsible for logistics.

A 4PL, with real world supply chain experience, can present a way for customers to take control of their supply chains. They can structure the relationship and the process in a way that best meets the requirements of the customer, rather than the customer having to accept what the outsourcing provider has to offer.

3PL vs 4PL. When it comes to outsourcing, there are three questions and underlying issues. One, do you outsource a function versus outsource a process? 3PLs target the function. They want to handle containers/shipments/freight, not the transport management process, for example. The true need is the process, which is what the 4PL targets. Is there really a process in place–or a series of standalone transactions? What is the present process? How does it work? Where does it fail? Where are there gaps? Where are there redundancies? The supply chain process crosses organizational lines. It runs horizontal in a vertical organization.

Two, do you outsource work/tasks or do you outsource managing? Much outsourcing is work related. Handle warehousing. Handle shipments. Not manage them. This matter is part of the next evolution of outsourcing and where the 3PL will have to migrate-and where the 4PL is already positioned.

Three, the outsource service provider, to truly meet the needs of his customer, should be neutral. 4PLs should be neutral if they are to manage the process. 3PLs, especially those which are asset-based struggle to be neutral. 3PLs which seek to push shipments through their transport contracts or through their warehouses are not neutral.

Conclusion. Some 3PLs have not fully stepped up to meet the exact needs of customers. Some have become too focused on “managing” tasks, not processes and on serving the parent company’s core business, and have missed opportunities to present value.

The 4PL opportunity exists because 3PLs failed to meet the real logistics/supply chain requirements of customers. There will not be a “model” (or cookie cutter) for the 4PL. After all, he knows to customize to the needs of each customer.

As a result, 4PLs have become alternatives for business process outsourcing. These new BPO logistics service providers enable firms to manage a critical part of their supply chain by providing visibility and integration across multiple enterprises. They manage with the three key elements of process, people and technology. Users of a 4PL can focus on core competencies and better manage and utilize company assets and resources, as to inventory and personnel.

In the Consumer Electronics industry, particularly with complex devices such as modern appliances, PCs, cell phones, televisions and related boxes, the overall cost of returns can be as high as 6% of revenues. Yet, of those returns, only 5 – 10% are due to manufacturing defects. The remainder fall into two categories:

65 – 70% – No Trouble Found
25 – 30% – Remorse Returns

That means that up to 90-95% of ALL returns are potentially preventable through aftermarket operations and services. Once returned, even if the product has no defects, the cost of processing that return and getting the product back into inventory is significant.

Depending on the nature of the product, and the channel through which it is purchased, returns can be prevented at one of two points in the customer experience:

1. Proactive intervention after the sale
2. At the point of outreach for assistance by the customer

Our work with OEMs and device sellers in several markets has shown that, where a product requires activation, installation, or even merely has a complex operational procedure, a program tailored to the specific needs of the client and market including proactive outreach within 24 hours of purchase can significantly reduce remorse and “no trouble found” returns.

Of course, sometimes returns happen after the product or service has been in use, when the customer identifies a problem or need. By having processes and systems in place which can more quickly and effectively resolve customer problems at the first inbound call, even more returns can be prevented while improving overall customer satisfaction and loyalty.

More information on this exciting award to follow.

UPDATE:

Supplier Summit Awards
May 06, 2012

Ciena Supplier Awards 

A highlight of this year’s Supplier Summit, which was held May 1-2 in Montreal, was the second annual Ciena Supplier Awards. The awards recognize outstanding supplier support and innovation on Ciena’s behalf, and winners were selected from the pool of direct and indirect suppliers that Ciena uses around the globe.

Suppliers are an integral part of Ciena’s supply chain helping to design, build and ship our products to customers worldwide. Direct suppliers include companies whose components and subsystems are used in our products, while indirect suppliers provide services such as logistics, travel, and IT that complement our internal supply chain operations team and support Ciena’s employee base.

Steve Haley, Ciena’s Senior Director, Material Management, hosted the award ceremony, which was attended by the representatives of 83 suppliers invited to this year’s Summit from 13 countries. On hand to help hand out the awards were Gary Smith, Francois Locoh-Donou (SVP, Global Products Group), Philippe Morin (SVP, Global Field Organization), and Shauna Gamble (VP, Supply Chain Operations).

From more than 25 nominees, winners were announced in seven categories:

• Innovation Supplier of the Year: ST Microelectronics
• Service Innovation Supplier of the Year: OnProcess Technology
• Product Quality and Service Supplier of the Year: Celestica
• Service Supplier of the Year: Flextronics
• Supplier Account Team of the Year: Sanmina (PCB Division)
• Strategic Supplier of the Year: JDSU

For some companies, optimizing the Service Supply Chain is becoming more important.

This is not surprising.  The Service Supply Chain is wide in scope — the people, processes and technology for servicing the end customer after the sale.  Components may include customer care, technicians, systems, knowledge-bases, parts inventory, carriers, parts depots, parts suppliers, tech providers, business rules, service level agreements, metrics and analytics.

How would companies rate their performance for this initiative?  Few have realized the promise of higher profitability, improved customer satisfaction and increased competitive differentiation.

Stuck at good?  This is not uncommon among companies in diverse industries — Medical Devices, Cable & Broadband, Retail Services, Wireless, and Infrastructure Technology like computers / PCs, storage, networks, and communication equipment.  However, achieving superior results is possible in Service Supply Chain management, just as some companies have demonstrated in managing the supply chain supporting manufacturing and forward logistics.

What one factor can make a strategic difference in Service Supply Chain Optimization (SSCO) between good and superior results?

It’s the Conversation between the agent and the end customer – either as a result of proactive outreach to the customer or at the pull of the customer to solve their problem.

If the service supply chain readily exposes any shortfall in a company’s processes, the Conversation is the opportunity to address these systematically — by empowered listening and by conversation enhanced with technology, systems, training, proven decision-trees, best practices, problem–solving skills and a sense of urgency.

Everything else in SSCO is getting ready for the Conversation — like an air traffic controller always ready to provide guidance for a successful landing.   The advanced planning starts with the question: what are the decisions, backed by data, required to make the Conversation successful?

Scenarios may include:

• “I need service.  The product seems to work as expected for all features except one — automatic backup functionality” (from the end customer)
• “I am calling to inform you that our remote-diagnostic-software indicates that your product needs service. I recommend that we schedule a technician this week – as preventative service to avoid potential disruption…” (proactive communication from the company agent)
• “Before I try to schedule service, can you validate my warranty by specific products that I’ll list? Some products are 4-hour response. Some are next-business-day.  I also have a special contract clause not requiring us to return certain hard drives…”  (from the end customer)

Frequently, the Conversation deals with the moment of truth between the agent and the end customer – the moment when things are not likely to move sideways, but to get much better or much worse.  It can result in a shift in customer attitude — from “concern” that the service part is not available in the required time to “trust” that the problem is scheduled for a solution.  The successful conversation can instantly generate a shared purpose between the agent and the end-customer:  to fix the problem, provide the service on time, reduce customer risk, or to avoid customer costs.

Finally,  the successful conversation is “added value,” that is, done right the first time in a way that transforms the experience of the customer and creates outcomes that the market will pay for…a conversation that is planned, but never leaving the end customer feeling manipulated.

Now…what’s achievable?  Let’s look at results from two case examples, with results slightly changed to protect the confidentiality of Clients.

• Case 1: Even with considerable planning, a conversation can unravel.  Customers can opt-out of the process and opt-out of the conversation – and escalate directly to, let’s say, a VP or President in the service company’s organization.   What is a realistic goal?  Six-sigma level performance is achievable – fewer than four such instances out of each one million opportunities to serve the end customer.
• Case 2:  Some companies have a strategy to get as many customers as possible better educated on their products and services – with the expectation that more educated customers may be less likely to:
• trigger unnecessary service events
• return products that turn out to be “no-trouble-found”
• require extra support from Customer Care
• switch to competitors’ products and services

This idea is not misplaced, especially in building an integrated approach to Service Supply Chain Optimization.  In this case example, the company ran diagnostic market research to identify opportunities and conducted a focused campaign to educate customers.  Finally, they executed a second proactive-outreach campaign, “education-on-education,” to try to close any remaining gaps.  The result: 91% of the customers were “champions” in recommending the company to their colleagues – a rating of 9 or 10 on a scale of 1 to 10.

Creating the environment for other Conversations, using the same principles, is also important:

• between the agent and parts suppliers
• between the agent and tech providers
• with the client Chief Services Officer, CFO or Executive Team

In Service Supply Chain Optimization, getting ready for the Conversation is the job that never ends, supporting a company’s goal to have the Conversation leading to timely decisions based on the right information that drives the right outcome, every time and for every sub-process of SSCO.

The new Proactive Supplier Enablement Services offering has been designed to help clients fully realize the benefits of the Ariba Network by maximizing the participation of suppliers on the system.

“With our well-known expertise in using proactive outreach communications to improve end-user adoption of client products and services, the launch of Supplier Enablement Services for Ariba was a natural fit”, said Robert Kenney, Executive Vice President of Sales and Marketing for OnProcess.

The comprehensive set of services, including proactive communications to both buyers and suppliers; assistance with supplier registration; live, interactive supplier training and configuration of routing and email notifications, is easy to adopt and is aggressively priced on a per-supplier-contacted basis.

For more information, contact Robert Kenney, EVP or visit our website.

Also see a related post on Spend Management.

–sk

Lindsay Shields runs Boston Marathon

OnProcess’ own Lindsay Shields running past our Ashland, MA HQ during the Boston Marathon 2012!

Lindsay is running in support of Terri DaSilva’s fight against Breast Cancer: www.gracefulwomanwarrior.org

Part II – What’s achievable?

Let’s consider what is realistic and achievable with an improved advanced exchange process.

Based on our primary research, here are some findings.  What’s important to the customer during advanced exchange? What outcomes are achievable by an OEM, supplier or service provider?

• Being able to understand the complete returns process.  Some companies have achieved a customer rating of 95% — the percent of their customers that said the process “very easy” or “easy” to understand.
• The ability of the asset recovery team to resolve all the customer questions.  What’s achievable in this case? Having 97% of your customers that are very satisfied or satisfied.
• The ability to clarify policies related to returns.  A rating of 90%.  Still some room for improvement on this one.
• A timely response to questions about returns.  A rating of 94%.
• Overall satisfaction with the returns process.  A rating of 96%.

There’s always some room for improvement. What is the customer advice to suppliers, service providers and OEMs that want to improve their returns process?  Examples include:

• Enhanced communication tailored to the customer preferences.
• Expanded communications options: phone, access to easier-to-use systems, chat sessions, and email.
• Getting the details exactly right! Like pre-printed labels…being able to find labels even more easily and having a copy for the end customer for easier tracking.
• “Let me know the final outcome. Did you get my return?” A closed loop process. Confirmations that the product had been received.

For one OEM, two of every three of their customers are process-champions – that is, enthusiastic about the returns process.   While there are still specific opportunities for improvement that the OEM is actively pursuing, these results compare favorably with other service supply chain processes across multiple industries.

Based on our research…with good process definition, with clear start and end dates, metrics, and daily monitoring, some companies do achieve much better results.

To recap, what makes an asset management process industrial-strength? In our last session, we mentioned the ability to implement rapidly, the capacity to scale to high volume, demonstrated continuous improvement, early visibility to end-customer concerns, daily monitoring of results, ability to status every customer interaction, resolution of customer questions, closed-loop exception management, leading indicators of final results and both speed and high rate of recovery.

But that’s not all — there’s more! The ability to integrate with key service supply chain processes, including parts-dispatch, the deployment of techs along with the dispatch of parts, and product upgrades / migration / swaps.

Getting your process to industrial-strength takes some work.  But the choice is an easy one!

Part I: The Challenge

Reverse logistics (RL) / asset retrieval is frequently described as both “challenging” and “complex.”

RL may be many times more complex than forward logistics.  A company can achieve outstanding results in reaching forward logistics target goals and lowering their days of inventory, but fall short of their target goals in driving RL results.  Some companies have achieved a target of only a few days of inventory to support their assembly / manufacturing process. The same companies may have over 30 days of parts inventory tied up in the field servicing demand for returns.

Some processes trying to manage asset retrieval are just not industrial-strength!

There are four areas where it is easy to miss the mark by underestimating the requirements for an effective process: overall complexity of returns, handling customer concerns, the coordination of all the involved players, and the potential for high variability.

(1)    Complexity:   The complexity starts with the need to provide superior support to an end-customer that can be highly unpredictable in their requirements, their understanding of the returns process and their response. The end-customer may return the part today, in one day, 30 days, or never.  The customer may return it with the appropriate documentation so that the return can be successfully closed, with incorrect documentation or without any documentation.  They may return it to the right address or not.  The customer may return it to the wrong supplier.  One leading computer provider got a large tractor tire returned to them (actually one of the larger tires on the planet) – while the tire manufacturer received the computer product (you can’t make this stuff up!).

(2)    End customer concerns and expectations: The end customer may have significant concerns and unresolved issues because they had to schedule service that they had not planned.

(3)    Successful RL requires coordination with lot of players, including service technicians, carriers, and repair vendors: Someone, like a service technician, may return the part successfully on behalf of the customer.  However, the technician may keep the part in their car for longer than they planned.   Or the technician may get stopped at the customer security desk on their way out of the building and not allowed to take the part with them.

(4)    Variability:  For example, even with companies that plan new product launches incredibility well, smaller variability at time of product-launch can cascade and grow to larger-scale problems once customers start returning products.  Let’s say a new product or service is planned to have a 98% rate of successful installation. If the new product launch starts OK, and later falters to 94% installation rate, that can double or triple the percent of product that gets returned….not to mention additional days of inventory, unplanned in-bound call volume, borrowing inventory planned for production to use for service parts inventory, escalations of customer satisfaction issues and even some lost customers.

Without a process that’s up to the task, returns management can become the things-that-can-go-wrong process:

• “the customer returned the part, but not the correct one”
• “The part got returned but to the wrong location”
• “The part was returned no-trouble-found.  If we had the opportunity to educate the customer on how the product feature worked, they probably never would have returned it.”
• “The customer returned the part, but was so frustrated with the process that we now have competitive risk.”
• “I followed the returns process. It worked well. I returned the part.  The OEM forgot to tell me if they ever got the part back.”
• “The technician picked up the part and said they would return it.  Why am I getting invoiced?”

What makes an RL process industrial-strength? As a start, consider:

• the ability to implement rapidly,
• the capacity to scale to high volume,
• demonstrated continuous improvement,
• early visibility to end-customer concerns,
• daily monitoring of results,
• ability to status every customer interaction,
• resolution of customer questions,
• closed-loop exception management,
• leading indicators of final results, and
• both speed and high rate of recovery.

More to follow on this theme…

The three big cost buckets for a service business are:

• cost of labor/technicians
• cost of parts
• cost of back-office (call center, tech support etc.)

The most effective way to resolve a customer problem is by successfully troubleshooting it remotely (by the tech support team). A part or a tech or both may have to be dispatched if the troubleshooting doesn’t work. When a company has to dispatch a part and/or a tech, it is important it be done correctly so that a “repeat dispatch” is not needed. Dispatch of a part and/or tech is costly.

On average, as revealed in a recent field service survey conducted by the Aberdeen Group of 220 organizations (Field Service 2012: The Right Technician), 65% of incoming service requests require a field visit or a dispatch. Nearly 26% of these dispatches require secondary or additional follow up visits.

Clearly, the effective management of field resources and the overall field service organization is a critical success factor in the pursuit of service excellence. With more effective inbound triage, problems and waste through incorrect or avoidable parts dispatch can be significantly reduced, providing considerable savings to the enterprise. For the end customer, whether a direct consumer or an enterprise, the ‘average’ (approximately 74% for all organizations) first-time resolution rate is a major concern. While speed of service and on-time arrival are important considerations in evaluating field service performance, the ability of a field technician to diagnose and resolve a service issue is of primary importance especially considering the cost and revenue loss associated with downtime.

Through remote troubleshooting and simple parts dispatch for customer/end-user replacement, OnProcess Technology helps our client companies reduce the number of field dispatches required. For one of our clients, a major third-party warranty service company, tech dispatches were reduced by 17% in three months. Consider your own dispatch and service operations costs – how much would that kind of savings mean for your company?

Our Triage360™ services can reduce the number of dispatches by successfully troubleshooting a problem and avoiding dispatch altogether or by making the first dispatch more accurate. Are you measuring these metrics?  If so, would improving these metrics positively impact your bottom-line?

Inbound Triage – a key lever of Service Supply Chain Optimization.