By Mike Landry, Founder and CTO, Servigistics, Atlanta, GA
According to the 2008 Duke University/CFO Magazine Global Business Outlook survey, which asked more than 1,000 CFOs about their expectations for the economy, optimism among chief financial officers reached its lowest point since the optimism index launched over six years ago. Add rising fuel prices, increasing unemployment and significant cuts in consumer spending, and it's no wonder that CFOs are pessimistic about current economic conditions.
Doing business under current conditions is risky business. One of the areas evoking the most concern over risk management is in the supply chain. Significant supply chain disruptions can reduce a company's revenue, cut into market share, inflate costs, tap out the budget and threaten production and distribution, according to property insurer FM Global in a report on risk management in a global economy. A companion study of more than 600 financial executives found that supply chain risk, more than anything else, had the greatest potential to disrupt their top revenue drivers.
Brand Loyalty Risk
According to Ann Grackin, Director, Supply Chain Risk Management at Marsh — the world's leading insurance broker and strategic risk advisor, client executives understand the brand loyalty risk associated with product recalls, counterfeit products and field failures, all of which are connected to an area often left unattended, and hence, at greater risk: the service chain. Bruce Richardson, the dean of software analysts from AMR Research, recently demonstrated this risk to a company's brand. Richardson blogged about the problem he encountered with a refrigerator purchased from Best Buy, and his blog stats hit 12,000 visits. Following an exasperating service call, then waiting around the house during work hours only to have a technician arrive and depart, unable to fix the problem due to the lack of a spare part, Richardson called again to set up the second service call. When the second technician finally arrived and inspected the problem, the technician discovered that it was only a piece of styrofoam stuck in the door. No need for the spare part, or the service technician, or the unnecessary customer service charge, after all.
Now that's risky business, especially considering the amount of time and profit lost. According to a Benchmark Survey by Aberdeen Research, just one service truck roll costs almost $300. But in the case described above, two useless calls cost nearly $600, which may seem trivial until you add up the tens-of-thousands of service truck rolls that take place each week. Not to mention the loss of customer loyalty and the risk to brand based on the blog that was viewed by 12,000 consumers.
Strategic Service Management
But there's a silver lining: Strategic Service Management, or SSM, is a new commitment-centric business strategy built around a company's understanding of the power and value associated with delivering on the service commitments it has made to its customers. This new strategy is causing companies to completely reengineer how their often sub-optimized service businesses manage their service commitments, resources, partners and prices. It is also causing organizations to search for creative ways to harvest more profits while efficiently and effectively delivering on those service commitments. SSM optimizes the strategy, processes, human resources, technology and knowledge involved in the delivery of service. The aim is to control, monitor and evaluate the service supply chain risk, which will serve to safeguard and maximize profitability. For example, Sun Microsystems, a manufacturer of servers, storage devices, and microelectronics, saved $47 million in its first year after implementing SSM by reducing inventory and eliminating purchases. That's an enormous savings in today's tight economic conditions.
Avaya, a global leader in communication systems, applications and services, saved $90 million. In addition, a heavy industrial manufacturer realized a 17 percent improvement in months-on-hand inventory, a 20 percent inventory reduction at the central depot, and a reduction in returns and freight costs — all while improving customer satisfaction.
As the AMR Research blog demonstrates, without SSM, the service supply chain is fraught with risk. Business-to-business customer commitments pose an even greater risk due to the harsh penalties for failure to deliver on that commitment.
Furthermore, in the face of dwindling product margins due to globalization and commoditization, service delivered after the initial sale of a product can differentiate competitors from one another in today's increasingly service-driven marketplace. While products and features can be duplicated, post-sale service is very difficult to replicate and can have a substantial impact on a company's revenue, profitability, and customer satisfaction and loyalty levels. After all, there are plenty of refrigerators of equal feature and function on the market, but customers want to know who will provide the best service on that asset?
As a whole, SSM is designed to mitigate the risk associated with delivering service after the initial sale of a product, which can be extremely complex, involving the coordination of the right knowledge, parts, prices and people involved in service delivery to be properly aligned order to avoid disruption.
An example of this type of service chain risk mitigation is Dell. With a technology solution called Servigistics Enterprise Command Center, akin to NASA's mission control, service personnel have a real-time visibility into all service calls. Imagine a large regional map with jeopardy coded lights indicating the status of each service call. Overlaid on that map are data on local/regional weather and traffic. As soon as a service request comes in, Dell begins the field technician and service part dispatch process. Every dispatch consists of a series of time stamps that track the technician and parts. If a service call is running tight against the customer commitment, then a yellow alert appears. If the service call is going to be missed, then a red alert appears on the map. In one instance, bad weather in Houston grounded a DHL flight. However, Dell alerted the affected customers and service partners that the shipment was going to be delayed, but that other service parts had been located in the system and were on their way. And for the very worried customers, Command Center adopted a FedEx approach to tracking service call status. No more wondering when the part or the technician will arrive.
Instead of the service chain being a liability or a risk center, it can become a profit center if all of the processes are aligned in order to provide a "single version of the truth." This may change the outlook of CFOs from pessimistic to optimistic, or at least alleviate some of the concern.
Contact: Servigistics, 2300 Windy Ridge Parkway, 450 North Tower, Atlanta, GA 30339
770-565-2340 fax: 770-565-8767 E-mail: email@example.com