Optimizing the Service Supply Chain: Part II

This article is the second in a three-part thought leadership series focused on unlocking the potential of the service supply chain for enhanced revenue potential. Click http://www.sdcexec.com/article/10416675/optimizing-the-service-supply-chain-part-i to read the first article in the series.

As discussed in our first article, there are three opportunities for profit within the service supply chain that do not require significant capital expenditures or large investments in terms of people, process and technology:

1. Selling a service contract at the time of sale – which can create improved customer intimacy and loyalty and earn high margins.
2. Embracing service as a revenue generator rather than a cost center – helps a company earn and retain a valuable asset -- customers’ long term loyalty.
3. Protecting the installed customer base by securing service contract renewals – helps maintain customer relationships efficiently, reduce sales acquisition costs and maintain market share.

By focusing on these three customer service initiatives now, a company can begin to leverage its existing service supply chain to reap recurring profits throughout the lifecycles of its products.

This article will examine methods for evaluating and improving the service process from the ground up, while exploring the tactical and strategic elements of reverse logistics.  It will also look at a number of key requirements to more effectively manage and execute service contracts during a product’s lifetime, and how organizations should optimize the repair and replenishment process making it easier on the customer.

Creating good experiences at every point of customer interaction during the product’s life cycle, helps drive higher satisfaction and safeguards customer loyalty. An effective reverse logistics program within the service supply chain is key to managing the customer experience. The seemingly simple process of exchanging a defective part during the product’s life cycle can “make or break” a customer’s long-term relationship with the technology provider. A customer’s satisfactory experience during the product’s lifetime can trigger an early (and relatively low cost of sale) service contract renewal, resulting in a number of benefits—protecting the installed customer base; enhancing long-term revenue; and maintaining market share.

Evaluating and improving a company’s reverse logistics function— which every organization has, whether formally or informally —requires examining the process from the bottom up. The goal is to create a simple and standardized process; and it requires attention to a broad array of details. A suggested methodology is to answer some essential questions about the organization’s reverse logistics function:

• Should the part be returned?

• Does the process identify and track the parts to be returned?

• Does the process capture all the right information?

• Does the process optimize repair and replenishment?

• Does the process make it easier for the customer?

Should the part be returned?

To guard against the unnecessary expense and the unwelcome inconvenience to the customer of having to exchange a part that should be replaced, an effective reverse logistics program identifies parts eligible for exchange. While this seems relatively straightforward, it is frequently ignored— at a considerable cost in time and money.

The expense associated with international returns, for example, might be greater than the value of the exchange part, or the time required to make the exchange might impose unacceptable operating constraints on the customer. Typically, many companies lack the ability or technological sophistication required to assign part attributes at a regional level. As a result, these companies often establish a single global model for each part in the system, leading to added supply chain cost and added customer inconvenience.

Does the process identify and track the parts to be returned?