Reverse Lifecycle Management (RLM) provides integrated, end-to-end functionality for the management and control and execution of reverse logistics transactions. The feature functionality in an RLM system enables the automation of key processes and tracking of critical data related to returns, warranty, inventory, transportation, shop floor control, etc. As the acronym implies, RLM supports the lifecycle of a reverse logistics transaction
An Reverse Logistics operartion can realize a number of quantifiable benefits by implementing an RLM solution. These benefits include but are not limited to:
- Cost reduction through better utilization and planning of assets and resources. This is brought about through visibility and planning tools.
- Administration consolidation through reduction of touch points which can be achieved through the integration capabilities, business rule work flows, and standardized management reports found within an RLM solution.
- Protected revenue and income recognized when companies better understand how much revenue and income associated with Aftermarket Service is at risk in the RLSC. This is achieved through the implementation of better controls found within end-to-end functionality and continuous monitoring of RL events (e.g., recall, returns, and warranty service).
- Liability protection: Many companies in diverse industries are susceptible and exposed to legal and regulatory action due to environmental and governmental regulations. The tracking and tracing features within an RLM provide up-to-date, real time information on the disposition of every item within the RLSC.
- Resource optimization: Inventory, transportation assets, employee allocation, and other resources are wasted on improper RL practices. Through business rules and better data, an RLM helps to conserve and manage a company’s resources.
- Productivity and efficiency gains: Poor RL processes take too much time resulting in poor customer satisfaction and wasted money. RLM streamlines and optimizes RL process time through standardized processes and procedures.
- Customer experience improvement: OEMs, 3PLs, Carriers, and Retailers can dramatically improve customer satisfaction through the implementation of self monitoring reverse logistics processes and systems. Refined business practices, such as issuing proper credit for returns, fast turnaround on sending products back to customers, balanced books, and issuing replacements are some crucial and improved processes that are automated by a state of the art RLM solution.
- IT resource reduction: By deploying an RLM on a SaaS platform, multiple instances and replication of expensive hardware and its maintenance are eliminated. The time to deploy the standardized SaaS RLM platform allows for any location to be ready in hours, not weeks or months.
These benefits help an RL operation achieve a best in class standard level of performance. The benefits can in turn be measured in terms of improved operational metrics such as:
- SLA compliance
- Repair Turnaround Time (TAT)
- Cycle Times
- Output Yield
- Quality Levels
- Repeat Failures
In turn, these improvements in operational performance can be monetized directly in the form of cost savings, productivity gains, revenue gains, and improved cash flow. Clearly, the implementation of an RLM will produce a significant ROI that justifies the business case and results in higher gross margins and reduced operating costs, not to mention improved quality levels and customer satisfaction. As such, RLM offers a strategic framework for transforming a Reverse Logistics operation jnto a strategic profit center.
To learn more about the benefits of RLM and how to acheive them in your organizations click here.
As many of you know, I recently authored a white paper titled Reverse Lifecycle Management: The Next Opportunity in Reverse Logistics. I received a lot of favorable comments from people who took the time to download and read the article. Thank’s so much . There were, or course, a few readers who expressed words of caution about the promise of the Reverse Life-cycle Management (RLM) concepts discussed in the paper. One person commented that an optimal RLM system based on best practices might be a good idea but without good project management and a willingness by the client to re-engineer some business processes the best solution can easily turn into a nightmare. Another person expressed concern about the quality of data being captured by the system. Their view was that a RLM solution may be world class but if it doesn’t collect that right data to improve operating effeciency and productivity or product performance, then it is useless.
Well, I couldn’t agree any stronger. Good project management and executive level buy-in are critical to a successful RLM implementation. I would say these components are important to any type of initiative that involves change. This is also true with respect to caputuring good, useful and reliable data as expressed by the old adage… “garbage in/garbage out”. RLM must consider the needs are all stakeholders, and that is an important distinction and decision that designers of a RLM solution need to take into account. Who are the stake-holders? Where do they fit in? What is their relationship? Where to they have an impact? These are are questions that must be answered when determining what type of data needs to be captured in the RLM solution.
One of the greatest benefits of RLM, and there are many, is that it provides a systemic platform for capturing, managing, analyzing and disseminating critical business intelligence necessary for optimizing an Reverse Logistics Operation regardless of the end-user's demographics (i.e., years in business, number of employees, market served, number of customers, type of business, etc.). Basically, RLM is a strategic framework for defining system functional requirements. Our view, which is supported by very extensive market research is that the current R.L. systemic infrastructures of most OEMs/3PSPs/Retailers/etc. are very fragmented and lack critical feature functionality for capturing critical data about the R.L. Supply Chain. Up until now, RL Supply Chain professionals have not had many available options for resolving systemic issues such as data accuracy, visibility, root cause analysis, etc. Instead, these professionals have had to either ignore the situation, create workarounds, or use brute force to resolve problems as they occurred. This in turn has had negative consequences on operating costs, personnel productivity, and the overall customer experience.
RLM is a new industry standard and will help entrenched management mitigate and avoid the above challenges by helping them to anticipate, plan, and monitor RL events. I hope you will see the value of the RLM concept. Please share with me you thoughts, comments, and criticisms so that we may continue to build awareness of the challenges and potential solutions to Reverse Life-cycle Management.
In my last blog post I discussed how Cloud Computing could have serious ramifications on the future of Aftermarket Service & Support. Currently, most service delivery paradigms are oriented toward an “old school” environment of very complex, installed base of networked technology. New advances in Cloud Computing (“New School”) now make it possible for everything from software applications, to operating platforms, to computer processing and storage (i.e., infrastructure) systems to be provided remotely through the internet. To access the clouds, all one needs to do is to plug in through their favorite digital device whether that is a Notebook, Netbook, Smart Phone, or some type of industry specific portable terminal (e.g., scanner, monitor, camera, dispenser, etc.)
While there is a high probability that cloud computing will become ubiquitous throughout the industry, there is a significant amount of “old school” technology out there that still needs to be maintained and supported. The challenge is to manage old school and new school environments on an optimal basis. Companies will, of course, still need to run aftermarket service as efficiently a possible using state of the art technology and best practices (e.g., Field Service Automation, Last Mile Delivery, Resource Optimization platforms, etc.). However, there are a number of current and emerging trends which need be considered when developing an optimal strategy to support “new school” computing advancements. These include:
1.
Variable Workforce & Installed Base Management- Service Providers need to be lean and mean while they transition from the old school to the new school. Cloud Computing is very disruptive to companies who maintain a large work force of field service and depot repair workers.
Variable force models provide a mechanism to convert high labor costs, which are fixed in the short term, into a truly variable, transaction based expense. Analytics about the frequency, cause, and corrective action associated with service events are even more critical than ever before toward optimal installed base management. Other applications like Remote Monitoring provide the online engine for collecting real-time data about installed base and offer a proactive tool for anticipating and even avoiding service events.
2.
New ways of monetizing services – Revenue streams associated with on site events such as SLAs, roll-outs, configuration management, etc. may no longer sustainable in the cloud computing environment. Service providers must monetize these types of services through a subscription based model as well as make the offering easily accessible through an “As a Service” model. Payment for front-end, start-up services like training, installation, etc. are now bundled into a transaction based, subscription model. This means that service providers will need to how to learn price services accordingly which may result in amortizing the costs over a period of time. Financial modeling and CAPEX management are among the skills that Service Managers need to succeed in this new school environment.
3.
Greater Demands on Reverse Logistics - The migration to cloud computing has a significant impact on reverse logistics because consumers will likely purchase more and more low-cost devices that plug into the clouds. This leads to greater requirements on the efficient disposal, repair, and recycling of used and unwanted products. The dominate support paradigm is also changing as well. Today, a virtual “firewall” exists between those who manage field service personnel and the customer relationship, and those who manage the reverse logistics supply chain.
Progressive companies are combining field service and reverse logistics under one roof as field service becomes more of a commodity service focused on the efficient movement of resources within the reverse logistics supply chain. Whereas the customer relationship is now transitioning to those who operate and maintain the cloud.
4.
I.T. Department requirements of the Individual Consumer – The proliferation of portable, smart digital devices which can download applications and plug into the clouds requires that the individual consumer become more tech savvy. In essence, every consumer will become their own I.T. department and will need options for support. We have already begun to see the emergence of B2C service providers who can answer questions occur about interoperability, compatibility, collaboration, service quality, and supportability.
Obviously, there is a lot to think about and even more to do to succeed in this new school environment. Blumberg Advisory Group is and has always been on the forward cutting edge in terms of working with clients to pioneer new advances in Aftermarket Service. A phrase we often heard during the early years of the internet was “act now or become road kill on the information super highway”. This statement rings true today so please act now and avoid becoming road kill.
The last 18 months have seen an up tick in M & A activity within the IT After Market Services Industry. Most notable transactions include but are not limited to:
- Pomeroy IT Solutions by Platinum Equity Holdings
- Anacomp Multivendor Services by Decision One (Cerberus Capital)
- National Support Services (NSS) by Global Equity Capital
- Halifax Corporation of Virginia by Global Equity Capital
- PTS Electronics by Moduslink Global Solutions (May 2008)
Despite this fact, the Aftermarket Services Industry is currently viewed as a buyer's market from the standpoint of acquisition opportunities. This is a valid description if one were to define aftermarket services as either Electronic Repair Services (Depot Repair), Hardware Break Fix, and Installation services . It is true that this segment of the market is faced with declining revenues and low profit margins.
The demand for Hardware Break Fix services will continue to decrease as the installed based of technology declines with the the adoption of SaaS, Cloud Computing, and Server Virtualization. Remote Support and Variable Workforce service models are putting hardware maintenance companies at further risk. As result, acquisition multiples for these types of companies are not very high, typically in the range of 3 to 5 times EBITDA. However, Break Fix companies provide a predictable and defensible income stream which makes them very attractive to Private Equity/Buy-Out Firms.
An entirely different market dynamic exists for Depot Repair companies who operate within the large and growing Reverse Logistics Services Industry. A Depot repair infrastructure is needed by any company who provides Warranty Services, Returns Management, Asset Recovery & IT Disposal, Liquidation, and/or Refurbishment. In addition, Depot Repair often pulls through additional profitable, service revenue streams such as inventory management, spare parts logistics, and warehousing services for RL providers. Furthermore, customers of RL Service Providers increasingly want to turn to a single point of contact for a bundled package of RL Services. Since ERS requires a significant investment in infrastructure, many 3rd Party Services Providers, particularly those who are publicly held, are looking at acquisitions as a strategy for aggressive growth. As such, it is possible that Depot Repair companies can realize a higher valuation multiples if positioned properly and targeted to strategic buyers within the RL Industry.
Regardless of which part of the Aftermarket Service Industry you reside in, it is still a good time for M & A among Depot Repair and Hardware Break Fix companies. For companies in the Break Fix market who lack an innovative growth strategy and/or access to capital, this maybe a good time to sell. Given the trends described above, we may even be seeing the top of the market for break fix companies. The time is also right for Depot Repair companies supporting the Reverse Logistics Market to sell as the trends suggest that only large, full service, and well capitalized service providers are those that will succeed in the future. The keys to successful M & A transactions is to "let the trend be your friend" and work with advisers & intermediaries who truly understand the market.
“A day will come when customers will evaluate our service business based on the capabilities of our Service Management System”. I remember this statement as clear as day. It was from a participant, a VP of Service & Support, in a focus group that I moderated for a client over 15 years ago. We were working with them to launch what was at the time considered to be cutting edge technology…a Field Service Mobility solution. This executive’s statement helped to validate our assessment of the market opportunity for our client. It also represented a mind-shift in the conventional wisdom toward the use of technology in delivering aftermarket services. Up until this point, service businesses were valued based on the technical expertise of the service personnel. Now it was becoming clear that technology was going to be key driver in the customer’s decision to select one service provider over the other.
Fast forward almost two (2) decades later and we can see how critical and pervasive technology is to the Reverse Logistics & Aftermarket Services industry. From ERP & SCM solutions to mobility, to planning & forecasting, to remote monitoring, it is hard to fathom a service business without technology. Indeed, even customers of service providers evaluate their vendors based on the vendor’s adoption of advanced technology. In the past, IT systems were utilized primarily as a control mechanism to store and retrieve data related to costs. Now they are used to enhance the customer experience. Case in point, business travelers, such as myself, who prefer to use Hertz for car rental due to ease of check in/out enabled through the use of advanced technology solutions such as electronic signage and handheld mobile devices.
Yet, it still amazes me that there are many companies in the Aftermarket Service Industry who still don’t understand this point. Even though industry research shows that IT System functionality is a key criterion in evaluating and selecting service providers, many service providers are still laggards in their use of advanced technology.
Despite the fact that many of these companies are losing business or not getting their fair share of new business due to gaps in their systemic infrastructure, many are in denial that this is even a problem at all. Instead they chalk up their lost sale to a more aggressive competitor or a Not Invented Here (N-I-H) syndrome of the customer. Worse still are those companies who realize they need new system functionality but postpone the decision to invest their own capital preferring instead to find a customer who can generate enough cash flow to fund this project. Not likely!
The fact of the matter is that Reverse Logistics and Aftermarket Service of today has become a technology intensive business as we had prognosticated a long time ago. Most people would think it ludicrous if an OEM did not invest in new technology to design and build better products, or to retool its manufacturing plants. A manufacturer would lose market share or eventually go out of business if this were the case. So why should this be any different for service providers? It is critical for service providers to understand that system functionality is part of the value proposition and mix of capabilities that customers require in a vendor. Customers are smart and can quickly judge a service providers capabilities based on assessment of the provider’s IT infrastructure. Service providers need to think of IT as an extension of their service offering.
Let’s make 2010 the year of advanced technology deployments in the Reverse Logistics & Aftermarket Service Industry. My goal in future blog posts will be to provide you with the expertise and know-how to evaluate, select, and deploy new technology to take your service business to the next level.
The Field Service Automation landscape looks very different than it did 25
years ago when I began my career. Back
then, the market was in its early growth stage. Today, the market is mature.
Field Service functionality can be found in different types of applications
which we categorize into ERP/CRM (e.g., SAP, Oracle, Microsoft Dynamics, etc.),
Integrated Service Management (i.e., Astea, Metrix, Vertical Solutions, Amdocs,
etc.), Field Mobility (e.g., Antennae Software, Agentek, etc.), Service Parts
Optimization (e.g., MCA, Servigistics/Click Commerce, Baxter, etc.), and Field
Service Optimization (i.e., Service Power, Click Software, TOA, etc.). Applications are available for purchase either
through an On Premise (i.e., License) or On Demand (e.g., SaaS) solution. As
such the decision making process is much more complex.
In the past, the business user had a very vocal voice in the selection of Commercial Off the Shelf Systems (COTS). Sure
the perspectives of technical and economic decision makers were considered but
now these participations have a greater role in placing constraints and/or
mandates on the types of systems that are purchased. The technical platform on which the field
service application is written is often more important as the feature
functionality of the application itself. The ability of this application to integrate
with other corporate systems is also extremely important consideration and
constraint. One thing which is continued
to remain certain is the applications will continue to evolve and new vendors
will continue to enter the market while others disappear.
Given all these complexities, we believe end-users can benefit from working
with an independent and objective third party advisor such as ourselves to help
define the solution, recommend a qualified vendor short list, and evaluate proposals. We believe our understanding of where this
market place has been and where is it heading, combined with our knowledge of
the current state of the art and vendor market is critical in helping clients
to select and implement solutions which meet the needs of today and the
requirements of the future.
In our last blog post we wrote about early development in Field Service Automation (FSA). There have been many advances since those early days (circa 1986). Back then, most
of the vendors were focused on winning business from large and very large
end-user organizations. After all, the
conventional wisdom was “that’s where the money is”. As
consultants, our firm played a hand in promoting Commercial Off The Shelf (COTS) Solutions and helping end-users define
their requirements, and evaluate and select qualified vendors. We encouraged our clients to give serious
consideration to the depth and breadth of software functionality, its
applicability to their business needs, and the stability of the software
platform over the technical features and bells and whistles of software’s user
interface. As the market become
increasingly competitive many software developers took heed of our advice by
expanding their functional capabilities and implementing segment specific
marketing campaigns.
Over time we saw new developments in Field Service Automation. First,
we saw the development of wireless technologies which led to the roll out of field
service mobility solutions. At first, the vendor evaluation and selection was based on network coverage and
device feature functionality. Overtime, the focus moved toward the capabilities
of the middle software and its ability to integrate with corporate systems and
provide a user friendly interface to the field. In parallel to the wireless
evolution we also saw the development and roll-out of point solutions focused
on various aspects of Field Service Management from dynamic scheduling to parts
forecasting to remote diagnostics. Software developers were constantly looking
at ways to incorporate new technologies such as RFID, GPS, Remote Monitoring, and
advancement in Internet technology into their applications. Over time, we also saw new players come and
go either through acquisition or market shake out. We also saw sales cycles and resulting
implementations become longer, as field service applications become
increasingly more complex and involve cross functional integration with other
corporate systems.
Be sure to check back with us soon as we provide more informaiton on today's FSA environment provide advice for selecting and implementing an optimal solution.
After checking around the web and other industry sources, I was surprised to see that no one had ever written about the evolution or history of Field Service Automation. I think this is an important topic because like so many things in life, you can't understand the present until you grasp the past. So, at the bequest of a few clients and my own passion for this subject, I've decided to do a series of blog post exploring the history of Field Service Automation.
My first assignment as a neophyte management consultant back the mid 1980'sinvolved a benchmark evaluation of the state of the art of Field ServiceManagement Systems (FSMS). Back then, commercial off the shelf technology(COTS) was just coming on line to automate the process of managing a fieldservice organization. The technology automated basic processes from handling ofa customer service request, to dispatching a Field Service Engineer, tomanaging their spare parts inventory, to depot repair of defective reports, toreporting and analytics. Up until this time, only the very large, manufacturers(e.g., IBM, H-P, Xerox, etc.) with large field service organizations couldafford to develop automated solutions that were often mainframe based and veryexpensive to design, implement, operate, and maintain. Others were using manualbased processes such a pen and paper or magnetic scheduling boards to managethe service delivery process.
While our consulting firm played a key role in designing and implementingsome of these early enterprise systems, we could see that the emergence of thePersonal Computer would reduce the overall lifecycle cost associated with FieldService Automation. We also observed the emergence of a number of softwaredevelopers who offered COTS systems which could be implemented much faster thancustom designed solutions for the fraction of the cost. Thus, I was handed theassignment to benchmark the state of the art as we anticipated that more andmore of our consulting assignments would be around the recommendations ofCOTS. I remember counting over 24 vendors focused on Field ServiceAutomation. Mind you this was waybefore the days of Enterprise Systems like Oracle and SAP. Over the years, many of these initial24 vendors where either acquired by others or disbanded. However, a number of these initialvendors, such as Astea and Metrix, have been able to stand the test of timebecause they have been able to adapt to market needs and requirements anddevelop enhancements to their applications via acquisition and/or organicdevelopment.
Be sure to check back here at Reverse Logistics Today for the next post in this series. We will be looking at the next wave of development and how our firm continued to emerge as experts in this field (no pun intended).
As many of you know, I have written a great deal about the size and forecast of the Aftermarket & Reverse Logistics Service Market. The reason why I am so passionate about this subject is because I strongly believe that the days of relying on intuition to determine the size of a market are long gone. I have found that companies who take a strategic, statistical, and econometric approach to determining the size and forecast of a market are more likely to experience sustainable, continuous, and profitable revenue growth. This is because a quantitative approach to market analysis enables a company to be more precise and accurate about market demand and revenue potential. As a result, the management team can do a better job at allocating resources and prioritizing investments resulting in the company being better prepared to handle challenges and respond to opportunities.
It does not suffice a company's management team to say "let's not worry about the precise size of the market, we know the market is really big, so let's just focus on getting new business". This is tantamount to taking a trip from NY to LA in your car by just driving west and without a map. You wouldn't expect to such behavior from any educated or even sane person, so why would a company behave in such an irrational manner? I believe that it is because market analysis is more complex than meets the eye. Determining the size of the Aftermarket & Reverse Logistics Service market is part science and part art. It requires that a company really understand the true dimensions and dynamics of the market. And there's the rub. Unlike a product market, which is much easier to define the Reverse Logistics market is large, complex, and fragmented. This makes the task of sizing & forecasting a market very difficult. However, it is not, I repeat not impossible.
Unlike product markets which require knowledge of limited set of factors like competition, product features, price points, number of potential users, and market demand; the Aftermarket & Reverse Logistics Market must be analyzed against a broad array of factors and dimensions that are inter-related and dependent on each other. Examples of these factors/dimensions include:
- Size and age of equipment installed base
- Annual Sales and Return Rates
- Disposion of Product returns
- Expenditures for in-warranty versus out- of- warranty service
- Percent of market served by 3rd Party versus internal repair organizations
- Percent of 3rd Party market served by authorized providers versus multi vendor (i.e., non-authorized) providers
- Service Expenditures by type of service performed (e.g., repair, technical support, advanced exchange, e-Waste, service parts logistics, etc.)
- Service Expenditures by type of equipment supported
- Gross Domestic Product
- Annual Growth Rate of GDP and market participants
By considering these factors, a company can accurately arrive at the size and forecast of the available, relevant, and addressable market. This requires an extensive knowledge of the market and access to multiple databases that track this information as well as a working knowledge of the relationship of each of the factors listed above with respect to how they impact/influence market demand and revenue potential.
This level of complexity should not be overlooked. Some companies only focus on single attribute when sizing the market like percentage of GDP or Warranty spend by OEMs. However, this sort of thinking is much too myopic and results in a under estimate of the true size of the market. The rule of thumb is the more distinctions that one can make about the market and the more facts that one has to support these distinctions, the more likely they will to arrive at a much more accurate and valid view of the market.
In the next series of postings, we’d like to delve into Reverse Logistic ManagementSoftware (RLMS). This first post in an overall introduction to RLMS, while thenext will focus on specific functionality. Feel free to leave any questions inthe comment section.
The currentstate of the Reverse Logistic Management Software (RLMS) should be categorizedas an industry that is set for rapid growth while solidifying its viability byvalidating its approach to Reverse Logistic (RL) operations through automation.
Our currentanalysis of the RLMS State of the Art finds software applications to beflexible and durable solutions that can operate as standalone system or as partof an enterprise package. Evidence that companies are looking for RLMS to be integratedinto other systems was evident when the highest percentage of our respondentschose that to be the most important factor in selecting a RLMS vendor.Additionally, a very large number of respondents in an extensive survey weundertook reported that they used Enterprise Resource Planning (ERP) to managetheir company’s RL. Overall, RLMS’s inerrant flexibility permits customizationto meet precise requirements and gives a distinctive amount of control to theclient to meet their specific needs.
We perceive RLMSfunctionality as analogous to a family where the different applications arelike the individual family members that compose this nucleus. Just like familymembers, these applications share the same “genes,” or in our context, featurefunctionality that makes them very similar. At the same time, it is thevariance or combination of these functions that make each application uniqueand effective. This commonality shapes an almost predefined internal structureof RLMS that facilitates the interlinking or synchronization of variousapplications. This framework allows the optimization of the service chain.
We found thatalmost universally, all reverse logistics functions benefit from “real-time”visibility of selective logistical information. This is a pervasive featurethat enables and maximizes other functions. Benefits such as inventorymanagement, forecasting, recall auditing, return management, and others arecontingent on having an accurate and current picture of where a given asset ison the supply chain.
We see a definite trend of RLMSfunctions becoming more expansive and more encompassing. However, our researchshowed that there remain many functions, such as Liquidation Management, thatneed to be created and incorporated into current offerings or offered as astandalone application.