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.
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.
We thought you might be interested in reading an e-Book on the Secondary Market written by Bob Auray, president of Genco Marketplace. We have been working with Bob over the last several years to evaluate trends, opportunities, and dynamics in the Secondary Market (AKA The Liquidation Market). Bob's e-book educates the general consumer on the benefits of purchasing products from liquidators in the secondary market. We think the e-book does a great job in defining the structure and dynamics of the liquidation market. More importantly it provides consumers with guidance on how to purchase products in the secondary market and offers suggestions on what to look for when buying liquidated projects. Overall a very objective document that is also a fun read. Cudos to Bob and his marketing team.
We believe that one of the keys to success in the Asset Recovery & Liquidation Market is the ability to move products quickly from the retailers shelves directly to consumers in the secondary market. There are many intermediary players in the liquidation supply chain who expect to make money everytime the product is moved downstream. This status quo creates an environment of market ineffeciency and productivity bottlenecks. Products may sit on the shelf for extended periods of time at various stages in the channel;the longer it sits the more likely the price is expected to erode. Furthermore, multiple touch points in the channel create downward pressure on the price or Asset Recovery Rate that retailers and OEMs can expect to realize. Genco Marketplace's direct to consumer liquidation platform overcomes these challenges by creating market disintermediation. This in turn eliminates the middle man and helps improve the efffeciency and productivity of the asset recovery and liquidation process; a win-win for consumers and retailers/OEMs alike.
To read the e-Book click here:
The Best Kept Secret in Bargain Shopping
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.
During most of the 1990's and early part of this decade we saw a tremendous interest among OEMs and 3rd Party Service providers (3PSPs) in the Multivendor Services (MVS) Market. MVS is essentially the business of providing hardware services (i.e., depot repair, field service, remote support,etc.) on products from multiple OEMs. Over the years MVS played a key role in generating incremental streams of profitable service revenue to both OEM and 3rd Parties. Our research has continously showed that end-users prefer to deal with a single point of contact for the provision of a broad array of aftermarket service & support.
OEMs and 3PSPs like the concept of MVS because it allows them to build economies of scale, improve market share, and increase profits. More importantly, the provision of MVS enables a service provider to increase their customer or installed base "density" which is a key toward building economies of scale and increasing profits. Density provides the service provider with a large volume of customers with the similar needs and thus requiring the same type of services. As such, the service provider can be more effective in managing service resources on a effecient and productive basis, and acheiving optimal levels of profit.
Around the middle of the early 2000s (circa 2002), MVS started to lose favor among service providers. This was due to several factors. First, many service providers began to realize high profit margins via the provision of managed services and/or professional services such as Business Process Outsourcing (BPO). By comparison, basic services such as field service and depot repair offered lower margins. Why focus on the plumbing when managing the whole apartment complex was more lucrative? As such, OEMs began to out-task these lower margin services to low cost 3rd Parties. Second, OEMs were in the unique position of having year of year growth in new product sales. Usually, service revenue is less of a concern for OEMs with products sales are booming. As long as products were selling, OEMs just needed to fullfill service demand and outsourcing and out-taskings was percieved to be the most effecient and economic way of meeting growing demand for suppport of new products.
The current recession and long term outlook that economic growth will be very slow for the foreseeable future is forcing many OEMs and 3PSPs to rethink their Afermarket service strategies. In board rooms and meeting rooms around the world, executives and managers are rethinking the value of MVS. Without revealing any client confidences, we are certain that a number of OEMs and 3PSPs will be aggressively entering or re-entering this market space either directly or thorugh strategic partnerships and/or acquisitions. Certainly, some very large service providers will continue to offer managed services and BPO. However, it has become increasingly obvious that it is better for these providers to concentrate on very large transactions and higher end, long term, strategic consulting assignments. We are beginning to see that some of these large providers are ceeding market share of more basic services like break-fix to mid-tier service providers and/or divesting of their infrastructure service business to indepedent organizations.
The implementation of an MVS business strategy or even a strategy involving the provision of a broad array of value added services beyond basic repair forcing OEMs and 3rd Parties to operate thier Aftermarket Service Organizations as strategic profit centers or lines of business. This has very positive effects on the industry as a whole. First, it requires service providers to add new business functions to their organization such as service marketing, human resources, finance, and IT. This in turn leads to new hires which should be a boom to employment. Second, it requires service providers to re-evaluate their service delivery infrastructure. As such, many will find they need to deploy new technology to automate processes and achieve optimal level of service qaulity and profitability. More importantly, the avaibility of increamental profits allows service providers to build a stronger business case for investment in new technology which in turn is a plus for software vendors.
History truly repeats itself. Over the years we have helped a number of OEMs and 3PSPs build very profitable aftermarket service strategies based on a provision of multivendor services. We are bullish on growth opportunities within the Aftermarket Service Industry provided that OEMs and 3PSPs seize the opportunities created by today's challenges.