Service Supply Chain Optimization & Innovation
Innovation and optimization; these are two (2) buzz words that have received increased attention within the business world in general and the Aftermarket Service Industry in particular. We are told by management gurus that the key to achieving long terms growth and sustainable profits are twofold: 1) continuously develop new and innovative solutions 2) continuously find ways to deliver these solutions through the optimization of business processes and systems. I have given a lot of thought to these ideas and have tried to look at ways to apply them to the Aftermarket & Reverse Logistics Industry.
One area where I believe OEMs can find ways to innovate and optimize their business is through the integration and merger of Reverse Logistics and Product Support activities into a single functional unit. Currently, there is a bifurcation between Reverse Logistics and Product Support activities in most OEM organizations especially those with long tail, field service requirements.
Reverse logistics activities such as spare parts management, depot repair, and returns management are often part of the supply chain function while customer facing activities such as Technical Support, and Field Service Dispatch are either part of either the Marketing, Customer Service, or a standalone Service function. As a result of this bifurcation, we constantly see companies making sub-optimal decisions about their business; focusing on one aspect over the other or by not focusing on either because it is difficult to justify or rationalize the investment.
Conventional wisdom has built a case against integration of these functions. While there is a growing recognition of the strategic value of reverse logistics within OEMs and a push to carve this function out from the broader supply function, Field Services which at one time was believed to have high strategic value as a standalone function are now being merged and morphed into the professional services function within many OEMs in the High Technology Industry. It appears that this is being done more for practical purposes in that field service personnel can take on basic professional service tasks when business is slow or utilization levels are down.
While this approach may have positive benefits in the short run, it can have negative impact in the long run. The skill set, labor rate, and cost structure associated with Field Service is significantly different than professional services. Although a field service operation has higher overhead costs than professional services, the margins on field service can actually be higher when remote support functions are used to avoid a field service dispatch entirely. On the other hand, margins associated with professional services can only be realized when the service is delivered.
It would appear that innovation and optimization is a lot easier to achieve with field service than professional service. So why integrate field service with reverse logistics? Why not treat them as separate functions? The practical answer is for the synergies that can be created.
Optimization of Field Service and Reverse Logistics functions can be achieved through the implementation of structured business process and state of the art infrastructure. The systems and processes required to deliver Field Service on an optimal basis are often dependent on those required for Reverse Logistics and vice versa. When these systems and processes are aligned and integrated, a company can achieve optimum level of efficiency and productivity throughout their entire Service Supply Chain on a closed loop basis.
Furthermore, a company improves the chances of innovation when it understands the dependencies and inter-relationships between business and processes. The presence of a closed loop, integrated reverse logistics supply chain can ensure this outcome.
Case in point, remote diagnostics can eliminate a field service dispatch or ensure the field service engineer arrives with the right skills and spare parts, using mobile communications technology an FSE can open an RMA, in turn a decision can be made in real time as to where to route the returned part. Furthermore, this real time information can be used to plan and forecast depot repair staffing and spare parts stocking requirements. Given the current trends, changes in technology, and emerging business practices it would appear to make sense to treat Field Service as an extension of the Reverse Logistics function. This may be easier said than done as diligent planning and execution is required to ensure optimal success.
Obviously, this the opinion of one man. Please share your thoughts with me on this topic. Does the convergence of field service and reverse logistics seem practical? Could it lead to greater optimization and innovation than if treated as standalone or seperate functions? Please comment.