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.