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Glyn Dodd, Managing Director of Centrex Services looks at if we can re-invent the service supply chain cost model before it becomes to late... 

The fixed verses variable cost structure has long been debated in the industry – and continues to remain a hot topic.  With the evolution of technology, customers demanding innovation in service delivery and all the intelligence that can be derived in the provision of a break-fix service; the industry seems to remain adamant in delivering an outdated, antiquated delivery/cost model.

The big question is whether innovation within services can be delivered on a variable cost base? And can pricing be a differentiator in the evolution of the service supply chain?

As the majority traditional service supply chain continues to steadfastly remain fragmented, its fixed inflexible cost structures have become increasingly expensive against the context of the revenue they are earning today.  It’s these costs that are putting price pressure in the market; the change in the products and the simplification and reduction of the revenue attached to the maintenance has made the fixed price model and its legacy engineering costs outdated.

The anatomy of the fixed and variable cost

If we look at what the fixed service costs are, we see a combination of skilled engineers, external repairs, parts and logistics, as well as diagnostics – all of which often are still operated in the traditional unconnected way.

On the other hand, if we work within a re-designed (fit for purpose) connected infrastructure based model then variable service innovation and pricing modernisation becomes the norm  The customer pays by the type of activity that’s required, when it’s required with the correct skill to deliver. This means that when there is a requirement for a particular skill in the field environment then that’s what is assigned to the call, not an over-skilled or under-skilled engineer/technician/tech courier.

There will always be a need for various skill levels in the field, the difficulty in the traditional service supply infrastructure is its inability to respond and adapt to the rapid simplification of product and its continued incapability to deliver modern service

Is variable viable in the service supply chain?

Looking at anecdotal evidence within the market, the complex service call requires a senior engineer, which accounts for approximately 20 per cent of all service calls. The rest is split between the technical courier and the internal engineer. It’s within this ground where a variable cost model is far more effective and specific in responding to a customer demand driven ethos but only within a fit for purpose infrastructure model.

This allows the service provider to flex the cost base against the demand using the re-designed skill profile as required.  This in turn creates the environment for innovation and increases the responsiveness to the customer enabling the service provider to create a modern, intelligent service supply chain, while freeing valuable working capital on the core IP and differentiators.

These economies of scale can be achieved through aggregation.  While many of the larger service providers all have their own infrastructure, if one of those components is non-core it doesn’t add any differentiation. If it can be shared with multiple parties, greater value can be obtained for the end client where they do differentiate.

However, sharing infrastructure and the ability to aggregate can’t be orchestrated within a siloed organisation.  The industry needs to embrace more efficient ways of generating economies of scale, by taking the non core competencies in a connected supply chain and putting them into a service model that’s connected and can demonstrate aggregation and economies.

Can we do more for less?

The fixed verses variable pricing model is without a doubt a huge step change in the methodology, collaboration and delivery.  And the consequences are even greater.  To meet customer demands, major changes are required in the infrastructure to meet innovation and pricing needs.

To deliver the variable cost model, service providers have to make strategic changes that will impact almost every element of service, from repair centres to logistics providers and sub-contractors. In my view, this is the only way the industry can not just reduce costs, but continue to innovate, make sustainable margins within its break fix business and ensure it stays a sustainable and strategic component of its managed services proposition.

 

As the organisers of the Field Service Solutions Theatre at this year’s Service Management Expo, Field Service News was on hand to speak exclusively to a number of leading industry professionals straight as they stepped off the theatre podium. In this video series we are pleased to bring you the highlights from the Field Service Solutions Theatre.

Here we hear from Glyn Dodd as he discusses the troubles facing the middle ground of the field service industry, with service costs plummeting the industry needs to face some big questions and hear Dodd gives some of the answers...

Glyn Dodd, Managing Director of Centrex Services returns to Field Service News with a new two part feature that outlines his battle plan for the service industry. In the first part of this feature Glyn looked at how the battle for the service supply chain had become based in the industry middle ground. In this concluding part of the feature he outlines why if changes are not made the battle may be lost... 

Reskilling engineers is vital

With technical couriers and middle ground technicians dealing with the majority of incidents, the role of field service engineers has to change in line with the service supply chain. The skilled engineers remain vital; focused at the top of the skill pyramid, providing services within the data centre and other complex technology areas such as multi-functional devices and networks. However, they will need to be deployed in a different way to provide the most cost-effective model possible and employed in far less quantities than they are today.

The level of expertise skilled engineers have should never be overlooked. When technology stops working, businesses stop working and it is often this vital part of the service which enables companies to get back up and running again, within the service level agreement.  We simply need to readdress the economics of demand, aligning skill to activity to service revenue model.

If we don’t change the approach, the battlefield will intensify, providers will lose money and customers will lose faith in the service. This would be disastrous. The industry and the associated channel will continue to be viewed as non-strategic, causing confusion between customers, those in the field and the so called specialists providing the service.

Modernising technical support

As well as rejuvenating the service, remodelling the cost and ensuring the workforce is effectively deployed, the service supply chain must be connected in an intelligent way - centralised around astute contact centre services.  Each process can be challenged and streamlined, culminating in a chain that is valuable, capable, available, adequate and flexible.

Modernisation is vital to the future stability of after sales support. It’s clear that the current technology support model is not fit for purpose and is actively harming the industry. We all talk and think about putting the customer first, but taking a holistic view of this industry, it seems no one is designing these services with customer satisfaction in mind.

The delivery infrastructure needs a complete overhaul, moving away from the fragmented supply chain currently plaguing technology support towards a more streamlined, connected approach. Redesigning the interaction between each element of the supply chain, from control centre to repair, will breed high-quality service.

We must redesign the battlefield as by changing the thinking, creating greater intelligence and deploying with full traceability, the middle ground break-fix will cease to be the daily battle-zone. Instead, technology support will profit from a lean, customer first service supply chain, once again adding true value for the customer.

 

 

Glyn Dodd, Managing Director of Centrex Services returns to Field Service News with a new two part feature that outlines his battle plan for the service industry...

“The secret of great battles consists in knowing how to deploy and concentrate at the right time.” - Napoleon Bonaparte

Some of the most significant changes that technology has delivered over the past few years have changed the approach to most markets, but for the break-fix market, it has come to a point in its evolution that has placed it on the brink of turmoil. At the heart of the technology support industry, field engineering and the associated service supply chain is emerging as the new battlefield.

The advancement of the industry is emerging as an issue now because technology products have been simplified, the need for traditional, high-end engineering skills required in the field is diminishing - almost to the point of extinction. The result is that continued market pressures are pushing the legacy fragmented technology support - the service supply chains - into a non-competitive position.

This has come to a head as customers no longer require high-end expertise to repair retail, hospitality or print technology; the priority is to replace the unit in the shortest time possible, ensuring an immediate return to productivity at the lowest possible cost.

When compared to wider innovative technology development, the break fix market remains fragmented and stagnant, having progressed over the years into silos which have operated in ivory towers. Evidence of this is seen in major contracts where the supply chain for a single IT hardware call involved one service provider sub-contracting to three different repairers, three individual logistics loops, two technical couriers and three parts providers.  These businesses are refusing to modernise the outdated service supply chain model currently plaguing the industry.

Where’s the battle?

This reluctance to change the way businesses operate and think is harming the technology support industry, and I'm afraid to say that I believe the worst is yet to come.

Hardware technology is always evolving yet the support business is stuck using an antiquated supply chain which hasn’t offered true value or innovation to the customer for years.

There is a distinctive, yet variable change in the approach and structure to the service supply chain.  The level of skilled expertise required to service complex technology is still necessary, while the traditional ‘swap’ services can continue to be handled by a technical courier. Between these two skill sets is where he I see the true battle – the middle ground.

The middle ground’s effect on service

So what is shaping this battle and what are the components that have put this service provision into a state of flux?

Well, the first major component of the battle lies in the price structure of hardware maintenance support.  We’ve seen hardware technology commoditise, which has changed the perceived value of product hardware and the way that it is serviced. This has increased the price pressure within the middle ground.

The second component (and possibly a result of the price pressure) is the accelerated silos of multiple suppliers throughout the supply chain, increasing the number of ivory towers and the chasms that exist between them. The number of suppliers and subcontractors involved in a single IT hardware support has culminated in fragmented, confused and complex supply chains.

The third and probably one of the most key constituents of the middle ground is the price of engineers, as service suppliers can no longer afford skilled field service engineers to respond to low level incidents.

As the nature of field service is changing, it’s rendering the current field service model outdated and expensive. Using technical couriers is the favoured method of replacement rather than a traditional engineer; however, using the full potential of field service engineers within the emerging middle ground activity is now becoming a waste of skilled resources and fails to offer true value to the customer.

As highlighted, end-user pricing associated with field services is decreasing, but price-pressure in the legacy model, including the deployment of engineers isn’t. The average engineer’s salary is currently reaching £34,000, substantially higher than the emerging middle ground technician who earns £20/25,000. The industry simply can’t afford to support field service engineers working at this level, despite their vast expertise. As price-pressure rates continue to fall, this issue is only going to get worse.

 

 

In the first part of this two part feature Glyn Dodd, Managing director of Centrex Services discussed how with the current economic business pressure, reducing costs in the service management supply chain without compromising customer satisfaction is a challenge which must be faced head on...

Now in the concluding part of this feature Glyn outlines why Big Data isn’t the answer to solve all the service management industries issues, why failure is a good thing, and why true Business Intelligence is perhaps the key to unlocking a successful future for service management…

Big data is not the answer

The final element of deriving complete business intelligence is the data. The arrival of complex data analytics may seem to be the answer to such issues, but I believe that the data alone is not enough to improve the current state of the service supply chain.

There is a widely held belief that generating ever increasing amounts of data is the answer to all our service supply chain needs, but alone it is irrelevant if not turned into useful information. It’s the business intelligence transforming this into relevant information which is vital for the creation of an efficient, integrated service supply chain, abolishing the silos that plague the current model.

Companies such as Centrex Services source business intelligence from reason code data and apply a layer of diagnostics. The codes detail the circumstances that have caused the code to be raised and the associated completion code. Rather than just documenting each code and applying the same reasoning to each circumstance, the business identifies repetitive causes and designs a solution to resolve the issue, without it reoccurring.

This intelligence was applied when we identified a recurring problem on the point of sale system at a fast food outlet. A plastic part of the POS hardware was continuing to break, causing the same reason code in the majority of the support calls. When the business analysed the fault, they found the operators were leaning on the part of this hardware during use. The plastic was simply not robust enough. By tooling a metal replacement part, the problem was resolved permanently.

Delivering customer satisfaction is a critical part of any business and deriving intelligence plays a large part in the experience. Diagnostics of reason codes is therefore vital, yet many do not see the long term benefits which have an adverse affect on customer satisfaction within the service supply chain.

If businesses diagnose the reason codes, business intelligence can be created, which in turn can be used to offer improved SLA’s, rather than accepting a failure rate.

Why should we plan to fail?

In addition to the people, processes and data, the service supply chain is heavily reliant on service level agreements. We need to  question the current ethos in place throughout the service supply chain, claiming some companies are in fact preparing for failure.

There are circumstances where SLA’s are not being met as a direct result of people and processes being deployed without applying context to the data which has been sourced. I also question why SLA agreements are being signed allowing up to a 15 per cent failure rate when the deployment of business intelligence can realistically create a network in which success is inevitable.

The need for such change was identified in a business intelligence not utilising business intelligence, which resulted in an SLA being missed.

A client of ours works closely with a very well known American diner chain and have in place an agreement which states once a call has been made to report a technical fault, there must be a field-service engineer on-site to resolve the issue within four hours.

The issue here was, these calls can come in at any time of the day and the mentality was that the SLA must be met at all costs. So, when a call reporting faulty point of sales systems was placed at 1.00pm, processes were set in motion to guarantee an engineer was on-site by 5.00pm.

However, once they arrived, they were turned away, as the restaurant was unable to accommodate the work during their busiest period as this would result in a decline in productivity which in turn can lead to a loss of custom. Ultimately, the SLA was not met.

This demonstrates just how vital it is that the service supply chain changes, as had business intelligence been utilised, there is no way an engineer would have been sent to a restaurant during such a busy time.

Business intelligence is the future

Efficient communication, processes and correct analytics provides the business intelligence needed to simplify the fragmented supply chain. Simplification leads to more efficient service delivery, guaranteed SLA’s, greater customer satisfaction and ultimately transforms the service supply chain for competitive advantage.

Now is the time for senior decision makers to challenge all elements of the chain; without constant innovation and new thinking the industry will continue to be perceived as a laggard – a disparate set of fragmented, commoditised services that fail to meet the required standard.