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® Unlocking Hidden Profits in the Warranty Chain Michael R. Blumberg, CMC President & Blumberg Advisory Group

Workshop Presentation_Final

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Page 1: Workshop Presentation_Final

®

Unlocking Hidden Profits in the

Warranty Chain

Michael R. Blumberg, CMC

President & Blumberg Advisory Group

Page 2: Workshop Presentation_Final

®

Unlocking Hidden Profits in the

Warranty Chain

Page 3: Workshop Presentation_Final

®

What we’ll cover

Strategic Concepts

Warranty Administration

Call Management & Dispatch

Technical Support

Service Parts Logistics &

Depot Repair

Asset Recovery

Extended Warranty

Page 4: Workshop Presentation_Final

®

Strategic Concepts

Page 5: Workshop Presentation_Final

®

Market

REALITY

Market

REALITY

PERCEPTION

PAYMENT FOR GOODS

Product Firm

PRODUCT

FINANCE

LABOR

MATERIAL

INVENTORY

PRODUCTION

( REVENUE -COST)

UNITS OF GOODS

Service Firm

UNITS OF SERVICELABOR

MATERIAL

“CAPABILITY TO

SERVICEPRODUCTION

( REVENUE -COST)

DATASERVICE SERVE”

FINANCE

DEFINED CAPABILITY OF SERVICE (SPEED, RESPONSIVENESS,

COVERAGE, ETC...)

PAYMENT FOR SERVICES

COMPARISON OF PRODUCT AND SERVICEBUSINESS MODELS

Page 6: Workshop Presentation_Final

®

Total Warranty Costs Components

Terms & Conditions

Service Delivery Product Reliability &

Maintainability

Headline

Page 7: Workshop Presentation_Final

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Service DeliveryCost Breakdown*

Percentage of Cost

Repair Parts Logistics Overhead

15%

55%

15%

15%

* Typical costs

Page 8: Workshop Presentation_Final

®

Service Delivery Cost Components

Repairs

Customer Self-Help

Remote Support

Onsite & Depot

Parts Costs

Warranty Redempti

on Efficiency

Scrap/Obsolesc

e Reserves Inventory Carrying

Costs

Service Logistics

Inbound/Outbound Freight

Distribution/

Warehousing

Overhead

Finance

Planning

IT Costs

Page 9: Workshop Presentation_Final

®

Warranty Administration

Page 10: Workshop Presentation_Final

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Issues Impacting Warranty Administration Costs

Length of Warranty

•Product performance

•Failure rate over lifecycle

•Repairable versus non-repairable

Type of warranty

•Must match product life & cost of failures/remedies

•Options – replace or exchange, pro-rate policy, warranty, combination

Breadth of coverage – Which components & sub-assemblies are covered

Type of remedy – repair or replace new or refurbished parts. Refund.

Page 11: Workshop Presentation_Final

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Issues Impacting Warranty Administration Costs (continued)

Type of remedy – • Repair or replace • new or refurbished parts• Refund

Service Strategy - • Logistical & administrative costs• Customer Self-Support• Onsite or Field Repair

Administrative issues• Quality of record keeping• Type of Data

Page 12: Workshop Presentation_Final

®

KPIs associated with Administrative Costs

Claims Processing

timeRejection

rate

Claims Productivi

ty

Cost per Claim

Processing cost per

claim

# of Claims Processing personnel

Time between claim filing &

actual reimbursement

Page 13: Workshop Presentation_Final

®

Warranty Management System Objectives

Standardize & Automate processes

Capture & Analyze data

Provide basic & value added functionality

Page 14: Workshop Presentation_Final

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Warranty Management Software Functionality

Basic

• Warranty Administration• Asset Management• Warranty Tracking • Recall Management• Reporting

Advanced

• Omni-channel Registration• Claims Processing &

Validation • Adjudication & recovery• Parts Ordering• Technical Documentation• Service Provider Recruiting• Business Intelligence &

Analytics

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Performance Improvement from Implementing

Outcome PercentImprovement

Greater Claims Accuracy 27.1%

Improved Cash Flow 22.6%

Improved Productivity 21.0%Reduced Warranty Processing Costs 17.9%

Reduced Rejection Rate of Claims 15.9%

Reduced Cost of Service Parts Processing & Emergency Delivery

23.1%

State of the Art Warranty Management Software

Page 16: Workshop Presentation_Final

®

Call Handling & Dispatch

Page 17: Workshop Presentation_Final

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Value of Call Management

Call Management Function effects warranty costs and

company profits

Determines customer entitlemen

t

Set resolution process in

action

Permits cost

avoidance

Provides opportunity to upsell & cross-sell

Page 18: Workshop Presentation_Final

®

Call Opening

Call Screening

Scheduling

Dispatch

Call Close-out

Call Management Functionality

Page 19: Workshop Presentation_Final

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7 Step Process

Initiation of Service

Event

Analysis, Evaluation,

and Entitlement

Scheduling & Dispatch

Monitoring & call close-

out

Escalation Managemen

t

Service Data

Maintenance

Generation of Service

Report

Page 20: Workshop Presentation_Final

®

Server Concepts

Single Server Dual ServeroCustomer Oriented - Service initiation &

entitlementoTechnician Oriented - Diagnostics,

Scheduling, Dispatch, and close-outDual Server with Technical Assistance Center (TAC)

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Value of Call Screening & Diagnostics

Captures critical data about service event

Ensures right technician is sent with the right parts & skills

Improves first time fix rate

Better Economicso1.6 dispatches required if call is not resolved on first visit

oAverage cost per truck roll: $200-$300

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Dynamic Scheduling

Software based solution

Utilizes optimization algorithms to consider multiple variables

Ensures SLA compliance & customer satisfaction

Improves Field Engineer Productivity

Enables labor cost reductions

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PROFITABILITY

1 2 3 4 5 6 7 8 9

OPTIMUMSOLUTION

10

STRATEGIES

MAXIMUMPAYOFF

VIABLESOLUTIONS OPTIMAL

SOLUTIONS

NOTVIABLE

SOLUTION

Source: D. F. Blumberg Associates, Inc.

General Examination of Alternative Strategic Solutions

ART-243-P- PC

Page 24: Workshop Presentation_Final

®- Optimization of Two or More Functions -The Service Management Problem:

Source: D. F. Blumberg Associates, Inc.STRATEGIES ART-240-P- PC

* INDEX COMPUTED BYTARGET RESPONSE AVERAGE RESPONSE

OPTIMUM SOLUTION

AVERAGERESPONSETIMEINDEX*PROFIT( $ )

A B C D E F G H I

PROFITABILITY

RESPONSETIME

OPTIMUMSOLUTIONJOINTOPTIMUM

OPTIMUMSOLUTION

.5

1.0

Page 25: Workshop Presentation_Final

®

Performance Improvement from Implementing

Field Service Dispatch Best Practices

Outcome PercentImprovement

Improved Spare Parts Fill Rate 15.1%

Improved SLA Compliance 9.6%

Improved First Time Fix Rate 24.5%

Improved Field Service EngineerUtilization Rate

29.7%

Page 26: Workshop Presentation_Final

®

Technical Support – Knowledge

Management

Page 27: Workshop Presentation_Final

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Keys to Effective Technical Support

Disciplined approach

Diligent process

Data capture

Knowledge Management System

Persistent and consistent use

Technical

Support

Page 28: Workshop Presentation_Final

®

Commonly Used KM Tools

Key Word Search

Decision Tree

s

Case Based Reasoning

(CBR)

Model Based Reasoning

(MBR)

Cognitive

Systems (i.e., IBM-

Watson)

Page 29: Workshop Presentation_Final

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Benefits of Effective Technical Support

Improved Remote Resolution rates

Reduction in No Fault Found

Improved labor efficiency levels

Reduction in labor costs

Improved service quality

Increased customer satisfaction

Facilitates Root Cause analysis

Page 30: Workshop Presentation_Final

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Impact of Knowledge Management Tools

Service Performance MetricKnowledge Management Tools

UsedYes No

Field Service Engineers (FSEs) sent on less than 70% of service requests 70% 33%

Less than 10% of service requests extended or closed due to lack of parts, skills, procedure, or tools

40% 0%

Average Repair Time of less than one hour 50% 33%

Less than 10% of cases escalated for support 92% 33%

First Time Fix Rate above 90% 77% 0%

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®

No Impro

vemen

t

Slight

Impro

vemen

t

Decent

Impro

vemen

t

Good I

mprovem

ent

Great Im

provem

ent0%

20%

40%

60%

9%

45% 45%

0% 0%0% 0%

56%

33%

11%

Effect of Most Frequently Used Knowledge

Management Tool on Company Im-provement

Key Word Search Advanced KM Tools

Page 32: Workshop Presentation_Final

®

Key Word Search

Advanced KM Tools

Key Word Search

Advanced KM Tools

0%

10%

20%

30%

40%

50%

60%

13%

60%

0%

20%

38%

20%

29%

60%

25%

20%

43%

0%

25%

0%

29%

20%

Average Diagnostic and Repair Time by Most Frequently Used Knowledge Management Tool

Less than 30 minutes 30 minutes to 59 minutes 1-2 hoursAverage Time to Diagnose Average Time to Repair

Page 33: Workshop Presentation_Final

®

Service Parts Logistics &

Depot Repair

Page 34: Workshop Presentation_Final

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Warranty Challenges associated with Service Parts Logistics

Service Parts Logistics represents the 2nd largest Service expenditure after field laborWarranty stakeholders have an obligation from keeping costs in line

Represents a conundrum for Service Managers Parameters impacting costs

• Location of parts• Large percentage can of spares can be

reused• Significant portion of returns parts are good

Page 35: Workshop Presentation_Final

®MANAGEMENT &COORDINATION

PURCHASING

MANUFACTURER

OR VENDOR

NATIONALWAREHOUSE

& DISTRIBUTION

REPAIR CENTERS

FORRETURNED

PARTS

SERVICEENGINEERS

EQUIPMENT

POPULATION

SERVICEENGINEERS

SERVICEENGINEERS

EQUIPMENT

POPULATION

EQUIPMENTPOPULATIO

N

AA

A

Failed Parts

FailedItems

A

REGIONAL OR

DISTRICTPARTS DEPOT

SpareParts Failed

Items

OTHER VALUEADDED

SERVICES

REGIONAL ORDISTRICT

PARTS DEPOT

REGIONAL OR

DISTRICTPARTS DEPOT

FailedSubAssemblies

Scheduled

Orders

Available

Service Logistics “Pipeline” Flow

Page 36: Workshop Presentation_Final

®

Depot Repair KPIs & ImpactWarranty Cost

No Fault Found (NTF)

Repeat Failures/Bounce Rate

Repair Yield

Dead On Arrival (DOA)

Turn Around

Time (TAT)

Spare Parts

Availability Level

30 Day Return Rate

Page 37: Workshop Presentation_Final

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Strategies for Reducing Service Parts Logistics Costs

Integrate Service Parts troubleshooting into front-end Call Management processes

Make it easier to identify, locate, and order parts

Implement advanced planning & forecast tools

Strategically locate parts

Move to same day, next flight out, or overnight delivery

Provide advanced exchange Just in Time Repair

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Strategies to Reduce Depot Repair Costs

Streamline operations

Implement front-end diagnostics & back-end quality assurance procedures

Improved data capture

Use of advance exchange strategy

Move to Just-in-Time (JIT) repair

Use of bar coding to track processes

Improved inventory management

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Depot Repair Alternatives

RECEIVED UNITS AND PARTS

SIMPLE ASSIGNMENT TO INDIVIDUAL TECHNICIAN WORK BENCHES

SHIP TO FIELD

QUALITY ASSURANCE

RECEIVED UNITS

AND PARTSQUALITY

ASSURANCE TEST

WORK IN PROCESS

DIAGNOSTIC ANALYSIS

ORDER ENTRY & INVENTORY

CONTROL

SHIP TO FIELD

QUALITY ASSURANCE

ADVANCED DEPOT REPAIR COMPUTER CONTROLLED WITH DIAGNOSTICS

WORK STATIONS

123

4

567

ART-152-PC

Page 40: Workshop Presentation_Final

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Service Parts Logistics Benchmarks

KPI 2013 BenchmarkIndustry Avg. BIC

Avg. Repair Yield (%) 90 98

Avg. NFF Rate (%) 15 4.4

Avg. Repair Time per Unit (minutes) 60 13

Avg. Turnaround Time (days) 10 2

Avg. DOA Rate (%) 2.8 0.6

Spare Parts Availability 90.1 98.4

30- Day Return Rate 36.2 97.5

Page 41: Workshop Presentation_Final

®

Asset Recovery

Page 42: Workshop Presentation_Final

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Warranty Returns – Alarming Statistics

• Growing trend toward warranty replacement strategy

• Increase length of product return period • High percentage of returned products are

not defective• Costs to process return are 2.7 times

greater then outbound shipments

• 3 transportation legs for every return

• Multiple fees:• Transaction• Transportation• Reprocessing (e.g., repair, rework,

recycling)• Restocking & Re-inventorying• Advertising & Re-selling

Page 43: Workshop Presentation_Final

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Universal Challenges in Returns Management

Process Inadequacies

too many touch points & poorly

structured

long

cycle

times

missing

feedback mechanisms

Infrastructure

Inadequacies

out of focus & out of date

fragmented &

dispersed

limited data visibility

costly to operate &

maintain

Page 44: Workshop Presentation_Final

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Cost Reduction Strategies

• Simplify product-design• Simplify User driven feature

specification• Clear and visible returns policy

Pre-purchase Decisions

• Self Service• SLAs with 3PLs• Better gate-keeping

Post-purchase Process to

Reduce Returns

• Centralized Return Centers• Multiple Channels for returns

processing• Regional Return Centers• Outsourcing/Out-tasking

Return Channel

Optimization

• Data Analysis• Gate Keeping • Tracking & Visibility

Systemic IT Improvements

Page 45: Workshop Presentation_Final

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Benefits of Liquidation

70% to 90% of every dollar generated from Asset Recovery goes straight to the bottom line

Recover 20% to 40% of costs

Page 46: Workshop Presentation_Final

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Keys to Building an Effective Asset Recovery Program

Develop Process efficiencies

• Test & Screen• Repair & Refurbishment

Create a Viable Secondary Marketplace

• Multiple Buyers/Grades/Channels• Steady FlowImplement Robust Information Technology

platform• E-Commerce• Warehouse Management • Accounting

Page 47: Workshop Presentation_Final

®

New Era of Liquidation

Best practice Liquidation vendors (e.g., LSI, Optoro, etc.) have turned toward information systems to manage inventory, facilitate transactions, optimize price, and analyze purchasing trends

Greater Reliance On Information

Technology

Self-service auction models are Technology centric, reduce logistical handling fees and transportation costs, and cut out the middle man.

Trend Toward Self-service Liquidation

Models

Liquidation providers as viewed as strategic partners in building brand. Many retailers and manufacturers have chosen to brand 3rd Party platforms enabling products to be sold at a premium price.

Suppliers Are Now Champing

Secondary Channels

Retailers and manufacturers want flexibility. They operate B2B and B2C liquidation platforms in parallel. An environment of “co-opetition” allows suppliers to maximize returns and minimize risks.

Suppliers Want Options

The new era of liquidation is characterized by the following developments:

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Extended Warranty

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Extended Warranty Best Practices

Development of a strong value proposition

Service Portfolio Designed to meet customer requirements

Availability of options

•Basic Coverage

•Value Added Features

Optimal Pricing Strategy

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Extended Warranty Best Practices (continued)

Structured & disciplined approach to sales & marketing

• Promotion to customers• Frequently & timely communication• Reporting on usage• Sales incentives• Aligned with entitlement • Focus on attachment & renewal rates

Robust Information Systems & Data Management Tools

Page 51: Workshop Presentation_Final

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KPIs associated with Extended Warranty

Attachment Rates

Renewal

RatesPercenta

ge of Service

Revenue

Year over year

Revenue Growth

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Performance Improvement from Implementing Extended Warranty Best Practices

KPI PercentImprovement

Attachment Rate

53.6%

Renewal Rate

76.5%

% of Service Revenue From Extended Warranty

37.5%

Year over Year Revenue Rate

50.0%

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Make vs. Buy vs. Outsource

Page 54: Workshop Presentation_Final

®RESULTS OF EXTERNAL MARKET SURVEY

SERVICE CRITICAL

StrongPositive

Perception

WeakNegative

Perception

InternalProductivity

&Benchmark

Survey

MOREProductive& Efficient

ThanIndustry

SAMEAs IndustryStandards

BELOWIndustry

Standards

StrongPositive

Perception

WeakNegative

Perception

ExpandService

Aggressively

To Customer

Base

PartneringWith MoreEfficientVendor

To BeDeterminedBased OnResults

OutsourceServiceThrough

Joint VentureOr

Partnership

ExpandService

To BeDeterminedBased OnResults

To BeDeterminedBased On

PartsOutsource

ExpandService ButSubcontract

CertainFunctions

OutsourceTo

EfficientServiceVendor

SubcontractCertainService

Functions

OutsourceAggressively

Decision Model for use in Outsourcing and Reducing Service Costs

SERVICE NON-CRITICAL

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ANALYSIS AND EVALUATION OF

• Customer requirements and needs for service

• Company perception & position vis a vis

• Requirements and competition• Internal productivity & efficiency benchmark

• Against industry standardsGrow

ServiceBusiness

OptimumActionPlan

Outsource OrSubcontract All

Or Parts OfService Business

Subcontract AllOr Portion Of

Service FunctionTo Experienced

Subcontractor OrVendor (TPM / ISO)

OptimumAction

Plan AndSchedule

Joint VentureOr Partnership

With Experienced,Efficient Service

Provider

(SERVICE NOT CRITICAL)(SERVICE CRITICAL)

(PERFORMANCE EXCELLENT)(PERFORMANCE POOR)

(LOW EFFICIENCY) (HIGH EFFICIENCY)

Decision Process in Outsourcing Subcontracting and Downsizing

Page 56: Workshop Presentation_Final

®

Summary

Three costs components to Warranty Management

• Terms & Conditions• Service Delivery• Product Reliability & Maintainability

Service Delivery represents largest, ongoing cost associated with Warranty ManagementWarranty Management & Service Delivery is are data intensive business functions Cost savings and revenue gains can be achieved through process & systemic solutions including outsourcing

Page 57: Workshop Presentation_Final

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How Do You Measure Up?

Benchmarking is the key to understanding

Performance

& Areas of

Improvement.

Page 58: Workshop Presentation_Final

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• Process of comparing a company’s business processes and performance metrics (e.g., cost, cycle time, productivity, or quality) to industry standards or best practice

• Provides a snapshot of the performance of your business and helps understand relationship to a standard of measurement

• Creates a Burning Platform for making changes and improvements

• Can be a “one-off” event but has greatest impact when treated as a continuous process

Best Practice Benchmarking

WHAT is it and WHY do it?

Page 59: Workshop Presentation_Final

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Typical Applications of Benchmarking Results

Establish “realistic” and objective performance targetsProvide a baseline to measure the impact of systemic and procedural improvements both planned and actualDevelop quantitative data points from which to evaluate make vs. buy vs. outsourcing decisionsCreate basis for competitive comparison and evaluation of alternative investment scenarios

Establish analytical framework for continuous quality improvements

Page 60: Workshop Presentation_Final

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• Specify Targets• Create action

plan• Implement• Review

Improve

• Problem Areas• Processes• Peer Group

Identify

• Internal Metrics• Industry Data

Collect

• Compare • Define Gaps• Specify

differences

Analyze

Methodology

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For more information about our services or to discuss your requirements contact:

500 Office Center Drive Suite 400

Fort Washington, PA 19034

©Copyright, 2013

Email: [email protected]: 1 (855) 643-9060Website: www.blumberg-advisor.com