® Unlocking Hidden Profits in the Warranty Chain Michael R. Blumberg, CMC President & Blumberg Advisory Group
®
Unlocking Hidden Profits in the
Warranty Chain
Michael R. Blumberg, CMC
President & Blumberg Advisory Group
®
Unlocking Hidden Profits in the
Warranty Chain
®
What we’ll cover
Strategic Concepts
Warranty Administration
Call Management & Dispatch
Technical Support
Service Parts Logistics &
Depot Repair
Asset Recovery
Extended Warranty
®
Strategic Concepts
®
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
®
Total Warranty Costs Components
Terms & Conditions
Service Delivery Product Reliability &
Maintainability
Headline
®
Service DeliveryCost Breakdown*
Percentage of Cost
Repair Parts Logistics Overhead
15%
55%
15%
15%
* Typical costs
®
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
®
Warranty Administration
®
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.
®
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
®
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
®
Warranty Management System Objectives
Standardize & Automate processes
Capture & Analyze data
Provide basic & value added functionality
®
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
®
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
®
Call Handling & Dispatch
®
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
®
Call Opening
Call Screening
Scheduling
Dispatch
Call Close-out
Call Management Functionality
®
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
®
Server Concepts
Single Server Dual ServeroCustomer Oriented - Service initiation &
entitlementoTechnician Oriented - Diagnostics,
Scheduling, Dispatch, and close-outDual Server with Technical Assistance Center (TAC)
®
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
®
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
®
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
®- 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
®
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%
®
Technical Support – Knowledge
Management
®
Keys to Effective Technical Support
Disciplined approach
Diligent process
Data capture
Knowledge Management System
Persistent and consistent use
Technical
Support
®
Commonly Used KM Tools
Key Word Search
Decision Tree
s
Case Based Reasoning
(CBR)
Model Based Reasoning
(MBR)
Cognitive
Systems (i.e., IBM-
Watson)
®
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
®
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%
®
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
®
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
®
Service Parts Logistics &
Depot Repair
®
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
®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
®
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
®
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
®
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
®
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
®
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
®
Asset Recovery
®
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
®
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
®
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
®
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
®
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
®
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:
®
Extended Warranty
®
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
®
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
®
KPIs associated with Extended Warranty
Attachment Rates
Renewal
RatesPercenta
ge of Service
Revenue
Year over year
Revenue Growth
®
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%
®
Make vs. Buy vs. Outsource
®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
®
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
®
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
®
How Do You Measure Up?
Benchmarking is the key to understanding
Performance
& Areas of
Improvement.
®
• 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?
®
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
®
• 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
®
®
For more information about our services or to discuss your requirements contact:
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Fort Washington, PA 19034
©Copyright, 2013
Email: [email protected]: 1 (855) 643-9060Website: www.blumberg-advisor.com