An introduction to Service Management

Ir. Coen Jeukens (coen@d-essence.nl)

October 4th, 2007

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Topics addressed in this lecture

– Introduction

Customer

Service

Front OfficeSales

– 2nd hour - the execution side• Service Management Landscape

• Differentiated service execution

• Service execution types in detail

• Spare Parts Inventory management

• International Service execution

• International - Goods & services

• Key Performance Indicators

• Trends

• Questions

– 1st hour - the customer side

• Positioning of the Service Supply Chain

• Simple Warranty example: mobile phone

• Service types related to the Service Life Cycle

• Service Cost versus Revenue - who pays

• Marketing - when to sell Service

• Service Management Product, Process and

Market framework

• Service Management component landscape

Service Execution

Back OfficeManufacturing

Product

Engineering

KPI’s

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Introduction of Coen Jeukens

– Education

• Master degree in industrial engineering and

management science, Eindhoven University of

Technology

– Employment

• IBM - user of Service processes

• Baan - designer of supply chain processes

• IBM - Service Management consultant

• Minase - Supply Chain consultant

• D-Essence - founder & consultant

– Focus

• Service Marketing

• Service supply chain

• Service accounting

• Cross border issues

• Tax, Legal, Duty & VAT

• Permanent Establishment

Coen Jeukens is a “human factor” supplychain consultant. He concentrates on thetension between the “hard” reality ofmeasurable KPI’s and the “soft” perceptionof the customer.Founding his own company D-Essence,Coen is searching the essence of the thingsthat make us do what we do.Coen has worked for Baan Company for 4years and 8 years for IBM as respectivelyuser, designer and consultant of supplychain processes.

www.d-essence.nl

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Raw materialPurchase material

Production

Wholesale

Customer

Retail

Disposal

Recycling

Reverse logistics

Procurement logistics

Production logistics

Distribution logistics

Service logistics

The Service Supply Chain – the hidden supplychain

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Simple Warranty example: mobile phone

– Who has a mobile phone?

– Did you buy it yourselves?

– Have you “bought” the serviceoption?

• Yes, why

• No, why not

– What is in- & excluded in the serviceoption?

– Is a supplier obliged to provideWarranty?

• For how long?

– What does the “law” require aproduct to “do”?

– Is there a difference between B2Cand B2B?

Customer Retailer Factory

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EoL

Special

Bid

EoL = End of Life

Base Service

EoSEoM

EoM = End of Marketing

EoS = End of Service

Service types related to the Service Life Cycle

time(not to scale)

covera

ge

1 - 2 year

Factory

Warranty

Enhanced

Warranty

Extended

Warranty

“Bronze” Service

“Silver” Service

“Gold” Service

Legal

Warranty

6 monthsLife

expectancy

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Who will pay for Service - Cost versus Revenue

– Warranty = Cost

• (factory) Warranty is included in

the sales price

• The supplier makes a

reservation for potential costduring the warranty period

• This accrual is transferred fromthe Sales BU to the Service BU

• The Service BU consumes the

amount for “cost of quality”

Customer Product Factory

Sales/

Product

BU

Sales Price = 100

Service

Extra

– Service = Revenue

• Service is extra

• Service enhances/ extendsdefault warranty

• Service generates additionalrevenue to the supplier

• Service revenue befalls theService BU

Warranty

Service

BU

Product

InstallInstall

group

Reservation/

Accrual

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When to sell service - Customer interactionpoints

timeProduct/ Market

research

1

Sales

2

Refurbish

4Service3

– Service = After Sales ?

1. Design your product for Service

2. Use the momentum of the Sale

• Bundle Service components in the Sale

• Create favourable conditions for future Service sales

3. Use contact during service/ usage period for feedback & repeat sales

• Extended or new service products

• New Sales

4. Use End-of-Contract for prolonging product life via refurbishment andspecial bids

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Product - Process - Market framework

Service Management

/

Client Business Issue

Product Market

Process

E lec tronics

High Tech

Medical

Telecom

etc .

NL

Europe

Global

B2B

B2C

etc .

Bus iness s trategy

P roduction

Dis tribution

Service

Reverse logis tics

etc .

Innovation

P roduct Life C yc le

Bigger/ better/ fas ter

Pos itioning

C apabilities

Service perception

Expectations

C heaper/ quicker

Total C ost of O wnership

C apabilities

E ffic iency

C ost drive

Inventory drive

C apabilities

IT

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Service Management component landscape

Sales Problem

Determination

Action

Plan

Coordination

Product

Engineering

Entitlement

Installed Base

Management

Spare Parts

Logistics

Product Depot

Repair

Labour On SiteCall Centre

Measurements & Customer Satisfaction Management

Service Life Cycle Management

Customer

Service Management

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Differentiated service

Diagnosis Solution

Knowledge

base

!failure

!fix

cheapest

expensive

machine

self healing

WW

W

customer

call centre

no parts

+ courier services

++ depot repair

swap

+ CRU

CRU = customer replaceable unit

++FRU

engineer on site

air courier

FRU = field replaceable unit

engineer

on site

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Service execution types in detail

– Labour

• On site

• Courier services

• Self service

– Parts

• Field replaceable unit

• Customer replaceable unit

• Depot repair

• Swap

• Same for same

• Exchange

– No quibble

Design your product for Service in the engineering phase !

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Spare Parts Inventory Management

– Inventory planning methods

• Statistical (demand)

• Time phased (supply)

– Single vs Multi echelon

Hypothesis

Focus on reducing inventory is

less significant than avoidinghaving inventory at all

Demand Poisson

Central WH

Regional WH

Local WH

Sta

tistic

al

Tim

e p

hased

Supplier Sta

tistic

al

– Spare Parts Inventory planningapplications

• Xelus

• Servigistics

• METRIC

• SAP MM

• Many propriety solutions

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International Service execution

– When a product is sold in multiplecountries one has to consider:

• Selling via your own organisation

• Permanent establishment

• VAT/ Duty registration only

• Selling via Agents

• Selling via a Offshore/ world trade model

EEZ

NSO

Agent

WT– Designing your service organisation and

capabilities will depend to a large extenton cross border capabilities• EU: European Union

• EEZ: European Economic Zone

• NSO: Countries with a National SalesOrganisation

• Agent: Countries served by Agents

• WT: Countries served via the World Trademodel

EU

More design options

More capabilties

More Service per cost

Service = International

Hypothesis

Sales = National

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International - Goods and Services (tricky)

– Goods := All things that have a physicalappearance

– Services := All things that are not Goods

– For Goods and Service different VAT andduty percentages apply

– Within the EU the VAT/ Duty on Goods isharmonized, for Services it is not

– To a certain extent it is possible tomerge a Service into a Good

– Repair during the Warranty period is not

treated as Service but as a “returningthe good to its proper state”

Border

Hypothesis

(international) companiesfocus on VAT/ Duty

minimalisation

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Service Management – Key Performance Indicators

Service level

Cost

Inventory

External

Customer

Internal

performance indicators

– Service KPI’s consist of:

• Quantitative indicators

• Qualitative indicators

• Emotion

• Perception

– The most common triangle ofService KPI’s is:

• Service

• Inventory

• Cost

– The purpose is to optimise each ofthe KPI’s, not at the expense of theothers:

• Increase the surface of the triangle

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Trends

– Outsourcing• Call Centre

• Logistics

• Repair

• Service Engineers

– Design for Service

– Assisted Service --> Self Service

– On Site --> Remote diagnostics & repair

– Field Replaceable Unit (FRU) --> Customer Replaceable Unit(CRU)

– Original Equipment Manufacturer (OEM) --> Original DesignManufacturer (ODM)

– Shift from focus of product to the service/ function of theproduct

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Questions

Customer

Service

Front OfficeSales

Service Execution

Back OfficeManufacturing

Product

Engineering

KPI’s

?

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Links and references

– Consumer warranties

• www.postbus51.nl, document F&A 5760 - search on

“consumentenkoop”

• eur-lex.europa.eu, document 1999/44/EG