Category: English

Rental in Transition

Last week I went to Riga to participate in the annual convention of the European Rental Association. With the theme ‘Rental in Transition’ the convention rightfully worded the pivotal junction in time. Fuelled by the European Green Deal we are poised to rebuild our economy towards net zero emmisions. This means construction will boom requiring lots of construction equipment. The big challenge for OEM, dealer, rental and construction companies will be to manage the installed base of construction equipment from a carbon footprint and emmisions perspective.

Collective bargaining

When the representative of the EU, the consultant from the Boston Consulting Group and the chairman of the European Construction Industry Federation talked about the need and drivers for transition, I had this nagging question. Suppose I own a construction equipment fleet of 1b$, the majority still being internal combustion engine (ICE) based, how do I monetise that investment if the awarding of new construction jobs is based on lower carbon footprint and emission levels?

This is big. This is a challenge of major proportions. Though the delegates subscribed to the mid-term sustainability and transformation goals, for the short-term there’s that ominous questionmark of the how-to. The impact and magnititude of the sustainability transition shows how OEM, dealer, rental, construction companies and legislators are intertwined. This requires a serious dose of collective bargaining.

Preparing for the transition

Regardless of how the transition is going to pan out, for all players in the value chain it is imperative to prepare for the transition. It will become increasingly important to understand the usage profile of construction equipment versus generic equipment attributes.

Let me explain with an example in the car rental industry. When you rent a car it typically comes with a mileage allotment per day. If you drive more, you pay more. If you drive less you still pay the daily rate. You could also split the rental model in an ‘availability’ and ‘usage’ component. Especially if the usage component drives carbon and emissions output, splitting the rental model can motivate the user for a more sustainable use.

This simple example sits at the core of asset-centric business models. It’s not about owning of having an asset, it’s about using it. See here the incentive to digitally transform your business and get access to equipment usage information. Bye the way, if you are catering to the larger construction companies, you will know that providing the usage data of construction equipment is a critical element of the rental service.

Carbon offsetting

Most of the delegates flew to Riga. Upon buying their airline ticket each had a possibility to purchase the carbon-offsetting option. How many did buy that option? Today the majority of the rental companies offer a similar carbon-offsetting option for rental equipment. How often is that option selected? A brief survey amonst the delegates revealed the non-scientific value of ±5%. Rental today is a very price sensitive industry.

When I look at the construction deadlock in my own country, the Netherlands, I see that each new project must submit a carbon and emissions overview before even getting a building permit. We heard the EU representative make remarks along similar lines. “We will use carrot and stick”. And we know of sustainability-forefront-cities only awarding projects to eco-frontrunners.

Does this mean that we can only use electric or hydrogen based equipment for future construction projects? Contemplating on the sheer size of the sustainability challenge, the answer will be ‘no’. There simply isn’t enough construction equipment to get all the work done. But if you want to continue using ICE equipment, you need to get smart at carbon-offsetting options. At the conference we heard that a CO2 calculator is a good start, but we need to make it easier to use and equipment usage based.

Beyond Equipment

For the mid and longer term we have an adject challenge when replacing ICE equipment with electric and hydrogen based alternatives. For ICE equipment we can build on the existing infrastructure of fosile fuels. And for remote locations we can very easy offer a fuel management option. 

If we want to deploy electric and hydrogen based equipment, it often means we have to supply the complete EV or hydrogen powertrain as well. This implies that the rental paradigm will change from equipment rental to complete solutions rental. From an asset management and equipment availability perspective that will mean that the complexity will increase. This will feed the argument for accelerated digital transformation.

In completely different acumen we could label this as ‘servitisation’. When the contractor needs to excavate 100 tonnes of rock, he’ll need an excavator, dumpster truck and complete power train. As food for thought for rental, would it be too far off to start selling electricity/ hydrogen as well?

Beyond Riga

It was great to be in Riga. To hear so many people in the industry. The challenge is big. Yes, there are some threats. Yes, there is a level of denial and green-washing too. On the other hand, the challenge provides a great number of opportunities too. Those who embrace those challenges and embark on their digital transformation journey, those will have the upper hand in a rental market that is in transition.

This article is published on Field Service Digital.

Previous blog on rental.

Managing product recalls – five keys to success

As an equipment manufacturer, you hope a product recall never happens. In reality, most OEMs have their share of misfortune. The recent example of Philips apnea machines shows how complex a recall process can be. How it can get out of hand. How it can impact your brand experience. Instead of trying to avoid product recalls it is better to be prepared for them.

Preparing for the unlikely

Every product is designed with a set of checks and balances. In the final stages, before general availability, Quality Control assesses safety and fit-for-purpose. Once the product hits the market in grand(er) volumes, the OEM will receive a much larger dataset telling how the product performs and behaves in real-life situations. That is, if the OEM has set up a channel to listen.

When you’re in the middle of a product recall, all stakeholders will be aligned and feel the sense of urgency of using data to mitigate the quality issue. If you hadn’t setup a data collection process, the ability to reconstruct the data is limited and likely comes at a high cost. You’ll also have to be mindful that a product recall is a period of anxiety to both the OEM executives as well as the owners of the affected products.

In our practise, we see that companies that come prepared experience lower costs and higher customer loyalty. These benefits are incentivising other OEMs to follow suit. Especially when the pace of launching new products is increasing and quality assurance is under duress.

Gaining installed base visibility

In an ideal world, any OEM would love to know where each product sold is installed, in what state it is, and how it is being used. The value of that data will enable the OEM to develop better products, be more efficient in their service delivery, and increase their service revenue through hyper-personalized service offerings.

In the real world, we see a lot of OEMs struggling with their installed base visibility. And this is a real problem. If you don’t see your installed base, how do you expect to be efficient in service delivery and driving revenue from that base? It becomes really problematic when you have a quality issue with a product and you don’t know where they are.

Managing the indirect sales channel

The apnea case shows the recall struggle in its extreme. On the one hand the OEM has a medical compliance obligation to manage the product recall and replacement. On the other hand, the OEM has no visibility on who owns them, because the bulk of the units were sold via the indirect sales channel. 

Though the OEM does not have visibility on the end-user of the affected units, the OEM does have a record of the serial numbers sent to the dealers/resellers. Those dealer/ resellers ‘own’ the commercial relationship with the end-user, potentially having sold a service contract too. In this model, the OEM is the orchestrator of the recall, whereas the dealer/resellers are the eyes, ears and hands.

Prioritizing the roll out

Once the OEM has diagnosed the product issue and created an engineering change, the complete supply chain needs restocking. First, the faulty components need to be recalled, to avoid a widening of the quality issue. Then, the new components start to fill the pipeline to enable the roll-out. 

Because the production of the new component version needs to ramp up, there is a constrained supply in the early days of the recall, which is a form of service campaign. At the same time, vocal customers will demand instant replacement. Scarcity will require the OEM to make choices and communicate them.

If the OEM only has information on shipping volumes to dealers/resellers, prioritization options are coarse. That becomes more apparent when the dealer/reseller has sold a ‘gold’ contract to the end-user. The end-user has a perception that it purchased an OEM product with an associated gold contract, oblivious to the fact that both elements are delivered by two different commercial and legal entities. That becomes an interesting prioritization puzzle and can become a cause for discontent when not accounted for.

Monitoring the service campaign

Now let’s assume you are in the middle of rolling out the engineering change to your installed base. How do you know you are done? When have you successfully completed the product recall and can you prove that you are compliant?

Based on our conversations with OEMs, we’re hearing a need for a workbench-like tool to slice the installed based according to multiple and changing criteria, while maintaining an overview of progress and cost. Last but not least, having tools to prove you’ve done the work and communicate that to the involved stakeholders. At ServiceMax, we’ve bundled these capabilities as Service Campaigns enabling any OEM to be prepared and enabled for future product recalls.

This article is published on Diginomica and Field Service Digital.

Standardization vs Flexibility: How to Shape Your Service Transformation

Last month I celebrated my five year anniversary working for a field service software company. Having had a prior history of 25 years in service delivery and service sales, many service transformation engagements have been a trip down memory lane. As former business leader I too sought for modern tools to replace my legacy business processes. When software vendors showed me their capabilties, they showed the happy path. As service-firefighter I knew that real life needed contingencies for not-so-happy.

You are special

When you’ve run a service organisation for multiple years, you’ve built a routine of tools and processes to get the job done. If, like me, you had limited access to budget, your business processes will be a hodgepodge of makeshift tools.

And then, either by design or by the turn of events, your company is in a digital and service transformation process evaluating standard software. The happy path looks great. It’s easy and it’s efficient. But something doesn’t feel right. Your business is more complex. You have many variants and exceptions. You are special.

Of course you can ask the software vendor to demo all those exceptions, but do you really want to re-create your legacy business processes with modern tools? Or, do you want to make use of the new tool capabilities to challenge your legacy processes?

Common global process

One of the big drivers for new tooling is standardisation. Not only can you rationalise your current IT-stack, you can also ‘clean-up’ the sprawl of business process exceptions. In transformation journeys I often hear verbage like ‘common global process’. When I do hear this, I try to understand how will employees and customers will benefit from a common global process.

Do customers want a standard one-size-fits-all process, or do they want a contextual transaction? Do employees want a business process that is cast in iron, or do they need a level of flexibility to address the unforeseen? This brings me to the theme of this blog: is the happy path really so happy or do we essentially need something different?

Contextual processes

At the Copperberg Power of 50 event we talked about “managing the hybrid service paradigm”. If on the one end of the scale we have forces driving a common global process, then hyper-personalisation is pulling towards the other end. The good news is that technology can help us find the middle ground. One does not have to go at the expense of the other.

If we picture the blend of interests:

  • Business and IT leaders want to exercise control over the execution of business processes. 
  • Employees need a level of autonomy in how they deliver their work to cater to expecting and vocal customers.
  • Customer expect services to be delivered situational to their business impact … and those tend to fluctuate.

The above three actors operate in shifting contexts. Because priorities tend to change over time, we advise business leaders to enable and empower employees deploying contextual workflow beyond the happy path. Because it is beyond the happy path where friction, inefficiencies and dissastisfaction manisfests itself.

80% Global, 15% local and 5% situational

At the Copperberg Power of 50 event, we saw a video of service technicians Amy and Jake from DormaKaba. They talked about how every day is different, how they need trust and empowerment to get the work done. What this means? If we want happy customers and technicians, we need to abandon the belief in a happy path and move towards contextual business process behaviour.

Guiding many transformation journeys for our customers, we’ve seen we can strike a balance between business process standardisation and situational flexibility using modern workflow techniques. We call this 80% global, 15% local and 5% situational.

  • Global: Despite the uniqueness of service businesses there is a core of commonality in business processes. This core will ensure that global leaders are able to roll-up the data for decision making purposes.
  • Local: Instead of standardising everything, we have to be mindful that localisations exist for a reason. It’s often the commercial reality that a local product-market combination that dictates how we need to do business with those customers. Without localisations a company may not be able to do business.
  • Situational: Echoing the words of Amy “every day is different”, we may have agreed upon a process, but in day-to-day operations we encounter unforeseen situations. Instead of responding with a freeze we need enable and empower employees to make informed decisions to maintain a flow, to keep the world running.

Adoption drives Value   

The happy path is what any software tool can support. Implementing the happy path may even seem to be the preferred transformation path. The value-proof is in eating the pudding. When you deploy the happy path it is very likely you will encounter the adoption hurdles assosciated with local and situational variants. Needless to say: no adoption, no value.Thus, the way forward is to account for local, contextual and situational workflows. When you ask for your next demo, do ask to deviate from the happy path. Ask how the software facilitates the excpetions. What insights and visibility will be available to the users, such they can make informed decisions? Decisions that align with your overall company objectives.

This article is published on Field Service Digital.

Maximising Asset Availability for Rental Equipment

Four years ago we moved to the country side and bought an old farmhouse on a large plot of land. Having big construction and landscaping plans we regularly rented all kind of equipment to get the job done. The journey I experienced was tough for the companies that rent out equipment and for my DIY-projects progress. I wish some of these rental companies had state-of-the-art service execution systems, such they could drive both a better customer experience and value delivery.

Job and Equipment planning is tough

The most important thing I’ve learnt in those four years of home improvement is that a piece of rental equipment is ‘just’ a small piece of the planning puzzle. As an example, for my landscaping an element of the work was the relocation of a lot of dirt. For this I needed a (mini) excavator. The availability of the excavator was intricately entangled with ten or more other planning items. You can imagine my surprise/ frustration when the excavator wasn’t available on its due date … and the alternative had only half the capacity.

This is one of many examples I accumulated over four years. As a result I’ve become proficient in reverse engineering the processes of the rental agencies. It’s tough for rental agencies too. If only they had better visibility and planning tools. Speaking of the devil, I happen to work for a company that provides those tools and has implemented them in both business-to-business and business-to-consumer contexts.

The happy path

A rental fleet represents a significant investment so it may sound obvious to know where all that equipment is, and in what state. When you visit a rental yard or a construction site it becomes clear that knowing what-is-where is not that easy. If my personal experiences are representative for equipment visibilty, then WYSIWYG is a rather common implementation.

WYSIWYG works fine when the rental process follows the happy path. Meaning: actual pickup and return date are as planned/ booked; equipment doesn’t break and/or require servicing; no conflicts between availability and demand for equipment.

Going back to my landscaping job and the excavator. With half the capacity, my rental period mathematically doubled. With half the capacity, interlinked activities got pushed out as well causing additional delays. In the end my rental period tripled. Because ‘my’ excavator originally was booked by another customer, the rental agency phoned me in the third week to expedite its return. I was not happy, and certainly I did not pay anymore than the original contracted amount.

Does this sound familiar? Can you imagine how much it costs for a rental agency to mitigate the not-so-happy-path? Cost in headcount and lost revenue generation?

Reducing Turn-Around-Time?

Knowing that a piece of rental equipment is only making money when it is rented out, a key driver is to reduce the so-called turn-around-time (TAT). The time it takes to clean, inspect and service an equipment after its return, making it available for the next customer.

Suppose you have a rental fleet valued at 1b$, then your daily cost for interest and depreciation are roughly half a million $ per day (based on a annuity scheme at 4% interest and five year term). Thus if you can turn TAT-days into rental-days, cost-days become revenue-days. Suppose each piece of equipment has four rental periods per year, and you reduce your TAT by one day, you save 2m$ in cost. Add your sales margin and we’re talking serious numbers when renting out equipment back-to-back.

Defining servicing priorities

This brings us to the most challenging issue in the rental business. Instead of reducing the TAT for every equipment upon return using FiFo, you want to prioritise those units that have an adjacent rental period. By applying prioritisation rules, you can better plan the capacity of the rental return and servicing functions as well as making sure that the most revenue generating units as turned around first.

An example of the non-priortised 

We’ve seen examples where excavators, dumpster trucks and cranes not having an adjacent renter are ‘left’ at the customer site post rental period to save yard space. To ‘free-up’ capacity for the turn-around team in favour of ‘hot rentals’.

Managing the lifecycle of the equipment?

Rental equipment can have a rough life. Let me be honest. I sweated ‘my’ excavator to an extent I would not have done if I owned the excavator. In setting their rates, rental companies take these use cases into account. After each rental period there is a decision to be made: do we maintain the existing equipment or do we replace it?

The math behind the decision is simple: is the earning capacity of the equipment more or less than the cost to sustain it? To make the equation come to live, you need both historical data and forward looking data.

Keeping a record of historical data is pretty much possible in any business tool. For the forward looking piece you’ll need a tool that supports asset centric use cases for your assets.

  • Plotting the future preventive maintenance activities
  • Plotting the future calibration and certification activities
  • Aligning future service interventions such they don’t break or clash with rental periods
  • Create reporting that depicts plan versus actual versus outlook on equipment level

In the past four years I’ve learnt a lot about the rental business. Though a rental fleet is a significant asset on the balance sheet, in rental operations we still see a lot of appointment centric and reactive business practices. Modern day tools allow rental companies to apply asset centric business practices. Becoming proactive and getting a better return on the asset investment.

This article is published on Field Service Digital.

Why you should put service campaigns at the heart of your go-to-market

It’s common sense that owners of products, equipment and assets want a maximum of uptime at minimal operational cost. But how much emphasis does this get in the procurement cycle? For many buyers, it is difficult to define the service requirements over a multi year lifecycle. At the same time, buyers do have implicit expectations regarding lifecycle support, often derived from brand perceptions. This is a nice mix for OEM’s to strategize on.

The bulk of lifecycle cost is in operating the asset

To create an asset lifecycle strategy we will have to look at it from cradle to grave, including both the OEM and the asset owner’s perspective. In the following picture you can see the cost elements that go into each phase.

Lifecycle of assets and costs © ServiceMax

What you can see in the picture is that the cost of operating and maintaining the asset is typically a multiple of the cost of acquiring the asset. In the image from Accenture below, the ratio between product expenditure (capex) and the service expenditures (opex) comes to life. For example, if you had purchased a piece of industrial equipment for $1m, you would spend an additional $7.3m over its lifecycle to keep it running.

Initial product purchase relative to total product lifecycle cost © ServiceMax

Nominal output of the asset

Let’s go back one step. Why does somebody buy an asset? Not for the pleasure of owning it, but to use it. In using it, the asset produces a nominal output/outcome, and that generates value for the asset owner. To maintain the nominal output while wear-and-tear is degrading the asset, a mitigating lifecycle strategy needs to be put in place to secure the value potential of the asset. The following picture shows a typical asset lifecycle.

Typical asset lifecycle © ServiceMax

In this picture you’ll see service interventions like preventive maintenance and break-fix that serve the purpose of uptime. An intervention like an engineering change serves the purpose of prolonging the lifecycle of the asset as well as potentially boosting the original nominal output.

  • Extending lifecycle: mid-life upgrade, retrofit or overhaul.
  • Expanding output: booster-packs, product or software upgrades.

Product engineering beyond Point-of-Sale

Both extending the lifecycle and expanding the nominal output of an asset can be plotted against the continuous process of product engineering. Once a product hits the street, engineering receives feedback on its use through quality, warranty and maintenance channels.

Acting on asset feedback, engineering can design newer revisions of that product as well as define upgrade and booster offerings for the existing installed base.

For some OEM’s the asset feedback loop is an integral part of their Go-to-Market. Imagine you operate in an very competitive and tech savvy market. Timing is essential in building market share. At ServiceMax, we’ve come across OEM’s that go GA with a product when engineering is at 80%. They use the service organization to ‘bestow’ the customer with goodness and attention to make up for the missing 20%. In doing so, the service organization retrieves relevant intelligence to complete the engineering process. As part of the deal, the customer gets the benefit of both the latest technology as well as engineering changes post-point-of-sale. A win-win for both OEM and asset owner.

Using the product lifecyle as a means to customer intimacy

Whether you launch your product at 80% engineering completeness or at 100%, most OEM’s will continue to engineer their product beyond GA. The question is, how would you like to make those product improvements and engineering changes accessible to your existing installed base. In other words, have you setup a process to manage asset lifecycle service campaigns?

Service campaigns can stem from two different emotions. A negative and a positive one. In the end, when you manage your campaigns well, you’ll achieve higher levels of customer intimacy.

  • Negative emotions: These are quality and complaint driven engineering changes. A customer expects a certain quality and nominal output level, but is not getting it. The customer expects the supplier to fix it as quick as possible at no extra cost. Though a complaint and quality issue may start as a negative emotion, an OEM’s capability to act on it determines if the emotion remains negative or turns positive. In addition, service campaign capabilities will deliver efficiency and compliance benefits to the OEM.
  • Positive emotions: These are engineering changes that will enhance the capabilities of the asset. As such, you go above and beyond the nominal output specifications promised at point-of-sale. In general customers will perceive this as a positive, adding credibility to the OEM’s leadership and brand value. With service campaigns an OEM can reinforce that positive emotion as well as monetize it.

Service campaigns drive pro-active service

If customers buy assets to use them, OEM’s are very well positioned to facilitate the usage of those assets throughout their lifecycle. The OEM designed the product. The OEM has all the expert knowledge of how and why the product works. Now, if the OEM gets feedback on how each individual asset performs in the field, the OEM is sitting on a gold mine of data, ready to be servitized and monetized. The vehicle to deliver those services to the installed base is called – service campaigns.

This article is published on Diginomica.

How do you know you are making money on your service contracts?

In my previous life I sold service contracts for a large OEM. Like many service executives, I was proud of profit margins in the range of 40-60%. But when I talked to my CFO, the numbers didn’t compute in the bigger organisational picture. Let me take you on a narrative of planned versus actual contract profitability and how I gained control over my margin contribution.

Reactive margin contribution

It is still early in the new fiscal year. I have good hopes of making my numbers. Of course I know I have a few ‘high maintenance’ customers. At the same time I have a few ‘cash cow’ service contracts. They will balance out, I’m confident. 

Fast forwarding to the last quarter of the year. Am I still that confident? Obviously I have more insights into my year-to-date cost. Did everything pan out as expected? What options do I have in the remaing weeks of the year to make my numbers?

What I am trying to say. No matter how good my predictions and projections were, actual performance has a tendency to differ from planned performance. Maybe less on aggregate level, but certainly on individual customer or contract level. 

I want to speak the same language as my CFO to better align with the corporate agenda.

It was my ambition to be more in control. Not to depend on reactive and aggregate margin contribution, but to be proactive and predictive on individual customer/ contract level. 

Defining the selling price

When I started selling service contracts I had to brush up my sales 101. How do I define the seling price of my service contracts. I had three paradigms at my disposal.

  • Selling price = Cost plus Margin (aka Cost Plus)
  • Margin = Selling price minus Cost
  • Cost = Selling price minus Margin

If I had full visibility on cost and I had the upper hand in the commercials, then cost plus would work for me. My reality was that cost was more of a guesstimate. Rearding the margin, we had internal margin objectives. But in the commercial arena we often had to give in. This led to the acceptance of the second equation. Margin was not a driver but a result. Margin was reactive. 

Expanding on the narrative in the first paragraph: in the last quarter of the fiscal year the CFO would become vocal using the third equation. If the selling price was an unalterable fact and the margins were falling low, then only available option was to cut my cost.

I want to get ahead of the game to deliver predictable margin contribution.

Influence cost while you can

I went back to my drawing board. How shall I construct my service contracts such that I can monitor all three variables: cost, revenue and margin? In addition I implemented the basic financial concept of planned versus actual and outlook in my service execution process.

After having had my service menucard conversation with my customer, I would cost all those entitlements, resulting in the sum of planned cost. When the contract went into service-delivery mode I would keep a tally on the actual cost. If actual cost develops in a bandwidth of say 10% or planned cost, I knew I would deliver on the expected margin.

Beyond the actual cost development, modern day service execution tools also provide visibility of future service activies. Thus you can create a cost outlook as well. Now you have all the info to make the right decision in real-time, protecting your margins.

Predictive margin contribution

Why all this fuss? Apart from my personal and service domain motivation, my CFO told me loud and clear: I dislike surprises, I want predictability. If only I could cater to the CFO’s wants, maybe I could get access to budget to mature my processes.

I knew I was probably the single largest margin contributor to my companies result. Maybe more out of luck than by design. If only I could invest in tools that would give me that control and predictability.

Better and competitive pricing

Beyond the CFO persona I want to highlight role and importance of the Service-Sales persona. Setting the selling price for a service contract is a subtle process. Price pressure is prevalent in pretty much every sales cycle. The Service-Sales persona needs handles to balance revenue versus margin contribution.

Asset owners want maximum uptime at lowest operational cost.

When my cost insights were on guesstimate level, cost plus did occasionally result in non-competive price points. When my cost guesstimate was too low, my margin took a hit. When I started monitoring the actual margin, I got a good idea if I had priced my service contract ‘fairly’. Deliberately I’ve put the word fairly between quotes. High margins may be good for my bottom line, but from a customer perspective high margins may not be sustainable. Margin insights were an absolute must have for me when renewing/ renegotiating my service contracts.

This article is published on Diginomica and Field Service Digital.

Field service works better when supply chain and service execution work together

An effective supply chain for parts is a crucial part of a successful field service operation. How much time does your technician spend on finding and receiving the correct spare parts? What is the impact to your customers when those parts are not available? What should you do with the defective, left-over and unused parts after the job?

These questions are a compound of conversations I have with customers when doing ride-alongs on service call-outs. They may sound pretty operational, but the implications are significant. Think about higher costs, loss of productivity, unnecessary capital tied up in inventory, repeat visits impacting uptime and customer satisfaction, lost residual material value and negative impact on your circularity goals. There is a lot to be gained from effectively managing your parts. To do this, you need to integrate your supply chain and service execution functions.

Not sold yet? Let’s dig further Into why you should integrate these functions and how it can benefit the business.

Why connect service and supply chain?

In many transformation journeys the initial focus is often on optimising labour to increase the productivity of both the technicians in the field as well as the supporting roles in the front and back office.

But optimisation does not end with labour. There are two very good reasons to accelerate supply chain integration into your service execution:

  1. You need a combination of consumables, spare parts and labour to maintain and fix non-digital products-equipment and assets.
  2. Your CFO will tell you that parts are the second largest cost component after labour.
  3. Having the right parts at the right time and place also optimizes labour productivity.

Though consumables and spare parts are intertwined with the labour component, supply chain integration and optimisation are habitually postponed until phase two of a digital transformation. But even if spare parts costs are second to labour, the implications of not having supply chain integrated into your service execution process are substantial for multiple personas and justify inclusion in phase one.

How does this impact technicians?

In many organisations, supply chain is a separate function with Its own business processes and tooling, resulting in a disconnect with service execution. I’ve seen technicians using email, whatsapp and Excel to order parts and to keep track of forward and reverse logistics. I’ve seen duplicate entry, swivel chair processes and multi-disconnected-tooling. In those situations, the technician works for the tool instead of the tool working for the technician.

If it were up to technicians, having an integration between service execution and supply chain would be high on their wish list. It would make their life easier and would help them in becoming the hero on site.

Can service and supply chain resolve conflicting goals?

From a supply chain perspective there is an ambiguity regarding the necessity for holding inventory. Financially, inventory is tied-up capital, and you want to reduce that. On the other hand, you need inventory to meet contractual response times and uptime commitments.

In contrast, service leaders can easily articulate the need for spare parts. But those same leaders find it difficult to determine how much. Supply chain leaders typically have a year-over-year target to reduce inventory. Sounds conflicting? Maybe not with modern and integrated tooling.

Here’s what have we learnt from the ride-along — if supply chain has access to the ‘raw’ requisitioning, consumption and return data from the technicians, supply chain can do better inventory planning as well as optimise the forward and reverse logistics flows.

In the end you’ll have multiple winners when labour and parts work in unison:

  • Customer — higher first time fix and less downtime.
  • Technician — less admin, track & trace visibility of parts, guidance for returns.
  • Service leader — less parts leakage, higher parts accountability, higher CSAT.
  • Supply chain — insight in true consumption, more leadtime visibility (less expediting).
  • CFO — less purchase of non-consumed parts, lower inventory, less scrap, less logistics cost.

Supply chain and service have many different projects and priorities, but it is in the best interest of your engineers, customers and CFO to integrate your supply chain and service function in the first phase of your digital transformation.

For more on the benefits of connecting service and supply chain, check out What Value Does Asset Data Hold for the Supply Chain?

This article is published on Diginomica.

Will there be an uplift in Depot Repair (vs Onsite Repairs)?

If a product requires a physical repair there are two options: a technician goes to the product or the product comes to the technician. Whatever model is used depends on many different parameters. The good news, with modern service execution tools your options grow exponentially while maintaining control.

Covid is adding an additional boost to the uplift of depot repair. If technicians are not welcome on the site of installation, then the assets, or part of it, have to come to a depot. 

A balanced choice

It would be nice if the repair model could be a choice. A choice based on situational characteristics, instead of rock solid process defaults.

Why choice? Because more vocal and demanding customers expect and request choice. Situational, because the conditions can be different each time to both requestor and provider. By giving choice you provide a level of autonomy to the recipient. Choice is double edged as well. The receiver has to process choice and thus you can get valuable information on what is important to that person. Again, what is important, changes over time and is situational.

Multiple service delivery options

To put field service and depot service in a perspective, I want to paint the wider picture of service delivery options.

Diagram Description automatically generated

In this picture the cheapest mode of service delivery is the self healing variant. Though cheap from a service delivery point of view, it may be expensive from a product engineering point perspective.

On the other end of the spectrum we have the dual-visit engineer on site variant. If the failure is hard to diagnose, you need a trained engineer to find the problem and define the mitigating action plan. If the spectrum of potential solutions is wide, it is likely you are not carrying all spare parts and tools resulting in a second visit for the fix.

Note: not depicted in the landscape is the NPS/ CSAT element of all these service delivery options. It is in the entitlement process that you weigh the business objectives and select the best option for that service instance.

Design for Service

The various service delivery options are very much tied to the way your products are designed. We all know the example of the owners manual of a car. The manual defines the maintenance guidelines based on a generic use profile. The setup of the service delivery in car dealerships is based on that manual. In short, the simple things are customer replaceable[1], some repairs can be done in the field, whereas others can only be done in a fully equipped depot.

A similar setup applies to the maintenance manual of capital goods. If the capital good itself is non-moveable, then it becomes even more important to design for service. It is unlikely one will deinstall an MRI to send it to a depot. It is also unlikely the technician will carry an unlimited amount of spare parts, tools and calibration equipment. Thus the manual prescribes which ‘nodes’ in the bill-of-material are fixed on-site and which ones will be swapped and sent to a depot.

The rise of depot repair

If technician capacity is scarce. If technician capacity is expensive. If customers want more uptime and faster repairs. Then it is logical that a service organisation moves from lower level component on-site repair to higher level sub-assembly swap. The effort and complexity of repairing the sub-assembly is moved from on-site to depot. As a result you can do more repairs with the same pool of technicians … and even use lesser skilled technicians.

“I used to pay 5$ for a component and 80$ for 1 hour of technician time, now I pay for a 200$ subassembly and 15 minutes of swap time”

And what is the advantage for the asset owner? It is more than only comparing the material and labour cost. You get a faster fix, alias more uptime. The new sub-assembly is fully tested and comes with warranty, alias you get better quality at lower risk. One more benefit. If the sub-assembly swap requires lesser technology skills from the technician, what if the swap could be performed by yourself? This gives you more freedom and flexibility to source those sub-assemblies.

Whether the depot model is charged as part of a full service contract or time-and-material, the value promise presents itself beyond the individual repair action. More-over, the value appraisal will be dependent on the weighing of cost & benefit factors fro both the service organisation and the asset owner.

Enabling and invoking depot repair

To facilitate a depot-model you need business process support that manages :

  • reverse logistics of the sub-assembly from customer to depot
  • facilitates the actual repair/ refurbishment of the unit in the depot
  • triggers forward logistics to get the sub-assembly back to the customer

Depending on your commercial offering, you may want to add additional features like:

  • provide a loaner while sub-assembly is in depot or
  • offer an advance exchange so only one on-site intervention is required and the refurbished unit ends up in inventory.

And maybe most important of all is getting decision-making support when to and when not to invoke of depot repair. This ties to your entitlement process and how you weigh your business objectives when your vocal customer is calling.

With modern service execution tools it’s all about connecting the dots. Using available information from Customer, Workforce and Asset to present choice to both the asset owner and the service provider.

[1] Some of you may be familiar with acronyms FRU & CRU (Field Repairable Unit and Customer Replaceble Unit). If we had to give an acronym to the depot variant, it would be called DRU.

The mouse and the cheese

Who hasn’t ever played the game of drawing a line from the mouse to the cheese though a seemingly impossible maze? Do you still remember the trick? Spoiler, don’t start at the mouse but begin at the cheese. Start with the end result in mind.

Running a transformation journey in business isn’t any different. True, the end point may be a moving target, but still to a major extent your journey is defined by a business objective.

Why am I bringing up this topic? At the Field Service News Live Symposium in Birmingham, UK we had a lot of conversations on AI. If AI is the cheese, then the technician is the mouse. We know that no matter how much technology we deploy, as long as we live in a world of physical objects, ultimately somebody will need to hold the ‘wrench’.

Technician of the year

That ‘somebody’ who is holding the wrench is Jack Ogden. Jack works for Beckman Coulter. Jack was awarded technician-of-the-year by Field Service News. For me Jack and all the other Jacks are the true heroes in the service domain. They keep the world running. They are the heroes on site. To be successful they need the right tools, correct information and empowerment to perform their ‘magic’ in the face of ever more demanding asset owners. What do we give them? State-of-the-art field service management tooling? AI?

A different planet

Now picture yourself having toasted to Jack yesterday evening and today you are engaged in an AI conversation with a group of service executives. Have we landed on a different planet? I can’t shed the feeling there is a gulf of space between day-to-day service operations and the AI discussion. Echoing the words from Rajat Kakar, it feels like a maze separating the mouse from the cheese.

Paradigm shift

Don’t get me wrong. As much as I comprehend the world of Jack, the cheese is real too. I do believe AI has a substantial potential in the service domain. Though I may not have a comprehensive understanding of what AI means, the fact that during the service lifecycle massive amounts of data are generated, I can imagine that deep learning and mining tools can lead to better and optmised decision making. 

And when I focus on decision making, service executives and Jack are not so different. In a recent ride along I did, the focus was on having reliable asset data. To be more efficient and proactive. The sheer amount of assets and the long lifecycle makes it practically impossible for humans to consume the data and to prepare for each eventuality. Tribal knowledge and experience drove historical service execution. Todays ambition for this company is to empower every service employee make informed decisions.

We want to move from ‘assumed’ to ‘informed’

Navigating the maze

When we were children we found joy in navigating[1] the maze. Through trial and error we ultimately found a strategy. In business the stakes are a little higher. Still, there is a lot of trail and error with new technology adoption. But we can be smart at it when we have the cheese in mind.

With AI we don’t want to repeat the same ‘mistake’ a lot of companies made with big data. Big investments resulting in unused[2]data lakes. An example of starting at the mouse and uncertain where the cheese is. If forementioned ride along is exemplary, we can define the cheese as the business desire to facilitate informed decision making over assumed decision making. Thus the path through the maze become much clearer. 

Making an impact with asset data

AI has the capability to convert huge amounts of data into ‘intelligence’. The quality of intelligence is based on what you feed into the algorythm. Simple rule: garbage in, garbage out (GiGo). Before you start you have to be very conscious about your data. Illustrated by a failed AI implementation at Amazon. When you use historical data to teach the algorithm, beware that the decisions made by AI will be a compound of all bias and mistakes made in the past.This brings me back to Jack. If Jack wants to make an impact, he needs asset data. If the volume of asset data is big, it would be a great help to Jack if AI could make suggestions. Not decisions, but suggestions … because ultimately it is Jack who is holding the wrench.

[1] For the mathmeticians amongst us, have a look at Trémaux’s algorithm.

[2] According to Forrester “between 60% and 73% of all data within an enterprise goes unused for analytics”. InsideBIGDATA asks the proverbial question “are data lakes just dumping grounds?”

Is the Service Menu Card Replacing Bronze, Silver and Gold Contracts?

During last week’s High Tech Manufacturing event in the Netherlands, we reimagined tomorrow’s service delivery in the context of vocal and demanding customers. If customers expect products to work, is it enough to mitigate downtime, or should you know why your products work and in the context of customer usage? Is your current services portfolio in line with tomorrow’s customer expectations?

Bronze, Silver & Gold Contracts

In reviewing the services portfolio I used words like bronze, silver, and gold contracts to paint a continuum of reactive to proactive and predictive contracts. In an earlier blog on Mind the Gap, I used gold to quantify your maximum services revenue.

Proverbially the gold contract is the ultimate bundle of services to guarantee the uptime of the equipment. It’s not really product-as-a-service, as the customer still needs to buy both the product and a service contract, but outcome-wise it is the next best thing.

Just like with any product or service that is sold today, B2B or B2C, the big question is: who decides what is put into the bundle? Is it a seller-push or a buyer-pull?

This is exactly the challenge the high-tech manufactures are facing today. Based on our discussions during the event, the consensus was: we need to provide more choice and autonomy to our customers. Even if the installed product is the same, the usage context is different case by case.

Product Push vs. Usage Pull

It is not uncommon that the current bronze, silver, and gold bundles are based on product characteristics. When we sell expensive and/or complex products, we tend to believe we need to offer the higher segment of bundles. But if your expensive product is used in lower utilization environments, then the cost of downtime to its owner is lower, resulting in less budget for mitigating strategies. That unit may end up with a bronze contract.

If we want to address the challenge of more vocal and demanding customers, we need to flip the bundling paradigm from product to usage characteristics. To understand those usage characteristics we need to have a mitigating strategy conversation with the owner/user of the product.

Mitigating Strategy Conversation

“Dear buyer, why is my product so important to you, and what happens if my product fails? What impact does downtime have on your operations?”

If your customer is buying your product, meaning there is a point of title passage, it implies that all risks associated with owning the product reside with your customer. As a product owner, your customer will define a mitigating strategy for uptime/downtime risks throughout the life cycle of the product. As OEM you can help the product owner by offering life cycle services. The owner will weigh risk versus price.

“Dear buyer, do you agree with me that throughout the life cycle of the product you will need the following service activities to maintain and safeguard the uptime of the product? Which of those activities do you want to execute yourself and which ones do you want me to do?”

Is the Service Menu Card is Replacing Bronze, Silver and Gold Contracts?

The above picture a derived from the ITIL v4 framework by Axelos. All boxes serve the nominal state of the product, the uptime. And uptime ensures the output and outcome of the product. If your customer agrees with this landscape of services, the conversation becomes a simple one: what level of risk does the owner/buyer want to retain, versus outsourcing that risk to a service provider in exchange for a fee.

Driving Business Results with Entitlement Process

Flipping the service bundle paradigm and handing over the choice to your customer may sound scary. Is it controllable? With modern-day field service management software the answer is yes. It’s similar to going to a restaurant. You define what is on the menu. Your customer has the choice. And any good chef knows that the personal interaction at the table when ordering is key to the choices made. The success of CSAT starts when ordering.

With modern tools, you can implement a service menu card in the service-sales process. The true value comes from pairing the menu card with an entitlement engine in your service delivery process. It’s great that you sold all those configure-to-order service contracts to meet customer requirements. The people that have to deliver the services need to be aware of what has been promised, what has been paid for, and what is billable. This is where the entitlement engine kicks in.

A sophisticated entitlement engine has visibility on the customer, the asset, the contractual obligations agreements, and on the specifics of the customer-ask as specified in the case or work order. As ‘gatekeeper’ the entitlement engine will drive:

  • Customer expectation & satisfaction
  • Leakage reduction
  • Cross & Upsell increase
Is the Service Menu Card is Replacing Bronze, Silver and Gold Contracts?

To accommodate vocal and demanding customers a service menu card is a good alternative to bronze, silver, and gold bundles. Having choice and autonomy creates engagement and builds the foundation to success and CSAT.

To stay in the restaurant analogy, the proof is in eating the pudding. Your service delivery organization needs to have insight into what has been sold/ promised and be able to act on it. Imagine the waiter bringing the food without knowing the order. No tip, invoice at risk, no return visit.

The service menu card and the entitlement engine go hand-in-hand. Say what you do then do what you say.

Learn more about service contracts & entitlements from ServiceMax here. 

This article is published in ServiceMax Field Service Digital on October 21st, 2021