Managing the Customer Premises Equipment Lifecycle in a Rapidly Changing Environment. By Stephen D. Ambo and Thomas M. Jones
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1 Managing the Customer Premises Equipment Lifecycle in a Rapidly Changing Environment By Stephen D. Ambo and Thomas M. Jones
2 For communications companies, including cable operators, that provide customer premises equipment (CPE) as part of their service, planning and inventory management used to be much simpler than they are today. Time was when customers simply received a set top box (STB) to provide access to broadcast television with little other interactive functionality. Today a proliferation of technologies including standard definition (SD), high definition (HD), DVRs, multi-room DVRs, and IPTV has introduced a complex CPE product mix with an array of differentiated functions and features a product mix that is changing at a rapidly accelerating rate. These developments, in turn, have introduced enormous complexity into the forward and reverse supply chains of CPE providers. The ensuing challenges for planning and inventory management are compounded by a disconnect, in many companies, between supply chain strategy and execution, as well as strategic decisions that do not always take long-term impacts into account. The hard truth is that many service providers in the communications sector, still adjusting to increased competition and the innovation it has spurred, are simply not prepared for this new environment. Not having focused enough on product lifecycle management as a key component of operational responsiveness and efficiency, they have allowed inventory to become misaligned, impacting asset utilization and profitability. The first step in addressing this situation is to understand the unique challenges posed by today s complex CPE product mix, and the lifecycles of the products within it, for the CPE supply chain generally and planning and inventory management in particular, as well as the difficulties companies typically face in linking strategy and execution in managing their CPE supply chains. 1
3 Product Complexity and the CPE Supply Chain Increased competition in the communications sector has given rise to an explosion of innovation that, in turn, has created a highly complex CPE product mix that is still growing in size and complexity. As new products and services proliferate, moreover, older CPE offerings are not being retired as fast as new ones are introduced it is not uncommon for equipment OEMs to introduce new products with manufacturing lifecycles of nine months to a year, while items like STBs may have a useful life of up to ten years. This disjunction gives rise to a complex set of challenges. In contrast to a sellthrough environment, where customers dispose of equipment as they wish, it can be difficult to end the life of CPE items when they are in the field. This means that certain new products or capabilities of new products must be backward-compatible in order to work with older ones. Planning for service and device offerings is also significantly complicated by the item substitution logic (i.e., the rules for deciding which pieces of equipment may be substituted for which, and under what circumstances) that must be executed at delivery of a product. As this issue illustrates, it is difficult to manage product distribution centrally when there are so many complex factors at work in the field. The entire CPE supply chain, in fact, is significantly complicated by the lifecycle issues surrounding these products. In an asset-driven environment in which the assets are returned by customers to be reused, variability in when products are returned introduces many unknowns into supply forecasting, such as the need to forecast and execute upon both outbound demand and returns. The challenges here are compounded by the fact that in companies that have been assembled through mergers and acquisitions, cross-company data visibility is often lacking, leading to a lack of flexibility in the supply chain for example, an inability to make responsive order management adjustments. Product and supply chain complexity with CPE, in turn, can help account along with other factors both internal and external to companies in the sector for the frequent disconnect companies experience between strategic decisions and planning and execution in managing CPE supply chains. 2
4 Lifecycle, Strategy, and Execution Three main factors typically lie behind the difficulties companies encounter in connecting CPE supply chain strategy with planning and execution for inventory management: time horizons, communication, and field operations. Time Horizons Time horizons can complicate the linking of strategy with planning and execution in two different ways. First, manufacturing lifecycles of 9 to 12 months for new products can be difficult to mesh with the management of certain types of assets (STBs without HDMI, for example) that may stay in the field for as long as ten years. As a result of these differing time horizons, strategic decisions about things like new product introduction do not always take sufficient account of longterm implications. A second way in which time horizons can complicate the link between strategy and planning is that product launch timings can be difficult to plan with precision. A variety of external factors technical, political, and market-related can influence the timing of a new product launch, a good example being when the introduction of multi-room DVR technology was shifted, making it difficult to predict when the standard would actually go into effect. The issues related to uncertainty in planning for launch dates can be compounded when a product has a long lead time. Again multi-room DVRs furnish an example: companies sometimes issue directives for introducing the new devices that the field cannot comply with owing to lead times for procurement and deployment. Communication Inadequate communication, both externally and internally, can be another factor in the frequent disconnect between strategy and planning/execution. Communications with suppliers, for example, are often inconsistent, and lack of collaboration with suppliers during the strategic decision making process often means that both the company and its suppliers are playing catch up, from a planning perspective, from the moment a new product introduction date is set. Communication within companies on expectations for launch dates and execution in the field is also frequently lacking. With the field organizations often not integrated into strategic decision making, they can be given mandates they are unable to meet. The field organizations, moreover, do not always communicate the challenges they face from the launch schedules mandated by corporate leadership. 3
5 Field Operations Poor communication is not the only reason that strategies devised at the center are often not well executed and sometimes not executed at all in the field. Various features of industries like cable and satellite and the players in them can make the issue of field operations with central directives problematic. One common problem in these industries is that, having been assembled through mergers and acquisitions, many companies remain relatively decentralized. This can mean that the field is not always appropriately incented to execute the corporate strategy, owing to budget or compensation considerations, or that corporate strategy and timing are simply not aligned with goals or execution in the field. Corporate may decide, for example, to introduce a new product on a timetable that the field ignores for reasons of its own. Another field operations issue can arise from a combination of supply chain complexity and a lack of systems and controls to provide visibility and enable coordinated responsiveness. Corporate strategy might be, for example, to bleed through older inventory before deploying the newest. Customers, however, may request a newer product (an HDMI STB, for example) even though they could use a lower-end device, and the technician interacting with the customer has the power either to follow the business rule for matching service and device or to fulfill the customer s request. Without visibility into the options available to the technician, and the consequent ability to enforce substitution rules, the center may be unable to ensure compliance with the strategy. Measuring compliance in such cases can be made especially difficult by the fact that companies have not invested adequately in tracking and inventory systems and systems integration. Lack of modern order-fulfillment systems, for example coupled with a complex mix of products with varying lifecycles may make it difficult for the central entity to have visibility into, much less control over, what equipment technicians in the field are providing to customers and what those customers are returning. At the macro level, inadequate information systems can exacerbate the challenges of a business in which measuring basic inputs like number of installations is not as straightforward as in a sell-through environment. Investment in the right systems can enable companies to gather and analyze data, define the implications of strategy for the field, and measure compliance. 4
6 Putting the Pieces Together A complex, rapidly changing product mix; a supply chain complicated by varying product lifecycles and product returns; issues of time horizons, communication, and field operations in linking planning and inventory management with corporate strategy how can companies put all the pieces of this puzzle together to compete successfully in an environment for which they lack adequate preparation and proper focus? The answer involves structure, processes, and systems for gaining a better understanding of the implications of product lifecycle characteristics and acting on the implications of this understanding for planning and inventory management. In particular, Accenture makes four recommendations: 1. Create a center-led asset lifecycle management (ALM) group, including participants from the field, to provide analysis and fact-based decision making capability for setting strategy. Many companies do not have the organizational structure in place for fully analyzing alternatives for product lifecycle management. Different parts of the organization may have differing perspectives on what is important in terms of strategy and costs. Even when decisions are made collaboratively by cross-functional teams, there needs to be a leading organization that can perform near- and long-term, factbased analysis and assess the total value impact of alternative courses of action. An ALM group typically provides a structured approach to gathering information, analyzing the impacts of potential decisions, and presenting these to the cross-functional decision making team. The group typically focuses on total asset lifecycle costs such as engineering maintenance, software version maintenance, repairs, technician calls, and so on. It also typically focuses on new product introductions, end of life, and disposition. 2. Implement a well-structured and collaborative planning process to facilitate formal communications with suppliers and all internal stakeholders. Although commonly associated with most inventory planning functions, the S&OP process tends to be heavily focused on tactical-level planning and replenishment decisions, with weekly/monthly horizons. The key to properly integrating lifecycle decisions into planning is a higher-level consensus process, often operating on a quarterly or bimonthly basis. This type of S&OP generally involves a broader crosssection of the organization than does the conventional process, including both corporate and the regions and incorporating key stakeholders from product strategy, sales & marketing, finance, engineering, ALM, and supply chain. 3. Develop field operations programs to consistently deploy inventory/assets in alignment with strategy. Even with a centrally-led, wellorchestrated planning and lifecycle management process, the actual execution of the strategy is as important as defining it in the first place. Given considerable autonomy for making lifecycle decisions at the field technician, retail, or local supply chain level, it is important that programs be put in place to monitor activity and structure incentives to align with the lifecycle management strategy. It is also important to establish control points within the supply chain to implement lifecycle decisions effectively while maintaining enough flexibility in the model to react to unique situations or market conditions. 4. Ensure data visibility to support decision making and compliance. Making the right lifecycle management decisions requires a significant amount of information. Coordinating lifecycle transitions involves a more complete view of supply, demand, and the current installed base of devices than do simple inventory management decisions. Added complexity can arise from the need to understand the cascading effect of decisions about one generation of devices on future generations; modeling the implications of any particular decision from this standpoint is beyond the scope of basic planning processes. Another, especially important factor for which CPE providers typically require data visibility is return rates, which can be highly variable for particular devices, types of service, and markets. In addition to return rates per se, companies can benefit from understanding fallout rates in order to project usable inventory. Finally, it is important to achieve a full understanding of the total cost of ownership (TCO) of various assets, capturing the tradeoffs between capital expenditures and ongoing operating expenses involved in continuing to support a device in the field. Direct supply chain costs such as handling, repair/refurbishment, transportation, and storage are part of TCO, but so are additional costs incurred in the overall operation for example, field technicians, customer care, video and network engineering, and IT support costs. Data visibility can also benefit field operations efforts, as noted above. One way of verifying data visibility is to have an asset-tracking solution that can aggregate data across regions and provide insight into how assets are being utilized. Matching customer order requirements with data about what assets are actually being deployed can enable companies to track and measure field operations with corporate directives. Integrating data from an asset-tracking solution with planning systems can enable the kind of complex planning for CPE lifecycles that can be impossible with inventory management systems, which typically do not have information about the installed base. 5
7 The Benefits of Understanding and Managing Product Lifecycle Impacts Accenture has found that implementing these four recommendations for understanding and managing product lifecycle impacts on planning and inventory management can have major benefits for companies. Key benefits are alignment between corporate strategy and field execution, which can result in asset utilization that balances optimal customer experience with capital efficiency, and greater certainty in future planning and capital spend due to field compliance with strategic direction. With the integration of lifecycle strategy and operations, companies can also optimize TCO and balance capital and operating expenses in alignment with the product strategy. The complexity of the CPE product mix and of managing product returns can make planning significantly more challenging for communications companies that deal in CPE than for those that operate in a sell-through environment. Yet by incorporating astute produce lifecycle management into their asset management and planning processes, CPE providers can meet the challenges thereby improving asset utilization, reducing asset investments, and lowering operating costs. 6
8 About the Authors Steve Ambo is a Managing Director in Accenture s Communications, Media, and Technology practice. Steve has developed supply chain and business strategies for some of the leading communications companies in North America. He has extensive experience in aspects of assetbased supply chains such as network infrastructure and customer premise equipment. Based in Atlanta, he can be reached at stephen.d.ambo@accenture.com Thomas Jones is a Senior Manager in Accenture s Communications, Media, and Technology practice. He has worked at multiple asset-intensive clients focusing in the communications industry. He has significant experience in asset management, planning, supply chain transformation, inventory management, sales and operations planning, and network optimization. Based in Overland Park, he can be reached at thomas.m.jones@accenture.com About Accenture Accenture is a global management consulting, technology services, and outsourcing company, with approximately 261,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture SL
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