2015 AN EVEREST GROUP REPORT Aftersales services BPO: Tapping into the Strategic Value of Service After the Sale Katrina Menzigian, Vice President Dhananjai Gaur, Senior Analyst Copyright 2015, Everest Global, Inc. All rights reserved.
Introduction For most organizations, their supply chain is both the life blood of the company and a complex maze of many players and processes. For industries such as manufacturing, high tech, medical equipment, telecommunications (including broadband & wireless) and retail, the very competitiveness of their core business often depends on how well they can optimize their supply chain to drive cost efficiency, visibility, and product availability. Supply Chain Management (SCM) BPO is fast emerging as a strategic choice for organizations to achieve some of these objectives. This has resulted in a market with around US$1-1.2 billion in annual spend and growing at 20-25% 1. SCM BPO can be further subdivided into the following components (see Exhibit 1). EXHIBIT 1 SCM BPO segments, market share, growth, and potential SCM BPO segment Manufacture Deliver Aftersales MDM Current market share 4% 58% 26% 12% Three year historic growth rate 5-10% 15-20% >30% 15-20% Current penetration (%) and total potential (US$ billion) 1.9% 2-3 2.1% 1.2% 1.6% 8-10 25-27 32-35 Source: Everest Group Among these, aftersales services is especially interesting. While it is not the largest component of SCM BPO, it is growing the fastest with signficant upside potential. Why is this so? It is necessary to understand here that aftersales is a significantly important part of an OEM s operations. It is a major profit center, contributing nearly 75-80% to an OEM s core business profits. Considering that there are many OEMs that make more money not by selling products but by servicing them throughout, aftersales becomes a major revenue center as well. Moreover, being the front-office of the supply chain aftersales is also responsible for the customer s experience of the product and consequently the way the brand is perceived and valued. However, aftersales also an area with inherent complexities in terms of dealing with multiple stakeholders (both internal and external), multiple products and Stock Keeping Units (SKUs), sporadic and unpredictable service demands, and the need to balance cost-to-serve (efficiency) with customer satisfaction (effectiveness). Compounded by gaps in technology and integration challenges, as well as inadequate resourcing being common in many organizations, this results in poor visibility into operations and lack of the necessary insights to drive process improvements. However, if done well, it can have significant top line impact as observed in quite a few manufacturing enterprises (sometimes >50% of the profit contribution comes from services groups). In the past, organizations tried to manage all of this internally. The perception that aftersales is too complex to outsource, coupled with limited sophisticated third- 1 To get a detailed state-of-the-market report on SCM BPO, see Supply Chain Management (SCM) BPO Annual Report 2015 SCM BPO: An Idea Whose Time Has Come 2
party options further prevented organizations from considering outsourcing as an option. However, in the last few years, there have been significant advancements in terms of market maturity, solutions, and provider options. Some of the service providers have made focused investments in the aftersales space in terms of domain knowledge, technology solution, delivery model, process excellence, and analytics to help create a compelling value proposition. As early aftersales services BPO buyers started to realize value, others are increasingly evaluating and adopting this model, resulting in high growth rate, which we expect to continue. Given the increasing interest in this space, this research paper explores how aftersales services BPO targets the dual objectives of enhanced business outcomes and better cost management. The key themes covered in this research are: Market definition, overview, and outsourcing adoption trends Challenges and BPO value proposition The role of technology and analytics in aftersales services BPO solutions One client s experience Aftersales services BPO service provider landscape Market definition, overview, and outsourcing adoption trends Aftersales services BPO involves the service provider assuming ownership of part or all of the processes that support the client in the areas of planning, claims/ warranty management, service contract management, and returns management. It is augmented through reporting & analytics and helpdesk services (see Exhibit 2). EXHIBIT 2 Aftersales services BPO Aftersales services BPO value chain Planning Network design Inventory optimization Parts suppliers' orders management expedition or hold Claims/warranty management Warranty contract registration Claims receipt & verification Claims processing Service entitlement Service order management Asset and contract management Partner and service network management Contract compliance and assurance Dispatch management Returns management Returns authorization Return/repair logistics management Returns tracking and scheduling Returns expedition & follow-up Reporting and analytics Helpdesk (claims, service order, etc.) The role of the aftersales services BPO provider is to serve as the key hub among the many spokes of the various vendor categories. It is important to note that the scope of aftersales services BPO does not include the physical, asset-heavy field services, warehousing, logistics, and repair involved with the delivery and installation of parts, equipment, or on premise services. Often, these services are sourced from a network of vendors who specialize in these capabilities. The role of the aftersales services BPO provider is to serve as the key hub among the many spokes of the various vendor categories. One client referred to this as the role of the quarterback, using a sports analogy. 3
Everest Group believes that aftersales services BPO will grow quickly from two directions: 1. Through the natural path of progression of SCM BPO deals, as they organically expand in scope 2. As a starting point for new SCM BPO clients seeking an entry into this service model that will quickly deliver tangible cost savings Our findings show that aftersales services BPO adoption has increased significantly over the past couple of years. It is driven heavily by product-oriented industries such as manufacturing and high-tech / telecom, predominantly in the North American market by large buyers. Recently, the market has seen a pick-up in mid-market buyers, as well as those based in Europe, Asia Pacific, and Middle East. The high rate of growth in recent years of the aftersales services BPO segment begs the question of what is driving such rapid adoption. As the discussion below outlines, a persistent set of challenges in the aftersales services space, combined with a compelling aftersales services BPO value proposition, are leading to growing adoption. Challenges and BPO value proposition The growth of aftersales services BPO is driven by the need to address the persistent challenges that companies face in managing their aftersales processes and the realization that untapped value from the aftersales space is not far below the surface. Therefore, aftersales services BPO solves for the following in the current market conditions: Removing technology gaps and integration challenges The technology landscape for many aftersales services organizations involves multiple vendor tools and applications, some built organically, some inherited from M&A, and some acquired as point solutions. In many cases, there is a lack of integration among the core services applications, and siloed integration with key corporate applications, such as CRM, ERP, logistics, or finance applications. Since service management often requires a network of partners, integration across the partners and end-to-end visibility is a primary job of aftersales services BPO. While most organizations have the technology pieces needed to operate their business, the end-to-end integration and completeness of the work-stack to support the desired visibility and effectiveness is provided by aftersales services BPO Providing visibility of operations, continuous insights, and resources to reduce bottlenecks and cut costs Due to a number of different types of vendors, which an OEM organization works across for fulfilment of its service operations, the OEM is operating at a suboptimal level. Aftersales services BPO works as a Control Tower to provide visibility to what each of the service operators are doing in their own silos. 4
EXHIBIT 3 OEM s aftersales operations network Contact centers Warranty companies Third Party Logistics providers Source: Everest Group Repair vendors OEM s aftersales operations Parts manufacturers Installed base management companies Field service companies The world of aftersales services is in constant flux due to the very nature of it being reactive to customer requests for repair, installation, upgrades, returns, and product education. Furthermore, due to complex and varied needs, significant coordination is required among various types of vendors to constantly fulfil these ever-changing needs. Therefore, the complete gamut of service operations cannot be optimized as a one-time activity and be expected to operate optimally afterwards. Aftersales services BPOs are continuously working towards incremental (evolutionary) and big step (revolutionary) changes to improve both efficiency and effectiveness Revenue growth and customer satisfaction As the front-office of the supply chain function, the aftersales services processes have traditionally been viewed as a cost center required to support service agreements. However, now with the changing mandates of the CEOs and CFOs, many aftersales organizations find themselves increasingly under pressure to expand their mission and to better align with corporate revenue growth objectives. Moreover, focus on the consumer is increasingly becoming paramount. Aftersales services BPOs help in achieving these objectives by leveraging their customer interaction skills and process expertise to better educate customers on products and proactively resolve issues. This, in turn, drives both higher revenue growth and customer satisfaction. Moreover, better contract management and strict adherence to SLAs further reduces revenue leakage Scalability Fragmented processes and systems, and constraints on resources, can limit a service groups ability to meet the company s business goals. Product introductions, phase-outs, and revenue growth plans need to be supported by detailed planning around New Product Introduction (NPI) and End of Service (EoS) planning on parts. Currently, many OEMs are rethinking their strategy around quick scalability (up or down) and finding an appropriate partner who can enable them to quickly adapt to business needs. Aftersales services BPOs bring the holy trinity of people, processes, and technology to the table to drive such scalability initiatives. Furthermore, by leveraging their domain knowledge and putting the right analytics in place, aftersales 5
services BPOs are able to identify various service gaps and shortcomings and accordingly make actionable recommendations A snapshot of the value proposition of well-managed aftersales services BPO operations is captured below. It helps explain how an efficient and effective aftersales operations can impact client organizations at various levels. EXHIBIT 4 Value proposition of aftersales services BPO Total Value Equation (TVE) Strategic impact Revenue and profit impact Customer satisfaction Brand recognition Cross-sell and upsell customers with most relevant offerings Reduced revenue leakage through better compliance and SLA adherence Enhance consumer experience through targeted customer care practices Align customer service needs and terms of service agreements Enhance brand value through increased quality of service delivery Pave way for industry-wide recognition of best practices in aftersales services Source: Everest Group Standardization Streamline operations by standardizing processes and workflow to increased response time Process/ business impact Flexibility Leverage scalable delivery environment to address changing support volumes and diffuse internal delivery bottlenecks Access specialized people, process and technology offered by service provider Visibility A 360-degree view of operations and vendor networks through applied analytics Cost impact Cost reduction Reduce costs across inventory, labor, technology, logistics, and administration Reduce manufacturing costs through improved inventory turns by enhancing recovery of equipments and parts Compared to other mature functions, aftersales services BPO is a relatively under-explored domain and offers significant value creation potential. Similar to any nascent outsourced function, organizations adopting aftersales services BPO are initially most concerned with reducing costs from the overall operations and inventory spend, which are primary drivers for aftersales services BPO. However, organizations are increasingly looking beyond just the cost impact and into other value drivers of aftersales services BPO, which can enhance their aftersales function. In this regard, access to expertise and technology has emerged as a crucial theme. Effectively leveraging technology and analytics in aftersales services can significantly impact operations, as discussed in the section below. The role of technology and analytics in aftersales services BPO solutions Across the BPO spectrum, the role of technology continues to expand. However, regardless of the functional area in question (HR, back-office, finance, etc.), Everest Group finds that the true impact of technology typically falls into two broad buckets, namely, process optimization and data analytics. In fact, these two buckets, while distinct in some ways, are closely integrated in others. The aftersales services BPO space is no exception to this framework, and we will explore it in this section. 6
Process optimization through Control Towers One of the more interesting technology developments in the aftersales services BPO segment is the concept of the Control Tower. Utilizing a centralized pre-integrated platform, the Control Tower capability allows service providers to track, monitor, and direct activities along the entire service lifecycle, including the aftersales services segment. Key tenants of the Control Tower include: Visibility Visibility into the health of service orders is critical to successfully managing service events. Control Tower solutions can provide visibility to reduce the risk of SLA misses, complex but real time analytics such as risk of non-return, potential fraud or to identify repeat customer issues that may allow the service provider team to take appropriate actions. Such insights are important and can enable corporations to reduce service costs or enhance customer satisfaction Automation Control Tower solutions have workflow engines that allow the service supply chain work orders to be processed, with exceptions flagged for manual intervention. For example, a part order can be dispatched for fulfilment by a depot but it will be flagged for manual intervention if the entitlement check fails or could not be carried out Integration As outlined earlier, to deliver end-to-end aftersales services, corporations rely on a network of partners (i.e. the 3PLs). Control Tower enables the integration by establishing automated data exchange between the hub (i.e. the Control Tower) and the 3PLs. Real-time or periodic updates can be established between the Control Tower and the ERP systems Standardization A Control Tower approach lends itself well to standardized processes and dashboards across the service network. Without such an approach, a corporation may have to deal with different processes and reporting methods from each 3PL in the service ecosystem. Standardization also enables scalability of business volumes The Control Tower acts as the core environment used by the service provider to steer the activities of the client s services supply chain. For the aftersales services processes, the benefits derived from this approach include greater visibility into the actual movement of parts and the field services deployed, the ability to better manage costs through such visibility, the ability to gather stronger analytics on the operational cycle, and improved response times in adjusting the workflow and keeping things moving (or not) as the case may be (Exhibit 5). 7
EXHIBIT 5 The aftersales services market shows increasing interest in Control Tower solutions Aftersales services BPO Control Tower solution Source: Everest Group Parts manufacturers Warranty companies Field service companies People Call centers Control Tower Process Repair vendors Logistics and warehousing companies Installed base management companies & onsite Functioning of a control tower 1. Customer request for repair lands up at the service call centre 2. Control Tower finds out from warranty companies whether product is covered by warranty or not 3. Control Tower triages the issues, coordinates with parts manufacturers, field service companies, and customer to ensure concurrent delivery of techs and parts at customer convenience Technology 4. Control Tower coordinates with logistics companies for reverse logistics of faulty equipment/parts, ties up with warranty companies for any claims Specific examples of Control Tower alerts 1. A same day order is waiting on parts to be shipped from the depot for which the customer is having a downtime. Action : Order administrators are notified to contact the depot vendor and immediately arrange for the shipment of parts. Order is put on Watch until a proof of delivery is available in the Control Tower 2. A customer logged a ticket over the weekend when the service levels are lower as per contract. However, Control Tower analyze s the ticket and determines this to be a repeat issue with the same equipment and raises an alert. Action : Service level is raised and the equipment is restored on priority resulting in a satisfied customer 3. Control Tower analytics raises an alert that a part is about to be shipped to a customer with a poor history of returns over the last 90 days. Action : Depending on its service policies, the company may choose to contact the customer and understand the need for the part and delay the shipment if its not a critical need or arrange the shipment in a manner that the return can be secured Actionable analytics in support of aftersales services As analytics evolves from its traditional role in support of reporting, the potential value of more predictive and prescriptive analytics can be profound for the aftersales space. This shift potentially helps clients tap into new sources of cost savings, such as reduction in field inventory and cost avoidance (unnecessary field service calls) (Exhibit 6) 8
EXHIBIT 6 Leverage of analytics in aftersales services BPO Source: Everest Group Benefits of analytics in aftersales services Cost savings Increased asset velocity Efficient utilization of field agents Customer satisfaction Enhanced visibility of operations Prescriptive analytics Actionable insights to optimize inventory network, reverse logistics velocity Business impact Predictive analytics Risk modelling of historical data to forecast parts failure, risk of a service dispatch event, real time M2M-based failure prediction, and customer compliance We are increasingly seeing more predictive uses of analytics to anticipate likely operational occurrences. Descriptive analytics Performance management of contractors and 3PLs, scheduling of dispatch events, inventory management Reporting Dashboards and workflow tools primarily for tracking operations, reporting first time resolution rates, missed SLAs Sophistication of solution Some uses of analytics are more familiar to the market, given their frequent use in reporting activities, such as first time resolution rates and drilldowns on missed Service Level Agreements (SLAs). Some forms of aftersales analysis are more descriptive in nature, such as performance by individual contractors or performance by particular 3PL partners. Increasingly, however, we are seeing more predictive uses of analytics to anticipate the likely operational occurrences. Examples of predictive analytics include: Using analysis of historical data to build models that identify at risk installed parts that are likely to break along with the likely timing of such breakdowns. Based on this knowledge, preventive steps can be taken, such as proactive replacement of parts which means lower logistics cost and no equipment downtime Analytics on customer compliance on reverse logistics and returned parts can help identify customers who frequently require proactive outreach from the service provider s customer support staff to either help install parts or arrange the return of unused equipment that is still on the premises Analysis of actual installation patterns can help identify how best to align the timing and urgency of field service visits or the right logistics options required for parts delivery. One service provider found that for one particular client, 62% of the parts shipped to customer sites were not installed even after 10 days of delivery even though they had requested for overnight shipping. Does it make sense to use an expensive overnight delivery service if the recipient does not actually install the part until a week after it arrives? The above three examples illustrate ways in which clients of aftersales services BPO are increasingly benefiting from analytics designed to predict events and then implement action plans that drive strategic value in terms of operational costs, 9
process effectiveness, and management visibility. One client s experience The growing interest in aftersales services BPO has generated greater client interest and increased adoption in the past few years. An example of how aftersales services BPO helped generate value for a high-tech firm is given below: EXHIBIT 7 Case study of aftersales services BPO in action Client: A US-headquartered, US$25 billion+ global leader in high-tech Issues and challenges faced Solution adopted Value achieved Low return rates of field inventory leading to high outstanding field inventory and additional spend on new inventory High value of inventory being written off Lack of visibility to return rates and velocity of return by segments Lack of accountability Automation to track returns at every phase of the returns process accompanied by a multi-channel communications strategy to reach out customers/ engineers with outstanding inventory Analytical model to predict high risk of nonreturn and to guide the communications strategy based on risk scores Control Tower to provide continuous visibility Recovered inventory worth US$20 million which was earlier written down. This translated to a 10-15% savings on inventory Improvement in velocity of reverse logistics reducing the need for new buys Real time visibility to top offenders, performance by product or region and root causes of non-return Additional value Advanced analytics performed on part shipment data identified that certain segment of customers order parts but do not use the parts for many days. Some of these part orders were shipped by premium shipping methods such as Next Flight Out (as per the service contract) but only in 18% of the cases the part was installed within the first 2 days. Predicting such scenarios using an analytical model allowed the company to dispatch the parts using less expensive shipping methods. The estimated annual savings in transportation costs is US$4.5 million. Unlike the part played in many other outsourced functions, the role of the service provider in aftersales services BPO is more than a facilitator of back-office support. Being the customer-facing entity, service providers have a dual role effectively face and manage the onslaught of customer issues and deliver on value committed to the client as part of the agreement. Aftersales services BPO service provider landscape While taking a close look at the competitive landscape for the aftersales services BPO space, we find a landscape typical of any emerging segment. Often, the most frequent alternative for clients exploring aftersales services BPO is not a set of established competitors but their own in-house supply chain structure. Many organizations, especially larger ones, believe that their organization offers customers the best service and maintains a strategic advantage. However, the challenges described earlier, combined with more companies tightening their focus on their core competencies, and the increased proficiency in utilizing the outsourcing service model, are driving market interest. Growing client interest around aftersales services BPO has attracted a variety of service providers, bringing with them different legacies. Everest Group identifies five main categories of players, including traditional BPO players, aftersales services BPO specialists, customer care providers, 3PLs, and contract 10
manufacturing companies. Each segment of providers brings a set of distinct characteristics and capabilities in relation to the aftersales services BPO space (Exhibit 8). EXHIBIT 8 Aftersales services BPO service provider landscape Source: Everest Group Traditional BPO players Aftersales services specialists Contact center specialists Third-party logistics (3PLs) Contract manufacturing companies Aftersales services BPO service provider landscape These players offer aftersales services BPO as part of their wider SCM BPO portfolio. They bring to the table, their wide BPO experience across many functional areas and industries, which they leverage in aftersales services BPO solutions. Also, these players have a global delivery model that they use to their advantage in offering services across a wide range of geographies and global sourcing models These players are deeply ingrained in the aftersales services sector with their expertise, technology investments, and capabilities heavily targeting this domain to provide end-to-end aftersales support to clients. The range of capabilities can include customer interaction, workflow management, analytics, and process management, among others These players focus on the customer interaction and support aspects of aftersales services, but lack capabilities to offer aftersales services BPO beyond the customer interaction segments of the process. Their value proposition is mainly to deliver a superior customer experience, along with the associated processes and technologies These players primarily offer end-to-end logistics support to clients across the supply chain, including aftersales such as warehousing, pick-up / drop-off (PUDO), and depot management. They are well versed across the operational aspects of supply chain and also have a host of technology solutions. In most cases, these players are partners to the aftersales services specialists who manage ground resources of 3PLs for the common client. However, some of these players have recently started moving into the SCM BPO space, including aftersales Various contract manufacturing companies manage aftersales services for OEMs, primarily around returns processing and warranty management. Some of them, like Jabil, also have proprietary Control Tower solutions. Contract manufacturing companies have in depth expertise in the aftersales operations of the industry they cater to, however, they lack multi-industry exposure. Moreover, they also lack a global sourcing model of delivery Average market success 1 1 Normalized for each player Aftersales services BPO providers do bring certain attributes to the table that create differentiation both among the competitive set and in the comparison to existing in-house operations. These key attributes are worth noting, as buyers of aftersales services BPO identify potential partners and conduct due diligence among other buyers and even with other service providers with whom they may have long-standing relationships in other service categories (see table below). 11
Key attributes of aftersales services BPO providers Key aftersales services BPO service provider attributes to consider Commitment of leadership, operations, and resources specifically to the aftersales services BPO space. This is especially important in an evolving segment where the provider landscape can be fluid at times, until the market advances to a more mature state A value proposition based on a combination of aftersales business impact, cost management, and process optimization. New offerings that focus primarily on cost savings miss the opportunity to set the stage for more strategic capabilities down the road when your organization is ready for these Strong aftersales process optimization capabilities enabled by investments in intellectual properties, subject matter expertise, and viewpoints on aftersales process best practices. These show a strong level of market commitment both in terms of the aftersales space, and in the BPO delivery model A well-invested technology strategy, including capabilities in enhanced customer interaction, targeted analytics tools, and core workflow applications that can support aftersales processes such as reverse logistics, inventory management, and field services monitoring. Control Tower-like platforms are quickly becoming a key requirement for service provider competitiveness. These platforms enable service providers to deliver a level of scalability that organizations cannot achieve on their own. A thoughtful and intentional approach to finding the right application of domain knowledge combined with analytics. By identifying the right synergies here, an aftersales services BPO provider can unveil untapped values, such as hidden cost buckets or overlooked KPI improvements. A neutral role in the landscape of your supply chain. Aftersales services BPO providers should position themselves as working on the client s behalf, to help navigate a complex portfolio of competing 3PLs, field service operators, and warehousing providers. One clear strength of the aftersales services BPO model is its ability to remain constant for the client despite changes in the portfolio of field operators. Those may vary by industry, geography, or product line, but the aftersales services BPO provider can remain constant, working across all of the above. This neutrality is a mechanism that empowers the aftersales services BPO provider to drive towards process standardization and increased visibility across the broader vendor network. Strong focus on customer care, including training, hiring practices, and technology. Specialized skills are needed in conflict resolution, problem analysis, and customer engagement. Complementing these skills are access to multi-channel interaction capabilities for aftersales services BPO delivery centers, which are capable of supporting client interaction, regardless of whether it involves voice, text, chat, video, or e-mail 12
Conclusion Aftersales is a complex downstream supply chain function that has, until now, not been optimized to its full potential. Organizations have traditionally faced numerous challenges in managing the different facets of aftersales operations and have missed opportunities to increase the value of the front-office of the supply chain. As more organizations take a closer look at this segment, aftersales services BPO has emerged as the fastest growing segment of the broader supply chain BPO market. The key to this new thinking is the desire to tap into a value proposition driven not just by cost reduction but also by the crucial need to realize greater value, such as revenue growth and greater customer satisfaction. Successful aftersales services BPO involves multiple dimensions. Technology and analytics play a pivotal role in shaping the benefits achieved through aftersales services BPO. There are a variety of service providers offering aftersales services in the market, each with their own unique propositions. Lastly, identifying the right solution components to include in-scope can significantly impact an organization s ability to achieve their desired outcomes. Given all these dimensions to consider, buyers are increasingly exploring their choices in the solutions they can adopt and the service providers they can engage. Done right, however, an effective outsourcing strategy offers organizations the opportunity to leverage their aftersales operations to deliver both top-line growth and bottomline benefits that have been hidden away until now. 13
About Everest Group Everest Group is an advisor to business leaders on next generation global services with a worldwide reputation for helping Global 1000 firms dramatically improve their performance by optimizing their back- and middle-office business services. With a fact-based approach driving outcomes, Everest Group counsels organizations with complex challenges related to the use and delivery of global services in their pursuits to balance short-term needs with long-term goals. Through its practical consulting, original research and industry resource services, Everest Group helps clients maximize value from delivery strategies, talent and sourcing models, technologies and management approaches. Established in 1991, Everest Group serves users of global services, providers of services, country organizations, and private equity firms, in six continents across all industry categories. For more information, please visit www.everestgrp.com and. For more information about Everest Group, please contact: +1-214-451-3110 info@everestgrp.com For more information about this topic please contact the author(s): Katrina Menzigian, Vice President katrina.menzigian@everestgrp.com Dhananjai Gaur, Senior Analyst dhananjai.gaur@everestgrp.com 14