Genpact Service Contract Analytics Extended Warranty Week Presentation Title Goes Here Aug 2012
Extended Warranty Why is it important? Contract Sales / Product Standard Warranty Preparation Management and Pricing Warranty Cost Contract development and set up Contract Extended Warranty Contract Portfolio Risk Margin Review Maintenance / Service Cost Manufacturer bears Customer Pays Performance assurance post standard warranty period Covers the risk of greater maintenance cost Revenue generating service agreements Acts as a stand alone profit center 2
What role does Analytics play in Extended Warranty Management? Opportunity Identification Predict future sales and units Measure contract spend for market share gained Scenario Modeling - What-if scenarios on spend against gain Comparison of projections against actual data Vendor Management Costs, Delivery Compliance, Quality Product Service, Sustainability, Innovation, Strategic Alignment, Trust Level, Communication, Commitment & Issue Resolution Customer Effectiveness Rate of Retention/Attrition, Response/Close Rates, Revenue, ROI Understanding of the cost to acquire and retain profitable vendors and customers Cross-sell/up-sell opportunities 3
Key questions service organizations have in mind (1/6) How can service contracts be a fruitful avenue to enhance revenue streams? Prioritizing prospects for potential opportunities Channelizing the sales efforts & sales force effectiveness Retrospective analysis of lost contract opportunities Optimum pricing Contract compliance & preventing revenue loss through arresting billing leakage Past Aberdeen research on the topic of Service Revenue (January 2010), showed that existing service contracts drive 30% of overall service revenue with new contracts making up 15%. 4
Key questions service organizations have in mind (2/6) Most OEMs spend 0.5% to as high as 8% of their revenue to manage the extended warranty. But numbers show the contracts are not profitable. Why? One of the challenges is accurately identifying the root causes of product and part failures. Reliability Analysis to forecast equipment / part failures Simulate failure rates of product/parts and estimating cost of service Accurate estimation of the Cost of Ownership rage. 5
Key questions service organizations have in mind (3/6) How do you manage risk in a dynamic economic environment? Risk based pricing - Step pricing, pricing with risk sharing; structuring payment flow across time, scenario analysis Cash flow forecasting over the term of contract ensuring the required operating margin Comprehensive Risk Score carding, Risk Adjusted Valuations, Risk categorized into various elements Credit / Technical / Behavioral / Execution / Macro Economic Creation of risk dashboards to highlight key indicators & Analyze composition of portfolio in terms of customer s credit worthiness 6
Key questions service organizations have in mind (4/6) Do we know the number of contracts and with whom & how much they are worth? Do we have a real time summary of contract risks, liabilities & progress payments? Do we know which contracts are expiring in next month/quarter? Can we call up relevant paragraph of any contract anytime & have relevant people accessing it? A company can realize savings of 2% of their annual costs by eliminating inaccuracies and non-compliance through contract management - A PWC study Create database of Terms & Conditions Develop process to capture the clauses with approvals from all the key stakeholders Contract setup and execution without any billing leakages and contract compliance 7
Key questions service organizations have in mind (5/6) How to use data to maximize profitability of contracts? Data gathering and quality assurance through extraction / validation / cleansing & categorization Margin estimation and trend analysis, cash flow analysis Waterfalls and granular analysis to improve visibility of variance drivers w.r.t plan, Triggers for variances Root cause analysis on variances Continuous Monitoring of Contract data, Cost reduction project identification, improve customer service level 8
Key questions service organizations have in mind (6/6) How to be best in class? Identify best practices Implementation through process Re-engineering Monitoring changes over time Loop back learning to underwriting process Integrate service organization with manufacturing A recent survey found that 70% of international corporations believed that contract management remains a major or significant source of operational weakness - - IACCM 9
Genpact Service Contract Analytics How to connect all these bits & pieces for an end to end solution? Pre - Contract Analytics Contract Setup & Execution Contract Appraisal Analytics Contracts Portfolio Risk Analytics** ** For new and ongoing contracts 10