Too often, companies seeking to increase profits by cutting costs sacrifice a critical supply chain component: customer service. Grant Gordon, a KPMG supply chain specialist, indicates that this is a misguided approach that results in missed opportunities. He delineates a more effective, three-point strategy.
In today’s troubled economy, path to profit from product sales often leads to aggressive cost cutting, especially in a critical component within the service supply chain: customer service. Typically treated as a necessary cost center, customer service often is deferred or ignored in pursuit of lower costs.
Being optimistic, a company might position this as a temporary strategy, planning to restore customer service levels when sales improve or the economy recovers.
Companies should embrace customer service to attract new customers, at the same time taking advantage of opportunities to meet, even exceed, existing customers’ expectations. More often than not, however, such plans never are realized. Those with responsibility for vital customer service and support are redeployed elsewhere; re-assigned to “do more with less,” or leave the company. Revenue that could be generated and potential profits earned by a management about-face with respect to customer service is lost.
Our experience shows that companies selling products to industries such as technology and aerospace can maximize profit potential inherent in the life cycle of every product by more efficiently and more productively utilizing the company’s existing assets and capabilities.
There are three opportunities for profit within the service supply chain that do not require significant capital expenditures or large investments in terms of people, process, and technology:
- Selling a service contract at the time of sale, which can create improved customer intimacy and loyalty and earn high margins
- Embracing service as a revenue generator rather than a cost center to earn and retain a valuable asset: your customer’s long-term loyalty
- Protecting the installed customer base by securing service contract renewals to maintain customer relationships efficiently, reduce sales acquisition costs – and maintain market share.
By focusing on these three customer service initiatives now, a company can begin to leverage its existing service supply chain to reap recurring profits throughout product lifecycle.
Let’s look more closely at each initiative.
Sell a service contract at the beginning of your product’s life cycle
Surprisingly few companies have strategies to take advantage of opportunities to sell service contracts which should be considered at the first point of product sale. As a high margin sale, support services generate revenue and enhance the lifelong utility of the company’s products. Both are compelling reasons to never regard service contract sales and support as an afterthought to the product sale. By initiating just a few fundamental changes, a company may be able to increase support service attach rates, generate greater and more predictable service revenue and, at the same time, improve customer satisfaction and retention.
Embrace service as a revenue generator during the product’s lifetime
Creating good experiences at every point of customer interaction during the product’s life cycle helps drive higher satisfaction and safeguards customer loyalty. Evaluating and improving a company’s reverse logistics function requires examining the process from the bottom up. The goal is to create a simple and standardized process, and it requires attention to a broad array of details. A suggested methodology is to answer some essential questions about the organization’s reverse logistics function:
- Should the part be returned?
- Does the process identify and track the parts to be returned?
- Does the process capture all the right information?
- Does the process optimize repair and replenishment, and make it easier for the customer?
Protect your installed customer base at the end of the product life cycle
By implementing a more efficient and effective process for managing renewals up to an including the end of the product’s life cycle, companies can improve service revenue, build greater customer loyalty, and expand opportunities for future product sales and service revenue growth. Areas of key focus include:
- Aligning the product upgrade strategy with support services offerings
- Enabling systematic tracking of up-to-date entitlement details
- Alerting customers and sales/channel partners of pending renewals
- Ensuring adequate processes for closing renewals
- Developing a single view of each customer
- Providing adequate sales incentives
As the global market recovers, successful companies will place greater emphasis on product innovation. The service supply chain will likely be regarded as a source of recurring profits at three critical points throughout the product’s life cycle; at the time of initial product sale, during the product’s useful life, and at the product’s end of life.
KPMG’s extensive experience shows that companies can maximize the inherent profit potential and reduce costs in the life cycle of every product by viewing service and support as a means of creating loyalty and competitive differentiation.
Author Grant Gordon is managing director, supply chain optimization for KPMG LLP, the audit, tax and advisory firm that serves as the US member firm of the KPMG International Cooperative (“KPMG International”). For more information, visit www.kpmg.com/us. The supply chain white paper, “Optimize your service supply chain: Profit from life cycle opportunities,” is available at http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Pages/optimize-service-supply-chain.aspx.