World Trade - August 2008 - (Page 48)

SUPPLY CHAIN WORKING CAPITAL ance-based hains Drive ecycle Value Post-sale services is becoming an increasing m component in revenue and profits. BY MICHAEL BURKETT W e ﬁnd that for many industries post-sale service represents 50 to 70 percent or more of a company’s proﬁt. Even industries not associated with long product lifecycles like life science or consumer products are ﬁnding that post sale services improve customer retention and loyalty. Success depends on a complete understanding of end-user value with visibility to customer performance and requirements translated to service and new products executed across a partner value network. Buyers don’t just want a product or a service but a relationship with a partner that provides a total value solution. Manufacturers are evolving through the stages of maturity necessary to be successful in performancebased service supply chains. While the goal may appear simple, the path to success is wrought with pitfalls. Organizations that are not aligned and measured to drive total lifecycle value fail to make the right business trade-off decisions between original equipment sales and the services that follow. Entering into performance based lifecycle contracts remains a challenge as both customer and supplier work through the service level agreements and metrics required. Manufacturers no longer can separate the delivery of original equipment from the services that follow. Customers are seeking a solution to their needs that combines original equipment and post-sale services. As manufacturers accept that these two phases are intertwined, they see the necessity to take a total lifecycle view of products and services delivered to customers in an effort to own a customer for life. This requires risk-tradeoff decisions that must incorporate both parts of the business. Post-sale services are not new but are increasingly recognized as a critical revenue and proﬁt stream for the business. An AMR Research study conducted in 2002 found that post-sale services accounted for 24 percent of revenue but 45 percent of proﬁts on average for the ﬁrms surveyed. Jeff Immelt, CEO of General Electric, 2008 speaking on the 4Q 2007 earnings call, was asked about the outlook for services revenue with a contract services agreement (CSA) backlog that grew 17 percent to $109 billion. He responded, “The way this will likely transpire the next three [to ﬁve] years is that services [will] continue to grow year in and year out 10 to 12 percent even as equipment slows down at some point.” The term “value-based” looks outside-in from the customer’s viewpoint and emphasizes the ﬁnal outcomes of the products and services purchased. We see this valuebased approach applied across industries. The Department of Defense (DoD) has issued a directive to develop performance outcomes that focus on warﬁghters’ needs by delivering a system that is operationally available, reliable, and effective, as well as offering a minimal logistics footprint at a reasonable cost (see World Trade, June 2008, “Performance-Based Logistics Redeﬁnes DoD Procurement”). This requires a combination of original equipment and services to ensure the desired outcome is achieved. In automotive, General Motor’s OnStar service provides continued communication support to drivers of its vehicles. Even pharmaceutical providers recognize the role of post-sale services to beneﬁt total patient health: Pﬁzer’s programs, called LifeREWARDS in Europe and GETQUIT in the U.S., provide on-line continued support to patients using its CHANTIX prescription medicine to help adults stop smoking. Transition to service value is a journey many are just starting While the beneﬁts of post-sale services are clear, our research ﬁnds the transition to value-based, outcomedriven products and services can be difﬁcult. Not all businesses are ready for pure value-based service tied to performance The organization that operates in a responsive breakﬁx mode is on one end of the maturity spectrum. This 48 WORLD TRADE AUGUST

Table of Contents Feed for the Digital Edition of World Trade - August 2008

World Trade - August 2008 Contents Weathering the Storm Helping the World’s Poorest Nations Benefit from Global Trade Supply Chain Watch Tradewinds World Trade’s Top U.S. Trading Partners LTL Shipping ‘On the Fly’ Air Cargo Flies a New Heading Getting More from China Sourcing Why 3PLs Need a Seat at the C-TPAT Table Performance-based Supply Chains Drive Total Lifecycle Value SmartWay Navigates Sustainable Transportation Around the World in 80 Days—Hours—Minutes

World Trade - August 2008

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