Executive Briefings

An Advanced Exchange Service Model and the Secret of the 'Black Hole'

As reverse logistics service managers and supply chain professionals look for ways to improve customer satisfaction and increase customer retention and brand loyalty, more and more companies are moving towards an Advanced Exchange Service Model to meet their desired end state.

The model can be defined as a service option that allows for a customer to receive a replacement part or device prior to sending the original defective part or device back for repair.

From a customer's perspective, there are many benefits to this service model. Customers like the instant gratification they receive and the minimal down time they experience. They also appreciate that it is an easier, cost-effective way for them to manage their repairs.  From a manufacturer's or service organization's perspective, however, the model can create some reverse logistics challenges, which if not managed properly, can add significant cost to the organization.   

This has driven leading reverse logistics service organizations to focus on improving efficiencies within their advanced exchange programs by centering on three key metrics:

1. Visibility into the entire supply chain cycle (forward and reverse)
2. Speed of Returns (velocity)
3. Rate of Return (recovery)

By focusing on these key metrics, reverse logistics service organizations can measure and control the amount of inventory needed to support an Advanced Exchange Service Model and avoid disrupting a well-balanced system and adding cost.

In order to achieve a well-balanced system, reverse logistics service organizations focus on the entire cycle and break it down into three main phases:

1. Fulfillment
2. Customer Hold
3. Receipt & Repair

In all cases, the reverse logistics service organizations can control and measure key metrics in both phases 1 and 3 of the cycle. That is, it is the part of the cycle where they have 100 percent visibility and management control over the process. It is in phase 2, or the Customer Hold phase of the cycle, where all the key actions to guiding the process fall into a "black hole" and control of the process can be unraveled.    

It is in the Customer Hold phase where visibility is poor, return rates are variable and delays happen due to a number of customer issues.  It is this phase in the process that is the least controllable and it exposes most of the reverse logistics challenges that affect overall efficiency of the returns process.

This challenge is further compounded by the fact that, in most manufacturing organizations, reverse logistics is not a core competency so it tends to be an under-invested area of the supply chain. In-house resources are often not 100 percent focused on reverse logistics and the data required to manage it is often located in multiple locations and housed in multiple applications. For example, most traditional ERP systems and logistics applications provide static details:  when it was shipped/received, who it was shipped to, and how many were shipped/received.  But once the shipment is in the Customer Hold phase, your system cannot determine where the shipment is today, who is responsible for returning the shipment, what obstacles are preventing the return, and what additional steps need to take place. 

For these reasons, the Customer Hold phase can create significant process gaps in ensuring companies are not adding excess costs, like added inventory, into their service models. This is where the black hole exists, and because of lack of visibility, returns rates suffer, inventory write-offs increase and customer satisfaction decreases. 

To put it into a different perspective, the following case study outlines the potential exposure a service organization can have if it is not managing the black hole

In this particular case study, a telecommunications company was shipping out 500 advanced exchange shipments per month representing a $1200 value per shipment.  On average, they were recovering about 80 percent of the inventory in the first 30 days after the original shipment.

Because of the 100 shipments outstanding after 30 days, this service organization was forced to carry excess service inventory to support the 500 new shipments that would be required the next month in support of the advanced exchange volume projections. In addition to the cost for excess inventory, customers that fall into the 20 percent non-returned category were faced with multiple issues preventing them from returning the inventory, but had no way of communicating back their issues. They had moved on and remained completely unsatisfied with the experience.

As for the service organizations, they are left reacting to serious dollars leaking out each month because of the black hole, but have no visibility as to why.       

Once service organizations understand the issues around the black hole, focusing on processes and methods that address the Customer Hold phase can be the first step in unraveling the secret of it. 

Successful service organizations inside a manufacturer and third-party reverse logistics companies that manage the black hole have one thing in common. They tend to be more proactive about reverse logistics with both their policies and processes. They hold customer satisfaction at a very high level and design front-end processes that help their customers maneuver through a potentially negative experience. 

Those successful service organizations apply the same processes and methods to more than their advanced exchange service models.  They know they can also be used in field service inventory management, product recalls, end-of-life product returns, and warranty and order administration.

The same methodology can be applied to a similar set of problems beyond reverse logistics.  Companies that deliver a customer experience management solution that expands into such categories as installation, self-installation, servicing, activations, and customer education increase even more the visibility into the customer's overall experience.

For example, educating customers about value-added services such as upgrades and expanded use of services or new products raises the level of customer interaction and customer satisfaction, again turning that negative situation into a positive customer experience.

Once companies have made the investment to proactively contact customers as part of the reverse logistics process, it is an ideal time for the service organizations to engage the customers in these other areas and to transform potentially negative situations into positive ones, enhance the customer relationship, increase the level of interaction, and strengthen customer satisfaction.

The levels of customer satisfaction with the replacement part, the level of awareness of the service offering, the level of use of the equipment itself and the overall value of the supplier brand are all data points that can be captured using a series of well-designed and carefully scripted questions.  Yet, the real value opportunities go well beyond just assessing customer perceptions.

Companies face several challenges when trying to manage the overall customer experience:

• Customers' lack of awareness of the companies' products or services
• Customer retention
• Unresolved customer issues, repeat service calls, and multiple inbound calls
• Equipment not initialized, activated, or installed
• Disruption in revenue recognition
• Lack of visibility into the customer experience

In order to overcome all of the above challenges and to ensure a positive customer interaction, companies must be dedicated, disciplined, and focused on proactive customer communication.

The methodology can be used in a range of industries, including telecommunications equipment manufacturers, business and consumer electronics, wireless services, medical products, cable and cable/entertainment.

Directly addressing the challenges represented by the black hole both in reverse logistics and beyond may ultimately:

• Make it easier and faster for customers to learn about, activate and use their products and services
• Proactively and quickly resolve customer issues
• Increase customer retention
• Potentially increase company revenues

This results in a more positive customer experience, increased use of the company's product, and loyalty to the company's brand.

Through proactive problem resolution with their customers, companies can turn potentially negative scenarios into positive customer experiences in the above situations.  The benefits to the company include reduced inventory, lower costs, higher visibility and insights into product returns, and improved customer loyalty and satisfaction.

Bill Kenney is executive vice president for business development for OnProcess Technology, a provider of customized, asset retrieval and product utilization services. OnProcess counts many telecommunications and electronics companies among its client base. Visit www.onprocess.com

As reverse logistics service managers and supply chain professionals look for ways to improve customer satisfaction and increase customer retention and brand loyalty, more and more companies are moving towards an Advanced Exchange Service Model to meet their desired end state.

The model can be defined as a service option that allows for a customer to receive a replacement part or device prior to sending the original defective part or device back for repair.

From a customer's perspective, there are many benefits to this service model. Customers like the instant gratification they receive and the minimal down time they experience. They also appreciate that it is an easier, cost-effective way for them to manage their repairs.  From a manufacturer's or service organization's perspective, however, the model can create some reverse logistics challenges, which if not managed properly, can add significant cost to the organization.   

This has driven leading reverse logistics service organizations to focus on improving efficiencies within their advanced exchange programs by centering on three key metrics:

1. Visibility into the entire supply chain cycle (forward and reverse)
2. Speed of Returns (velocity)
3. Rate of Return (recovery)

By focusing on these key metrics, reverse logistics service organizations can measure and control the amount of inventory needed to support an Advanced Exchange Service Model and avoid disrupting a well-balanced system and adding cost.

In order to achieve a well-balanced system, reverse logistics service organizations focus on the entire cycle and break it down into three main phases:

1. Fulfillment
2. Customer Hold
3. Receipt & Repair

In all cases, the reverse logistics service organizations can control and measure key metrics in both phases 1 and 3 of the cycle. That is, it is the part of the cycle where they have 100 percent visibility and management control over the process. It is in phase 2, or the Customer Hold phase of the cycle, where all the key actions to guiding the process fall into a "black hole" and control of the process can be unraveled.    

It is in the Customer Hold phase where visibility is poor, return rates are variable and delays happen due to a number of customer issues.  It is this phase in the process that is the least controllable and it exposes most of the reverse logistics challenges that affect overall efficiency of the returns process.

This challenge is further compounded by the fact that, in most manufacturing organizations, reverse logistics is not a core competency so it tends to be an under-invested area of the supply chain. In-house resources are often not 100 percent focused on reverse logistics and the data required to manage it is often located in multiple locations and housed in multiple applications. For example, most traditional ERP systems and logistics applications provide static details:  when it was shipped/received, who it was shipped to, and how many were shipped/received.  But once the shipment is in the Customer Hold phase, your system cannot determine where the shipment is today, who is responsible for returning the shipment, what obstacles are preventing the return, and what additional steps need to take place. 

For these reasons, the Customer Hold phase can create significant process gaps in ensuring companies are not adding excess costs, like added inventory, into their service models. This is where the black hole exists, and because of lack of visibility, returns rates suffer, inventory write-offs increase and customer satisfaction decreases. 

To put it into a different perspective, the following case study outlines the potential exposure a service organization can have if it is not managing the black hole

In this particular case study, a telecommunications company was shipping out 500 advanced exchange shipments per month representing a $1200 value per shipment.  On average, they were recovering about 80 percent of the inventory in the first 30 days after the original shipment.

Because of the 100 shipments outstanding after 30 days, this service organization was forced to carry excess service inventory to support the 500 new shipments that would be required the next month in support of the advanced exchange volume projections. In addition to the cost for excess inventory, customers that fall into the 20 percent non-returned category were faced with multiple issues preventing them from returning the inventory, but had no way of communicating back their issues. They had moved on and remained completely unsatisfied with the experience.

As for the service organizations, they are left reacting to serious dollars leaking out each month because of the black hole, but have no visibility as to why.       

Once service organizations understand the issues around the black hole, focusing on processes and methods that address the Customer Hold phase can be the first step in unraveling the secret of it. 

Successful service organizations inside a manufacturer and third-party reverse logistics companies that manage the black hole have one thing in common. They tend to be more proactive about reverse logistics with both their policies and processes. They hold customer satisfaction at a very high level and design front-end processes that help their customers maneuver through a potentially negative experience. 

Those successful service organizations apply the same processes and methods to more than their advanced exchange service models.  They know they can also be used in field service inventory management, product recalls, end-of-life product returns, and warranty and order administration.

The same methodology can be applied to a similar set of problems beyond reverse logistics.  Companies that deliver a customer experience management solution that expands into such categories as installation, self-installation, servicing, activations, and customer education increase even more the visibility into the customer's overall experience.

For example, educating customers about value-added services such as upgrades and expanded use of services or new products raises the level of customer interaction and customer satisfaction, again turning that negative situation into a positive customer experience.

Once companies have made the investment to proactively contact customers as part of the reverse logistics process, it is an ideal time for the service organizations to engage the customers in these other areas and to transform potentially negative situations into positive ones, enhance the customer relationship, increase the level of interaction, and strengthen customer satisfaction.

The levels of customer satisfaction with the replacement part, the level of awareness of the service offering, the level of use of the equipment itself and the overall value of the supplier brand are all data points that can be captured using a series of well-designed and carefully scripted questions.  Yet, the real value opportunities go well beyond just assessing customer perceptions.

Companies face several challenges when trying to manage the overall customer experience:

• Customers' lack of awareness of the companies' products or services
• Customer retention
• Unresolved customer issues, repeat service calls, and multiple inbound calls
• Equipment not initialized, activated, or installed
• Disruption in revenue recognition
• Lack of visibility into the customer experience

In order to overcome all of the above challenges and to ensure a positive customer interaction, companies must be dedicated, disciplined, and focused on proactive customer communication.

The methodology can be used in a range of industries, including telecommunications equipment manufacturers, business and consumer electronics, wireless services, medical products, cable and cable/entertainment.

Directly addressing the challenges represented by the black hole both in reverse logistics and beyond may ultimately:

• Make it easier and faster for customers to learn about, activate and use their products and services
• Proactively and quickly resolve customer issues
• Increase customer retention
• Potentially increase company revenues

This results in a more positive customer experience, increased use of the company's product, and loyalty to the company's brand.

Through proactive problem resolution with their customers, companies can turn potentially negative scenarios into positive customer experiences in the above situations.  The benefits to the company include reduced inventory, lower costs, higher visibility and insights into product returns, and improved customer loyalty and satisfaction.

Bill Kenney is executive vice president for business development for OnProcess Technology, a provider of customized, asset retrieval and product utilization services. OnProcess counts many telecommunications and electronics companies among its client base. Visit www.onprocess.com