Service Supply Chain: A Golden Opportunity to Cut Costs and Make Your Customers Happy

Feb. 23, 2010
I've been learning a great deal lately about Service Supply Chain strategies. This area is really like the red-headed stepchild -- the Conan O'Brien of supply chain if you will - because it is routinely neglected and overlooked in its potential. As I ...

I've been learning a great deal lately about Service Supply Chain strategies. This area is really like the red-headed stepchild -- the Conan O'Brien of supply chain if you will - because it is routinely neglected and overlooked in its potential.

As I recently read through the article, "H-P Gets a Boost From Services Unit" covering H-P's fourth quarter earnings, a few things caught my attention. I was not entirely surprised by facts such as HP reporting a 14 % increase in quarterly profit, including a 48% jump in operating profit, to $1.4 billion for its service business. HP's fourth quarter earnings report definitely provides further evidence that service business units with executive focus can make a significant contribution towards the corporate bottom-line.

Also consider that in 2008, Best Buy created a separate business unit to turn "returns processing into a profit center." Prior to this, they outsourced most or all of their returns processing and repair activities to a third party. The key driver towards making this decision was noted as, "maximizing profit and sustaining it when product hits reverse supply chain."

Due to the global economic situation, some companies understandably continue to focus on cost cutting and the bottom line even as we move into recovery. But then I find myself asking, "Who is focusing on the customer?"

Without customers, there is no company and no bottom line. In the current economic climate, many customers cannot afford a new product. Therefore, they are either trying to extend the life of their current products or instead buying products from a secondary market.

It is the organizations that are able to support customer needs during these times that will be winners in the long run, as they differentiate themselves from competition through services. This is no small revelation it is a golden opportunity to serve customer needs now and establish a longer lasting relationship with them through Service Supply Chain excellence.

Let me share a personal story about Service Supply Chain gone wrong. On Black Friday, I ordered some electronic items online from a retailer who also has a brick and mortar infrastructure. Later that day, I wanted to cancel one of the line items from my order and was told by their help desk that it was not possible to remove the item, as the order had already dropped to the distribution center and it was run by a third party. Therefore, the only option I had was to return the product to one of their retail shops after receiving it.

I was appalled by the option given to me, not just because it was a hassle to me personally, but because as a supply chain professional I shuddered at the cost of the reverse logistics execution. Just think the product would first have to be delivered to me, which incurs a shipping cost. Then I would have to return the product to the retail store, and then the store would need to ship the returned product back to the retailer's or third party's warehouse. Wow, talk about racking up some travel miles and costs!

Furthermore, the cost of processing that item post-receipt presents another negative, and needless to mention, has a direct effect on the customer experience. This example only highlights how critical it is to establish and fine-tune the service supply chain before releasing a customer offering.

Some organizations are using a hands-off approach towards service supply chain instead of integrating it with their overall corporate strategy. But in doing so, they run the risk of alienating customers and even diluting their brand image in the long run. In addition, many consumer studies show that sustainability and other environmental issues are increasingly influencing customers' shopping behaviors. Service Supply Chain could be a great enabler to realize a company's sustainability agenda.

I think it is time to stop treating Service Supply Chain so poorly and invest in it to achieve long-term, sustainable and profitable growth. What is your company doing in this area? What bad or good examples can you share?

More resources on this topic:

Managing the Service Supply Chain and Reverse Logistics

Returns, Refunds, and Recalls: Reliable Reverse Logistics

Reverse Logistics: Going in Reverse to Move Forward

Tompkins Associates

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