Article for the October 2000 issue of The Professional Journal

The Globalization of Service and SupportReverse Logistics Operations

By Leo A.P. MoerkensWilliam K. Pollock

During Over the past couple of monthsdozen years or so, at least three of our long-term client contacts have called our firm for consulting assistance because they had been asked by their respective organizationsan increasing number of businesses have recognized the need to ramp up their reverse logisticsoperations to to assumea global responsibility for service and support operationscapability. Most probably felt that if they were historically local in terms of geographic coverage, the next step would be regional; if they were regional, the next step would be national; and if they were national, certainly, the next step would be international.

However, many of these organizations were caught totally by surprise, as they were virtually thrust into a global market with no prior warning, generally for singular reasons ranging from the need to support an existing customer that was expanding nationwide; landing a new account that had facilities located both locally and overseas; or developing an Internet sales channel that made it as easy for customers to order parts from across the world as it is from across the street.

In each of these cases, global referred to “total service and support operations responsibility on a worldwide operational basis”. Everyday, it looks seems like that more and more businesses are looking at service and supportto grow their reverse logistics capabilities “globalization” as an opportunity to both improve historical levels of customer satisfactionbetter serve existing customers who are also going global, and, at the same time, improve their overall operational productivity and efficiencyas well as going after their own slice of the global pie in an attempt to bolster and augment their historical market potentials. However, what most did not initially bargain for are the complexities associated with

In the subsequent discussions with these individuals, key issues such as geo-cultureculture, language, and unique local requirements were quickly brought up as potential arguments to prove the case that “globalization” would be impossiblethat could potentially make going global a little less attractive, - ifor at least extremely difficult, to implementnot impossible. However, after careful and objective considerationas recent history has shown, this has notreally been the case.

Although all those arguments may have had some merit from certain perspectives and should not be totally ignored, it is too often that they are used primarily as excuses, for the wrong reasons, in a veiled effort to protect local business interests and prevent any possibility of otherwise avoidable power struggles between local and global management. For these reasons, we strongly suggest to our clients that they step back and allow us to help them take an “unbiased look” at all of the key issues.

The services Reverse Logistics industry Industry is inevitably Inevitably moving Moving toward globalizationGlobalization

It is inevitable that gGlobalization will is already become the norm in for the services reverse logistics industry. Globalization Even despite a volatile economy - or, perhaps, in part because of it - globalization is also a business trend that has become a way of life for businesses of all types or sizes.

This trend was firstbeen going on for quite some time now, first evidenced by a growing number of businesses that have had historically operated in more than one country, and who have sincewere finally able to “evolved” their business practices - and, in many cases, their overall business model - to embrace a global marketplace. The Undoubtedly, the continuing advances in information and communication technology (ICT), and the integration between the two principal componentsthe proliferation of empowering software functionality, will lead to evenfacilitate furtherfaster market evolutionglobalization by removing the last remaining barriers to entry because they will be responsible for opening new and expanding possibilities for services businesses to improve their service and support operations.

For example, as a result of this trend, we have seenthere has been a growing customer demand for global service Service Level agreements Agreements (SLAs) that would result in greater uniformity in the delivery of service and support to customers regardless of where they are located all around the world. In many cases, some of the otherwise the unique local or regional service and support needs requirements are rapidly disappearing as issues for many customers who no longer wish to deal with multiple local organizations anymore but, instead, are looking for a consistency consistent in source of global service and support performancecapability, (as well as (relative) uniformity in pricing) across all of their regional territoriesgeographic areas. The main benefits resulting from this trend are normally considered to be uniform service and support delivery, all based on single contract negotiation at the corporate level.

Whether Regardless of whether services providers in the services like it or not, one thing has become increasingly clear - services vendors now must now also be able to define their SLA value propositions on a global basis if they want to keep these their customers happy. Even customers that are not yet global themselves want their providers to at least have the capability to support them should they undergo an expansion, acquisition, or any other change that catapults them from out of their safe, historical, microcosm.

However, in order to do so, there are many a multitude of key geographically decentralized functions that will need to be consolidatedfit into a global organization capability - for both the providers and their customers (Figure 1).

For example, in a typical regional or national organization, many functions may be duplicated and performed independently from each other, typically leading to redundant communication efforts and differing operating processes, policies and procedures. Some organizations may presently be utilizing reverse logistics practices that were originally designed, developed and implemented by two or more regional entities, all working at cross-purposes from one another. For these organizations, moving to a global reverse logistics model will not only allow them to perform efficiently on a global basis - it will also help them to “clean up” an otherwise inefficient way of conducting business back in their own front yard! In any event, ongoing improvements in technology and communications will allow for new opportunities to be created that can permit more businesses to move into global markets, while still maintaining strong - and consistent - control over their historical local and regional markets.

William K. Pollock, President of Strategies For GrowthSM, and a long-time consulting partner to Hands-on Management Consultants, Inc., has stated that, “Customer requirements for reverse logistics service and support will never be the same from one country to another, any more than they will be the same from one customer to another. However, one thing remains very clear - the requirements for service reverse logistics support are becoming increasingly standardized, even both on a local/regional and global basis.”We too have seen evidence that a growing number ofMore and more businesses are going global each year in terms of sales, marketing and services capabilities, supported not only by the proliferation of new Internet-based tools and multinational strategic partnering, but also by the increasing demand for global services and support as evidenced by the market as a whole. With new geographic markets opening up all the time (e.g., China, Eastern Europe, etc.), this trend will only continue to grow.

Another factor supporting the movement inevitability toward of globalization is the ability need to improve internal efficiency. The model that comes to mind is the FedEx shipment model, where most FedEx packages find their way through Memphis, Tennessee between 2:00 am and 3:00 am in the morning, ultimately making their way between Point A and Point B - no matter where they were shipped from, or where they are headed. FedEx pioneered in developing a model that works optimally for the aggregate of all of its customers’ shipments, although not necessarily for each individual one. The same model might also apply for any particular business’s global reverse logistics requirements - and the reverse logistics providers of the world will need to step up to the situation in order to ensure they can give the customers what they want.

In a typical decentralized organization, many functions are duplicated and performed independent from each other, which leads to increased communication efforts and differing ways of operating. We have seen organizations where product support documentation was developed by at least three different regional organizations, in some cases, providing conflicting information. For these organizations, operating on a more global basis would serve to both improve efficiency dramatically and, at the same time, provide a higher level of consistency in the way in which certain activities are performed. Through improved information and communication technology, new opportunities are also being created that allow services organizations to perform certain business functions more efficiently at a global level, while maintaining local control over their individual market segments.

A third factor supporting the case for globalization is the ability to systematically reduce costs while maintaining or improving existing levels of service level. The biggestPerhaps the greatest area of opportunity involves the logistics operations (including reverse logistics) where local policies have historically resulted in required high investments in inventory, - especially for slow moving items. Based on what we have seen in the industryHowever, by moving toward a global logistics capability, it makes sensemost businesses will, de facto, be able to elevate certain elements of these functions operations to a more efficient global level model that can result in in an effort to:improved capabilities for

Mmeetingthe customer requirements through increased

Increase efficiencyefficiencies and a more

Improve consistencyt operational approach. Of course, t

The specific circumstancesdetailsof each of these functions obviously will vary by companymay differ widely by company, but the basic functions do exist inpremise will still hold true for virtually all of the companiesany business in the services sector.

There are many functions that may be offered on a global basis

The best way to determine which functions can be performed on a global basis is to evaluate them from both an efficiency and consistency point of view. However, this does not mean that all tasks must be performed at global level. Dependent on the individual situation, certain tasks may still be outsourced, or executed at the regional level. A good example is training, where the training programs and material should be consistent all around the world, although the courses can be given at regional or local training centers to reduce travel cost. Still, according to Pollock, “there will be increasing pressure on services providers to ramp up to their customers’ increasing global needs by offering a full range of global service and support solutions”. Among our client base, we have seen that happening already.

Among the principal functions that may be offered on a global basis are:

Business Development

The Service and Support function is critical for all businesses and has to be an integral part of the overall business strategy. For this reason, it is important to be actively involved in the planning activities that result in the development of a Service and Support Business Development Plan that addresses:

Service and Support product portfolio

Global marketing plans

Global Customer Care and Sales

This business function is most critical at the global level because it ties everything together and establishes a framework for setting the goals and objectives for the other parts of the organization.

Product Management

The Product Management function is also critical at the global level. Historically this function has been highly technology-oriented, and tied very closely both to the business’ development and manufacturing environment as well as its regional and local operations. With the implementation of global systems, this function can now be most efficiently managed at the global level. The function includes tasks such as:

Life cycle management

Product documentation

Product analysis

Sustaining engineering

As stated before, the information and communications systems presently available allow for a faster and more reliable information flow to be managed at a central point, thereby requiring the need for only minimal additional investments in research and communications tools to support a global operation.

Logistics

The Logistics function is probably the biggest opportunity from a cost reduction point of view. Historically each segment of the organization was responsible for its own planning and execution, which generally led to the implementation of multiple independent logistics systems requiring additional safety stock and a huge risk for obsolescence. Based on our consulting experiences, and supported by information from many of our colleagues, creating a Global Logistics System, supported by the right automation systems, commonly reduces the inventory requirement by 20% - 30% without jeopardizing the customer service levels. At the same time, the risk for obsolescence is reduced which also creates additional cash for a company because of lower reserves in the books. Dependent on the situation, most of the specific operational aspects of the logistics function may be outsourced to logistics service providers, which ultimately changes the focus of this function from one of execution to basically managing the function. At a global level, the Logistics function should include:

Forecasting and inventory planning

Procurement

Repair management

Inventory control

Vendor management

The benefits of a global operation are obvious through the elimination of safety stock at all levels, automatic replenishment based on planning and forecasting, alliances with global parts and services vendors, etc.

Training

Training needs to be consistent on a global basis. However, the development of good training programs and tools requires specific knowledge besides product knowledge. For this reason, it is most efficient to develop training programs at a global level, which will allow for specialization where required, and will improve the quality of the individual courses and material. This would be valid for:

Customer training

Technical and Partner training

Licensing (if services are outsourced to other companies)

The new developments in training techniques via automated systems and the Internet is just an extra motivation to centralize this function at a global level.

Regional and local Local functions Functions must Must also bBe carefully Carefully integratedIntegrated

Because of key factors such as geo-cultural differences, language barriers and variations in local presence, certain functions may still be best performed on at the a regional or local level. Although This may involve the trend is typically more toward the centralization of certain “local” functions at a within a larger regional level area (e.g., Pan-European, ASEAN) as some most cultures still require a local presence to do business. The challenge, however, is to determine which front-line functions are absolutely necessary to be performed at the local/regional level, and whichvs. those that can be combined consolidated at a higher larger geographic level.
PrincipalExamples of some functions that may still need to be somewhat decentralized on a regional and/or local functions may includebasis in support of global operations include (Figure 2):

  • Sales, Marketing and Business Development

Although some many larger customers businesses awill do businesslready operate on a global basis, the majority of their Sales Sales, Marketing and Business Development activities will still occur at the local or regional level, dependent depending on the specific size and cultural requirementse of the region or countrygeographic market. Some markets might even have local requirements that point to a local sales function. However, all local/regional sales functions supporting the business’ reverse logistics service and support products offerings should be remain clearly in line sync with the “umbrella” global programs.

  • Logistics/Reverse Logistics

The areas of Logistics and Reverse Logistics probably represent the greatest opportunities for cost savings and are, therefore, among any organization’s most important functions. Historically, whether they were large or small in size, most businesses addressed these areas on a highly decentralized basis, often leading to gross inefficiencies, skyrocketing costs, and correspondingly low levels of customer satisfaction.

However, in recent years, many of these same organizations have found that by doing away with these multiple, independent, logistics systems and creating a new centralized (i.e., global) model, they could substantially reduce their reliance on redundant levels of safety stock, and lessen the percentage of parts that end up being classified as obsolete. Based on our own experience, and supported by information provided by many of our colleagues, the creation of a Global Logistics System, supported by the right technology and application software, can commonly lead to a reduction in the inventory requirement of between 20% and 30% - without negatively impacting existing levels of customer service and satisfaction.

At the same time, the risk for inventory obsolescence is also reduced which creates additional cash for the business due to lower reserves carried in the books. Once established, many of the specific operational aspects of the global logistics and reverse logistics functions may be outsourced to qualified logistics/reverse logistics service providers, ultimately changing the internal focus of these functions from one primarily of execution, to one essentially of managing the function.