You Can’t Put Your Finger On It – But You’re Losing Post-Sales Service Revenue

You’re losing revenue. Often times you may even have ideas where you’re losing it. In these days where products are increasingly commoditized, post-sales service has become a key strategy in regaining lost revenues. Could it be that you’re simply not capturing and acting on the correct vendor warranty data? Or perhaps your executives have unrealistic expectations of your Enterprise Resource Planning (ERP) Field Service Management (FSM) solution?

contracts_warrantyWarranty & Entitlements: Too Many Tiers, Not Enough Tracking
Here’s a scenario from a service executive I spoke with recently. He knew his company was losing money in vendor warranty reimbursements, but he simply had no way to track it. Business had grown so rapidly, and they hadn’t planned to handle multiple, complex tiers of service managing a chain of manufacturers, distributors, vendors, and contractors. Take a look at the layers:

  • This manufacturing company had rapidly expanded its service offering to include products they sold directly, those they resold, and those they did not sell but were contractually obligated to cover onsite at all of the customer’s facilities.
  • They contracted to provide service on everything. That meant they had multiple tiers of contracts and multiple organizations involved.
  • They subcontracted portions to third-party providers, which entailed another set of contracts spelling out various terms (cost shall not exceed X, reimbursement cost is parts + 10%, customer ETA is 6 hours so third party must respond within 4 hours, etc.).
  • They supported warranties not only on their own products, but also for all products under the service contract. As other affiliated manufacturers offered better and better warranties (which they were obligated to service), they had to keep on top of all vendor warranties through multiple tiers of providers.

Not only did this manufacturer have a complex, multi-faceted contract, it didn’t have the process, data, or mechanism to even identify individual warranties in order to make claims on vendors. They simply covered the cost themselves, or passed it on to the third party (not a popular option).

The company certainly lost revenue, but it also ended up paying for the privilege when manufacturers invoked financial penalties. This meant that whoever was providing service – be it the manufacturer, a distributor, or a third party — needed to protect itself.

The bottom line is that so much of the revenue they earned from managing their customer contracts and entitlements was lost because they were forking out money to cover products, and not staying within the guidelines to get their vendor returns. All of that money was slipping through their fingers. How much? They estimated it was well over a million dollars.

The Frustrating Truth of ERP Post-Sales Service
First, a small disclaimer: I’m not trying to knock all ERP FSM solutions–but I have years of experience from working in the business, listening to customers, and peeling information from our in-house industry experts. The tipping point was when I read Panorama’s 2013 ERP synopsis. Data suggest that there has been an increase in ERP costs ($7.1 million, or 5.5-percent of an organization’s annual revenue) over previous years, and managing these initiatives is not necessarily improving. (2013 ERP Report:  What Our New Research Reveals About ERP Systems, Eric Kimberling).

In fact, the data illustrate a disjoint between business benefit and satisfaction, which prompts the suggestion that even though the implementations were too expensive and didn’t deliver expected results, the customers were still satisfied. Hmmm. Kimberling offers a possible explanation: “Are companies simply glad that they made it through their implementations without bringing their operations to its knees and/or losing their jobs in the process?” Thinking about this triggered the following observations:

I still hear that native ERP FSM solutions frustrate customers. Why? The ERP CRM FSM functionality seemed to meet needs during the demo. All of the pieces were there. Questions were not only answered, the vendor showed fields where data could be captured. The integrated demo flow seemed reasonably fluid, and much better than what was in place.

However, the bottom line is that ERP solutions were created from the ground up to handle certain areas: Financial Management, Manufacturing, Sales Processing, Human Resources, and Performance Management. This means they often function with these core components as their basis.

Think of how a company with an ERP-FSM solution would answer the following questions:

  • How many post-sales service credit memos have you issued in the past year?
  • What about the number of reversed transactions?
  • While your ERP may have the functionality to define warranty entitlements, does it provide the process support to automatically apply and enforce them throughout your service-delivery processes? Can it follow up afterwards?
  • What is the value of de-installed recyclable parts currently bouncing around in your field techs’ vans that should have been returned to the manufacturer for credit (or the repair depot for recycling)?
  • How much revenue have you lost in the past year by applying customer warranty entitlements on service work for which warranty had already expired?

When you compare the answers with those from an organization that has implemented an end-to-end FSM solution and integrated it with their ERP solution, the difference will surprise you. Companies that use an end-to-end FSM solution have the mechanisms and flexibility to deal with these issues before credit memos and reversed transactions are necessary.

Often, ERP solutions force you into a corner once inventory is pulled or a part is delivered. Twenty years ago, this was an amazing improvement – companies were able to force a process that kept inventory tight and financials in order. Parts didn’t go missing and the inventory was automatically and electronically tied to financials. This is how ERP is set up: to function as a safety net to avoid losing money — not necessarily to increase revenue.

But this means that strategic post-sales service initiatives are often stymied by the limitations of native ERP field service solutions. It’s not that they don’t work. It’s that the premise of an ERP solution was not created to support the strategic initiatives of FSM profit centers.

The Irony of Strategic ERP FSM Initiatives
The irony of the situation is that the larger and more strategic your service organization, the more inclined you are to adopt a native ERP FSM solution that may not capture all levels of entitlements and warranties and that forces you to jump from module to module to gather the data you need to help the customer. Larger service organizations tend to believe that a natively integrated solution trumps the unknown integration of a CRM FSM solution that may offer them millions in revenue. They may not realize they’ve actually tied one hand behind their Service Director’s back from the get go.

As mundane and ordinary as warranties and entitlements are, they can have an immediate, tangible impact on the bottom line. Companies can exercise the flexibility of complex entitlements and warranties to not just capture lost revenue, but to set these up as revenue generators with multiple drawdown options, extended hours of support, and more. They can deploy portals that enable you to dig deep into what’s profitable and what’s not in real time. These actions can quickly pay off.

In an industry where commoditization is king, and much of the emphasis is around mobile, cloud, big data, social media and self-service, something as simple as better mechanisms to control your warranties and entitlements and setting realistic expectations of your ERP FSM solution might just be the ticket.

However, if your organization wants to get those dollars back, it might be time to think outside of the box – the ERP box, that is.

For questions or additional information, contact me at kris.brannock@vertsol.com or follow us on Twitter at @Vertsol.

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