In Touch With Retailing

Demanding Relentless Cost Reduction From Your Services Partner

By Austen Mulinder President & CEO, Fujitsu Transaction Solutions Inc.

Retailers today are constantly challenged to do more with less. CEOs continue to challenge CIOs to invest in innovative technologies to improve the company’s competitive position, while CFOs are demanding CIOs to reduce IT expenses. So it’s critical to have a technology partner that knows your business and proactively contributes to your bottom line. One way to achieve this is by radically transforming the maintenance service delivery model. Many leading retailers are already doing this and have realized annual cost savings as much as 50 percent. At Fujitsu, we call this approach Relentless Cost Reduction.

To understand it, let’s first examine the traditional insurance-based service model. In a traditional approach, service delivery is treated as a commodity. Service Level Agreements (SLAs) are the only criteria for measuring provider performance and because the retailer has already paid for the service, there is no incentive for them to work with their provider to reduce costs. Any reduction in the cost to deliver the service only improves the provider’s margins.

Retailers and vendors alike should view service delivery as an opportunity to add strategic value. Take the model beyond a simple break/fix contract and include financial incentives for the retailer, in addition to traditional SLAs for the provider.

For this approach to pay off, the service provider must manage its business on the economic principles of efficiency and effectiveness. Efficiency refers to how the service partner measures and manages its internal fixed costs to deliver value-added service to retailers. Effectiveness refers to how many times it is necessary to deliver a specific service. By isolating these two distinct management metrics, the service partner can improve your overall operations by reducing call volumes (effectiveness) and sharing the associated cost savings (efficiency).

In traditional service models, the provider works alone to improve internal efficiency, but there is no change in the contract price for the retailer. They don’t share any of the cost savings. Obviously, that model can’t provide the real value that retailers need in today’s hypercompetitive environment.

With an incentive-based solution, collaboration and transparency are critical. The retailer and technology partner recognize that different calls provide different levels of value, and together, they can focus on reducing the redundant, least-valuable service calls. Reducing the number of service calls lowers the provider’s internal costs, creating savings that can be shared with the retailer.

To recognize the power of this model, one needs to understand the cost elements of service delivery. First, there are the provider’s fixed costs, which include the cost of the infrastructure needed to provide the service to retailers. There are also variable costs, which are based on cost per call and the number of calls a provider dispatches. Fixed costs and variable costs – pretty simple. But that’s where most technology partners stop.

Innovations in call management technology allow creative partners to go one step further. Analyze calls and manage them based on the value you receive:

• High-value calls are driven by average failure rate (AFR) and are high priority calls requiring service dispatch.
• Low-value calls are usually caused by a failure in business processes and can typically be solved without dispatching an engineer. These calls typically comprise 60 to 80 percent of total call volume.

By focusing efforts on reducing low-value activity (and their associated costs), significant savings can be achieved, particularly if your provider is working with you to identify systemic failures and implementing programs that reduce these calls.

Conclusion

Retailers seeking to improve performance and operations while reducing costs should seek a collaborative technology partner that strives to improve efficiency and effectiveness, knows how to decrease costs by reducing the number of service calls, and offers a pricing model that enables them to share cost savings with the retailer. One way to determine if service providers can do this is to ask them how they manage their service delivery P & L. If profit and loss is managed via the traditional service functions of parts inventory, repair, logistics, help desk and field operations, you’ll know immediately that they cannot properly deliver this new approach – because effectiveness and efficiency cross over the boundaries of these necessary functions, requiring a whole different approach to managing the service delivery P&L.

From today’s industry standards to the new reality of transparency in your business relationships, you can transform service delivery throughout your operations. By leveraging service delivery into strategic value, you can create a collaborative, long-term partnership that improves your operations and company profitability, while improving customer service.