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8/13/2019 After Sales Komfsssplettddsf

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From Necessity to Strategic Driver

Market Trends and Challenges inAfter Sales & Reverse Logistics


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From Necessity to Strategic Driver

Market Trends and Challenges inAfter Sales & Reverse Logistics


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Contents

3 Foreword

4 Methodology

6 Market Trends and Key Challenges

10 Strategy & Target Picture

13 Solutions, Processes & Initiatives

14 Customer Interaction & Satisfaction

15 Return Management

18 Logistics & Repair

20 Cross- & Up-selling

21 Warranty Management

24 Monitoring & Transparency

26 KPI Overview

28 Conclusion & Outlook

29 About Deloitte

30 About arvato


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After Sales: From Necessity to Strategic Driver 3

Foreword

When looking at current market developments, the after

sales and reverse logistics function faces several chal-

lenges: increasing return volumes due to more complex

devices and changing shopping patterns; ever higher

pressure on process efficiency and costs per incident

to contribute to internal cost cutting programs; rising

importance as a core customer touch point shaping

brand perception and customer experience; increasing

need to efficiently steer outsourcing partners in order tooptimize outsourcing benefits; to name just a few.

To successfully master these challenges, after sales and

reverse logistics will require greater managerial, even

CxO, attention in future. The strategic focus will have

to be reviewed, with the strategic transformation of

after sales into a profit center as a major development

occurring today. Additionally, an integrated end-to-end

perspective needs to be in place, providing transpar-

ency for reporting and monitoring, to accommodate

for increasing customer needs and facilitate an efficient

steering and operations model in the whole after sales

and reverse logistics chain.

Deloitte as the largest professional services firm in the

world and arvato as one of the leading supply chain

outsourcing partners in after sales and reverse logistics

have therefore teamed up to assess the current status as

well as aspirations of after sales and reverse logistics at

high tech companies. We have asked 25 global players

for extensive personal interviews to derive a comprehen-

sive picture and outline priorities.

Our survey assesses two key imperatives to determine

the direction high tech companies are heading todaywhen it comes to their after sales services and reverse

logistics: the strategic perspective as well as the opera-

tional measures to realize the formulated strategy. We

have been asking specifically for previously implemented

initiatives as well as initiatives planned for the future

to derive a comprehensive picture at each of the inter-

viewed companies.

We hope you find the results interesting and they will

lead to discussions about your own path in after sales.

Please do not hesitate to get in contact with us to dis-

cuss these topics on a broader scale.

After sales has long been just an af-terthought to sales and marketing but today more and more OEMs have

started to realize its real strategicimpact


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4

Methodology

Sample and Interview Design

In total, 25 high tech companies across Europe were

interviewed by Deloitte, mainly B2C-focused OEMs in

sub-segments covering IT hardware (48%), imaging

(14%), household appliances (19%) and audio (19%)

(fig. 1).

Interviewees were invited to participate based on their

end-to-end responsibility in after sales and reverse logis-tics. This enabled us to discuss back office as well as

customer facing topics. Questions were posed to both

understand strategic direction and to provide opera-

tional insights. The questionnaire comprised open and

closed questions, from subjective assessments of own

performance to maturity evaluations. The interviews of

90 to 120 minutes were conducted face-to-face.

Survey Framework and Structure

The survey has been structured into four sections, cover-

ing

perceived trends and challenges (to determine current

hot topics and themes)

after sales strategy (to analyze the varying strategies

pursued by participants)

after sales processes (to assess which initiatives are inplace to reach set goals) and

Key Performance Indicators (KPIs) (to determine to

which extent a need for change in strategy and pro-

cesses exists)

Audio

Household appliances

Imaging

IT Hardware

48%

19%

19%

14%

Fig. 1 Interview coverage by industry

(in % of participants)


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In order to ensure a holistic view on relevant services,

we developed a detailed after sales and reverse logistics

value map which served as a roadmap for the inter-

views. The value map follows the basic returns process,

from the end customer via customer service interactions

to logistics services that transport a device to a repair

center. Once repaired, the product is shipped back to

the end customer (or restocked in logistics warehouses

in other instances) (fig. 2).

End Customer

Technical assistance

Transportation options(send-in/pick-up)

Track & trace

Customer Service

(via web/CC/POS)

Issue identification

RMA creation

Routing decision

Logistics Hub

Release SWAP

or

Consolidateinto bulkshipment

ReplenishSWAP pool

or

De-consolidatebulk shipment,kitting & send

to EC

Repair Center

Repair

Fig. 2 Key returns processes (simplified illustration)

EndCustomerwithDeviceIssue

Customer Service Logistics Hub Repair Center

Front End Services

Tech service

RMA creation

Status updates

Online Portal ShopCall Center

Contentmanagement

Payment handling

DOA/OOW checkIssue identification/

NFF screening

Channels Routing to appropriate repair center

Shipment building

Tracking

Shipping

Swap stock management

Inventory management

Warranty claims management

OOW management

Warehousing

Central hubsCollection hubs

Hub Configuration

Decision about repair/asset recovery

Spare parts management

Repair Planning & Management

Quality controlRepairs/

Refurbishment

Repair

Second usage/Resale

Scrapping/Recycling

Asset Recovery

Repair Level

Screening

Management Services

Monitoring/Reporting/Systems

Warranty Management

Cross-/up-selling

Additional service offerings

Revenue Generation

Product lifecycle management

Feedback to product design

Product Management

Reporting

IT integration

Reporting Network/provider

managememt(across countries)

Back End Services

Transportation

Swap service On site repairExpress service

Collection & Delivery

Send in Pick upDrop off Level 1 repair Level 2 repair

Service Options

Fig. 3 After sales configuration map

For the purpose of this study, these process steps were

further detailed within the after sales and reverse logis-

tics configuration map, describing all main processes

and process configurations along the returns process.

Each of these steps was then evaluated in greater detail

regarding current status and importance, challenges and

ongoing or planned initiatives (fig. 3).


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Pain Points & Barriers

When asked about their current pain points, the most

often mentioned challenge is related to the rising impor-

tance of emerging markets. For the EMEA region, after

sales and reverse logistics operations in Western and

Central European countries are in most cases already

well established. The challenge, however, is how to

build up and organize after sales in new countries l ike

Russia, Turkey, the Middle East or Africa. Here, previouslyunknown challenges appear while business is growing in

those markets, creating an urgency to establish efficient

after sales operations. Finding new, reliable partners in

these markets as well as establishing an efficient net-

work in light of different legal, tax and customs regula-

tions creates a major headache for after sales executives.

Another often mentioned pain point is spare parts. Fast

and efficient delivery of spare parts is generally impor-

tant, but especially crucial in more B2B-like relationships

as pressure to fix products quickly without further inter-

rupting the customers business is high. Ensuring avail-

ability of spare parts for products with a long product

lifetime and appropriate spare parts pricing are further

concerns in this area. Since keeping inventories with

spare parts is a major cost item for after sales opera-

tions, forecasting and optimizing spare parts usage are

capabilities that are extensively sought after (fig. 5).

Setting up and managing after salesand reverse logistics operations inemerging markets is amongst the key

pain points.

0%

5%

10%

15%

20%

25%

30%

Pressure

by retailers

CostsBusiness with

non-EU

countries

Management

of transnational

processes

Speed of service

(e.g. TAT,

lead times)

Spare

part delivery

Emerging

markets

25%

20% 20%

15%

10% 10% 10%

Fig. 5 Key pain points in after sales

Question: Which are the main pain points when thinking of after sales and reverse logistics at your company?


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When asked about major barriers that prevent from

tackling these and other after sales and reverse logistics

pain points, the lack of respective financial resources

was mentioned most often. However, there are a

number of barriers related to the standing of after sales

in the overall organization that prevent some of the

pain points to be solved, be it the organizational set-up

(e.g. as a cost center instead of a profit center with cor-

respondingly less responsibilities, or the set-up of localsubsidiaries with separate P&L responsibility, therefore

limiting the influence of central after sales departments

on processes and policies for a cross-national optimiza-

tion), internal systems or capabilities, or general lack

of internal recognition and awareness. Additionally, in

many companies after sales-related responsibilities are

separated across different organizational units, therefore

in the worst case creating several silos with different

goals and objectives instead of one dedicated after sales

unit (fig. 6).

0% 15%10%5% 20% 25% 30% 35%

Power of retailers

Insufficient IT-systems

Insufficient capabilities of call-centers (e.g. new channels)

Finding new partners

Complex market structure (number of players)

Interaction between call-center and repair

Complex supply chain (because of outsourcing, growth)

Country differences

Low product price (repair not justified)

Dependence on parent company

Lack of internal awareness

Controlling approach (cost-center)

Customs, tax and legal issues across countries

Financial resources 31%

13%

13%

19%

13%

6%

6%

6%

6%

6%

6%

6%

6%

6%

Fig. 6 Major barriers to tackle after sales pain points

Question: What are the biggest barriers to tackle these pain points? (internally as well as externally)


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Management Awareness

When asked directly for the degree of management

awareness for after sales and reverse logistics, most

respondents feel that their function gets only moderate

attention. Respondents where after sales gets some or

full awareness are generally more satisfied with their

after sales operations and are also more successfully

measured by key after sales KPIs.

Reasons for the rather low awareness are that after

sales is still associated as a cost factor rather than a tool

to drive customer satisfaction and create additional

revenues, reflected conversely also in the dominance of

sales in most OEM organizations. As long as after sales

processes run smoothly and no major problems arise,

after sales is viewed as a lower priority (fig. 7).

0%

10%

20%

30%

40%

50%

Full awarenessSomeModerateLittleNo awareness

25%

19%

0%

13%

44%

Fig. 7 Top management awareness

Question: What is the level of awareness and support from your top management in after sales and

reverse logistics?


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10

Strategy & Target Picture

Targets and Objectives

While in the past years a cost focus was prevailing for

after sales and reverse logistics, this has now been

changed in favor of a means to improve customer sat-

isfaction (assessed overall as very important by inter-

viewees). More and more companies realize that after

sales holds an important lever to shape customer experi-

ence and brand awareness. With customer retention

being less costly than new customer acquisition, after

sales can contribute significantly to assure direct cus-

tomer contact and steer the customer lifecycle (fig. 8).

On the second rank of importance we find after salesservices as a means to differentiate the core product.

Due to the fact that most product features are nowa-

days easy to imitate in the considered industries, it has

become difficult to create a lasting competitive advan-

tage by the products themselves. Value-added services

come into the focus, and with service still often being

people business, it is harder to imitate.

Cost savings still remain high on the agenda of the inter-

viewed high tech companies. Outsourcing initiatives and

web-based solutions offer significant potential to lower

cost in after sales and increase efficiency. Budgets need

to be kept under control, generating the need for inno-

vative cost-cutting measures.

Two objectives which receive only moderate attention

are revenue generation as well as flexibility and scal-ability of the after sales function. Revenue generation

in after sales is mainly extended warranties, additional

service packages as well as cross- and up-selling (in out

of warranty cases). However, potential conflicts with

retail partners still limit direct activities of OEMs towards

end customers. With retailers often being the most

important sales and after sales channel, and often the

only one with a direct access to the end customer, their

power to put pressure on OEMs is large. Nevertheless,

via the sale of accessories (often an unattractive business

for retailers due to limited volumes) and increased focus

on direct end customer contact (e.g. via incentivizedregistration of products), we will see revenue generation

becoming an ever more important target in future.

The importance of being able to quickly flex up or down

after sales operations receives markedly different ratings

between large manufacturers compared to mid-sized

ones. The more products are in the market, the higher

the risk of a massive impact on after sales when product

failures and recalls occur. For large manufacturers this

tends to be the reason why e.g. call center and repair

capacities can be adjusted within short time to quickly

respond to demand.

Customer satisfaction is the most im-portant objective in after sales, clearlyleading before cost efficiencies.

Mean (total)

0

1

2

3

4

5

Revenue

generation

Flexibility/

scalability

Cost

savings

Product

differentiation

Customer

satisfaction

3.4

3.0

4.7

4.34.2

Fig. 8 Importance of targets for after sales strategy

(scale 1 very unimportant to 5 very important)

Question: Which are the targets/objectives you are pursuing in after sales?


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Strategic Picture for After Sales

When asking for strategic priorities for concrete after

sales improvements in the participating companies in

the next three years, two topics show up most fre-

quently: the interlink with product management and

improvement of process management. The first one

relates to a stronger relationship and information flow

between after sales and product lifecycle management

to create service-oriented product design, and integratevaluable customer information for continuous product

improvement. Furthermore participants mention that a

strong product management is the best means to avoid

product returns, with an investment leading to a better

return in product management than in after sales. The

second strategic topic relates to process improvements,

mainly to achieve cost efficiencies, but also to support

customer satisfaction measures and contribute to the

effectiveness of the organization (fig. 9).

Further importance is given to customer facing elements

including direct customer interactions (e.g. extending

e-channel services) as well as expansion in service offer-

ings (e.g. differentiated service levels which might also

be charged for). Due to an increasing price pressure

companies strongly emphasize cost efficiency as a major

goal which is also inherent in issues like product qual-

ity (reduction of costs of non-quality). IT investments

planned by the participants have different objectives,

ranging from an enhanced customer data collection to a

general system consolidation to optimize IT usage.

Interlink with product managementand improved process managementare frequent elements of the after sales

target picture.

0% 15%10%5% 20% 25% 30% 35%

IT investments (ext.)

Improve customer experience

Organizational change

Increase customer satisfaction

IT investments (internally)

Cost efficiency

Improve product quality

Extend direct end-customer channel

Expand service offerings

Improve process management

Strengthen product management 29%

29%

24%

24%

19%

19%

19%

14%

5%

19%

10%

Fig. 9 Strategic target picture elements mentioned by survey participants (in % of answers)

Question: What does your target picture for after sales services for the next years look like?


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12

Deloitte Point of View Strategic Picture After Sales Service

In many cases the efforts to professionalize after sales service business are significantly underestimated. The start-

ing point of a successful transition is the adjustment of current business strategy and its underlying value delivery

model. Depending on the selected value delivery model and extent of performing after sales service internally the

impact on related enterprise functions varies. Nevertheless, major barriers to implement are the organizational as

well as the cultural shift required (fig. 10).

Project Case

Recently, a US machinery manufacturer, operating a standalone after sales service business unit bought a com-

petitor with an embedded value delivery model. The successful integration of the acquired after sales service

business resulting in improved on-time delivery performance by 30% and reduced spare parts backorders by

25% was achieved by:

Adjusted business strategy, re-dened value delivery model and its underlying steering model by adding and

tracking service related performance and incentive targets

Separated after sales service-related functions, changed organizational set-up and intensive change management

activities to shift culture on all levels Differentiated value delivery processes to consider different speed of business between prime and after sales ser-

vice products

Product sales are the major driverof organizational value

Services predominantly leveraged to

enhance product sales/extension

Virtual or subservient Services P&Ls Operating model structured around

product-oriented core

Services profitability is a major driverof organizational value

Services holds true P&L accountability

and control

Operating model structured aroundservices-oriented core

Solutions profitability is the major driverof organizational value

Both Products and Services are leveraged

to deliver Solutions

Operating model is structured aroundSolution types some are more Product-oriented in nature, others are Services-oriented

Service as a Bolt-on

Abilityofservices

to

drivevalue Segment

Management

Adaptive

Standalone

Transitional

Embedded

Model 1 Model 2 Model 3 Model 4 Model 5

Service as a Business Service is the Business

Fig. 10 Value Delivery Framework


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Solutions, Processes & Initiatives

We asked for an assessment of different parts of the

after sales and reverse logistics value chain, both regard-

ing importance of this area and own performance in

this area. Customer interaction processes are rated as

most important. While participants own performance

is already seen as high, this field still yields the highest

relative gap between importance and performance next

to monitoring & transparency. Other key processes of

return qualification & routing and reverse logistics &repair are also seen as important, but their performance

does not drop significantly below the importance rating.

In general, this picture shows that across the complete

value chain, perceived performance lags behind impor-

tance of after sales process elements, which reveals sig-

nificant potential for improvement (fig. 11).

Importance

Performance

0

1

2

3

4

5

Cross- andup-selling

Warrantypolicies

Reverselogistics & repair

Returnqualification

& routing

Monitoring &transparency

Customerinteraction &

satisfaction

4.0

-15%

Gap

-22%-8% -11% -7%

-13%

4.7

4.3

3.3

4.0

3.73.9

3.5

3.9

3.6

3.0

2.6

Veryimportant

Very un-

important

Bestpractice

Average

Below

average

Fig. 11 Importance and performance assessment along the after sales value chain

Question: Please rate the following topics in after sales regarding their importance for your company. What is the current performance/status

of your company in these areas compared to your competition?


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This improvement potential is also reflected in dedicated

initiatives within some of these areas, in order to reach

strategic goals or mitigate market challenges or pain

points. These initiatives range from e.g. improving the

channel mix in customer interactions to changing the

set-up of logistics and repair networks. Other initiatives

span across multiple parts of the after sales value chain

to reach higher integration and transparency of the

process, to achieve a holistic customer view and more(cost-)efficient processes (fig. 12).

Customer Interaction & Satisfaction

Customer Satisfaction

As seen in the strategic objectives before, customer sat-

isfaction and interaction have the highest priority in after

sales among survey participants. Additionally, they see

significant improvement potential in this field.

One of the biggest areas of concern and activities is the

direct customer contact via an online channel and social

media in particular. While a high degree of responsibil-

ity with the online channel is seen in the after sales

organization, the social media strategy lies with general

management. This is due to the fact that today, social

media affects nearly all areas of a company and needs

proper internal policies as well as adequate monitoring

and reporting tools. After sales management should

nevertheless seek an active stake in the definition of this

strategy, as customers demand and highly benefit from

state-of-the-art interaction with OEMs.

Another topic often raised during interviews is the

evaluation of centralization possibilities for regional call

centers. While for easy-to-handle customer inquiries it

is basically regardless where a call center is located, formore complex issues participants experiences show that

well-trained staff is essential and often hard to obtain.

Additionally, the insufficient coverage of languages at

most call center operators makes it often necessary to

remain with a more fragmented call center structure.

To further improve and integrate cus-tomer interaction possibilities, compa-

nies increase their efforts regarding e-channels and social media solutions.

Customer service

Repair

Transportation/logistics

Management services

After SalesInitiatives

Strengthening online-self-support solutionsincl.social media

Identifying ways to exploit up-/cross-sellingpotentialwithout risking relationships with dealers

Centralization of regional call centers

Establishing central distribution centers or partswarehouses

Improvement in collaboration with partners to provideadditional services (E2E customer experience)

Improve track & trace transparency

NFF reductioninitiatives that optimize current proceduresfrom a technical point of view (early identification, diagnostics

also training) as well as better educating the consumerabout product use

Evaluation of swap-models

Centralization of repair centers

Actively generating and using customer after sales informationto facilitate client lifetime viewas well as linking &utilizing consumer informationacross the company

Improve interfaces to partner systems

Expansion of warranty-buy-out solution

Fig. 12 Important after sales initiatives of market players


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Return Management

Returns via Retailers versus Direct Returns

Configuration of the return channel is crucial for most

efficiency improvements in after sales only channels

that can be influenced by the OEM can be improved to

fit better into the overall after sales process. While it dif-

fers significantly between product groups and the con-

figuration of an OEMs forward supply chain, the major-

ity of high tech manufacturers depend greatly on retailas their most important return channel (51% of returns

from participants come via retailers, versus 33% direct

returns). Advantages of this set-up are that retailers are

taking over responsibility to register and bundle returns

from end customers, therefore relieving OEMs from

the burden of establishing extensive customer contact

center and pick-up solutions. However, this means also

losing direct contact to end customers and being less

flexible in optimizing the returns process. Participants

are confident that their direct-to-customer processes

are both faster and achieve higher customer satisfac-

tion than processes that include channel partners. Thisexplains that more than 40% of participants indicate

that they would prefer to change their return channel to

receiving more direct returns from end customers.

For retailers, on the other hand, serving as a service

channel is often seen as generating non-profitable

efforts and tying up resources. However, many retailers

also see the benefits of generating additional footfall

in their stores and creating additional customer touch

points, which can in turn be used to generate more

sales. Therefore, attempts at increasing the share of

direct returns by OEMs are often met with resistance by

retailers (fig. 13).

Gaining control over the return pro-cess as early as possible helps tomanage the process more efficiently.

Directly from end-users

Through retail

Through d istribution

Other

Change towards direct

returns desirable

No immediate change

required

52%

33%

5%

10%

57%

43%

Fig. 13 Share per return channel and desired changes

Question: What are the key returns processes in your business(share in %) and do you see any need to change those shares?

Share per return channel

Desired changes


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Screening Along the Return Process

One of the key benefits of having more control over the

return channel is the ability to set up additional screening

checkpoints. With NFF rates (Non Failure Found) between

1% and 45%, there is still significant potential for early

screening of returned products to sort out non-faulty

devices and therefore reduce transportation and process

costs. The great majority of participants do have screen-

ing processes in place; however their position within thereturn process differs significantly. In case of direct end

customer returns, contact centers of most OEMs do try

to solve the problem directly to eliminate the need for an

actual return shipment. In case of retailer returns, there

is often no screening established at the point of sale, but

only further down the process when first transportation

costs have already occurred. However, some OEMs have

been successful in setting up partnerships with retailers

to train point of sale (POS) staff in problem identifica-

tion and resolution, so that smaller issues (e.g. firmware

updates) can be realized on site.

Regarding the set-up of screening gates within the

reverse logistics chain, participants use different strate-

gies of either having decentralized gates to identify NFFreturns as early as possible, or having centralized gates

(mostly together with their repair operations) to reduce

the complexity of the network and the number of

screening facilities. Best performing manufacturers usu-

ally have at least some elements of early screening, be it

at the retailer site or in the first logistics hub (fig. 14).

0%

20%

40%

60%

80%

100%

No

14%

Yes

86%

Implementation of screening processes Approach to screening

6%Differences

by product

Central

Hybrid

Decentral

39%

33%

22%

Fig. 14 Screening process

Question: What check points and (NFF screening) processes have you implemented to reduce your returns?

How important is that to you?


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Deloitte Point of View Return Management

Return management experience plays a key role in shaping overall customer satisfaction, brand loyalty, and future

purchase decisions. Studies show that only every second company is able to fully reap the hidden benefits of

returns to lower costs and increase revenue. Industry best practices illustrate that it is essential to measure, track

and manage return management performance. Various project examples prove that managing returns actively

right from the beginning promises the most cost saving potential. Therefore processes built consequently around

mechanisms such as RMAs (Return Material Authorization) successfully streamline return management processes,

reduce turnaround times for repairs and keep unnecessary organizational costs at a minimum.

Project Case

In 2011 a US high tech company reviewed its reverse supply chain practices to improve after sales services, costs

and time to increase customer satisfaction. Due to eco life cycle and disposal regulations the number of returns

increased. Improvement potentials such as reduction of cost of doing repairs by 15% and reduction of repair

throughput times by 35% were found and realized in the return management process. Main project steps to

improve were:

Understand individual customer expectations and re-dene return policies and guidelines accordingly

Identify preferred channel of support (low touch/high touch) and re-dene frontend customer support channel

and processes. Introduce RMA mechanisms to optimize return processes and also trace back financial implica-

tions. Develop customized return IT module

Re-design organizational structure of return management department and allow only trained service staff tohandle customer facing activities


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18

Logistics & Repair

Infrastructure Set-up

For most interview partners the decision on repair

facilities is a very important and equally difficult one.

Declining sales in economically difficult times, rising

labor costs, falling sales prices, an extension of low-end

product categories for emerging markets all of these

developments lead to lower repair volumes making effi-

cient repair centers at locations close to the customer a

challenge.

Therefore it is not surprising that 42% of the respondents

state a hybrid model for their EMEA operations depend-

ing on the repair demand in each country, existing infra-

structure, cost of logistics, tax and customs issues, as well

as customer expectations. The latter is actively shaped by

some companies, who e.g. announce turnaround times

of 10 days, but manage to deliver a product back to their

customer within 6 or 7 days. This way they exceed expec-

tations and avoid dissatisfaction by customers (fig. 15).

Due to the developments given above, respondents

expect a shift towards a more central approach of repair.

However, co-operation models with competitors are also

stated as a way to create value for all involved parties.Successful models are not reported yet, also not regarding

spare parts which are a capital-intensive facet of the repair

business. There is still a long way to go in this respect.

Nevertheless, depending on the specific product, the

choice between central or decentral approaches can

be easier. In general, the larger and more difficult

to move a product is, the more decentral the repair

approach will be. Companies which have to rely on a

decentral approach report back difficulties in finding

cross-regional outsourcing partners, as margins are still

falling. In the case of low-value products, swapping at

the POS prevails, with no need to maintain decentral

repair facilities. More and more companies think about

swapping with refurbished ware, which highly depends

on customer acceptance (and educating the customer

respectively), however.

Repair infrastructure is caught be-tween the contradictory goals of excel-lent customer service versus cost re-

ductions.

0%

20%

40%

60%

80%

100%5% Differences by product

Central

Hybrid

Decentral

32%

42%

21%

Fig. 15 Approach to repair(in % of answers)

Question: Does your repair infrastructure follow a central or decentral

approach?


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Deloitte Point of View Logistics & Repair

After sales logistics excellence is the process of planning and aligning service parts inventories, resources, and

processes to ensure optimal customer service and response with minimal risk and cost. Key success factor in the

repair management business is the right balance between repair labor costs and transportation as well as material

or swap costs. Based on project experience, historically grown repair networks often cannot efficiently cope with

rapidly changing market requirements and product innovation cycles. An efficient repair network requires flexible

front end (troubleshooting/break-fix) solutions and an aligned backend structure with the right skills and capacities

at the right network level (fig. 16).

Project Case

An equipment manufacturer assessed its spare parts supply chain and repair network. Considerable optimization

potential was found in improving on-time delivery performance by 20%, a reduction of non-moving inventory by

20% and in relatively high repair costs due to a decentralized repair network. Key development actions were:

Re-design warehouse network structure and inventory ownership to consider customers lead time requirements

and optimize inventory, warehousing and transportation costs

Develop strategic repair network to cover market and technology requirements at an optimum of repair costs.

Consolidate repair activities accordingly

Link spare parts and repair demand planning with inventory and repair capacity planning. Integrate inventoryplanning where item categorization includes criticality and part failure rates to differentiate customer service

levels to optimize end-to-end and repair costs

NetworkDesign

OrderManagement

Product DataManagement

SupplierManagement

DistributionOperations

PARTS SERV

ICE

ReverseLogistics

InventoryManagement

Remanu-

facturingFoundations

Enablers

Execution Processes

Results

Spare Parts

Logistics Chain

Fig. 16 Deloitte Parts & Service Management Framework


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20

Cross- & Up-selling

Exploiting Customer Interactions

After sales is one of the few instances during a customer

life cycle where there is a direct contact between OEM

and end customer. Therefore, it is crucial for OEMs to

use this interaction not only to improve brand percep-

tion and customer satisfaction, but also to exploit

potential to generate additional revenue. There are four

basic possibilities to employ cross- and up-selling during

after sales transactions:

Service upgrades: Sell upgrades for the service inci-

dent, e.g. faster turnaround times, more convenient

shipping options like home-pickup (for in-warranty

repairs, there are legal restrictions in some countries as

to how to design such offers)

Accessories and consumables: Use the product-related

interaction to offer product accessories (e.g. cases) or

consumables (e.g. batteries, ink)

Product upgrades: Especially for out of warranty cases,

offer to upgrade to a new (or better) product instead

of repair

Other sales: Use the customer interaction to sell prod-

ucts unrelated to the specific service incident due to

a lack of CRM data however it is hard for most OEMs

to create relevant offers for end customers, and with-

out such capabilities this cross-sell approach can easily

lead to a rather negative customer experience

However, there are several factors that lead to a very

reserved approach to cross- and up-selling amongst the

majority of participants (fig. 17).

One is the lack of internal capabilities. Contact center

staff at OEMs is mainly trained to provide technical assis-

tance, whereas sales requires very different skills fromagents. Additionally, several participants mentioned that

their contact center systems do not support sales activi-

ties, e.g. missing interfaces to billing solutions or CRM

capabilities to generate customer-specific offers. Also,

in a number of companies the after sales interaction is

not seen as the appropriate channel to pursue sales,

for fear of alienating customers in a critical situation.

However, examples of other companies show that with

a more sensitive approach to cross- and up-selling this

can actually be perceived as bringing additional value to

the interaction, especially when offers match customer

needs.

Channel Conflicts

Another major factor is the intention to avoid channel

conflicts with retailers. Most retailers have a very critical

view on OEMs trying to establish direct sales channels

with end customers. Especially in an after sales situa-

tion when the OEM is providing service to a customer

who originally bought at a retailer, employing cross- and

up-selling can easily be seen as an affront to retailers.

Therefore, fearing retaliation (e.g. de-listing of certain

products) leads to a very conservative approach to

cross- and up-selling of most OEMs, mentioned by 44%

of respondents. The exception from this are serviceupgrades or accessories and consumables, which are

often not carried by retailers and therefore dont create

a direct competition.

Cross- and up-selling can be a majorrevenue driver but lacking capabili-ties and potential channel conflicts are

currently keeping it out of focus.

Always

OftenModerate

Rarely

Never

36%

7%

0%

29%

29%

Fig. 17 Exploitation of cross- and up-sale opportunities

Question: To which extent do you leverage after sales contacts with

customers for cross- and up-sale opportunities?

What potential do you see in that?


23/35


However, in light of the changing retail landscape most

manufacturers are also getting ready for a time when

established retailers will have less power due to the

increasing importance of online channels, which also

facilitates direct sales to end customers. Therefore, 25%

of participants mention that they would like to increase

cross- and up-sale activities in the future, both to gener-

ate additional revenue and to gain more end customer

contact. Direct contact with end customers is seen ascrucial in order to generate customer insights, drive

customer loyalty and facilitate re-purchasing decisions.

Therefore, building up internal CRM capabilities and

increasing the number of customer interactions along

their life cycle are key strategic goals for leading OEMs,

which will undoubtedly also lead to an increased signifi-

cance of cross- and up-selling in after sales.

Warranty Management

Potential and Risk in Warranty Buy-out

More than half of the survey participants see risks in

their out of warranty business today. This is especially

due to the fact that they have no or only very limited

control over it: Third party repair providers decide on

price setting and repair handling individually, bearing the

risk of compromising customers based on their behavior.

There is only limited visibility of out of warranty repairs

for OEMs, as reporting and monitoring is often not fixed

in outsourcing contracts. If done in-house, some respon-

dents state that out of warranty repairs could become

major cost factors, because spare parts need to be kept

to ensure repair capabilities even after the product life-

cycle might have ended (fig. 18).

On the other side, a majority of participants sees a largepotential for their out of warranty business. While only

few offer out of warranty repairs to facilitate customer

satisfaction and retention, others use or want to use it

to support overall profitability of their business. How-

ever, this can only be achieved in markets with a high

relative product investment, where customers have

a vivid interest in prolonging the lifetime of broken

products. Additionally, warranty extensions are either

a source for additional revenues or can be used as an

incentive for end customers to register directly at OEMs.

By doing so, the emerging potential for keeping the cus-

tomer informed about product and service innovationstriggers cross- and up-selling, too. With retailers exploit-

ing the warranty and service extension business, too,

possible channel conflicts are arising.

Warranty buy-out models

Warranty buy-out has been discussed internally in nearly

all of the interviewed companies so far. However, only

10% have warranty buy-out models in place yet. They

are mostly undertaken in emerging or small markets

with a distributor channel only. Additionally, at times

retailers address OEMs with the request for lower prod-

uct prices, with warranty claims then taken over by

them.

To set up a profitable out of warrantybusiness, several challenges need to beovercome.

No major risks

44%

Some risks

56%

Loss of control

Limited visibility

Unsatisfied customers

Major cost factor

Fig. 18 Perceived risk in out of warranty business(in % of answers)

Question: Which risks and potentials do you see regarding your out of warranty business?


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22

More than half of the respondents expressed no general

interest or a reserved att itude towards warranty buy-out.

Main reasons given are:

After sales and warranty management are seen as

core competencies of the company, with no interest in

outsourcing and consequently losing customer access;

The non-existence of large enough, reliable and nan-

cially stable outsourcing partners who are unlikely toget into financial troubles and eventually go bankrupt,

leaving immense problems for customers and the

OEM itself;

The threat of buy-out partners delivering inadequate

service or even directing customers back to the OEM;

The problem of how to share benets for outsourcing

providers when major investments into product quality

are undertaken (fig. 19).

It shows that one core problem lies in the fact that most

companies are not yet familiar with gain share models

to use for such complex outsourcing relationships like

full warranty buy-out. Today, the absolute majority still

makes use of traditional price models in their outsourc-

ing contracts like transaction-based fees or a variable fee

based on actual efforts (often with high-value products

where quality of repair is seen as a high priority) (fig. 20).

Gain sharing requires full transparency on the opera-

tional performance for all involved parties, but makes

it possible for the OEM as well as outsourcing or other

partners to benefit from their individual efforts in

improving quality or efficiencies (fig. 21).

Yes

11%

No

89%

Open

44%

Not

interested

56%

Warranty buy-out in place Attitude towards warranty buy-out

Fig. 19 Attitude towards warranty buy-out(in % of answers)

Question: Is a complete warranty buy-out to a third party provider a commercial model that would answer

your needs?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Cost-plusGain shareRate-basedFixed/variable feeTransaction based

8% 0%

85%

54%

15%

Fig. 20 Usage of commercial models in outsourcing (in % of answers)

Question: Regarding commercial models for outsourcing services: Which price models ale you currently

committed to and why?

Cost-plus A contractor is paid for all its resp. expenses to a set limit plus additional payment to allow

for a profit

Transaction-based Provider receives a specified rate per transaction/incident

Fixed/variable fee Partners agree on a fixed fee per period plus variable adjustments due to unplanned variances

in quantities, quality, scope etc.

Rate-based

Provider receives predetermined rates for utilized resources Gain share principle Contractual structure where the organization and its service provider agree to share financial

gains as a result of continuous improvement or innovation. Used as an incentive scheme forservice providers

Fig. 21 Price model overview


25/35


Deloitte Point of View Warranty Management

Warranty management has been widely neglected in the past although it has significant bottom line effects. Effi-

cient and effective warranty management reduces cost and improves customer satisfaction by streamlining busi-

ness processes and leveraging latest technologies. Other potential benefits are improved revenue streams through

sales of extended warranties and additional related products. Additionally, a higher level of quality through

improved information flow about root causes of product defects can be achieved. Offering better customer rela-

tionship results in improved customer loyalty and continued sales (fig. 22).

Next generation warranty management comprises an integrated combination of CRM, ERP, PLM and advancedanalytics capabilities. Interlinking these capabilities with an advanced IT solution will allow after sales service orga-

nizations to optimize and even pro-actively manage after sales service business. Market leaders in the printing solu-

tion industry can be seen as innovation leaders in next generation of warranty management. Integrating customer

printing environments into their warranty management system allows them to anticipate preventive maintenance

and accurately forecast spare parts demand based on real time data to keep warranty costs at an optimum level.

Warranty Management Solution

CRM PLM

ERP Analytics

Service Strategy

Service Channel Strategy

Service Pricing

Service Marketingand Sales

Contract Management

Warranty Management

Fleet Management

Parts Management

Line Maintenance

Repair

Professional Services

Strategy

Sup

portOperations

ServiceOfferings

Fig. 22 Warranty Management 2.0 Next Generation


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24

Monitoring & Transparency

IT Support of After Sales Processes

Having an integrated IT system that supports the com-

plete after sales value chain is one of the most important

factors to explain the success of after sales operations.

Participants with a high degree of systems integration

and resulting process transparency were generally more

successful regarding customer satisfaction as well as

cost efficiencies. Especially regarding the latter, having

process transparency is a prerequisite for knowing costs

for separate process steps and being able to identify,

improve and monitor cost improvement levers more

effectively (fig. 23).

Since the after sales process usually includes a number

of external parties, e.g. for call centers, transportation,

warehousing and repair, they also need to be included

into an after sales IT landscape. Most participants are

using interfaces to relay basic process information to

and from partners. This creates limited transparency but

still leaves black holes for example within repair opera-

tions regarding the exact status of a repair or repair rea-

sons. Few more advanced respondents therefore dont

rely on interfaces, but provide their IT system to all their

partners, thus being able to represent the complete pro-

cess on one system. Since creating and maintaining such

an integrated IT system also represents a major invest-ment, this example can be found only with larger OEMs.

Best-run after sales operations arebased on fully integrated IT solutionsand end-to-end process transparency.

Very low

Low

Moderate

High

Very high

Very low

Low

Moderate

High

Very high

Yes

No

33%

33%

8%

8%

17%

18%

27%

IT systems support the after sales

process ( 3,6)

33%

18%

Transparency on costs and perfor-

mance in after sales ( 3,6)

40%

60%

Transparency of after sales budget

Fig. 23 Status of transparency and IT systems support


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End-to-end Transparency

The highest degree of system integration with partners

is implemented with call center providers followed by

transportation and repair center providers. However,

60% of respondents see end-to-end processes in after

sales as very important which also requires end-to-end

systems to support and steer these processes (fig. 24).

The major advantages seen for seamless end-to-endprocesses are mainly transparency and process optimi-

zation, therefore emphasizing operational efficiencies.

However, some participants also see the potential of

end-to-end management in after sales for customer rela-

tionships, which is facilitated e.g. in online track-and-

trace applications and respective status updates by SMS

for end customers. However, end-to-end is a topic that

is associated with major investments, while benefits are

hard to calculate in a business case. Therefore several

respondents also state that they do not plan a further

integration of their processes (fig. 25).

Very important

Important

Moderate

Unimportant

Very unimportant

20%

10%

10%

60%

Fig. 24 End-to-end processes

Question: Which role do end-to-end processes play for your after

sales business today?

0% 20% 40% 60%

Efficient partner management

Closer/direct customer relationship

Efficiency

Process optimization

Transparency 46%

31%

15%

15%

15%

Fig. 25 Advantages of end-to-end

Question: What advantages do you see in an end-to-end integration of after sales/reverse logistics processes?


28/35

26

KPI Overview

Key Performance Indicators in After Sales and

Reverse Logistics

During the interviews we also asked for the most

important KPIs that are used to steer the after sales and

reverse logistics business today. Of the numerous indica-

tors reported back, only five are commonly used by a

larger number of interviewees: turnaround times (TAT),

customer satisfaction and Net Promoter Score (NPS),

costs, lead time, cost per incident (fig. 26).

Performance in After Sales and Reverse Logistics

Neither costs nor revenues emerging from after sales

services account for a large percentage of overall rev-

enue. This fact may also be a reason why after sales is

not high on the top management agenda. On average,

after sales costs and revenues even each other out this

is plausible, as most companies treat after sales as a cost

center, reducing the incentive to engage in cross- and

up-selling or to create additional business (fig. 27 + 28).

0%

10%

20%

30%

40%

50%

Net promoter

Score (NPS)

Cost per

incident

(e.g. repair)

Lead timeCostsCustomer

satisfaction

TAT

42%

32% 32%

21% 21%

11%

Fig. 26 Most important Key Performance Indicators (in % of answers)

Question: Which are the three most important KPIs by which you steer your after sales and reverse

logistics business?

Average (all)

Max: 5%

Min: 1%

Max: 10%

Min: 0,1%

Max: 1%

Min: 0,1%0%

2%

4%

6%

8%

10%

Reverse logistics costs(in % of sales)After sales servicerevenues (in % of renevue)After sales servicecosts (in % of renevue)

2,4%2,8%

0,5%

Fig. 27 After sales/reverse logistics costs in relation to revenues/sales


29/35


The values for return cycle times, NFF rates, recovery

rates and percentage of original value reclaimed differ

greatly from company to company. Return cycle times

depend on customer demand and also the product cat-

egory the more important a device is in daily l ife (e.g.

a smart phone or notebook), the higher the expecta-

tions from customers. The range of NFF rates reaches

from 1% to 45%. The numbers correlate with different

aspects like overall product quality, share of online sales,

share of direct customer interaction, screening infra-

structure, etc. While indeed some participants state to

recover all of their returns (100%), the overall average

recovery rate comes up to 66%.

Average (all)

Max: 15

Min: 0,5 Max: 45%

Min: 1%

Max: 100%

Min: 10%

Max: 60%

Min: 1%

Percentage of

original value

reclaimed

Recovery

rate

No failure

found rate

Average return

cycle of time

42%

14%5,8 days

66%

32%

Fig. 28 Average return cycle time, non-failure found rate, recovery rate and value reclaimed

in % of original value


30/35

28

Conclusion & Outlook

Over the past years, focus in after sales and reverse

logistics has been on increasing efficiency of processes

and driving down associated costs, including for exam-

ple smarter returns screening and routing procedures.

However, process and cost efficiency alone will not be

the road to success for after sales operations in the

future anymore many market players have realized this

and adjusted their strategic perspectives to focus more

on the customer side of after sales, supporting a full life-cycle view of the customer.

Multiple marketplace developments place further chal-

lenges on high tech OEMs after sales strategies. Espe-

cially the changing relationship with retailers will require

flexible solutions for after sales and reverse logistics, but

also offer significant opportunities for further process

optimization and revenue generation. This includes

directing a larger share of customer to OEM-owned

return channels for increased process control, as well

as increased activities regarding cross- and up-selling.

Currently these fields are not yet in focus, but market

players need to have their strategies in place in order to

react to the changing retail landscape.

Another common theme in after sales and reverse logis-

tics is to identify strategies how to best cater to emerg-

ing markets, since their share is continuously growing in

relation to the mature European core markets. Numer-

ous operational challenges remain here, making this a

key priority for after sales managers and a field becom-

ing more relevant for warranty buy-out solutions.

The results of this survey show how these challenges are

seen and met, and give examples for new strategies andinitiatives to effectively counter them. Best practices of

individual market players and new end-to-end after sales

solutions promise significant improvements for the after

sales and reverse logistics function regarding costs,

revenues and customer experience.


31/35


About Deloitte

Deloitte

More than 200,000 professionals at Deloitte globally

offer a unique breadth of services. As part of one of

the largest professional services firms worldwide, 17

Deloitte offices in Germany offer integrated services.

Deloitte offers its clients a multidimensional approach to

addressing their issues. We use a combination of audit

and advisory, enterprise risk services, tax, financial advi-

sory and consulting to understand and evaluate clientissues in a big picture context.

Deloitte Consulting

Deloitte consultants can help you plan, grow and

structure your business. We are known for our straight-

forward approach to solving our clients most complex

business challenges. We have deep industry expertise,

having served more than one-third of the companies

in the Fortune 500 and hundreds of middle-market

clients around the world. Our services include Human

Capital, Strategy and Operations and Technology con-

sulting. With our unique, collaborative approach, we

work closely with clients to improve performance, drive

shareholder value and create a competitive, sustainable

advantage, regardless of where in the world your busi-

ness takes you.

Deloittes Strategy professionals are uniquely positioned

to help companies in their efforts to achieve superior

performance and meaningful growth by developing

insights that help them to set and realize the right

strategic direction, from corporate strategy and restruc-

turing to go-to-market and customer management

strategies. Deloittes Operations professionals goal is to

increase profit and efficiency along the clients supplychain, by delivering enduring value through a holistic

offering including analysis, planning as well as optimiza-

tion of the value chain and covering all areas from strat-

egy to technology implementation.

Technology, Media & Telecommunication Industry

Deep industry expertise ensures that the advice we pro-

vide to clients is tailored to that particular sectors needs.

With more than 7,000 senior professionals worldwide,

Deloitte works for 92% of the Fortune Global 500

TMT companies. More than 60 consulting TMT experts

in Germany support technology, media and telecommu-nication clients from strategy to implementation.

Deloittes After Sales and Reverse Logistics

Capabilities

Deloitte is routinely ranked as the top management

practice in the world by leading analysts. We offer an

end-to-end approach to implementing the entire spec-

trum of after sales and reverse logistics capabilities, not

just bits and pieces along the way. Strategy. Process

improvement. Organization design. Transaction analysis.

Technology selection and implementation. Change man-agement. We put it all to work together to help some

of the worlds most successful companies become even

more competitive by means of improvements in after

sales strategies, processes, and capabilities.


32/35

30

About arvato

arvato

arvato AG is a leading global Business Process Outsourc-

ing provider. More than 68,000 employees in over 30

countries work to bring daily success to business cus-

tomers by implementing and managing tailor-made BPO

& SCM solutions. These include all services related to

customer care, after sales, supply chain management,

digital storage media, digital distribution, financial ser-

vices, qualified and custom IT services.

With operative excellence, innovation and great flexibil-

ity, arvatos business units develop peerless outsourcing

solutions for customers from a diverse range of sectors.

arvato Hightech

The division arvato Hightech is a global leader for out-

sourced Supply Chain and After Sales Solutions in the

High Tech & Electronics industry.

Leveraging a global network of warehouses & logistics

depots, a globally integrated SAP-based WMS- and

TMS-platform, as well as more than 50 years of exper-

tise, arvato delivers proven and cost-efficient service

solutions.

The service portfolio encompasses:

1. Supply Chain Services (Packaging & Postponement,

Configuration & Assembly)

2. Logistics Services (Warehousing & Distribution, Ser-

vice Parts Distribution, Transportation Management)

3. After Sales Services (Reverse Logistics, Repair, Tech-

Support)

4. E-Commerce (Online Store Management, eFulfill-ment)

This broad service portfolio from a single provider,

enables arvato clients to reduce their total supply chain

costs and increase shareholder value by innovating and

improving entire business processes, rather than just

individual elements.

arvatos After Sales and Reverse Logistics Capa-

bilities

arvato provides outsourced after sales solutions for

global IT & CE companies. Our solutions comprise of

reverse logistics, repair services and technical support as

well as fully integrated RMA and self-help IT solutions.

Arvatos integrated approach focuses on streamlining

the end-user experience and reducing NFF (no-failure-

found) returns as well as average handling time. Ourclients benefit from improved customer satisfaction and

NPS levels and from reduced total costs of ownership in

after sales and warranty management.


33/35

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Floor

Phone: +86 10 84798888

arvato locations


34/35

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35/35

Authors & Contact

For more information please visit our websites at www.deloitte.com/de and www.arvato-hightech.eu

Deloitte

Steffen Legler

Customer, Channel & Digital, TMT

Tel: +49 (0)69 97137 340

[email protected]

Erich Gampenrieder

Operations

Tel: +49 (0)89 29036 7981

[email protected]

arvato

Marcus Karten

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[email protected]

Thilo Tbbens


Tel: +49 (0)211 8772 3299

[email protected]

Wolfgang Kurz


Tel: +49 (0)69 97137 357

[email protected]

Ken Taylor

Tel: +49 (0)173 2908058

[email protected]

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Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of memberfirms each of which is a legally separate and independent entity Please see www deloitte com/about or www deloitte com/de/UeberUns for a

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