The cultural challenge – this week's MHD article

Antony Bourne

Manufacturers today live in a very competitive, price sensitive and crowded world. Companies that operate in developed economies can no longer compete on cost alone and are looking at how to achieve a more stable revenue forecast. The need to differentiate from competitors is also a key priority. One way this can be done is to look at servitisation – the shift from selling just a product to selling a product and a service – as a way to provide a complete solution to customers.
Why manufacturers are servitising their businesses
The main benefit for companies adopting servitisation is that it will introduce a brand new revenue stream, one of selling services and/or service contracts. It also helps reduce the cost to the customer. With more information about the customer’s products, for example, you can be more efficient in the way that you maintain them.

“The opportunities of servitisation are a major game-changer for the entire manufacturing industry and the supply chains that surround it.”

Servitisation leads to a better understanding of customer needs by forging closer working relationships with them and analysing the data acquired in the process. This transition from making goods to selling services represents a huge change that creates major challenges for many traditional manufacturers, as their product effectively becomes the platform from which to deliver those services.
The three levels of servitisation
Manufacturers can adopt varying levels of servitisation within their operations, starting with a base level where they centralise the supply chain for product consumables and spare parts within their remit and revenue model. At this stage, additional resource requirements in terms of people and materials are minimal and there is no great financial commitment.
The next level of servitisation requires a service team to oversee customer requirements for product maintenance and service. This demands either a level of internal investment, or outsourcing to a third-party supplier. It does, however, bring opportunities for upsell from a well-trained service team.
Businesses that fully embrace servitisation commit to investing the entire supply chain in the success of the project for an agreed time – one, three, ten or more years – beyond delivery of the product. As such, they may accept responsibility for service and maintenance for a fixed term under a contract, which means if unexpected failures or repairs are necessary they will bear the costs. However, to compensate for this risk they will be rewarded with regular revenue. With significant projects where costs are high, there is the potential to receive a share of the profits from the project on a performance-related basis.
From the customer’s point of view, this is an incentive for manufacturers to focus attention on maintaining the asset in peak condition. Accordingly, this should ensure an investment in a high-quality product to begin with, and a focus on preventative maintenance rather than just responding to failures as they occur.
How technology can enable servitisation
Digital transformation is a critical enabler of servitisation. With recent technology advances, specifically around cloud and the Internet of Things (IoT), manufacturers can now look at using digital technologies to add new services/offerings to their portfolio.
These technologies can and do include predictive analytics to forecast future breakdowns, remote monitoring of usage, and allowing updates to be proactively pushed out to customers. If you use IoT technology then you will be able to receive data about how long the product has been used, which in turn will help you be more predictive about when maintenance work will be required.
With sensors detecting when your product or equipment needs service, data can trigger an automated service action that will realise significant benefits to make your service organisation more effective. This type of automated predictive maintenance will become more and more common as it is a natural next step after implementing IoT to optimise service efforts. It will also allow you to gain insight into when and how products are being used – with the potential for game-changing competitive advantages.
Manufacturers need to change their mentality
However, manufacturers also need to change their mentality from a ‘Let’s make it and then sell it’ to more of a ‘Let’s support it throughout its lifecycle’. There are risks with this approach, since it needs buy in and to be driven by top management. This conscious shift in mindset and strategy is easier said than done.
Companies will need to invest in skills training since a more customer-centric approach will be needed, new departments may be created, and existing job roles may need to evolve. There are many challenges they will encounter and need to overcome. As a result, 70% of manufacturers see ‘availability of resources (people, materials, financial)’ as the principal hurdle for increasing their service portfolio (source: The Annual Manufacturing Report 2016).
From a people perspective, the main issue is that salespeople need to be trained to sell an outcome as opposed to a product, which for many is a difficult cycle to break. When looking at materials used in the product structure, designers may have to change the way they develop a product, since they want to ensure that it is built for service as opposed to just built to last the warranty period.
Lastly, when it comes to the financial aspect, the big issue is that from a short-term revenue point of view, there will be a big impact, as it will now be spread over many months/years and not received all in a single payment upon delivery and acceptance.
Transformation from manufacturer to consulting company
IFS has a number of customers who have adopted the servitisation approach. One of them is Nowy Styl, a company that transformed itself from a pure manufacturer of furniture to a world-class office interior consulting company.
Founded in 1992 in Poland by the Krzanowski brothers, Nowy Styl originally set out to supply office chairs to its domestic market. They made the early decision to invest in ERP software and chose IFS Applications, even before the complexities of supply chain and production demanded it.
The initial implementation involved Nowy Styl, which distributed customer orders, and Fotel Style, the principal assembly company. Within a few years, IFS Applications was rolled out through other Slavic territories and into France, Germany and the United Kingdom.
The design gurus at Nowy Styl were not happy to stop at office chairs – and why should they when the entire office environment was their canvas? The business now delivers an all-encompassing Workplace Space Planning service that embraces all the drivers of workplace efficiency: light, acoustics, air-conditioning, and the need for meeting places and communal areas.
The opportunities of servitisation are a major game-changer for the entire manufacturing industry and the supply chains that surround it. New digital technologies, integrated with enterprise software solutions, are now available to drive this change. However, the challenges of transforming the mindset of those who will need to adopt and adapt to the new business model should not be underestimated.
Antony Bourne is the global industry director of industrial and high-tech manufacturing for enterprise software company IFS. For more information visit www.ifsworld.com/au.
 
 

Are you giving your customers what they want?

A recent Mitel Global Benchmark Study has found a significant gap between customer expectations and reality:

  • Nearly two-thirds (60%) of respondents in Australia say more work is needed by companies to improve their online experience.
  • Customer experience (CX) ratings vary by vertical with hospitality leading the way globally.
  • More than half of all respondents think machine-to-people interactions will improve CX.
  • Australian consumers still believe they will have the better customer experience in a physical location than an online store.

The survey, of 5,000 adults from Australia, the United States, UK, France and Germany, indicates a measurable disconnection between the advancements organisations think they are making to deliver exceptional customer service and how customers actually view their commercial interactions. Specifically, less than half of respondents believe the technology needed to deliver the perfect online buying experience is available. This stands in stark contrast to findings of a previous Mitel survey, in which 90 per cent of IT decision-makers optimistically reported progress in improving customer service through the use of technology.
Whilst a clear sign of the growing pains associated with digital transformation initiatives underway globally, the new survey also uncovers an opportunity for technology to play a key role in defining and keeping pace with changing buyer behaviour and preferences. In fact, over half of those surveyed believe machine-to-people interactions will positively transform the customer experience (51% in Australia).
Vertical visionaries, leaders and followers
As customer experience becomes increasingly critical for businesses to remain relevant and compete, Mitel’s survey shows differences in customer satisfaction across vertical industries. Growing use of cloud communications and applications, combined with emerging technologies like the Internet of Things (IoT), artificial intelligence, chatbots, and natural language processing (NLP), are creating new ways for companies to nurture and build customer relationships. Winning companies will be those that are able to differentiate their brands by delivering seamless experiences across physical and digital environments, devices and channels. Currently, some segments are doing better than others.

  • Hospitality leads the charge: Hospitality management knows the first stop on the itinerary for today’s travellers are online review sites. Before booking a trip, consumers want to hear what others have to say. In fact, it’s a near-universal activity. Given the impact reviews can have on average daily room rates, it’s no surprise this industry takes customer satisfaction seriously, receiving top marks among those surveyed. Australians also responded with high satisfaction rates (41%) with regards to their online experience with hospitality providers.
  • Physical retail isn’t dead, but the customer experience is: More than 60 percent of shopping done by respondents still takes place in a physical store, though that number is shifting. When asked about the challenges faced by today’s brick-and-mortar retail outlets, three out of five respondents say the fact retail stores are struggling has more to do with the customer experience they provide, not products. While Australians are currently shopping in physical stores at much higher levels (74%) they agree with their global counterparts that customer service just doesn’t exist anymore. A seamless omnichannel approach is critical for this market, where more than one-third (36%) of Australian respondents note they make purchasing decisions based on the experiences brands provide versus the products and services offered. Chatbots can be used to manage simple tasks, while IoT and team collaboration tools open up new avenues for communications across media, whether it’s voice, email, SMS, web chat, social media or a website.
  • Speed is the game in sports and entertainment: In the fast-paced world of sports and entertainment, immediate and clear communication is a necessity. Forty-nine percent of Australian respondents point to simplicity and speed as the most important factor in a good customer service experience, slightly higher than the global average (45%).
  • Availability vital in healthcare: Healthcare organisations receive the lowest marks from respondents in all countries when it comes to customer service. Australian respondents, in particular, say availability and 24/7 service (40%) is the most important feature they look for from healthcare services, followed by simplicity and speed (36%).

“The data shows no matter where you are in the world, customer service matters — bottom line,” said survey administrator Regina Corso of Regina Corso Consulting. “In order to truly connect with customers on their own terms, organisations must look for new ways to balance technology investments with personalised customer service. Those that are able to navigate this balance will go on to build strong brand loyalty with their customers, helping them succeed in today’s highly competitive purchasing environment.”
Additional insights from the data indicate:

  • Bots, AI and machines can fill the customer service gap: Consumers appear to be increasingly comfortable with machine-to-people interactions when shopping online, with over 78 percent of Australian respondents saying they are satisfied dealing with automated processes. Most do not want to interact with a person while shopping online unless the service is very complicated, or they are having trouble finding the product or service they need. Half of Australian consumers and over 60 percent of U.S. respondents say if they could shop without speaking to a person, it would be a good thing. Even so, physical retailers need to balance the use of technology. Consumers do expect people to efficiently help them when shopping in a physical storefront.
  • Mobile reigns supreme in the United States; Australia favours in-store: Of all respondents, U.S. and Australian consumers shop most frequently during a typical week. There are also notable differences by country regarding how and where consumers shop. U.S. respondents reach for their smartphone and use apps; Britons like shopping online via their tablets; French shoppers most often use their laptops; Germans are more likely to use a desktop computer; and Australians prefer a physical store location (74%).
  • In Australia, brands can’t be complacent about improving their online presence. While more Australians still prefer buying goods and services in physical stores, more than two in five (42%) say they want to shop even more online, and just one in ten Australians (9%) say they don’t like shopping online at all. Seven in ten Australians (71%) say overall, shopping online is more convenient than shopping in a store. To meet this growing demand for online services, and the change taking place in consumer behaviours and expectations, brands need to consider a greater level of consistency across both the online and physical experience for their customers.

The study is the latest in its Business Insights Survey Series, which builds on previous research from August 2017 where more than 75 per cent of IT decision-makers said they planned to tie together devices, emerging technologies, and communications and collaboration capabilities within two years to enable machine-to-people interactions to improve customer experience. This body of work expands on the concept established by Mitel in 2016 of Giving Machines a Voice to enable IoT and other machine triggers to launch real-time communications workflows that can improve how companies work and collaborate. Exploring a different angle, this survey examines how consumers view customer experience in shopping for goods and services across market segments, including retail, hospitality, sports and entertainment, health care, financial services and utilities.
For more results and a closer look at regional or country-specific data, download the white paper.

Found in translation – Exporting the Australian logistics mindset

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Three Australian logistics veterans have been tasked with rethinking Japan’s supply chain strategy, mixing the traditional and the modern to achieve unprecedented growth.
Even when you’re the biggest name in your market, that’s no reason to rest on your laurels. While Coca-Cola is the market leader for beverages in Japan, there are five other major players vying for a share of the action. Market pricing has been declining steadily over the past 16 years, putting a squeeze on margins and forcing beverage suppliers to stay vigilant to remain relevant. According to Bruce Herbert, Chief Supply Chain Officer at Coca-Cola East Japan (CCEJ), consolidation and diversification have been key strategies for many in the industry. “Coke in Japan is not just carbonated drinks, over half our volume is sugar-free teas, coffee and water,” he says. “A very strong innovation and new product pipeline has to be filled every year from our own plants and a network of contract packers.”
Covering over half of Japan and serving a population of 60 million, Coca-Cola distributor CCEJ is in a constant state of metamorphosis, always looking for ways to increase efficiency and cut costs. The US$6 billion ($8.2 billion) bottler was originally formed in 2013 through the merging of four smaller bottlers and has since absorbed a fifth one. It will soon merge with Japan’s next biggest beverage distributor – Coca-Cola West – and cover some 90 per cent of the market. Set to take place in 2017, the merger will increase the company’s value to US$10 billion ($13.7 billion) and increase its assets from eight factories to 17, 250 sales warehouses from 150, and 800,000 vending machines from 400,000 and 3,500 daily semi-trailer loads shifted per day from 2,000.
CCEJ recruited supply chain experts from around the world, including Bruce, to come to Japan and lend their expertise and, as a result, has been hugely successful in cutting costs and increasing profit. Bruce is joined by two other Australian supply chain experts, cherry-picked for their knowledge of the beverage and retail industries with decades of experience working with supply chains in Australia, Asia and Africa – Edward Walters, now Senior Executive Officer, Planning, Logistics & Distribution at CCEJ; and Distribution Transformation Manager, David Sim.
The Japanese market has presented a challenge, thanks to the country’s complex traditional business etiquette, though Bruce found its workforce’s strong work ethic and customer service to be worthy of admiration. “In Australia we take for granted that change and improvement are part of working life,” he says. “Especially at [Coca-Cola’s Australian-based bottler, ed.] Amatil, where supply chain transformation has been progressing since the mid-90s and many world-leading initiatives were started. Coming to a business which was effectively five small Japanese businesses just three years ago, I have realised just how far ahead some of those things we were doing in Australia were.
“In one way we have a big advantage of having lived in what will be ‘the future state’ for the supply chain here. Of course, there are many things to be learnt from the Japan model as well, but knowing that changes needed here have worked elsewhere gives us a big head start.
“I respect the Japanese working style. My Japanese colleagues are extremely hardworking and focused on detail, in a way that most Australians would find very challenging. Workers regularly work very late in the office, never hesitate to stay back or work over weekends and don’t give up on a problem. So much so that Government and companies are focused on encouraging people to relax more and take more time off, take more holidays etc. – this is definitely not a problem in Australia.”
The Japanese approach to life in general, including even how seemingly ‘logical’ issues are approached is quite different to the West, according to Bruce. “Not better or worse, but different,” he adds. “Whilst basic human reactions and motivations are the same, the way they express themselves is different. Relationships are much more important and sensitive here, as is loyalty to the business or community. All of these things translate into business culture and relationships.”
In some aspects, Australia’s logistics sector could benefit from observing the Japanese workplace, says Bruce. In particular, he believes that the value placed on quality and customer service in Japan would do wonders for Australian business. “Japan is surely the most quality-focused country on earth, and customer service is seen as an extension of quality,” he says. “Near enough is not good enough, perfection is sought after and worked towards at every level. It is deeply ingrained into everyday life – I don’t think we would ever have to ‘train’ for customer service as it is intrinsically understood. This often leads to failures by multi-national companies who don’t understand what Japanese consumers and customers expect. Likewise: quality. Australian businesses may be more ‘lean’ but often do so at the cost of customer service and quality.”
CCEJ looked at successful logistics strategies in use around the developed world when searching for ideas to rejuvenate their own approach and, according to Bruce, flexibility and a laid-back Australian style have been instrumental in ‘cracking the code’ for the company’s logistics strategy. “I think openness to different ideas has been key,” he shares.
“I experienced some changes put in place here earlier by some of our colleagues from the US, but many of them did not work as they were simply ‘cut and pasted’ ideas from the US. Aussies may be proud of their country, but they usually don’t expect that they have all the answers.”
Edward likens the challenge of solving CCEJ’s issues to the task of unravelling a badly tangled set of Christmas lights – difficult to unravel without breaking a light and stopping the business. “We discovered that, over many years on the quest to providing high service and quality, network efficiency at CCEJ had been eroded severely,” Bruce adds. “This had happened steadily and high transport, warehouse and other costs had been accepted as ‘normal’. As there was little benchmarking of supply chain costs outside Japan, and since the costs were not easily ‘visible’, they had not been tackled by investment or progressive change either and a gap grew between global practice and Japan Coca-Cola practice.”
In order to ‘crack the code’, Bruce shares that two major changes needed to be introduced. “First was a painful implementation of a new SAP ERP system which replaced multiple legacy systems and gave central visibility to live data,” he says. “Second was more instinctive – we cut inventory by about 20 per cent – a very brave move in Japan – and thereby decongested the network, eliminating double handling, waiting times, extra transport and product write-off.”
A third big change, which is currently in progress, involves moving inventory upstream, closing small sales centres and cross-docking others, together with possible investment in new warehouses at plants and picking automation. CCEJ is already seeing positive results from the change, with over 25 billion JPY ($290 million) supply chain savings both from manufacturing and logistics/distribution improvement since its inception in 2013.“This year, heavy transport cost is down 20 per cent and write-offs are down 50 per cent,” Bruce shares. “So we are already almost halfway to the long-term cost reduction goal after just one year.” The 2017 merger of Coca-Cola East Japan and Coca-Cola West is expected to create opportunities for further savings.
Bruce attributes his team’s success to a combination of factors, from slow and cautious implementation of changes to constant re-evaluation of direction. “We didn’t approach this as a ‘project’,” he says. “We tackled this as a management challenge – to implement changes, monitor them closely and adjust as we went along. In that way the original ‘plans’ were gradually changed – with successes amplified and failures dropped quickly. Good real-time data access and manipulation was crucial here.
“Thanks to methodical and detailed execution of strategies by our team here, the changes we made to inventory levels, planning processes, truck routing, pallet configurations etc. were executed without impacting customers or quality. This meant that the costs we saved were not lost in upset customers or lost sales, but could flow directly to the bottom line.
“We discovered a clear and costly link between inventory levels and transport costs, which had never been uncovered before. I’d like to say we found this by a big analytical study, but actually it only became clear by trial and error – which is why an army of experts and analysts had failed to find it before.”
CCEJ now encourages its employees to make suggestions for improvement of processes, and implements over 100,000 small innovation ideas per year on ways to improve quality, safety, service and cost.
The notoriously rigid traditional Japanese business culture presented a particular challenge for the CCEJ supply chain team, Bruce explains, though they were still able to achieve “massive change and results” thanks to their measured approach. “Resistance to change remains a constant both within the business and with customers and some suppliers,” he says.
“This is largely due to the extremely high standards set by customers and consumers and fear of making big mistakes. We were able to overcome this by making many small progressive changes, and avoiding – for the most part – big bang or sudden, unplanned change.”
Bruce believes that if applied in Australia, his team’s strategy could result in similarly positive outcomes. “The approach we have taken here has been based on numerics and data combined with good management routines, not just ‘hardware’,” he shares. “It can therefore be applied anywhere, to any problems.”
The CCEJ supply chain team have developed their own version of the revered – though oft-misunderstood – ‘Kaizen’ (kai: change, zen: good) business philosophy whereby big changes can be achieved through small, continuous improvements in all aspects of business. They are confident this method could be applied with success in any business environment. Bruce adds, “All I know is that after 35 years in this game there has never been a change as big and fast as what this team has achieved here in Japan this year.”

Logistics equipment control training goes online

CHEP Australia has announced the launch of a new online course on the fundamentals of pooled equipment control.

The interactive online training is based on the one-day courses conducted nationally by CHEP for more than 10 years, and will help build a strong foundation for participants in equipment control best practice.

CHEP ANZ Customer Experience Manager, Mark Harvey explains that the new online training course has been introduced in response to requests from customers who sought additional training to supplement CHEP’s existing face-to-face training and which could also be accessed easily.

CHEP has built the web-based course as a suite of modules that can be used individually to address a specific need or be treated as an ongoing program. Designed to help even first time users to grasp the fundamentals of equipment control, the online course is available anytime, any day of the week. Each module takes around 10 minutes to complete and the topics are relevant to different job roles within the supply chain.

CHEP will continue to build on the basic online course by developing additional modules covering a greater depth and breadth of topics. The course aims to educate users about equipment pooling control, helping to increase their understanding of the value of efficient and effective equipment control, improve equipment processes, and reduce the number of corrections, losses and trading partner disputes.

The training is available to all CHEP account holders on CHEPedia.chep.com, 24/7 using existing Portfolio Plus logins.

Pacific National launches new mobile application and online freight tracker

Pacific National Rail introduces a new smartphone application and an enhanced online customer interface system to boost customer service across its freight business. Pacific National is a wholly owned subsidiary of Asciano Limited. 

The custom-built app and online system will provide customers with access to real-time data on freight movement and delivery along with their service details, container location and freight terminal activity.

Catering to the specific needs of customers across Pacific National Rail’s freight business, the custom smartphone app allows customers to check bookings and access real time information on service details, train performance, container or bulk freight locations and truck turnaround at major freight terminals. The application will provide real time container location searches for all containers in the Pacific National network. Designed, built and tested in-house, the smartphone app is available for download through a number of online app stores.

Enhancements to FreightWeb, Pacific National Rail’s internet-based customer interface system include a new module called Freight Tracker that presents a real time display of customer freight-specific train performance or the current ground location of the freight on an interactive map of Australia. The map displays coloured icons showing train and freight locations.

Clicking on an icon for that train or location will allow the customer to access a full list of freight carried, along with details of each train’s on-time performance. Freight Tracker also provides bulk commodities customers with the functionality to ‘unload’ their wagons online after the train has arrived at its destination. 

The new Freight Tracker function uses real train performance information gathered from GPS tracking of each locomotive. For a Pacific National train travelling from Melbourne to Perth, the information can update in excess of 100 times during the journey providing a status update at least every two hours.

Director of Pacific National Rail, Angus McKay explains that the new initiatives have resulted from feedback provided by customers in a recent satisfaction survey. A key finding was the need to maintain better communication with the customer about the status of freight and services. Customers also sought better interaction. 

Pacific National Rail’s two new initiatives demonstrate their commitment to improving customer service across all operations while investing in new technology to position the business for the future. 

Listing out the advantages of the new initiatives, Mr McKay said the tracking of freight movements through the new technology will improve their customers’ ability to interface with the company and enable them to accurately plan for the efficient movement of their freight across their supply chain. The initiatives also build on Pacific National Rail’s commitment to investing in new technology as a means to position rail as a preferred mode of transport within Australia’s overall intermodal freight mix.

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