With the right processes and systems in place, services can ‘sku’ your sales higher. Just make sure your products and services are “naturally adjacent” in your master data repository.
A piece in Modern Distribution Management yesterday on Grainger’s recent analyst meeting had a revealing comment from president and CEO Jim Ryan: “What we’re seeing now is companies consolidating their service providers, as well. They are no longer viewing products and services separately.” [emphasis added]
That article linked to an earlier overview of Grainger’s philosophy of blending products and services. In that piece, Michael Pulick, the company’s U.S. president, said that the key to successfully integrating products and services is to make sure that services have a “natural adjacency to our product line.”
I like the phrase “natural adjacency.” It nicely expresses the concept of an organic, seamless relationship between a product and the services and support that add value to the product, which in turn adds benefits to the customer’s experience with the product.
That’s important because services are a strategically powerful, high-margin area for growing your business. They let you penetrate more deeply into your customers’ supply chains and business processes, and help position you in the customer’s mind as a whole solutions provider. In fact, services after the sale can add up to between 10 and 40 percent of revenue.
But effectively managing services requires a certain level of commitment and process rigor. An Accenture paper on the subject cited the services management areas that category “masters” have in common, including:
- Formal tools and processes for staying in tune with a customer’s needs (65%)
- Proactively identifying emerging service opportunities with customers (71%)
- Proactive services and parts strategies, aligned with company strategy (81%)
- Sales and service work together to offer full portfolio (81%)
- Sales and service actively manage full portfolio of services (80%)
These areas of process excellence are reflections of how critical service supply chains are becoming for successful business operations. However, services management present a range of challenges unique to handling an entity that isn’t manufactured, packaged, and shipped on a palette. Some of these include a lack of resources focused on services, a lack of IT support, a growing (and perhaps unmanaged) supply base for services, and the absence of a holistic view of service spending.
(As an example of the latter, a CAPS Center for Strategic Supply Research study cited in this outstanding paper revealed that less than 60 percent of services spending flow through an enterprise’s normal systems and processes for product management.)
A subtle but critical element of this dynamic is managing SKUs for services. Service SKUs don’t pull along a lot of the added overhead that product SKUs have, but they still need to be accounted for and properly managed. In particular, managing SKUs for services presents challenges in relation to managing information about related products.
To achieve the “natural adjacency” Grainger’s Pulick mentioned, it helps to manage your SKUs in a master data management (MDM) platform that supports complex relationships among products and which has enterprise workflow integrated with it to automate business processes. These capabilities can ensure that services and support are pulled through with their related products in multichannel merchandising. So when you’re marketing and selling a product online, you can make sure those services are included with the offer from the start. And when warranties are about to expire or the customer purchases a related product, you can be alerted to anticipate those events and in order to offer new or renewed services along with them.
Making the commitment to services requires a certain level of effort in terms of instituting new processes (or fixing existing ones) as well as providing the tools to support them. The payoff of services sales is another reason to move forward with a master data management initiative.