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A Leader in Service Management Tackles Multidimensional Growth

Written By: Predrag Jakovljevic
Published On: April 6 2011

Over the last few years, we have followed Servigistics on its quest to become a full-fledged service lifecycle management (SLM) platform. Founded in 1999, the company was initially a service parts planning and optimization (SPP/O) specialist, helping service organizations reduce service inventory levels while maintaining or improving fill rates and service level commitments.

In 2004, Servigistics acquired ProfitScience, a then-leading provider of parts pricing solutions, so Servigistics was able to help service companies improve their gross profits, in addition to ensuring parts availability. In 2006, it acquired TransDecisions’ field scheduling solution, which helps companies that handle numerous service calls per day per technician to optimize their technician–dispatcher ratios.

With an embedded service knowledge management (SKM) system by Kaidara, Servigistics has provided a service knowledge (SK) offering since 2008 aimed squarely at improving first-time fix rates, call center productivity, and dispatch avoidance metrics. Until 2009, Servigistics referred to its suite of modules collectively as strategic service management (SSM).

Post Merger: New Servigistics

Then, in 2009, under the auspices of its new financial backers, Marlin Equity Partners, Servigistics merged with (or, better said, annexed) a major part of former Click Commerce, which brought a few service execution solutions to the portfolio. In TEC’s three-part article series at the time, we had not only praises, but also some reservations and concerns.

Namely, in addition to Servigistics now having two overlapping parts planning solutions (i.e., Xelus, the pioneering parts planning solution, which came with Click Commerce, and Servigistics’ original product), the service platform strategy seemed questionable in terms of Servigistics not having native enterprise resource planning (ERP) and/or enterprise asset management (EAM) capabilities and related transactional systems of record. In other words, Oracle, SAP, or IBM looked like more eligible service platform providers than Servigistics. Click Commerce also came with its own baggage of multiple overlapping legacy warehouse management systems (WMSs), such as the former Optum and WorldChain solutions, that were all built on disparate technologies.

In any case, Servigistics’ portfolio has since been bolstered with Click Commerce’s logistics execution and network visibility module that decreases the number of late shipments, facilitates lead-time reductions, and increases warehouse productivity. In addition, the added returns and repair (reverse logistics) capabilities help improve repair shop floor productivity, reduce losses in returns, and improve turnaround times.

Continued Transition in 2010

In 2010, as a natural post-merger progression, the company had a few departures. Replacements were made relatively quickly, most prominently via the appointment of Mark Vigoroso, a former fellow service industry analyst at Aberdeen, as senior vice president of global marketing and alliances, and of Gregg Schoonover, formerly at Manhattan Associates, now senior vice president of research and development (R&D).

Manhattan Associates and Servigistics share the same home office building in Atlanta, separated only by six floors. Interestingly, the SLM Imperative message from Servigistics (that will be explained shortly) resembles the Manhattan SCOPE (Supply Chain Optimization from Planning to Execution) message: both are holistic platforms (for product- and service-based supply chains respectively) that optimize interdependencies in their nodes and processes (see the related article on Manhattan Associates for more details).

In April 2010, Servigistics acquired its erstwhile partner Kaidara for its aforementioned SK solution, and in July 2010, Conduit Internet Technologies, a provider of product content management solutions for original equipment manufacturers (OEMs) and dealer-based service organizations. Conduit’s offering, formerly called Smart Enterprise Suite (SES), is an electronic product catalog (EPC) system that allows enterprises to organize, manage, and share critical content necessary to support distribution channels. As such, Service Content has been particularly well received by companies in the dealer-based automotive and industrial equipment verticals.

Best Product Performers in 2010

The Conduit and Kaidara acquisitions have brought Servigistics further towards the customer relationship management (CRM) market. Customer help, documentation, and self-service fit quite nicely alongside the rest of the Servigistics suite. Prior to the Kaidara merger, Servigistics had no service knowledge clients, as TEC noted in 2009.

However, the Service Knowledge module has outperformed expectations in 2010: while Kaidara brought more than 20 existing clients, Servigistics has lately acquired about a dozen brand new clients. Apparently, service companies are increasingly realizing that knowledge is difficult to access when it’s bound in War and Peace-like manuals and that it requires several months to get people trained. Moreover, service knowledge is ever-changing as the pace of innovation increases, and the so-called tribal knowledge is walking out the door, i.e., as the baby boomer workforce retires.

Another product that has performed better than expected is the Service Logistics (SL) suite, which is a major part of the “execution” portion of the Servigistics product suite. SL also includes many of the tools used across Servigistics for key performance indicator (KPI) management, measurement, control, and visibility. The SL suite offers the following capabilities to orchestrate, execute, and manage transactions and operations across a service network (which came from Click Commerce but have since been rationalized and simplified):

  • Service Order Execution (SOE)—Management of return material authorization (RMA) creation to disposition
  • Service Network Visibility (SNV)—Order Visibility, Inventory Visibility, and Collaboration
  • Event Management—Multi-Echelon Exception Detection, Notification/Escalation, and Work Queue
  • WMS—Inbound, Outbound, Inventory Management, and Task Engine.
  • Repair Management—Work in Process (WIP) Management, Parts/ Labor Tracking, Repair/Failure Analysis, Warranty Tracking
  • KPI Management—Insight Solution Pack (out-of the box dashboard reports)

In 2010, the SL product gained a few new marquee clients, such as ReSolve (part of Arrow Electronics) and ExpressPoint, while Dell added SL to its existing modules from Servigistics (e.g., Command Center). Servigistics also has more than 20 legacy Click Commerce WMS clients, which will be supported for the foreseeable future. The Service Parts Pricing module is also steadily growing its install base with key clients that include GM, Bombardier Recreational Products, BMW, and CargoTec Corporation.

The Servigistics SLM Platform

Servigistics now refers to its portfolio of solutions as an SLM suite, whose major capabilities are shown in Figure 1. Until recently, one of the remaining “white spaces” in Servigistics’ footprint was remote service. This changed when Servigistics unveiled a partnership with leading remote diagnostics solution provider NextNine at its recent Exchange 2011 user conference.

Servigistics SLM Application Portfolio

Figure 1. The Servigistics Service Lifecycle Management Application Portfolio

Exchange 2011: Impressions and Observations

Eric Hinkle, Servigistics’ chief executive officer (CEO), opened the general session with his keynote presentation on the company’s current state of affairs. Servigistics reportedly grew by 17.8 percent in 2010 despite a bad global economy. Servigistics currently has more than 300 blue chip clients in the following industries: high technology and telecommunications, motor vehicles, aerospace and defense (A&D), and consumer and industrial equipment.

Servigistics also expanded geographically by opening new offices in Taipei (Republic of China) and Paris (France), nearing 400 employees worldwide. In 2010, the company consolidated legacy Servigistics and Click Commerce’s Service Network Solutions (SNS) hosting operations into those of QTS (Quality Technology Services) operations. Hinkle finished his presentation by outlining the company’s 2011 goals and priorities as follows:

  • Sustain top- and bottom-line growth
  • Maintain high client satisfaction and engagement
  • Combine products and services to deliver value at every stage of the client lifecycle
  • Enhance, expand, and emphasize the platform
  • Continue to invest in operational scalability

The Servigistics X (version 10) platform converges the best of Xelus and former Servigistics parts planning solutions, while further migration to a unified technology stack is expected for many former Click Commerce products. The Servigistics and Xelus parts planning solutions historically have approached the service parts planning problem from different angles. Namely, Xelus excelled at what-if planning scenario analysis, whereas Servigistics delivered a batch processing and exception-based planning approach. These two approaches are merged within Servigistics X to provide interactive planning capabilities.

Huge Service Opportunity, Huge Challenges

Mark Vigoroso, senior vice president of global marketing and alliances, then took the main stage to set the stage for the aforementioned “SLM Imperative.” According to Vigoroso, in this service economy, an excellent product no longer guarantees business success. Finding new sources of income and growth has become a matter of competitive necessity for traditionally product-oriented companies.

Indeed, in many sectors, services markets are growing much faster than their adjacent product markets, and product-based market leaders can earn better margins on services than independent service providers. Services enhance competitive differentiation and create a “virtuous cycle” for product companies. Moreover, capital markets recognize services growth and reward it in valuation.

To illustrate the above statements, Vigoroso quoted Larry Wash, president of global services at Ingersoll Rand:

For every dollar sold in equipment, if we get it right, we will get an eight-times pull-through from our customer in value-added services. Our fundamental strategy in service is to leverage the brand and the permissions that these brands provide us to introduce a continuum of services. For that, we have to transform from an equipment-centric culture to a service culture and ultimately to a renewable culture.

Over the last six years, investments in service management software have grown by 25 percent annually, which is 2.5 times the rate of overall information technology (IT) spending. Top priorities for SLM technology investment in 2010 and 2011 are the following: service business intelligence (BI)/analytics, service CRM, service knowledge management, and mobile field service.

But many companies have not been satisfied with service technology investments made to date. According to Aberdeen, an average satisfaction score is 3.4 on the scale of 1 to 5. For more information about service opportunities and challenges, see TEC’s series of articles on “Navigating between Service Management Scylla and Charybdis.”

One of the major reasons for suboptimal satisfaction is the parochial approach to improving service processes in process and/or departmental silos that measure only local KPIs. That’s to say, to maximize financial returns from post-sales service, profit and loss (P&L) owners must have an actionable view of total service costs, risks to revenue targets, and threats to customer loyalty. The only way, according to Vigoroso, to achieve this view is with an end-to-end, fully integrated service process and technology backbone.

The SLM Imperative

Vigoroso defined SLM as the profit-driven optimization of the system of processes employed by durable goods manufacturers and their service network partners to ensure products perform as promised after the sale. Without an integrated, lifecycle view of service, OEMs incur unnecessary costs, miss revenue opportunities, and risk customer attrition.

As one typical example of suboptimization, Vigoroso cited the all too common case of pricing managers being unaware that a certain price cut for a particular spare part requires, say, a 20 percent increase in inventory to meet the gross profit target. As a result, stockouts occur and the gross profit goal is missed. A suggested solution is to use Servigistics’ Profit-Driven Parts Management bundle (consisting of the Service Parts Planning and Service Parts Pricing modules). In this scenario, pricing managers are automatically prevented from making spare part price cuts that require more than, say, 15 percent increase in inventory to meet gross profit targets.

In another typical case of suboptimization, pricing managers might lock in spare part prices for the next two quarters, unaware that this can contribute to an excess of end-of-life (EoL) parts and inventory bloating. With the better visibility provided by the aforementioned bundle, pricing managers would be able to authorize aggressive spare part price cuts to liquidate excess inventory of EoL parts, thus keeping working capital requirements low.

Moreover, repair depot diagnostic technicians often only have access to as-designed bills of materials (BOMs) and cannot access as-maintained BOMs for asset-specific service guidance. Hence, repair yields and turnaround times suffer. An up-to-date product content management module can be a possible solution as a key component in the post-sales service chain, as it provides visibility and access to content such as parts manuals and catalogs necessary to support distribution channels.

Service Content is strategically complementary to Servigistics’ Service Parts Pricing, Field Service, Command Center, Repair & Returns, and Service Knowledge solutions. If a repair depot diagnostic technician can access an as-maintained BOM for asset-specific service guidance, repair yields and turnaround times will significantly improve.

The Importance of Service Network Visibility

Another all too common bad practice comes from field technicians, who, when they replace a part, add it to a growing stockpile of defective field replaceable units (FRUs) in their trunk stock, rather than delivering it to a repair depot. This stockpiling may trigger the unnecessary purchase of new spare parts and erode service margins. For their part, planners might overestimate repair yield rates, under-purchase new parts, and miss contracted service-level agreements (SLAs).

Vigoroso suggests the Logistics & Repair Operations bundle (consisting of the Service Knowledge, Service Content, Service Logistics, and Warranty Management modules) to amend this scenario. Seamless and scalable facility execution on a global basis should drive consistent processes and higher levels of data accuracy in the planning systems, reducing costs in safety stock and improving inventory control and visibility. It should also improve shop floor efficiencies, by providing access to historical diagnostics, troubleshooting, and repair techniques.

With this visibility, field technicians will replace parts and deliver defective FRUs to a repair depot, thus maximizing the use of repairable parts and bolstering service margins. For their part, planners will have real-time visibility into current repair yield rates to optimize the mix of new and repaired parts in their stocking plan, and contracted service levels are exceeded. Servigistics touts a case of a company achieving 100 percent revenue growth in services in 3 years with only a 20 percent increase in inventory with the use of the Logistics & Repair Operations bundle.

Other SLM Bundles

At the conclusion of his presentation, Vigoroso outlined the following SLM bundles that Servigistics has recently developed to enable its clients to best leverage the next generation of service lifecycle solutions:

  • Service Channel Management, which entails the Field Service, Service Knowledge, Service Content, and Remote Service (NextNine) modules. The idea here is to maximize the use of lowest-cost service channels—i.e., remote service (telematics) or self-service—before escalating to higher-touch channels, such as customer service representative (CSR) or field service technician. This way, companies can derive a 150 percent higher revenue contribution from service.
  • Service Issue Resolution, which includes the Service Knowledge, Service Content, and Remote Service (NextNine) modules. Typically, a service worker spends 90 minutes troubleshooting an unforeseen problem with a newly introduced product. With codified issue resolution processes supported by machine fault code analysis, this time can be cut to 15 minutes. The service force rapidly ascends the maturity curve and lifecycle margins are maximized. Enterprises can derive a 56 percent higher profit contribution from service.
  • Service Parts Marketing, which consists of the Service Parts Pricing and Service Content modules. This bundle allows aftermarket marketers to couple “phantom demand”—as manifested in abandoned online parts searches—with actual demand in their calculations of optimal pricing per part by region and season. This way, enterprises can derive a 79 percent higher revenue contribution from service
  • Field Resource Management, which entails the Service Parts Planning and Field Service modules. In this scenario, a call center operator diagnoses a problem and identifies the part required to fix the problem. If the part is not available regionally, a service ticket will go on an immediate hold-for-part status, thus preventing a truck roll and thereby reducing operating costs (and the carbon footprint). Service organizations can derive a 71 percent higher revenue contribution and 20 percent higher profit contribution from their service.

In a nutshell, the SLM Imperative makes sense: service enterprises can optimize by point solution silo, such as parts planning and field service, and measure success using internal (and often conflicting) metrics, but the real optimization comes from a holistic approach and overall KPIs.

Cynics might say that Servigistics is only trying to up- and cross-sell more modules this way, but it is difficult to debate the general idea of holistic optimization.

A vast majority of Servigistics clients (more than 100 of them) are parts planning clients who are happy to remain as they are and not buy anything else. Still, at Exchange 2011, there were some impressive case studies of clients that are going for the “SLM platform” approach, e.g., Dell and Cisco Systems.

Servigistics’ platform is not yet a transactional system of record for its clients, although the vendor might be considering entering the EAM fray in the long term. However, Servigistics is currently a system of record for any asset’s service record, from its installment until decommissioning. What manufacturing execution systems (MESs) are for the ERP systems of product-based companies, SLM is for those of service-based organizations.

Face to Face with Servigistics’ Chief Visionary

What follows is an in-depth, enlightening, and candid conversation that I had with Mark Vigoroso after his keynote presentation.

TEC: What is Servigistics’ system integrator (SI) and technology partnering strategy?

MV: Servigistics has always had a conservative “measure twice, cut once” approach to SI partnerships, and we provide about 95 percent of our own professional services. Experience has shown that Servigistics benefits less from the extended reach that SI partners can provide than it does from partners forming special teams and practices and training on the Servigistics products.

Having said that, we do have partnerships with Wipro, Accenture, and Genpact in the business process outsourcing (BPO) space, given the trend of many product companies to outsource their service operations to outside specialists.

We recently announced our alliance with NextNine for its remote service capabilities. Last but not least, we do provide application programming interfaces (APIs) to SAP and Oracle’s ERP and EAM solutions, but over time and subject to market needs, we might want to have even more involved certifications for SAP NetWeaver and Oracle Fusion Middleware (OFM).

TEC: What is your message to field service organizations where parts planning and optimization (PPO) is not the top pain point?

MV: If need be, we can offer any of our applications stand-alone, including our Field Service application. In fact, we have beaten and replaced point solutions from the likes of ClickSoftware and ServicePower where core requirements have been dispatching, scheduling, and real-time what-if based rescheduling of thousands of technicians, capacity planning, etc. And as these clients evolve in their pursuit of service transformation, we’re uniquely positioned to deliver higher-order value by coordinating parts, knowledge, and remote diagnostics with field service.

[See TEC’s series of articles, “The Magic behind Planning and Executing Optimal Service Supply Chains,” for a fuller discussion of such scenarios.]

What we’re finding in the market is if PPO, service knowledge, service content, warranty, and other adjacent service business processes are part of current or near-term future requirements, the pure-play field service automation providers will quickly qualify out.

TEC: What are you doing in terms of mobility?

MV: We provide a Java-based device-agnostic mobile platform. One Exchange 2011 session demonstrated our capabilities on Motorola’s Xoom tablet. Also, we have a partnership with Brother Mobile Solutions for its remote printing, bar coding, etc. capabilities.

TEC: Whom do you see as Servigistics’ main competitors, and what is your differentiation?

MV: Our competitors come from the following two camps: 1) Platform providers, such as SAP and Oracle, and 2) Point solution providers, such as ClickSoftware, ServiceMax, PROS, Consona, Inquira, E2open, etc.

Our strength over both camps is the breadth of our offering combined with the best-of-breed depth of our individual modules (nearly or completely best-in-class, depending on the module). For instance, in service parts planning, our depth is illustrated by the fact that we have twice as many people in R&D than our closest point-solution competitor has total employees.

TEC: How really different was the “new” Servigistics in 2010 compared to the “old” Servigistics of 2009 and before? How different is the SLM strategy, given the many similarities (i.e., having the service rather than the product SCM focus of traditional ERP and/or SCM offerings)?

MV: The “old” Servigistics was perceived as a single product company (i.e., parts planning), perhaps with some add-on modules towards the service platform idea. Today, and in the future, Servigistics is about providing more diverse and market-driven solutions and bundles that executives in the C-suite care about.

In addition to the SLM bundles that I mentioned in my presentation, every industry has unique challenges that require specialized solutions. For example, high tech and medical equipment often need same-day SLAs, have stringent up-time requirements, and require service in the field with the accompanying trunk stock, service part chaining, and end-of-life management. On the other hand, dealer-dependent motor vehicle OEMs tend to focus on aftermarket parts revenue, profitability and competitiveness, multi-echelon parts planning, and dealer-managed inventory (DMI).

For their part, the asset-based A&D, utilities, and energy sectors focus on asset up-time and availability management. Prevalent service operational models include power by the hour (PBTH), performance-based logistics (PBL), and readiness-based sparing (RBS). Needless to say, they also need preventive maintenance and remote diagnostics.

Last but not least, depot-based consumer electronics companies are affected by globalization and outsourcing, and they need forward and reverse logistics management, whole unit warranty, and depot repair capabilities. Look for Servigistics to deliver Service Logistics solutions along those lines.

TEC: Which regions and products have performed well in 2010, and what do you expect for the year ahead?

MV: You have already heard that our SK and SL modules have exceeded their 2010 plans, while the others were on target.
 
Servigistics generates more than half of its revenues from North America, but we’re seeing promising growth in Europe and the Asia-Pacific region. Brazil (and Latin America in general) and India (where we already have a large R&D presence) are still largely untapped regions, where we anticipate growth to accelerate in the upcoming years.

TEC: This was a rare conference of late where the audience wasn’t bombarded by the “cloud” and “social everything” buzzwords, which was refreshing. Having said that, where do you stand in terms of cloud and social media offerings?

MV: As part of our value-added professional services, we offer application hosting in a single-tenant, “private cloud” manner. Clients have many choices in terms of payment (i.e., perpetual license, subscription, or rent-to-own), deployment (i.e., in a client data center or hosted in a secure off-site facility), and system management (i.e., maintained either by the client or by Servigistics).

In my opinion, “social media” will go the way of “e-business.” That is, it will become such an integral part of how business is conducted that you will no longer hear it called out as a separate endeavor.

TEC: Who are the decision makers within an enterprise when it comes to buying your products and services: IT departments or line of business (LoB) folks?

MV: Definitely the LoB folks (e.g., chief service officers, chief operations officers, and chief financial officers). IT departments tend to fall for the “siren song” of ERP providers—the claim that they can supply the client with good enough functionality across the enterprise.

Interestingly, Accenture recently published a report that stated, “Leaders in service management are likely to depend less on ERP to handle parts and service, since ERP systems often struggle in areas such as forecasting, managing distributed inventories and aligning resources with specific service or maintenance events.”

 
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