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DESIGN OF A PERFORMANCE MEASUREMENT ARCHITECTURE FOR INTEGRATED AFTER-SALES PROCESSES A. Brun* , G. Novakova**, P. Gaiardelli**, D. Corti*, R. Pinto** *Department of Management, Economics and Industrial Engineering Politecnico di Milano, Piazza Leonardo da Vinci, 32 – Milan – 20133, Italy Contact author:
[email protected] **Department of Industrial Engineering Università degli Studi di Bergamo, Viale Marconi, 5 – Dalmine (BG), 24044 – Italy Abstract An efficient management of after-sales activities should allow manufacturing companies to improve customer satisfaction and loyalty whilst guaranteeing a certain margin of profit. The main objective of this paper is to develop an architecture for measurement that may serve as a tool for assessing the after-sale process performance. This architecture represents an integration between the SCOR Reference model and the SMART Pyramid model. It indicates which are the main aspects that should be measured and each of these aspects presented on the third level of the pyramid model is further detailed by specifying elementary indecies. The paper reports an on-going results of the After Sales Advanced Planning (ASAP) national research project, funded by the Italian Ministry of Research and Education. Key words: after-sales service, performance indicators, measurement
Introduction In recent years the increased competition within many industries has led firms to strengthen their customer service. In particular, the after-sales activities play a key role in the strategy of any company that manufactures durable products for the following reasons: In an industrial context customer satisfaction is guaranteed not only through providing a diversification of products but also through ensuring a diversification of services during the whole product life cycle – from design to dismissing. That is why the activities of the after sales service (installation, technical advice for utilization, maintenance, repair or spare parts delivery) represent essential elements in the whole supply chain in order to assure customers with a complete set of services. The after sales services allow maintaining a continuous relationship between the supply chain actors and the customer, and creating a tight customer relation. After sales services allow a continuous improvement of the product quality using feedbacks from customer through the indications of the technical assistance centres. After sales services guarantee margins equal or higher than the ones provided only by sales activity. So, a good management of the after sales services is becoming essential since the more valuable is the service, the higher is the perceived product quality and the more the supplier takes advantage. The great interest of the companies toward after sales activities has spurred researchers on to focus more their analysis on this issue.
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In this context six Italian Universities, coming from different specialization schools of management engineering and production economics, started in January 2003 a two year project entitled “Advanced logistic and organizational models for the integrated management of the after sales service of durable goods” (ASAP). The existing literature reveals that many processes relative to the after sales services are recognized, but there is not a clear definition of their structure. On the other hand, the existing methodologies deal with the after sales processes either in an aggregate way or referring only to a single one. In order to resolve this critical issue, the present paper presents a performance measurement architecture for integrated after-sales service processes, simultaneously regarding the system, the supply chain (OEM or else), the process on a multilevel view considering strategic, tactic, operative, technical and economic, internal (efficacy) and external (efficiency) aspects, addressing the following outcomes: Generation of an unique architecture that classifies the after sales processes along the supply chain. As well, presentation of the principle after sales processes, individualizing the single models of input-transformation-output with particular regard to the interfaces between the process owners and their suppliers (input phase), and the process owners and their customers (output phase). The architecture will be defined including two different types of sub-processes: operative and supportive ones. The former ones are those giving an added value, such as: material supply, customer satisfaction, reverse logistics. The latter are such as: demand planning, material requirement planning, personal training and reporting, stock management, administration and control. Definition of a set of indicators for each single after sales process and their application where possible.
Literature Review In the literature only a few studies deal with the measurement and evaluation of the aftersales performance. In particular, none of them proposes a framework considering all aftersales related activities and everyone focuses the attention only on certain aspects, e.g. Kolay (1992), SCOR (Supply Chain Operations Reference) model (2001), Patton and Bleuel (2000), Cooper (1995), Armistead and Clark (1991), Lele (1997), Beamon (1999), SERVQUAL model of Parasuraman (1988), etc. Here we review only the SCOR model as it is the base of the proposed architecture. The SCOR Reference model The SCOR Model helps users understand and document company-specific supply chain processes, based on pre-defined elements. SCOR proposes four levels to describe the supply chain processes. At level 1 the five core management processes (Plan, Source, Make, Deliver and Return) are determined. At level 2 each process element included in one of the SCOR process can be further described by 3 process types (planning, execution and enable). At Level 3 process flow, inputs and their sources, outputs and their destinations are captured. Level 4 presents specific supply-chain management practices implemented by the companies. Further levels can be implemented by practitioners, in order to provide a more detailed description of activities. The proposed new structure of supply chain (for more detail see Brun et. al, 2004) in the scope of the SCOR model is believed to be complete and at the same time synthesizes all activities of the after sales service. There is a new macro-process inserted into the SCORmodel after Deliver and before Return process.
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The integration of business processes with company‟s strategy is an essential part of managing new and quickly changing e-business sectors. Efficient management processes are required to enable the implementation of company‟s strategies and strategic objectives, as well as their realisation in everyday business practices using operative measures. Performance management systems (such as the Balanced Scorecard, SMART pyramid, Performance Measurement Matrix, etc.) enable the management of the company to define strategically significant measures and to gear the strategies created using key performance indicators. The innovative process vision of each company brings to the idea of a hierarchical definition of a system of indicators, enlarging the SCOR model which can describe the company‟s plan execution and performance. So, the SCOR model is a wide but not complete model which is able to describe every type of organization. Because of the number of practitioners involved, it should be kept up-to-date and should be enlarged for becoming a standard for business activities description. The Strategic Measurement Analysis & Reporting Technique (SMART) pyramid Besides the already mentioned single performance measurements proposed in the literature, we care to point out also the study of a different performance measurement systems, such as: the Strathclyde’s modelling methodology, Balanced Scorecard (1996), ECOGRAI method and Integrated Dynamic Performance Measurement System, etc. Additionally, at Wang Laboratories in 1989, after the implementation of a Just-in-Time cell approach, managers perceived the need to change measurements. According to them, the traditional set of measures used, with measures as utilisation, productivity, efficiency and other financial evaluations, was not able to provide information to make critical decisions. They were searching for a way ‘to define and sustain success’ (Cross and Lynch, 1988-1989). In the company a new measurement approach was developed, the Strategic Measurement Analysis & Reporting Technique (SMART). The SMART framework can be represented like a pyramid with four levels like the one shown on Fig. 1. An integrated framework, Brun et. al (2004) Another possible reference for the development of the proposed architecture herewith is in Brun et al. (2004) where it is proposed a performance measurement framework developed specifically for the after-sales activities. The performance attributes (efficiency, costs, timeliness, quality, service coverage and modality of service delivery) included in the model can be grouped according to certain macro-categories defined in Beamon (1999). So, our basic theoretical structure has been developed taking into account the paper of Brun et. al (2004).
Design of a New Performance Measurement Architecture After HAVING BEEN studied the above mentioned performance measurement systems, we found approprite to base the proposed performance measurement architecture for after sales integrated process on the SMART-pyramid model, as it is described below. Integration of the SCOR Reference model and the SMART pyramid The reason for choosing the SMART performance measurement system as a reference structure for the proposed performance measurement architecture is the fact that the pyramid gives good opportunity to be well linked and seen the dependence of the performance attributes and indicators, proposed on the third and fourth level, on the company‟s vision and
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strategy. This part of the research is not deepened in the present paper because of the space limitations. However, the focus here is moreover on the bottom part of the pyramid. That is, it is stressed on the fact that the after sales could be represented from different view points: actually it can be seen not only as a business unit and business operating system but also as a single function that takes part in each single process. So, the proposed model is represented like a pyramid with four levels, as shown on Fig. 1. The indicators on the fourth level shown on this figure are newly proposed by us (cf. Fig. 1). The original indicators for this level of the SMART pyramid model includes: quality, delivery, process time and waste. However, we based our choice on practical experience as well as, on summary of previous research works, as reported in the literature review. The performances metrics on the fourth level of the pyramid on Fig. 1 are proposed to be organised in four categories of attributes: efficiency, costs, service quality and timeliness. Quality of service: The quality of the service is provided by several indicators since the customer and service management is vital. For instance, the service personnel is a crucial factor to deliver good quality, as well as how the service itself is offered. That is, which equipment is used, what are the state of the facilities and how many service locations exist. Another category is dealing with the services offered. Customer surveys play also a role in delivering service quality. Timeliness: The timeliness can be evaluated by measuring several different times, such as: response time, delivery time (further split into availability time and transport time), diagnosis time and repair time. The intervention time is the time interval from when the customer makes a request until the problem is fixed by service supplier. Efficiency: The efficiency is measured in terms of how well the service supplier uses its internal manner of exploring its resources (human and technical ones) in an efficient way. Such resources can, of course, belong to different departments like production or quality control. Costs: the indicators in this category allow the company to evaluate the provided service from economical point of view and to assess how it contributes to the business profitability. first level second level third level fourth level
Market
Customer satisfaction
Service Quality
Corporate Vision
Financial
Flexibility
Timeliness
Business units
Productivity
Efficiency
Business operating systems
Costs
Departments and work centers
(See the performance Matrix on Table 1) External Focus
Internal Focus
Figure 1: The proposed model for design of a performance measurement architecture with a SMART-pyramid structure Focusing the attention on the third level of the pyramid we identified two different categories of processes. The performance of each of them can be evaluated with reference to the four mentioned above performance attributes, as described below. From our practical experience in the durable consumer goods industry, we identified a standard model in order to define the micro-activities that compose the after-sales process (in
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this industry). Then, each macro-activity has been classified according to the impact (direct or indirect) on the performances of the whole process: o Support macro-activities cooperate indirectly to the accomplishment of the main process output; o Operative macro-activities cooperate directly to the accomplishment of the main process output. Support macro-activities are: 1. Demand and Service Capacity Planning: it encompasses the activities involved in the service volumes forecasting, its comparison to the available resources and their capacity, and the decision-making process concerning capacity utilization; 2. Materials Planning and Inventory Management: it includes the activities that allow to generate delivery plans, purchase and production plans for spare parts; 3. Training and Documentation Management: it encompasses the activities generating technical documentation addressed to the technical assistance centres and to the end customer, and carrying out of training programs to technical assistance centres; 4. Management of Assistance Network: it encompasses the negotiating activities between OEM and assistance centres, the management of contractual relationships, the performance assessment of the network and the reporting activities; 5. Supplier management: activities related with the choice, relationship management and evaluation of spare-part suppliers and third party providers related to the after-sales service; 6. Warehousing: it includes the physical activities connected with the holding of inventory; 7. Administration of economic flows: activities related to invoicing, payments, reimbursements, compensations, etc. In the second group, we set: 1. Procurement: It encompasses the physical, information-related and order-processing activities related to the procurement of spare; 2. Service Delivery: it includes the physical support activities to the end customer (e.g.: product installation, training, maintenance, repair, substitution, spare parts installation); 3. Customer care: it includes the information-related and non-material activities supporting the end customer (e.g.: call-centre, web support, complaint management, etc) 4. Reverse logistics/Return: it encompasses: i) the reverse flows of dismissed products when substituted; ii) the return of spoiled or broken parts to the product OEM. In Table 1 (see the Appendix) the authors define a matrix with performance indicators which can be appointed to each of the after sales service processes for the relative performance attribute. An application of the proposed indicators to three worldwide companies pertaining to different sectors is given. Their names are not reported here, because of a privacy. Company A: is the Italian branch of a successful Japanese car manufacturer, established in 1937. Today is one of the world‟s leading automakers offering a full range of models from mini-vehicles to large trucks. Company B: is a costumer service subsidiary of the successful European group operating in the house-hold appliances sector, established in 1945. The company runs 2000 plus centres all-over Europe. Company C: is a medium-sized commercial company operating in the consumer electronics sector, concentrated in particular, in an unique business area as telephones. The company sells its products basically on the Italian market.
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Conclusion and Future Developments This research presents a general reference architecture for the development of a measurement system including the main categories that need to be evaluated. The other contribution is the given set of detailed indicators for each performance attribute derived from empirical observations. The recent interest toward transformation of after-sales area to a profit centre is evident in the number of indicators introduced. However, it has to be underlined the fact that these evidences have been derived from the best in class companies that usually anticipate great changes. In fact, the used efficiency measures might be less than those reported in Table 1 (see the Appendix). Summing up, the described herewith architecture, based on the SMART vision, allows to give only an „output‟ performances for the defined after sales processes. Because of that it is recognized that the performances of another two after sales processes, namely the Demand and Service Capacity Planning process, as well as the Materials Planning and Inventory Management process could not be measured within the SMART pyramid since they regard internally the process of after sales. So, the SMART-like model allows only an external vision to the after sales processes. However, the author‟s current research is conducted on the definition of an integrated model which could give an integrated representation of the performance architecture including both an “input & output” performance indicators, as such possibility has been observed in the case studies. A future research development of the model is an enlargement of the SMART pyramid to may give an „input‟ performance measurements, too. Another future investigation of the authors is to study what actually is able to offer the company now and what are its future potentialities. Acknowledgements The authors acknowledge the financial support which they have received for two years from the Italian Ministry of Research and Education (MIUR) for research on the topic of After Sales Advanced Planning in which participate the University of Bergamo, Polytechnical University of Milan, University of Brescia, Bocconi University, University of Florence, University of Rome (Tor Vergata). For more information on the project, please consult the official web-site: www.progettoasap.org. References Beamon, B. 1999. “Measuring Supply Chain Performance”, International Journal of Operations and Production Management, Vol. 19, No 3, pp. 275-292. Brun, A., Novakova, G., Gaiardelli P., Corti, D., Caridi, M., Pinto, R. 2003. "Methodologies and Software of Support to the After-sales Service Processes", 11th Annual International EurOMA Conference 2004, Operations Management as a Change Agent, INSEAD, Fontainebleau, France (France). 27-29 June 2004. Brun, A., Corti D., Novakova G., Songini L., "Conceptual Framework for Assessing Operative and Economic After Sales Service Performance", 13th International Working Seminar on Production Economics, Igls (innsbruck), Austria, 16-20 February 2004, Pre-prints. Brun A., Novakova G., Gaiardelli P., Caridi M., Pinto R.. “Methodologies and Software of Support to the after Sales Service Processes , 11th Annual International EurOMA Conference 2004, Operations Management as a Change Agent, INSEAD, Fontainebleau, France (France). 27-29 June 2004. Cohen, M. A., Wang, S., “Competing in Product and Service: A Product Life-Cycle Model”, Management Science, Vol. 43, n. 4, April 1997, pp. 535-545. Cross and Lynch, 1988-1989 “SMART Pyramid”. Kaplan R. S., Norton D. P., “The Balanced Scorecard. Measures that Drive Performance”, Harvard Business Review, January-February, 1992. Kolay, M.K., “Suppliers Asset Base – Appreciating or Depreciating?”, International Journal of Operations & Production Management, Vol. 13, 1992, pp. 72-86. Lele, M., “After-sales service – necessary evil or strategic opportunity?”, Managing Service Quality, Bedford, 1997, pp. 141-145. Neely et al. 2000 “Cambridge Performance Measurement System Design Process (CPMSDP)” . Parasuraman, A., Zeithaml, V., Berry, L., “A Multiple Item Scale Measuring Consumer Perception of Service Quality“, Journal of Retailing, pp. 12-40. Supply-Chain council, “Supply-Chain Operations Reference-model, SCOR Version 6.0”, July 2001, www.supply-chain.org
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After sales processes
Service Quality
3) Training and Documentation Management
Frequency of training courses for employees (comp. A); Number of professional courses for the personnel (comp. B)
4) Management of Assistance Network
Equipment used (comp. A); Number of Performance Indicators (comp. A)
5) Supplier management
Defectiveness of the supplied components (comp. C)
6) Warehousing
Picking errors (comp. A) Service level (comp. C) Number of spare parts stocked (comp. C)
7) Administration of economic flows
8) Procurement
9) Service Delivery
Performance Attributes & Indicators Timeliness Efficiency
Costs
Frequency of reports (comp. A)
Number of reports (comp. A) Centre for Assistance attitude toward the software utilization (comp. B)
Picking time (comp. A) Download time (comp. A)
Number of orders (line) fulfilled (comp. A) Cost of warehousing Quantity of Components (comp. C) (telephones) on stock (comp. B)
Invoice Delivery Time (comp. A) Response time (comp. A) Delivery availability time (comp. A) Delivery transport time (comp. A) Availability time (comp. A) Dispatching time (comp. B) Transport damages (comp. A) Total number of service Number of Analysed components /n° of parts (comp. A) the total defective components Number of different parts (comp. B) (comp. A) Number of Requested parts (comp. A) % of requested parts available (comp. A) Service after Production stop Response time (comp. A) (comp. A); Delivery Availability time Interventions (comp. A); (comp. A)
Sizes of pools (comp. A) Pool management (comp. A) Stock month (comp. A) Stock Rotation Index (comp. A)
Spare parts Costs (comp. A)
% of claims received fulfilled Technical assistance cost (comp. A) (comp. A) Number of technical reports Failure rate of sold
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(comp. A) products (comp. C) Delivery transport time (comp. A) Number of received fax %interventions requiring (comp. A) spare parts (comp. C) Diagnosis time (comp. A) % of interventions at first try Stocked material value Repair time (comp. A) (comp. C) (comp. C) Time between repairing and spare parts receiving (comp. A) Annual number of Time between repairing and interventions (comp. C) spare parts and technical documentation (comp. A) Technical assistance (comp. C) Mean time to repair (comp. C) Mean time of service delivery (comp. B)
10) Customer care
11) Reverse logistics/Return
Responses (comp. A) Frequency (comp. A) Type of Survey (comp. A) % of immediate responses (comp. A) Number of Resolved Complaints (comp. A) Total number of complaints (comp. A) Mean time to response % of immediate responses (comp. A) (comp. B) % percentage of responses below time limit (comp. A) Statistical distribution (comp. A) % of letters replied in time (by mail or phone) (comp. A) Calls abandon rate (comp. A) Service level (comp. C) Technical assistance satisfaction(comp. C) Response time (comp. A) Delivery availability time (comp. A) Delivery transport time (comp. A)
Calls not fulfilled rate (comp. A)
APPENDIX/ Table 1: Matrix with indicators for the performance attributes Service Quality, Timeliness, Efficiency and Costs regarding the after-sales processes
