20 Points of an Outcome Based Product Support Business Model - Commercial

White Paper: The 20 Elements Of An Outcome-Based Product Support Business Model

The target audience of this white paper is Business Developers, Customer/Product Support Leadership and Financial Professionals employed by OEMs in the development of business models designed to deliver outcome-based solutions for the support of a product.

The objective of product support is to assist the end-user to:

Assure the materiel readiness level of the product; when I need it, I can operate it

Grow the reliability level of the product; when I operate it, it works during my time of use

Retain the capability level of the product; when I operate it, it delivers what I need it to deliver

Reduce its impact upon Total Ownership Cost (TOC); I need to apply Continuous Process Improvements (CPI) in managing costs

Evolve the technology level of the product; I need to stay current with the value that the product’s technology adds to the process in which it is employed

Minimize its impact upon the field resource footprint; I need just enough people and things to deliver a solution

The purpose of the white paper is to provide the reader with an overview of the 20 elements that are required to configure an Outcome-Based Product Support Business Model.

This whitepaper is segmented into the following four areas:

1. Overview of the investment and economic value of products2. What is product support3. The 20 elements of an Outcome-Based Product Support Business

Model4. Conclusions and recommendations

Overview of the Investment and Economic Value of Products

As of the beginning of 2010, the US commercial investment in products, at Current Replacement Value (CRV), is an estimated $11,000 billion, with a global investment estimated at $35,000 billion. Commercial products are resources that are employed in processes such as generating electricity (gas

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turbines), transporting goods by air (cargo aircraft), or moving pallets (forklift). This investment has been a primary enabler for developed and developing economies to materially boost their labor productivity; the US manufacturing process, as of 2010, through the investment in products, has seen a four-fold increase in manufacturing output since 1960, with no increase in labor. Also today the US, through investments in products, has been able to generate from the farming process, enough food to feed 300 million US citizens and as many more people outside the US, with only 3% of the US population engaged in agriculture; a far cry from the 40% of the US population engaged in farming in 1900 in order to feed 80 million citizens, with little food exported outside the US.

The economic value of a product to an organization is its impact upon the outcome of a process in which it is employed. The product will impact the outcome-efficiency (TOC-per-unit-of-output) of the process, as well as impact the outcome-effectiveness (benefits of the quantity of output) of the process. Below is a schematic of the inputs and outputs of a process employing a product.

The following are examples of the outcomes of a process resulting from the employment of a product:

An Class 8 truck is acquired by a logistics organization in order to increase the outcome-efficiency of the ground transport of goods process by decreasing the TOC of moving a ton of goods one mile from

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$.050 ($5,000,000 cost/100,000,000 ton miles) to $.045 ($4,500,000 cost/100,000,000 ton miles)

A remanufactured mining excavator is obtained by a coal company in order to increase the outcome efficiency of the coal extraction process by decreasing the cost per ton of coal extracted from $73.35 ($7,335,000 cost/100,000 tons excavated) to $68.11($6,811,000 cost/100,000 tons excavated)

A mainframe computer is obtained by the research lab of a drug company in order to impact the outcome-effectiveness of the process of simulating DNA permutations by reducing the computation time from 13 minutes to 2 minutes for a one result

A refurbished Magnetic Resonance Imaging (MRI) Scanner is obtained by a rural hospital in order to improve the outcome effectiveness of the body scanning process by increasing the clarity/quality of the soft tissues imagery of the body by 40%, as well as decreasing the average time to scan by 20 minutes

What Is Product Support

The annual cost for the support of these products is an estimated $700 billion in the US and $1,800 billion globally. The lifecycle stages of a product are represented in the figure below:

The following is a brief description of the processes employed in the Product Support lifecycle stage:

Correct a product that is in an unplanned-impaired condition (cannot fully or partially achieve its value for the process in which it is

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employed; can occur before, during or after use. This process is typically performed at the site where the product is operated. It is driven by the following events:

o Failure due to quality issues o Past-due time/use-based scheduled activityo Recall due to safety/quality issues (i.e. battery installed for

electronic component explodes under certain condition, requiring there rapid removal)

o Non-catastrophic damage (i.e. product housing dented and requires replacement due to cosmetic purposes)

Prevent a non-impaired product from evolving into an unplanned-impaired product. This process is typically performed at the site where the product is operated. It is driven by the following events:

o Time/use-based activity schedule (i.e. part ABC removal required for safety purposes every 1000 hours, and last removal occurred 950 hours ago; non-expired part ABC removed)

o Condition-based monitoring trigger (i.e. part reaches predetermined threshold of wear-and-tear parameters requiring removal

Reset product condition, driven by a planned program, to the same condition which existed before an event. It is driven by the following:

o After every use (i.e. after each wide-load East coast to West coast truck roundtrip, product is thoroughly inspected and repaired).

o After extraordinary period of use (i.e. construction equipment is deployed in rural China for 12 months and returned to U.S. where it is disassembled and reassembled and the condition of the product is returned to where it was before it was deployed)

Change product condition or configuration, but not increased capabilities, through:

o Remanufacturing/overhaul; bring product back to original capability and reliability, as well as insert any technology upgrades

o Insert technology upgradeo Insert reliability improvements

Repair catastrophic damage resulting from accident Store product short/long-term retaining current condition

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The 20 Elements of an Outcome-Based Product Support Business Model

“The business model is a collection of elements that represents one way in which an organization obtains monies. It is a combination of factors, not a single element, that together represent each of the key interactions that the enterprise will have with its environment. An Enterprise is a collection of one or more business models that describe how various entities come together to provide value and make money. An enterprise is basically an abstract notion that describes a set of business models that come together,” A. Nicklas Malik, “Enterprise Business Motivation Model.”

All the elements below are required to be reviewed in crafting an Outcome-Based Product Support Business Model. Note that for each of the Product Support processes discussed above, a business model must be crafted. The totality of the business models creates an Outcome-Based Product Support Enterprise.

1. Product employed in process (i.e. laser-cutter employed in manufacturing process)

2. Event driving demand for a solution (i.e. unplanned failure of a critical repairable component)

3. The specific organization that is demanding a solution (i.e. General Electric, Aircraft Engine manufacturing maintainer organization)

4. Weekly operating environment of organization employing product (i.e. 16 hour/6 days)

5. Specifications of solution demanded (i.e. enable a Production Manager to re-employ a laser-cutter product after the unplanned failure of one of the product’s critical components is resolved)

6. Outcome of the solution (i.e. non-impaired component to be provided for installation to maintainer unit within no more than 4 hours, based on 24/7 clock-time)

7. Organization that “owns” relationship with customer of the delivery of the solution (i.e. GE Technical Customer Support)

8. Organization that delivers solution to customer (i.e. GE service parts distribution)

9. Solution delivered to customer (i.e. operator/maintainer removable/installable critical repairable that are available from a

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supplier-forward like-kind exchange program distributed from Regional Distribution Center located in customer’s region)

10. Processes employed to deliver solution (i.e. create/add repairable components to exchange program, maintain repairable components in program and remove repairable components in program)

11. Resources employed for each process (i.e. personnel, materials, facilities, equipment, software)

12. Risk management of unfavorable outcomes (i.e. not being able to adapt to changes operating environment in a timely manner)

13. Relationship with customer (i.e. how will customer order parts and how will the customer be informed as to the status of their order)

14. Relationship with suppliers (i.e. Vendor Managed Inventory programs provided for all parts at depots employed for repairing repairable components)

15. Payables structure (i.e. pay supplier fixed cost per period, such as extended warranty, with award fee for reaching or surpassing outcomes)

16. Receivables structure (i.e. obtain payment from customer on a fixed price per transaction basis)

17. Managerial cost accounting (i.e. construct allowing the comparison of actual expenditures and planned expenditures)

18. Required subject matter expertise (i.e. Off-hour Tech Support coverage personnel with 20 years experience)

19. Geography and location (i.e. global support with centralized planning and control in CONUS)

20. Constraints (i.e. Hazardous Material content transportation restrictions)

Conclusions and RecommendationsCrafting a comprehensive Outcome-Based Product Support Business Model is an extremely challenging task. The use of an Integrated Product Support Team, reporting directly to the Product Support leadership is critical to the success in the delivery all the different business models required to create a Product Support enterprise.

The Product Support Enterprise models are to be revisited throughout the life of the product driven by the comparison of what was planned and the

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realities of actual events. Without such adjustments, a model is strictly an intellectual exercise of minor value.

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20 Points of an Outcome Based Product Support Business Model - Commercial

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Transcript of 20 Points of an Outcome Based Product Support Business Model - Commercial