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AFTERSALES MANAGEMENT Creating a successful aftersales strategy to reduce costs, improve customer service and increase sales
London and Philadelphia
Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First published in Great Britain and the United States in 2009 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road London N1 9JN United Kingdom www.koganpage.com
525 South 4th Street, #241 Philadelphia PA 19147 USA
© Dr David Brock, 2009 The right of Dr David Brock to be identiﬁed as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 978 0 7494 5641 2 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Brock, David, 1962 Feb. 26– Aftersales management : creating a successful aftersales strategy to reduce costs, improve customer service and increase sales / David Brock. p. cm. Includes bibliographical references. ISBN 978-0-7494-5641-2 1. Retail trade– –Management. 2. Returning goods. 3. Quality of products. 4. Customer service. 5. Customer relations. I. Title. HF5429.B6636 2009 658.8’12– –dc22 2009017061 Typeset by JS Typesetting Ltd, Porthcawl, Mid Glamorgan Printed and bound in India by Replika Press Pvt Ltd
1. Aftersales Aftersales costs Why is it important? The ‘unnamed’ hole in retail ﬁnances Isn’t this just customer services? What about quality managers? Operating principles The book structure and who it is aimed at Summary
1 1 2 5 7 8 9 10 11
2. History and common practice General practice Service standards Suppliers Lessons to be learned Management buy-in Summary
13 13 14 15 17 18 18
3. Legal matters Key points Legal principles Limitations Why the confusion? ‘I know my rights!’ Exchanges Repair versus replacement Refunds Guarantees and warranties Duration of guarantees and legal rights Consumer rights in the United States and Canada
21 21 22 22 24 24 28 29 30 30 31 31
Consumer rights in the rest of Europe Consumer rights in Australia and New Zealand Summary
34 36 38
4. What do customers want? Overview Building a reputation Managing perceptions Difﬁcult customers and practices like ‘deshopping’ Summary
39 39 41 42 43 44
5. What do sales staff want? Key messages So what do they want? How do you give them what they want? Summary
47 47 49 50 53
6. What does the rest of the business want? Marketing Logistics Finance Purchasing Human resources The Board Summary
55 55 56 58 58 60 61 63
7. Problem resolution timescales Basic principles Reasonable timescales Why time is so critical Scale of tolerance Repeat repairs Mr and Mrs Angry Summary
65 65 66 67 68 70 70 71
8. Proposition design Common sense Timescales Diagnosis and fault resolution Parts availability Multiple failures Guarantee term
73 73 74 75 75 76 76
Loan equipment and products Compensation ‘Sorry!’ Summary 9. Supplier management and reverse logistics Basic principles Supplier management Operational management OEM suppliers and bought out guarantees Claimbacks, contributions and cost recovery Purchase terms and conditions Vendor manuals and supplier speciﬁcations Summary
77 78 78 79 81 81 82 85 90 93 93 98 100
10. Aftersales operations Basic principles Repair operations Repairs management Testing and refurbishment of returns and exchanges Aftersales and escalations managers Escalation processes Retail outlet support Customer service teams Summary
101 101 101 102 108 111 115 119 121 124
11. Financial evaluation Principal issues Operational costs Write-off and exchange costs In-home repairs Supply chain issues Summary
125 125 126 127 136 140 143
12. Reporting techniques Overview Product failures and faults Reporting descriptions Customer service standards Exchange reporting Operational reporting Summary
145 145 146 146 148 150 158 170
13. Example ﬁnancial analyses Overview Exchange costs – non-bought out guarantee Exchange costs – with bought out guarantees Repairs costs – non-bought out guarantee Repairs costs – with bought out guarantees Combined costs Exchange costs – potential savings Repair costs – potential savings Net projected savings Summary
173 173 173 176 179 181 182 183 184 185 186
14. Implementation and retaining the beneﬁts Setting the standards Benchmarking Planning principles Suppliers and manufacturers Short-term gains Medium-term development Longer-term projects and holding the gains Summary
187 187 188 189 190 191 192 195 197
15. Financial services Fundamental principles Extended warranty programmes Consumer credit Regulatory authorities Summary
199 199 200 202 202 203
16. Summary and conclusions Financial gains Consumer reputation Staff self-respect and increased conﬁdence Supplier position Stability and the opportunity for growth Closing notes and comments
205 205 205 206 206 207 207
Appendix 1 Key actions for process improvement Appendix 2 Further reading and key sources of information Index
209 211 213
Aftersales costs Having worked in a range of different business sectors and worked in partnership with companies in a whole lot more, it is clear to me that one thing binds all of these companies together. They all need a cohesive aftersales policy and an efﬁcient process for delivering it. Moreover, the costs of this type of problem amount to many hundreds of millions of pounds per annum. Whilst there has been some reasonable progress on matters such as reverse logistics, the causes of the problems and linking this to better management of the customer has had only limited attention. On the face of it, this probably seems to be a fairly simple issue. Everyone has customers and some of them will be unhappy from time to time. When these customers are unhappy, the companies should just resolve the problems, say ‘sorry’ and then move on. Well, that is easy then, isn’t it? Sadly, no, and all of us have horror stories to tell about bad service and even worse of the way our complaints were handled. Each time there is a problem the cost is in reality much higher than is actually realized and the cumulative costs can be a serious haemorrhage for otherwise well-run companies. Clearly, these are very simple principles, so why are they so difﬁcult to manage? The reasons are quite complex but in general can be traced back to the most fundamental components of the ways that companies and business groups are run. The emphasis within this book is on retail, but ultimately, the same problems apply to organizations of all types, and in this respect the public sector is generally in no better shape than the private sector. Companies like to have simple processes and standard procedures. The perceived wisdom is that this allows managers to manage better because they can measure things (IT – information technology –
2 Aftersales Management
managers and IT directors all over the world are chuckling at that one). The problem is that customer requirements are not simple. Moreover, these customers do not often conform to set models and they throw up levels of complication that simple processes and standard procedures frequently fail to cater for. When measuring things like units sold, money taken in and cash spent, then these are relatively simple concepts (albeit many managers and directors have a tendency to turn these into complex, Machiavellian ciphers). Retail customers generate huge variables, and try as we may each one stubbornly insists that we meet their own speciﬁc requirements. They may all buy the same goods but each has different ways that these goods are used and each works or lives in a set of combination of circumstances speciﬁc to them and only them. Therefore, the successful company creates a team of individuals who take responsibility for those customers and the issues that they create. They work with suppliers and repairers and they clear the logjams and backlogs that make us all as customers very cross indeed. This book is designed to allow retailers to understand why they have problems and what to do about these issues. The ultimate intention is to enable the redesign of these retailers’ aftersales operations and to improve their processes in a manner that is not only better for customers, but also much less costly to operate.
Why is it important? So if it is so complex, then why bother? Why not simply put aside a ‘slush fund’ to deal with the difﬁcult customers who do not conform to the standard company aftersales model and then just write these charges off as a part of the cost of doing business? In principle, this is not such a bad idea, but it can only ever be economical if it is used as a last resort. That is, for that small percentage of customers who will never really be happy unless they see ﬁnancial recompense for their pain and who will not give up until they have achieved this goal. It might be argued that some companies have so few complaints that the slush fund is quite realistic. However, unless the sum total of the expenditure on aftersales is well under 0.5 per cent of the company’s turnover then you are still probably spending far too
much. More worryingly for you is the question, ‘Do you actually know how much it really is costing?’ The simple facts are that aftersales issues are very expensive unless carefully controlled. They are a slow puncture in the ﬁnances of your business that will at best be a reason to stop your company to regularly take on air for the tyres. At worst they will cause a blowout when you are at top speed and send your company careering into the ditch of lost dreams, just when it seemed that the open road was ahead and the rush hour trafﬁc was far behind. The cost of an exchanged product is almost always substantially more than the selling price of the goods. The true cost includes logistics, telephone calls, compensation, sortation, testing, reporting and reselling or disposal of the exchanged goods. This said, the fact that it costs a net £100 to process an exchange on a product selling for £49.99 retail is not life-threatening if only 0.1 per cent of units are exchanged. However, if 2 per cent of goods are exchanged then this equates to almost 5 per cent gross margin (excluding VAT). If the number is 5 per cent (which on the face of it doesn’t seem that bad), it is almost 12 per cent gross margin, which is potentially very damaging; we will explore these costs in depth later. The frightening reality is that many, if not most companies do not actually know the scale of these costs and their impact. They may know that, for example, they are exchanging 2 per cent of all goods sold, but they can perhaps recover some of these costs from their suppliers. They may have a customer service team of four people with an overall cost of, say, £60,000 and they might think that this is not too bad when compared against a turnover of, say, £10 million. However, the true cost is a combination of the points made above and the net cost of moving, sorting, lost sales and general administration is nearer to £250,000, which is not quite so good after all. These numbers are intimidating but it is much more worrying when you understand the overall scale of this issue. There are no records kept of this type of information, but Table 1.1 gives the levels of exchange that my experience suggests are the norm. Table 1.1
Projected product exchange levels Estimated Percentage Unit Exchange Levels
Electrical Appliances Furniture
5% to 15% 6% to 16%
4 Aftersales Management
The variation is simply a function of the differences in the types of goods sold and how well these companies are run. That is, if a retailer only sells small volumes of top brand products and offers lots of aftersales care then the exchanges are likely to be low. If on the other hand it is a discount retailer, selling large volumes of entry price point goods and with little aftersales care, then exchanges will be much higher. The furniture sector appears to have more problems, but the reasons for exchange are quite different. In the electrical sector, the problem is normally a simple case of the appliance not doing what it is supposed to. However, in the furniture sector there are completely different drivers with the emphasis being on the look of the goods or the length of time taken to build and deliver them. Hence, there are higher levels of exchange in the furniture sector and potentially these problems are more difﬁcult to resolve. The following takes a closer look at the costs in these two sectors. Estimates vary about what the true market sizes are and how much is for domestic versus commercial use, but this aside, they are a reasonable guide for the purpose of making an important point. These are potential costs to the respective retail sectors dependent on what the actual cost of aftersales represents as a proportion of sales. It should be noted that these do not include the costs borne by the manufacturers and they certainly do not include the disposal and reprocessing costs associated with the WEEE (Waste Electrical and Electronic Equipment) Directive. If these charges are taken into account then the overall cost is many times this level (see Table 1.2).
Table 1.2 Project sector costs associated with exchanges and repairs
Sector Est T/over (£000,000) Net Cost (£000,000) 1% 2% 3% 4% 5%
190 380 570 760 950
130 260 390 520 650
Even if they did fully understand the scale of the problem, no retailer would admit to these ﬁgures, let alone report them to a central organization. Therefore, there are no ﬁgures available that give a true analysis of these costs but my experience suggests that the true percentages are between 2 per cent and 3 per cent. This represents something like between £350 million and £600 million per annum in the electrical appliance sector and between £250 million and £400 million per annum in the furniture sector. These are big numbers and savings that any retailer would be very keen to obtain. In today’s market, to generate this type of return through increased margins would be very tough indeed. Unless companies can employ complicated and detailed wholelife accounting methods then it is very difﬁcult to assess the true net value of a product line. These methods are good in principle but even a large retail product like a washing machine may only have a shelf life of six to nine months before there is a range change. However, the hangover from the sales of these goods may take 18 to 24 months to clear through fully, and retail is such a transient business that by the time the full impact of a product has been evaluated they are not only no longer selling it, the product range probably no longer exists.
The ‘unnamed’ hole in retail ﬁnances The comments made so far raise the simple question, ‘Why don’t companies have a better understanding of these issues?’ The answer lies within a combination of understanding and ownership. They tend not to really understand the issues and even when they do, they are not sure what to do about them. The result is that very few companies really tackle these issues and even less get control of them. So why is this issue ‘unnamed’? The answer comes principally from the lack of understanding of the problems that we have already discussed, but in many other cases it comes from the fact that managers and directors are not really aware that the problems actually exist. Most good ﬁnance directors are aware that there is some form of drain on expenditure, but most also have very little idea about what to do about it. Well-organized operations directors know there is an issue but it does not ﬁt within the usual logistics type operations and in any case, it is probably seen as being generated by purchasing, marketing or sales.
6 Aftersales Management
The purchasing, marketing and sales teams know there are issues because they see the exchanged stock building up in the back of the shops and they see the write-offs, but these are usually in the form of ‘unnamed’ margin adjustments. Looking ﬁrst at ownership, if the costs of exchange are caused simply by a badly made product or an item damaged on delivery then this is easily allocated to a speciﬁc department’s proﬁt and loss account (P&L). However, if the problem started as a faulty product because the buying team did not check the factory, but it was then written off because the logistics team dropped it on the way back to the warehouse so that the manufacturer won’t take it back, then what part of the net cost is allocated to which P&L? This leads us on to a very important problem, that of apportionment of cost. Most department heads will plan in an amount of time or resources to handle queries or problems. They may do this deliberately (for example a retailer’s delivery team will expect at least some wrong addresses and incorrect sales) or they may do it subconsciously on the basis that they always add 5 per cent extra ‘just because’. It is very difﬁcult for ﬁnance directors to break down these types of costs so that they can be reported, let alone be managed. So what happens to these costs? As above, they usually end up as ‘margin adjustments’ and/or they are consigned to the ‘work in progress’ pile that someone will attack one day when they are not quite so busy. Retail ﬁnancial arrangements are usually far more complex than they are given credit for. The buying arrangements will include a combination of allowances for advertising and promotion plus oneoff allowances for bulk purchases, and then there are the retrospective rebates for buying speciﬁc volumes throughout the year. Then there are the bought out guarantee (BOG) arrangements that retailers normally agree for the so-called ‘entry price point’ (EPP) goods that are often also known as ‘original equipment manufacturer’ (OEM) goods. They manifest themselves as additional margin or reduced buying-in prices in return for the retailer taking on the guarantee. As we will investigate many times throughout this book, the BOG can be a risky strategy and whilst there are certainly some successful examples of this principle, it is very frequently the case that the shortterm gains become longer-term headaches, especially in aftersales. Taking all of this into account it is easy to see why even the most experienced ﬁnance directors have their work cut out in trying to pin these costs down. Add in issues like deal-led buying strategies
combined with shorter and shorter range-change cycles and it becomes clearer why retail ﬁnance directors tend to focus more on today’s issues and less on tomorrow’s potential problems. Finally there is the ‘Is there a problem?’ disease which afﬂicts most businesses in one way or another, but retail seems more susceptible than most. In retail it often appears that business is either great, in which case why worry about a few ‘small’ issues, or awful, in which case the drive is to hack out costs quickly and this usually takes the form of store closures and/or redundancies. Aftersales costs are a big problem that simply cannot be ignored.
Isn’t this just customer services? So what is being described here? Is it the customer services team, a call centre or the guys in the van who come to ﬁx or replace the thing that you bought last month that has not lived up to expectations? In fact, it includes all of them to some degree, but in reality, the issue is much broader than this. The problem lies within the fact that companies often cannot easily deﬁne what aftersales programmes should look like, let alone actually create something to manage these programmes. In some cases companies have servicing teams, and a few more enlightened companies may have aftersales operations, but they rarely have the scope and recognition that they need if they are to have the right level of impact on costs. Service directors are usually repairers and ‘ﬁxers’, whilst aftersales directors are often lost somewhere between customer services and the supply chain with a basic job of cleaning up as cheaply as possible. Traditionally, the customer services team is the group who try to pick up the pieces after the bomb has gone off and patch up the wounded. They are usually reactive, although they may be involved in what might be described as ‘post-match debrieﬁngs’ where they will try to explain why the problems are occurring. At best, they may be able to intercede further up the chain and deal centrally with issues that are not well managed in satellite and remote operations, but this is often not the case. In general, they are managers of information, prompters and chasers who will take up and manage problems on behalf of customers. Aftersales managers usually have a technical bias and prefer to manage the issue directly with the service providers and suppliers. They will have enough knowledge to understand the technical jargon
8 Aftersales Management
but they will focus on getting a result for all customers at the lowest possible cost for the retailer. At a more senior level the aftersales manager is responsible for making sure that these problems do not happen again, with involvement in buying decisions and liaison with sales and logistics teams. That said, in most companies this is done in an after-the-event capacity and rarely do they get involved in proper pre-emptive planning.
What about quality managers? In the theoretical world where all problems are predictable and manageable, a quality manager can identify the issues and then work with the suppliers and service providers to eliminate them. However, there are three key difﬁculties with this:
For reasons that may shock and surprise some retailers, not all problems are attributable to a supplier or a service provider and customer education or preference is probably the most signiﬁcant factor. No two customers are the same and the ways or places that they use their goods will not be the same. Manufacturers make the best-quality goods that they can for the price they are required to sell at. Quality is important, but equally so is understanding what it is you are selling and to whom. Quality management processes are usually at the beginning of the process (eg when the goods are being made or initially delivered) to try to avoid bad products getting into the supply chain, or after the event when you evaluate how many bad ones there were and what the costs of processing them was. In modern retail, the shelf life of a range of goods is increasingly short and whilst in many cases the differences are largely cosmetic, there are differences, so it is increasingly difﬁcult for quality managers to keep pace.
Most quality-related reports are based on extensive historical evidence, but in modern retail, this simply is not available, or at least not in a form with a shelf life of its own that is more than two to three months. None of these is the basis for dealing with real-time issues and bringing a smile back to the lips of a screaming customer. That is not to denigrate or undervalue the role of the quality manager; far
from it. This is simply recognition that a quality manager’s role is more aimed at long-term stability, which has more of a strategic base. The aftersales manager works in both the short and the long term, but almost always with an operational bias because today’s ‘Mr and Mrs Angry’ will seldom wait for companies to see the beneﬁt of implementing mid- to long-term quality improvement strategies.
Operating principles Within this book, there are many references to terms like ‘beyond economic repair’, ‘genuine fault’ and ‘no fault found’. These are typical industry sector phrases, but they are often misunderstood because they are based on human perceptions rather than anything directly quantiﬁable. An individual item may indeed cost a great deal to repair but the alternative, an exchange, involves a great many logistical issues and may in fact work out to be much more costly. Then there is the vexed question of whether goods are truly faulty, and the problems created by badly managed customer perceptions. This includes issues as broad as the goods not working in the same way as the customer’s original ones to problems caused by signal strength and water pressure. Realistically it is just not possible to create a process that takes into account all of the different customer perceptions and sets of working conditions, but despite previous beliefs, it is possible to develop a process that handles these variations as cost-effectively as possible. The key message repeated throughout this book is that the proposed improvements are built upon relationships based on regular and open discussion. Time and experience have proven that it is not enough simply to write tight supplier contracts and work within the archetypal one-way dialogue. If this idea worked then there would not be the problems that this book highlights and cost reduction would be a formality. Retailers must work much more closely with their suppliers and, most importantly, accept the principle that it is not just suppliers who cause the problems and take the blame – retailers make mistakes too!
10 Aftersales Management
The book structure and who it is aimed at The book starts by describing some of the historical practices and then attempts to remove some of the myths of aftersales service by explaining the legal position on customer rights. We then move on to trying to understand what customers want, what sales people want and how these points interface with the needs of the teams within the rest of a retailer’s company. From this, the next step is to design the new aftersales proposition and understanding of the key pressure point, which is the time taken to resolve any problems. After this, the book moves on to implementation, explaining how to manage key stakeholders both within the business (ie the various business functions and departments) and outside (such as manufacturers and suppliers). There is a section on reporting systems and structures and there are worked examples to show readers just how much of a saving they can make if the changes are made. Finally, there is a chapter describing both how to manage the necessary changes and how to hold on to the gains once they have been made. The book is of use in resolving the problems of any retailer but principally it is aimed at sellers of larger goods such as:
domestic appliances – washing machines, cookers, refrigeration, vacuum cleaners, dishwashers, etc; home entertainment products – cameras, televisions, recorders and DVD players; small domestic appliances – kettles, toasters, microwaves and haircare products, etc; computer goods – laptops, desktops, monitors, scanners and printers; furniture – beds, tables and chairs, sofas, cabinets and wardrobes; ﬁtted kitchens and bathrooms; cars and motorcycles.
The target audience for the book is people who are either in retail and seeking to improve their aftersales process, or people in academic learning looking to further their career and seeking to know how to make an impact on their respective business once they have graduated.
Summary The book attempts to highlight the reasons why problems occur and what the potential beneﬁts can be if these problems can be attacked at source. Whilst there is no standard ‘one size ﬁts all’ solution, we will try to deﬁne the building blocks of a good aftersales programme that can be applied to any retail operation and how to hold the gains once you have broken through the initial rump of problems. The book is not aimed at a speciﬁc group of people or managers within a company. It highlights how widely practised policies are a major problem for all within the company. However, it seeks to show that resolutions of these issues can be done very cost-effectively provided there is an understanding by everyone of the scale of the problem, and that all within the company can have an impact on this cost. Finally, it will seek to dispel the myths and deﬁne the processes by which careful retailers can, if successful, not only reduce their costs but massively enhance their customer reputation and, more importantly, increase their sales.
THIS PAGE INTENTIONALLY LEFT BLANK 12
History and common practice
General practice Historically, the policy of many retailers towards the management of aftersales issues has tended to include an element of ‘buyer beware’. The ex-public sector companies might argue that they have tended to offer better customer service, but in general this was not by design and certainly not with an eye on proﬁtability. Offering a policy of open season just because you have not fully considered what the bottom line might look like does not really count. One of the most common practices has been to be deliberately vague because it gives latitude to develop policy on the run, or on a case-by-case basis. This is all very well but it is not cost-effective and requires a great deal of unplanned human intervention. A few companies have tried to ‘sell’ the beneﬁts of their aftersales proposition, but the idea that the thing you are going to buy might break down is not popular with customers, and in general this type of policy has been abandoned fairly quickly. A few companies such as Marks & Spencer have traded on an understanding that is promoted by word of mouth. Every Marks & Spencer customer knows that the company has a very relaxed exchange policy, but it is not advertised and the company’s reputation has been built up over years not months, a concept that most retail marketing teams ﬁnd just a bit too difﬁcult to work with.
14 Aftersales Management
Service standards The most common issue for customers is the length of time that it takes to resolve their problems. Companies have frequently hidden behind the issue that they could not get the parts or they couldn’t ﬁnd out what was wrong, but for me this is not only poor customer service, it is plain bad management and arguably an abdication of responsibility. Why should a customer suffer simply because a company cannot control its suppliers/repairers, or manage its own employees? This is patently a ridiculous situation as at the very least the buyers can set in stone the terms under which they buy the goods. Granted there will always be plenty of instances where the problem is not easily deﬁned, but the frequency with which this excuse is used is far from acceptable. The other key complaint is very similar, when the excuse of the retailer is that they cannot ﬁnd out what is wrong. This is equally inexcusable and one has to ask the question, ‘Why should a customer suffer as a result of the company’s ineptitude?’ If there is a genuine fault that is related to the product and not the way that it is being used or the environment it is in, then it is a retailer/supplier problem and not a customer issue. My attitude has always been that if our company could not ﬁx the problem because we could not properly diagnose the fault or could not get the parts, the customer should be given an exchange, and then our company should resolve these problems separately. For me it beggars belief that managers expect customers to wait while they sort out their companies’ problems and one always has to wonder how they would feel if they themselves were the customer. Doubtless they too would be less than happy to wait. The issue of time to complete the repair or to make a decision to replace is the one that gives the greatest reason for criticism. How a company can justify anything more than 14 days, or 21 days at an absolute maximum (for a functional rather than a cosmetic fault), is beyond me. There is absolutely no question that if a company wants to, it can arrange all of the parts supplies it needs at the time when they are needed and really, it is not very hard to make sure that repairers know what to do with the parts. It is also incredible that in a country as regulated as the United Kingdom, companies have offered undeﬁned maximum time to wait terms, as most did during the late 1990s and the early part of this century. Even today some companies expect their customers to wait
History and Common Practice 15
up to six weeks and even then exchanges are still at the discretion of these companies rather than through laid-down standards. Some of these are big companies who trade on price and service, but sadly, they appear to pay only lip service to the latter point. In the furniture sector, where the emphasis is on cosmetic rather than functional problems, the issues can be a little more complicated. Each customer has their own view about how their furniture should look and they do not always agree. Issues of colour, shading, shine and patterns are complex enough, but add to that the difference in light from the showrooms to the customer’s home and it is not hard to see why there are an awful lot of potential problems. The bigger issues here are delays in supply and handling problems, but more often than not it is the retailer who is most at fault. The supplier may be producing poor quality but then again it is down to the retailer to deﬁne what the goods should look like and how they should be delivered. ‘Crushing’ that arises out of poor loading in containers can easily be managed by retailers if they work more closely with suppliers. Poor attention to detail in a retailer’s handling process generates scratches, dents and scuffs, none of which will please the customer. On a more positive note, however, the lead times for completion of a cosmetic issue are usually longer (up to 28 days is not unreasonable) because the customer can actually still use the goods, but that of course assumes that ‘Mrs Angry’ customer lets the goods stay in the house in the ﬁrst place. Remember that lowest prices do not in general generate loyalty but genuine customer service and attention to detail almost always does. Good customer service, if it is properly managed, is not only much easier to deliver, it is almost always substantially cheaper to achieve.
Suppliers Historically suppliers have generally fallen into three camps:
Big-name brands who tell the retailers what to do and will not generally deviate (eg Sony and Apple). Medium-sized companies who will try to accommodate the retailers and try to retain enough margin to enable a fairly ﬂexible policy on returns.
16 Aftersales Management
Original equipment manufacturer (OEM) suppliers who accept no returns because they operate bought out guarantees, but the retailer’s deal is usually perceived as being attractive enough to not have to worry about ‘a few exchanges’.
Retailers have almost always had the whip hand in discussions about exchanges and the stories are legion in the sector of retailers taking suppliers to dark warehouses full of dust-covered returns and demanding the supplier take them back or there will be no more orders for new products. The problem for retailers in more recent times is that margins are falling, and if the percentage margin is not falling, the cash margin almost certainly is. That is to say, both the suppliers and the retailers have less money available to spend on dealing with exchanges and aftersales costs. As a result, suppliers are taking a tougher stance on what they will take back from retailers. In an increasing number of cases, the suppliers may still accept the returns but they will credit back a much smaller proportion of the value for them. Therefore, it is vital that retailers work with rather than against their suppliers. In order to protect proﬁtability it is essential that costs are properly allocated and managed. The ‘unnamed’ margin adjustment will simply not work if companies want a long-term future. In many cases, this is at least part of the reason why retailers have opted to increase the amount of goods that they source from OEM suppliers. The perceived wisdom being that they have greater control over these relationships, there are bigger margins and in any case if a few units are written off then the average buying-in price is much lower, so it does not really matter. Or does it? OEM goods can be a strong way to offer deals and lines that competitors struggle to match, but as we see later there are a number of pitfalls. The trap that most retailers fall into is that they use these goods only in the entry price point (EPP) lines, with the result that the manufacturers have very little money to build in any quality. Moreover, although the percentage margin is high, the cash margin is low because the retail price is low (eg a brand may offer 33 per cent of £150 and OEM offers 50 per cent of £100, but the end result is still only a £50 cash margin and the OEM goods come with much more aftersales problems). OEM goods are actually a much stronger proposition if aimed at the middle market. They can be used to add features and beneﬁts that would be much more expensive if sourced from a main-line
History and Common Practice 17
brand and retailers can then achieve genuine ‘unique’ status for the products (at least until a competitor retailer sources something similar). They would then also have substantially more cash margin to spend on aftersales. A point that should not be overlooked is that it is not just a question of product reliability. In the furniture sector, one of the biggest problems is damage during transit and delivery. In some cases this may simply be a consequence of bad practice, but often this is because there is too little available to spend on delivery costs. It is rare that the home delivery costs passed on to customers reﬂect the true cost of the logistics operation and there is usually a contribution to these costs that comes from the retail margin. Clearly, if there were more margin and less deductions elsewhere then there would be more opportunity to build in quality to the logistics operation.
Lessons to be learned As above, the retailer must take responsibility both for the goods they are selling and how they sell them, or they rely only on transitory advantages such as price. If retailers want to create genuine customer loyalty, they must give their customers a proposition that demonstrates that at least some of their management team actually care about the goods after they have been sold. Retailers must make sure that they actually understand what their true costs of aftersales are and that they have both accountability and management processes to control them. Retailers must also recognize that these issues can have a very long ‘tail’. It is not unusual for customers to still be having issues 12 or 24 months after the original guarantee has expired, and whilst the law does offer some support to retailers it is not absolutely clear, and customers will still keep complaining. Finally, the retailers must work with the suppliers to understand their issues and manage the costs accordingly. Suppliers must push back against the cost of returns that are not their fault or that come back in a bad form. Well-managed retailers work with their suppliers and as a result reduce their exposure to aftersales costs. Weaker retailers stand still while the tide comes in and wonder why they keep getting wet feet!
18 Aftersales Management
Management buy-in Without genuine buy-in, these processes are doomed and retailers might as well revert to battening down the hatches and bolstering the slush fund. In the initial stages, these concepts will go against the grain for many experienced managers, particularly if they have experience working for a large market leader. Historically the market leaders got away with a great deal because of buying power, and the fact that suppliers had enough margin to soak up these issues. Managers from these companies will probably not understand why this is an issue and will need the potential beneﬁts to be clearly explained. The happy reality of the principles within this book is that the changes described do not actually cost very much, so it should be relatively easy to get buy-in and support from the ﬁnance director at least. Moreover, front-line staff in sales positions and customer service centres can usually see rapid results with some of their biggest problem suppliers, so they will quickly give support for further development. Where most companies go wrong in this type of venture is to target only the worst suppliers and providers. This is usually a hangover from the Japanese-style quality management programmes of the 1980s and 1990s, which used the Pareto principle that suggests 80 per cent of your costs are caused by 20 per cent of your problems. The real problem with this is that if you are going to change a part of a culture or an operating principle then you have to change it all. If there is ambiguity or an attitude that seems to suggest that only these suppliers matter, then that is exactly the way that your staff will operate. However, it is worse than this because the processes that are giving you improvements become watered down by the general problems elsewhere and you end up losing most if not all of the gains you made previously.
Summary The retailer sector has changed massively in recent years and the advent of internet selling has reduced margins still further. The business model of high street retailers and internet traders alike has to reﬂect this, and managers must understand that they cannot carry on as they were before.
History and Common Practice 19
Whilst internet sellers are perhaps partially cocooned by the fact that customers cannot walk into the store to complain, they face other logistical issues and they too need a new model for aftersales management. For the traditional high street retailer the processes described in this book may be some of the most important components in their plans to reduce their cost structure sufﬁciently to maintain proﬁtability and competitiveness in this new market place.
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Key points It is not the intent of this book to explore exhaustively the rights and wrongs of the law on selling and consumer protection. There are plenty of specialist books that will cover this much more comprehensively. However, there are important points we need to explore in order to dispel some of the myths and understand exactly what you must consider when building a strong aftersales model for your company. Some of the most important questions are as follows:
What rights do customers actually have? What is the signiﬁcance of a retailer or manufacturer guarantee? Who is responsible for refunds, repairs and replacements? How does something like a 30-day no-quibble exchange affect your rights? What is ‘fair wear and tear’? What does ‘ﬁt for purpose’ mean?
Customers are almost always confused about their rights and many unscrupulous retailers have traded on this in order to keep their costs down. That said, most retailers do not go out of their way to take advantage of this lack of customer understanding and in fact are often completely blind to their own problems. The net result of this situation is that there are a lot of unhappy customers who trust very few retailers and hence they tend towards a price-driven buying decision. Happily, the reality is that if retailers understand how to manage their obligations, the costs are actually much lower than they normally think and the opportunity to trade on quality rather than price is in truth very easy to achieve.
22 Aftersales Management
Legal principles The main legislation designed to help customers is the Sale of Goods Act 1979 as amended by the Sale and Supply of Goods Act 1994 and the Sale and Supply of Goods to Consumers Regulations 2002. These are designed to help consumers not commercial customers. For the sake of clarity, the Unfair Contract Terms Act 1977 (as amended by the 2002 regulations) deﬁnes a consumer as follows: ‘a party deals as a consumer if he/she is an individual and a) He neither makes the contract in the course of a business nor holds himself out as doing so; and b) The other party does make the contract in the course of a business.’
As with most of the legal system, the various consumer protection laws are not designed to clarify every likely instance of dissatisfaction or answer every consumer complaint. They are designed, particularly since the amendments in 2002, to provide principles by which retailers and suppliers as a whole must operate. The Acts do not deal with issues such as perceived faults or problems and they will not handle issues of interpretation of the law. For these issues companies must build in good old-fashioned common sense to their operating standards or accept that they will have to pay lawyers lots of money to defend positions that are often morally if not always legally wrong.
Limitations The main criticism of the Acts is not that they do not answer all of the big questions, but rather that they do not give any real guidance on the more subtle ones that experience shows generate most of the problems. We will explore this point further later in this chapter but this is a very important point to consider in designing your aftersales model. A few examples of the issues we need to consider are:
Time to complete – the Act now clariﬁes the rights of consumers in relation to when they can have a repair, replacement or refund, but it does not give any guidance as to how long a customer should have to wait for action to be taken.
Legal Matters 23
Sourcing spares and replacements – this follows the same theme in that a retailer may say that they have instructed a repair to be carried out but they have no available repairers, no spare parts or no new stock. Product quality – the massive inﬂux of entry price point goods from Asia has made many products far more accessible and many people will often see them as disposable items. The fact is that they are cheap, so it is likely that the quality of such goods will be variable. However, the use of attractivesounding own-label brands masks the quality issue to some degree and customers often have too high expectations for these goods (for example a 600 rpm spin own-brand model washing machine priced at £150 will simply not cope as well as a 1200 rpm spin main-brand model priced at £350). Consumer frustration – as above, if you are a consumer waiting for action to be taken then it can be enormously irritating when a retailer ‘hides’ behind a lack of resource or spares. The Acts state that the onus is on the retailer or supplier to resolve the problem and bear the costs; they do not give guidance on time taken. More importantly, the Acts do not provide the route to any quick solutions when the retailer/supplier cannot provide resolution within a ‘sensible’ timescale. In my opinion, the retailer should have to bear the additional cost to resolve this and not make the consumer suffer for limitations of the retailer and/or supplier.
If the issue were simply that something does not work when you receive it then the Acts provide plenty of protection, although retailers will often create smoke-screens with 28-day exchange guarantees etc. In this case, you can refuse the goods or agree to have them repaired. However, who says it does not work? Often one was told that an appliance was faulty or did not work, only to discover that when a technician visited it was simply the case that the customer did not know how to use the appliance. In this case, who is at fault? Should the retailer be forced to offer an exchange or refund and maybe compensation when they have done nothing wrong? Is the customer in the wrong when they were sold an appliance that they knew very little about, with facilities they did not know how to use? The Acts do not deal with these issues directly, but with care, you can design an aftersales proposition which meets the demands of the Acts and gives genuine quality of customer care, but which does not cost the earth to provide.
24 Aftersales Management
Why the confusion? In recent years there have been numerous ‘consumer champions’ appearing on television and radio or writing newspaper columns. They do not do this out of the goodness of their hearts, but rather to sell newspapers or generate increased audiences, and in most cases this has the aim of increasing incomes and/or advertising revenues. The good ones simply try to help those customers who appear to have received bad service or who cannot get a problem resolved. They will be well connected, have built relationships, and when you are approached by them you usually know that you will have to do your job properly because in all probability your company has indeed done something wrong. However, there are also the sensationalists and scaremongers who not only raise expectations, they usually miss the point, and very often the truly guilty parties continue undetected because the programme producers do not really understand the underlying problems. Often these consumer champions are quite badly advised and as a result they will send customers in the wrong direction or use terminology that has little relevance. In my experience most customers start off indignant, then become frustrated before getting just plain angry. The themes are, however, common throughout. They are confused about what to ask for, they are even more confused about what to expect and they usually have very little idea about their actual rights. They rarely read the ﬁne print (whether it is fair or not) and they almost never read consumer guides, apart from magazines like Which? (and the Consumer Association is certainly not infallible). Finally, it is clear that most ordinary people would not know where to start in reading the Acts, and if they did then, as we will explore in this chapter, in all probability they would not ﬁnd an answer to their particular problem in any case.
‘I know my rights!’ The fabled cry of many indignant customers is, ‘I know my rights’, but as we have discovered above, the truth is that very few of them actually do. Therefore, the question is simply, ‘Why not?’ The best way to explore this is to look at speciﬁc examples that will have a familiar ring to them.
Legal Matters 25
‘Fitness for purpose’ Ultimately, the law simply states that the goods must be able to do what the retailer has advertised that they will do. This includes any in-store point-of-sale materials and the user guide that comes with the goods. A 600 rpm spin washing machine must be able to spin at 600 rpm and it must be able to wash clothes. It should operate within the energy usage standards advertised at point of sale and it will have a range of programs for different materials. Moreover, the washing machine must operate to manufacturer’s standards from day one. However, the Act does not give any guidance on what happens if it breaks down several times within the ﬁrst two to three years and it does not clarify the standard of washing cleanliness other than to refer obliquely to the manufacturer’s implied standards. Therefore if a customer feels offended because the appliance is repeatedly faulty but each time the retailer resolves the problem as quickly as possible, then there is no real legal recourse available. If the washing is ‘clean’ but not as clean as the customer perceives the previous washing machine achieved, then there is still no recourse unless the appliance is operating outside the manufacturer’s standards. However, neither of these responses is likely to produce a happy customer. Much of this area is tied up in the term ‘acceptance’, which offers the customer much more protection than is usually understood by most retailers. Clever customers will sign for new goods with ‘delivered but not accepted’ so that they have time to assess what has been signed for. Retailers often try to make use of exclusion clauses such as, ‘The company takes no responsibility for issues such as damage once the goods have been signed for’. However, the courts will tend to come down heavily on the side of customers as exclusion clauses are usually seen as back-handed ways of avoiding responsibility.
‘Satisfactory quality’ The Sale of Goods Act 1979 said it was implied in the contract of sale that the goods would be of ‘merchantable quality’. This principle was ampliﬁed in the Regulations of 2002 and the phrase was changed to ‘satisfactory quality’. This phrase is deﬁned as meaning that the goods must meet the standards that any reasonable person would
26 Aftersales Management
expect, taking into account the description, the price and all other relevant information. In some circumstances, the retailer may be liable for any statement made by the manufacturer about the goods. Satisfactory quality includes the appearance and ﬁnish of the goods, their safety and durability, and whether they are free from defects, including minor faults. This is not well understood but is the basis of goods being exchanged if damaged or faulty at point of delivery. However, the use of the term ‘durability’ is not speciﬁc enough, as we will explore below.
‘Fair wear and tear’ Durability is one of the most contentious issues for customers and is a question of how long goods should last before they need some form of intervention. The answer is clearly a function of the frequency and manner of usage. That is, a television operated 24 hours per day will probably require a repair sooner than one that operates two to four hours per day. A washing machine loaded several times per day with heavy overalls will burn out its bearing sooner than one used for normal clothing two to four times per week. These are simple principles but it is often very difﬁcult to explain these ideas. It is, for example, very awkward to tell a large and very overweight person that the reason the armchair is broken is because it has been overloaded! However, you still have an angry customer and a potential complaint to deal with. In this case, the answer would have been to deﬁne how the armchair should not have been used (ie a maximum weight), but then again how closely does the salesperson read such advice when he can see his incentive bonus looming large on the back of a sale on a busy Saturday afternoon? The Acts do not really give any guidance on this point because it is such a complex equation. The only real route is a tenuous one linking back to ‘ﬁtness for purpose’. That is, if the customer was sold something by the retailer in the full knowledge of the retailer that it might not be up to the task, then the customer probably has a claim. Outside of this, however, clariﬁcation is limited and this is where retailers have to invest signiﬁcant time into checking the contents of their marketing messages and point-of-sale documentation. Again, some retailers and suppliers rely on exclusion clauses but this is a dangerous tactic in an area such as aftersales. As above,
Legal Matters 27
the courts will tend to side with the customer as they take the not unreasonable view that if the retailers did their job properly they would not need to rely on such practices.
Time taken Companies fully understand that they may have to pull out all of the stops in delivering new goods because if they do not then the customers will cancel their sales. However, the time pressures are less well understood when something goes wrong after the goods have been delivered. A good example here is the situation where the recliner mechanism on a nine-month-old leather sofa has failed and a replacement is required to be ﬁtted. None of the retailer, the suppliers or the appointed repairers has any stock of such spares so the customer just has to wait until one is sourced. If the customer bought the sofa speciﬁcally because it had a recliner unit (perhaps the consumer has a problem with one or both of his or her legs) then this is a major inconvenience. If this were an issue relating to customer buying services like repairs then the customer has the protection of the Supply of Goods and Services Act 1982, where, if there is no contracted time for completion of the services then it must be done within a ‘reasonable time’. However, the Sale of Goods Act does not provide any real guidance in the event that a retailer or supplier has to put right a problem for goods that have been purchased from that supplier. Throughout the book we will repeatedly refer to the close management of time taken being one of the cornerstones of good aftersales service. If a company cannot meet ‘reasonable’ timescales for putting a problem right then in all probability it has a major issue with the way that the company operates. However, the Act simply uses phrases like ‘reasonable timescale’ which in reality offers very little short-term support to customers and this is a loophole that many retailers and suppliers exploit (although most do not really do this deliberately). The courts would of course side with the customer, seek advice from an expert about how long the job should take and conclude that the retailer/supplier had been negligent. However, this takes time and money that many customers just will not invest. This area, above all others, is the cause of the belief that retailers give bad service and the reason why retailers incur such large aftersales costs.
28 Aftersales Management
Burden of proof Historically retailers and suppliers could hide behind a limitation of the Sale of Goods Act. If customers believed that their goods were of poor quality or badly manufactured and wanted an exchange then the onus was on customers to prove that the problems had been there from day one. This was very difﬁcult for customers to achieve and probably quite costly, which simply generated lots of unhappy customers. The changes to the Sale of Goods Act in 2002 meant that for the ﬁrst six months after the date of purchase the burden of proof moved away from the customer and back to the retailer/supplier. The result of this is that retailers and suppliers have been forced to amend their aftersales provision. However, very few customers really understand what these changes mean so many retailers are still applying their original practices.
Spare parts Contrary to popular belief, apart from speciﬁc circumstances (eg the goods are sold incomplete but the deal is done on the principle that spares or accessories will be provided), there is no requirement in law for either the retailer or the manufacturer to carry and/or maintain a supply of spare parts. There are codes of practice applied by various trade associations, but there are no speciﬁed legal requirements. The retailer or manufacturer cannot walk away from their legal obligations either under the Acts or as part of a guarantee, but they may simply decide to offer an exchange or refund in the event of product failure.
Exchanges As described above the route to obtaining an exchange is now easier, but in reality, there are relatively few instances where the law demands that a customer has an exchange by right. In reviewing the requirements of the law, it is perhaps best to ﬁrst analyse those reasons why an exchange might be appropriate:
‘Dead on arrival’ (DOA) – almost all retailers will allow an exchange if the goods are damaged or not working when they are delivered.
Legal Matters 29
Pre-commissioning failure – this is an extension of the DOA principle and most retailers will also allow for an exchange if the goods fail to perform to standard or a fault is found within the ﬁrst 7 to 14 days. 28-day exchange – many retailers will offer a 28-day ‘no-quibble’ exchange arrangement as part of their overall sales strategy. ‘One-for-one’ – for low-value goods where repairs are not usually cost-effective many retailers will simply offer a one-for-one replacement subject to simple tests on basic functionality. Multiple failure – if the goods have had multiple repairs, goods are becoming too expensive to maintain or a customer simply refuses any further intervention, then a replacement may be offered; sometimes a refurbished unit. Total failure – if the goods have completely failed to a point where the retailer/supplier knows that they would be likely to be challenged on initial quality then most will be pragmatic enough to know that a replacement is the only realistic option; again this may be a refurbished unit.
As we will discuss many times in this book, retailers operate very variable standards, so there is no guarantee that any two will work to the same set of principles. Certainly, until the Sale and Supply of Goods to Consumers Regulations 2002 the consumer is still in general at the mercy of the retailer unless he or she decides to take legal action.
Repair versus replacement The Sale and Supply of Goods to Consumers Regulations 2002 states that goods which do not conform to the contract of sale at any time within the period of six months starting with the date on which the goods were delivered to the buyer, must be taken not to have so conformed at that initial date. What this means in practice is that a customer can demand a replacement rather than a repair or refund during the ﬁrst six months after purchase unless the retailer can prove that the goods did indeed conform to contract, or unless the retailer can prove that a repair can be carried out quickly and at substantially less cost. This relates to the questions on burden of proof of ﬁtness for purpose and poor quality. Retailers will probably try to force a repair rather than a replacement, but in law, they probably should not.
30 Aftersales Management
Refunds Retailers will normally resist giving refunds for two reasons:
Lost sale – if dissatisﬁed customers are given their money back then they will in all probability go to another retailer to acquire the required goods. Lost value – if a customer has been in possession of the goods for, say, six months then they have had beneﬁt of the goods for all of that time. The goods are consequentially not worth as much as they were when new, so why should the customer get a full refund?
The law has no sympathy for the ﬁrst of these points and would normally take the view that if the retailers had taken greater care then they would not have lost the sale. However, on the second point the law tends to be fairly realistic and looks at whether in fact the customer has had use of the goods or whether they have been in possession but the goods were not actually working or usable. That is, perhaps they were in a repairer’s workshop.
Guarantees and warranties A guarantee is in effect a promise issued by the supplier or retailer of goods or by a company that has provided services. It is normally provided free of charge when the goods or services are purchased and is usually part of the overall sales proposition. In law, a guarantee is treated as a contractual agreement to provide some speciﬁc beneﬁts for a set period of time in the event of the goods or services being defective. Usually, the guarantor undertakes to carry out free repairs and/or replacement for problems that can be attributed to manufacturing defects, this for a set period of time after the purchase of the goods. Suppliers and retailers are not legally obliged to provide a guarantee to customers, but if they do, it must be in plain English and explain exactly how to make a claim. The major advantage of a guarantee for a customer is that if there is a problem then the customer does not have to prove that there has been a breach of the Acts and can instead point directly to the phrasing within the terms under which the goods were sold.
Legal Matters 31
This is not to be confused with warranties and extended warranties, which are explored in Chapter 15.
Duration of guarantees and legal rights This is an area about which there is much myth and misunderstanding. The EU Directive 1999/44/EC on Sale of Consumer Goods and Associated Guarantees applicable to all Member States contained the provision to give consumers a two-year limitation period, in connection with their rights to redress for faulty goods, against the seller of the goods. As a consequence, many people believed that this had also been implemented in the United Kingdom. However, in truth this part of the Directive was never applied in UK law. The limitation periods in the UK are the periods under which legal proceedings must be commenced: namely six years in England, Wales and Northern Ireland and ﬁve years from discovery in Scotland. It was viewed that these were therefore already considerably longer than the Directive’s two years. However, these rights are quite different from a guarantee period and it is questionable whether UK consumers would have been better served by a simpler right to a shorter but stronger guarantee period of two years rather than a longer right to claim. From consultation papers circulated at the time, it would appear that the UK government toyed with the idea of a uniﬁed approach with Europe, but whether for political reasons or because of lobbyists’ pressure the government chose this different and ultimately poorer option.
Consumer rights in the United States and Canada Key controls Many of the basic interpretations and concepts in the United States are the same as the UK. In essence, the law seeks only to provide an outline framework and then leaves it to local controls and consumer pressures to bring in the degree of detail necessary to handle speciﬁc issues.
32 Aftersales Management
In the United States, consumers’ rights are covered by a number of legal vehicles, but the Uniform Commercial Code 2007 is the most important of these. In particular, sales of goods issues are covered by Chapter 72 within the general provisions of the Uniform Commercial Code (UCC). That said, there is quite a lot of variation at state level, although this is more to do with issues of common sense and practicability. In federal law, there is a stated requirement for goods to be supplied with a warranty, which can be written or implied. If there is no written warranty then in US law the warranty is implied. Some retailers, speciﬁcally used car retailers, will attempt to bypass the implied warranty by using phrases like ‘as is’ which is permissible under the UCC, but is steadily being phased out. Problems with bad practice in this area have seen most states make moves to prohibit the use of ‘as is’. There are also spoken warranties, for example if a used car dealer tells a customer that the engine is in good condition and it fails almost immediately then the dealer is responsible for putting it right, albeit there would probably need to be some legal procedure to back up the individual case. If the goods do come with a warranty then they are covered by the Magnuson–Moss Act of 1976 and must be written in an easily understandable form. Warranties and guarantees are offered by both manufacturers and retailers, but as in the UK, the contract is between the purchaser and the person or company from whom the customer actually bought the goods.
Warranty value Most major pristine goods come with a one-year warranty or guarantee with written documentation to explain exactly what the customer has to do in the event of problems. There has been a trend within the United States in recent years to move away from longer periods of guarantee, partly in response to rising costs and partly as the growth of extended warranty sales makes it more proﬁtable to offer a shorter guarantee. As with UK law, the Uniform Commercial Code does not deﬁne that elusive quantity, a ‘reasonable’ time to wait for resolution of the problem. Some states will attempt to clarify this a little more clearly within local law (or even perceived custom and practice), but in truth the consumer has no better support than in the UK.
Legal Matters 33
Manufacturers are required by US law to provide or to arrange for the provision of repair services. However, consumers are also expected in law to arrange the return of the goods to the manufacturer or retailer for repair or inspection unless the said goods are too heavy or bulky to make such a move realistic with domestic transport. It should be noted that the law within Chapter 72 of the UCC is actually better for retailers than in the UK because it allows retailers to recover the full cost of repair, and collection and redelivery, in the event that the retailer is required to arrange it. This is frequently a bone of contention between retailers and manufacturers in the UK. Most US states operate the so-called ‘Lemon Law’. If goods fail more than four times or are not available for over 30 days in the ﬁrst 12 months, then a refund or replacement can be claimed. However, enforcement is a little vague, so they have limited value.
Key controls in Canada In Canada there is a national legal structure which is overseen by the Ofﬁce of Consumer Affairs. The legislation is based around The Consumer Protection Act 2002 (as amended) and is then fed down to Province and Territory level by a series of local legislative documents. Consistency is achieved through the Consumer Measures Committee which is made up of representatives of all of the provincial and territorial government bodies and overseen by a representative from central government. In many ways the law in Canada is the same as in the United States including the ‘Lemon Laws’, but the generic national documents are probably less strong being based in many areas on the type of protections that were provided within the UK before the most recent revisions. At province and territory level there have been attempts to address more speciﬁc issues (eg the Consumer Product Warranty and Liability Act from North Brunswick 1978 as amended), but this does not appear to have been translated uniformly across the country.
Warranty value – Canada As in the United States there is speciﬁc reference to expressed and implied warranty; the former being the written type and the latter being that which is either part of the oral discussion in the transaction or is suggested as part of the overall deal to the consumer.
34 Aftersales Management
In terms of general rights there is no legal requirement for retailers to offer a refund or an exchange in the event of a change of mind (although some provinces do provide for a sort of ‘coolingoff’ period). Most of the legislation is aimed at issues such as ﬁtness for purpose and what might reasonably be expected. This has fairly limited value on the face of it but as the trends in Canada and the United States are far more towards court action in the event of dispute, the retailers have created strategies to minimize claims. That said, in some provinces there is an attempt to give a more speciﬁc automatic right of exchange for a period of up to 60 days on the basis of breach of contract because the goods were not ﬁt for purpose or of merchantable quality.
Consumer rights in the rest of Europe European standards As per the section on duration of guarantees and legal rights, there was an attempt made in 1999 through the EU Directive 1999/44/ EC on Sale of Consumer Goods and Associated Guarantees to standardize consumer rights throughout Europe. The European Parliament has always taken such rights seriously and there is a full-time European Commissioner for Consumer Protection. However, as with most other EU rules and regulations, each country has sought to put their own ‘spin’ on these standard practices, with the result that there is no standard arrangement across Europe. In fairness, the Directive of 1999 was aimed more at those countries with the lowest levels of consumer rights, such as Italy, where previously the customer had almost no rights of recall unless the product was proven to be genuinely unsafe, in which case health and safety legislation applied. The basic tenet of the Directive is that a customer should not have to prove that the goods were faulty at the time of purchase and that in the ﬁrst six months the onus is now on the retailer/manufacturer to prove that they were not faulty. Beyond this the customer has a right to a repair or replacement (if the goods cannot be repaired) for up to two years from the date of purchase. That is, the customer in effect has an automatic guarantee
Legal Matters 35
for up to two years from the date of purchase regardless of what guarantee the manufacturer or retailer wishes to provide. This has meant that many manufacturers now offer a standard two-year guarantee and that extended warranties are sold on the basis of an extension beyond the two-year period. The Directive also indicates that any repairs should be completed within a reasonable time or the price should be reduced or the contract rescinded; that is, taking into consideration the speciﬁc circumstances of the customer and the product in question. However, the vexed question of ‘What is reasonable?’ has not been clariﬁed, so there is still a great deal of room for ambiguity. The Directive does not give any additional support on exchanges. Except in the case of defect or lack of conformity, a consumer does not have a legal right to an exchange and it is left to the retailer’s discretion. Clearly, it could be argued that goods being faulty is a lack of conformity, but this is still a little vague and in some countries, retailers are taking advantage of this loophole. This does not really impact on the ‘dead on arrival’ type of exchange where the goods failed at point of delivery or within a matter of days of the date of delivery. However, some retailers will try to enforce their own policy (which may be, say, 14 days) when in fact the law quite clearly states that customers have far greater rights than this. The law across Europe is also supported by the Unfair Contract Terms Directive (1993/13/EEC). This Directive introduced the concept of ‘good faith’ and was designed in order to prevent imbalances in the rights and obligations of consumers on the one hand, and sellers and suppliers on the other hand. There are further enhancements and developments currently being discussed in an attempt to simplify cross-border trading and the handling of disputes arising from such trade.
Differences between the UK and the rest of Europe Almost universally the rest of Europe took up the Directive. In Ireland they applied something between the UK and the rest of Europe by applying the same six-year statute of limitations on making a claim, whilst still applying the same six-month and two-year guarantee principles. In France, Germany, the Netherlands, Spain, Portugal, Italy, Greece, Belgium and Luxembourg the same basic six-month shift of onus within a two-year guarantee applies. However, the application
36 Aftersales Management
of these new rules has not been strictly enforced by all countries. In many countries the rules have not changed in practice and retailers are still offering standards well below those laid down in the Directive. In the Netherlands the two-year limit is a general guideline, but in fact there is no deﬁned limit in law. That said, after the ﬁrst six months have elapsed the onus is very much on consumers to prove that problems are not just caused by something like normal wear and tear if they wish the retailer or manufacturer to cover the cost of repair or replacement. In Sweden the minimum guarantee period has been extended to three years. The Swedes have a generally more enlightened approach to consumer protection including the provision of longer coolingoff and cancellation periods. That said, there is still no clariﬁcation of the main issue of ‘reasonable’ time taken. What is clear is that in Europe as a whole the rights of consumers are generally much stronger than in the United States, although it should of course be noted that in the United States it is a great deal easier and much more the norm to take legal action in the event of problems and this may in part balance out some of the differences. In those countries most recently added to the European Union there are very variable levels of consumer protection. In the main consumers have lower expectations in this regard, but they are catching on quickly and most of these countries are moving towards application of the EU Directive 1999/44/EC on Sale of Consumer Goods and Associated Guarantees.
Consumer rights in Australia and New Zealand Overview The laws in both Australia and New Zealand are based, at least in part, on older laws from the United Kingdom, but share some operating principles with those in the United States. Neither is very speciﬁc with regard to the critical issue of ‘reasonable’ time, and both appear to rely on the fact that most reputable companies will not want to be regularly involved in legal action. That is, it is easier to offer a ﬁxed-term sale guarantee. There are the same references to express and implied warranties as in the United States.
Legal Matters 37
Australia Consumer law in Australia is built around the Trade Practices Act (TPA) 1974 (as amended). The TPA is a broad vehicle that seeks to tackle all issues of commerce and associated practices. It works alongside local state laws and the Fair Trading Act 1987. In Australian law, the consumer is entitled to expect that the goods will be ﬁt for purpose, of merchantable quality and will provide a reasonable level of durability. Moreover, there are no time limits on claims and consumer rights are not bound by manufacturer guarantees. However, the general interpretations suggest that consumers will always have to refer back to what might reasonably be expected. There are no tools or helpful deﬁnitions within the phrasing of the law and the tone of consumer advice and help service documents suggests that in practice making a claim for unfair treatment is not always a simple matter. The manufacturers must take steps to make available parts and aftersales support /repair services but there are no standards stipulated for these services.
New Zealand In New Zealand, the consumer is offered a level of protection by the Consumer Guarantees Act 1993 (as amended) which itself is linked to the Sale of Goods Act 1908 (as amended). Perhaps unsurprisingly, the laws offer similar levels of protection and deﬁnition of rights to those in Australia. However, the law offers less protection for second-hand goods and items bought at auction. It is also more in favour of the trader in relation to the question of usage. For example, a car which develops a fault because it is used for towing but the consumer did not tell the retailer that it was to be used for towing may not have the same automatic levels of protection that it would if the retailer had been told of the use at the time of sale. The manufacturers must take steps to make available parts and aftersales support/repair services. However, the manufacturer can contract out of this obligation by making the buyer aware that parts are not available at the time of purchase.
38 Aftersales Management
Summary In most cases, the various Acts and forms of legislation around the world are without doubt the basis of a solid legal argument designed to protect consumers’ rights. However, outside the simpliﬁcation of the customer’s position in, for example, the ﬁrst six months after purchase (ie in Europe) they are not clear enough for anyone to use them to design a full aftersales policy. They are a good basis for taking legal action in the event that a customer has received poor service. The various Acts and laws will undoubtedly win the argument in favour of the customer in those cases where there is a question of fairness. In any case, as anyone who has dealt with small claims courts as frequently as I have knows, the courts have tended (probably quite rightly) to give the beneﬁt of the doubt to the customer when the matter is unclear. The wise aftersales manager seeks to understand exactly what the legal requirements are, but ultimately looks towards common sense and fairness, which are the key drivers of favourable decision-making in the small claims courts. Do not always seek to take the moral high ground, but know when a defence is weak. Use the advice of close friends and family to decide what is right, not just colleagues at work who in their own departments may be cocooned from the realities of Mr and Mrs Angry. Finally, if you cannot convince yourself or your close family then the line of argument you are following is probably not realistic and you should take another look at what it is the customer really needs to resolve his or her problem.
What do customers want?
Overview The question that has vexed sales managers, marketeers and customer service managers since modern selling practices began is, ‘What do our customers actually want from us?’ The answer is generally very simple – a good-quality product, and to be treated fairly if there is a problem with the product. That’s easy, then, so why does it go so wrong? In days past, buying was generally simple – there were trusted brands and if you could afford it, you paid a premium for these brands so that you had both quality of product and peace-of-mind service. However, in these days of price deﬂation driven by low-cost production from countries like China this point of differentiation has been much less easy to deﬁne. The width of price bands for any particular product group and the increased use of entry price point goods by even the best-known brands has made this quite complicated. The average shopper is bewildered by it all. Ironically, if the various consumer protection acts were a little clearer and more deﬁnitive then customers would probably be less demanding. As discussed in Chapter 3, it is this uncertainty that usually makes customers expect more than they are realistically entitled to. However, the main thing that customers want, and that companies and brands usually fail to provide, is a clear indication of what these customers are entitled to in relation to these companies and brands. Companies are usually coy about deﬁning what service standards they apply, but this is for several reasons:
40 Aftersales Management
Fear that this will put customers off – particularly if competitors do not put their own standards into print. Fear that this will offer a commercial advantage to competitors – in retail sales perception is everything and a cleverly phrased ‘strapline’ can disguise an awful lot of shortcomings. A lack of understanding of what the true capabilities of those companies are – marketing departments rarely understand how aftersales work and the aftersales departments are usually poor at explaining themselves. A belief or understanding that their capabilities are perhaps less than perfect – it may be that the marketing department has indeed tried to develop this angle but has then unearthed problems and inconsistencies.
In fairness, most companies are very nervous about aftersales issues and most managing directors will be only too aware that there are weaknesses in their business, albeit they may not have an answer as to how to resolve these problems. In truth, it is generally the case that ‘service promises’ do not sell. This sounds completely in opposition to the view that some customers will always go to certain companies because they get good service. However, this is usually because customers or their friends had a good experience in the past and they take this as their guide to the buying decision. Most customers do not buy in the expectation that a product will fail or will need to be repaired or replaced. Therefore, the use of high-proﬁle service promises in advertising is normally shunned as it does not encourage sales and may actually have the opposite effect. Customers may be drawn to the British Gas water heating and boiler cover because it in itself is deemed good value and the customer had a good experience when they called out an engineer to repair a gas supply fault. However, they do not buy their gas from British Gas because the service is good; this is normally for another reason such as price. Indeed the price question is one that is both central to and often the cause of aftersales issues. Without question, most customers are driven by price to a greater or lesser degree. However, as is explored several times in this book, this often encourages the buying-in of lower-quality goods that are as a consequence more likely to fail. In turn this usually generates smaller cash margins which means that there is less money available to spend on putting the problems right!
What do Customers Want? 41
Building a reputation Unless a company is selling its goods for very little and the perceived value for money is very high, it is essential that there is an aftersales strategy; and the simpler and easier to use it is, the better. Therefore, what is it that customers value? Clearly, in the ideal world all sales would come with a guaranteed no-quibble exchange and an immediate response to all problems. However, almost no one can afford to do this unless we are talking about very low-value ‘disposable’ goods. The qualities that generate best response from customers are as follows:
Fast response to action problem resolution – ideally today, but if not then as soon as possible thereafter. Dependability – if a company promises to send a repairer to visit on a certain day then the repairer should arrive on that day. Flexibility – modern-day living is very time-driven and the horrors of commuting are increasing eating into people’s free time, so if a company can offer a timed visit then this is clearly much better. However, equally attractive can be the option for early morning or early evening visits when the customer ﬁnds it easier to be at home. Diagnostics and ﬁrst-time ﬁx rate – customers greatly value simple-to-use self-help procedures because it means that they do not have to wait in for a repairer to visit. However, the same diagnostic skills should make it possible to guarantee a high level of ﬁrst-time ﬁx; that is, the ability to resolve the problem at the ﬁrst visit, bringing any necessary parts etc with the repairer at that visit and not having to make a second or third trip. Compromise – customers actually do understand the rights of a company to stand its ground on a policy issue, but they greatly appreciate a willingness to understand that life is not homogeneous and that in problem handling there is grey, not just black and white. An ability and a willingness to meet customers halfway is a very powerful asset in aftersales care. Information – customers are not generally difﬁcult or awkward. We are customers too and when we have a problem with a purchase (eg the repair has taken a long time) then we just want to know what is going on.
42 Aftersales Management
Resolution timescales – it is not acceptable to leave customers waiting with no guarantee that the problem will be eventually resolved. The longer a problem goes on the angrier customers get and the harder it is to manage the problem. To generate real credibility, companies must publish and stick to set timescales for time to complete (see Chapter 7).
In all of these areas, it is not essential that a company always provides the best service or the best options, simply that it provides consistency. Small independent companies continue to thrive in a market that appears to be dominated by large corporate companies because customers know that they will always try that little bit harder and will always be accessible to customers.
Managing perceptions Customers will often have fairly limited expectations with regard to what they can expect from a supplier or retailer. The consequence of this is that they do not complain as much as they might, or when asked they simply accept the normal standards. This is an important concept because it leads to false understandings of what customers think of your business. The ultimate result of this is that they go elsewhere to buy their goods and services because they do not perceive any signiﬁcant beneﬁt in staying with you. Big companies who are not looking for an immediate impact may be content to simply let the news of improvements be communicated between customers by word of mouth. This may be seen as dangerous because you may lose a few customers in the meantime. However, the problems within those companies may be deep-seated and culture change is slow to take effect, in which case perhaps they prefer not to put their heads above the parapet. However, for every other business, managing these perceptions is essential if they want to take any form of short-term beneﬁt from their hard work in improving their aftersales standards and processes. At the very least companies should make their staff (particularly those in customer-facing roles) aware of the plans and progress in order that they can begin the ‘word of mouth’ communication process with customers. We will explore in much greater depth how a proposition should be built, but the following are the key building blocks and their importance to customers:
What do Customers Want? 43
Standards – deﬁne exactly what the company’s standards are, write them down and make sure that there is genuine buy-in from all within the business; this means that the message to customers is at least consistent. Data capture and reporting – clear and accurate recording and reporting techniques are essential. Do not fall into the classic trap of reporting to conﬁrm the perceptions of management rather than those of customers. Remember that it does not matter what you think about your business – if your customers do not agree with you then your efforts are in vain. Guarantees – provide guarantees and clearly written statements about what happens if the service standards are not met. Whilst it may cost a little in the short term, it will quickly highlight where problems are and actually reduces customer queries, which in the main are from people who are simply seeking clariﬁcation of their rights. Escalation – create an effective escalation process to handle those instances and issues that do not ﬁt into the ‘normal conditions and procedures’ (and there will be plenty of them!). Effective management of these problems shows customers that you mean what you say. Moreover it gives a much cleaner way to manage those high-proﬁle complaints and issues by which people such as the media and consumer rights groups will measure your business. Non-published standards – have non-written standards, but which offer additional beneﬁts. These should only be available to speciﬁc members of your management team to be used in the event of those more serious and complex escalations. They add real credibility to your company’s reputation. More importantly they are proof to your staff that you mean what you say and that they should stand behind the company’s policies and procedures.
Difﬁcult customers and practices like ‘deshopping’ The perception that this book may give is that all customers are essentially benign with no malicious or deliberately provocative intent whatsoever, but nothing could be further from the truth. The emphasis here is to suggest that in most cases the reasons why
44 Aftersales Management
customers get angry or frustrated are related to the ways that retailers handle their issues and complaints. However, there are some very difﬁcult customers who will seek to play on perceived weaknesses in the ‘system’ and then become extremely vocal and difﬁcult when they do not get what they want. For example, there has in recent years been identiﬁed the practice of so-called ‘deshopping’. That is, buying an item, using it once and then returning it to the place it was bought for a refund, having had the intention of doing so when buying the item. There are welldocumented examples of where travelling students from mainland Europe took guidance from sites on the internet and would ‘buy’ a camera from Argos, use it for two weeks and then return it under the Argos ‘no-quibble return’ arrangement before they went home. A personal experience was with a lady who had bought a cooker from Southern Electric and got into the practice of complaining very aggressively every four to ﬁve years about a perceived problem. Southern Electric had a very generous policy and simply replaced it with a new one. Sadly for her, when Powerhouse bought the Southern Electric retail arm, I stopped this practice, but not before she had got three to four brand new cookers for free over some 15 to 20 years. The lady in question was extremely aggressive and vocal, making complaints to anyone who would listen. You would have thought she might simply move on with the view that it had been good whilst it lasted, but in fact her attitude was the reverse. She obviously did not admit she had been involved in a fraud, but she was nonetheless very aggrieved that her opportunity had been taken away. It may be tempting to always take a defensive line in designing the customer service proposition, but whilst one should bear in mind that this type of practice may be a problem, it would be foolhardy to start from the premise that all customers complain with something like this in mind. As we will explore repeatedly, most customers complain either because they have not been properly communicated with (and this includes point-of-sale literature) or they have genuine grievances caused but poor retailer practices.
Summary In this chapter we have explored what it is customers actually want and discovered that in reality it is nothing unreasonable or unrealistic.
What do Customers Want? 45
Fairness and common sense are the key terms, and retailers need to take a hard look at themselves to understand whether their customer service policies are indeed built on these concepts. We have understood more about why customers feel disappointed by the service they receive and why retailers repeatedly get themselves into difﬁculty. As we move forward, we will discuss the impact of a much improved customer service policy on budgets and overall company strategies. Most interestingly, we will discover that the net result is both a massive reduction in costs and the potential for very signiﬁcant growth in sales.
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What do sales staff want?
Key messages Whilst everyone within the company wants their customers to be happy and to come back again, the salesperson has a particular interest above all others. Beyond the obvious points of generating turnover and thus personal commissions, there is that awful job of having to deal face to face with an angry customer. For this reason this chapter is dedicated to answering that question all aftersales, logistics and other support managers repeatedly ask: ‘What is it that they expect?’ Clearly if you asked a salesperson what there ideal product would be then they would say something like, ‘It should virtually sell itself, be obviously better than the competition, be at a very attractive price and never go wrong (and if it does then the manufacturer should offer a quibble-free guarantee for as long as the customer wants it).’ Life, however, is not quite like that, so the more pragmatic answer is that apart from the obvious points on ﬁnancial attractiveness, what they want is something reliable; but if it breaks down then it should have the simplest means possible for processing repairs, complaints and exchanges. Front-line sales staff are recruited because they are good at selling, they like interaction with people and can persuade people to buy from them even when a competitor offers a cheaper price or a bigger range of goods. By their nature they have to be ego-driven in order that they are comfortable taking a strong role in the sales process. Retail sales staff are also usually good at skating over the detail in order that they can avoid questions about the limitations of the
48 Aftersales Management
product or the proposition. Their focus is instead the conversion of the sale and the taking of the money. There is absolutely nothing wrong with this but we need to recognize these strengths and speciﬁc points of focus when designing a process that we require sales people to use. Clearly you can always recruit customer service focused sales staff but these individuals are usually more comfortable working as administrators or ‘order takers’ and not quite so happy squeezing out a sale when the customer is still undecided. It is important to understand that there is no point in having procedures that have opportunities for confusion, or places where the process can be bypassed. What is needed is a simple, robust and above all consistent process with a clear beginning, middle and end. When companies go wrong in this respect there are usually some common themes:
Lack of deﬁnition – the offering needs to be written down to allow the salesperson to refer customers to it. In the ideal world the salesperson takes the customer through the proposition blow by blow. However, the reality is that a large proportion of customers will bring back goods or make complaints at the busiest selling times like Saturday afternoon, and those same salespeople are expected to generate a certain level of new sales. Therefore, make the procedures clear, simple and quick to explain. No milestones – salespeople like to be able to make clear statements about when something will be done. This allows them to take control of the situation and if they feel in control then they will want to manage it. No end game – most of us will have experienced that feeling of dread when involved in an aftersales process and it just feels like it is going to go on forever. Salespeople need to be able to say with conﬁdence that the process of trying to put the problem right will take a maximum deﬁned period (which of course has to be defendable). It is then logical that if after this time has elapsed the company fails to put the problem right, there should be a guaranteed replacement, refund or other ultimate action that will resolve the situation. Sadly, this is quite a rare entity indeed. Communications processes – if you are a high street retailer then it is no good having a big central call centre and hoping that the customer will just wait quietly in the queue. The customer will
What do Sales Staff Want? 49
simply come back to the retail outlet and start complaining all over again. If sales staff are faced with this then they will either fudge the response or try to ﬁnd a backdoor way to resolve the problem. Why would they not? They feel trapped, and if you are trapped then your instinct is to try to get away! Procedures – the communication process has to be simple with a reliable response and no lengthy queues. Ideally, there should be deﬁned contacts and a clear escalation route when the process goes wrong (and go wrong it will). Without these, there is the opportunity for mistakes by salespeople and when mistakes are made then they lose control with predictable results. Lack of trust – salespeople, just like the rest of us, want to do a good job and if any of them short-cut the laid-down procedures it is rarely for malicious reasons. All too often it is because they have tried to apply these procedures only to be let down by someone else in the process, or they have seen someone else getting away with not sticking to the rules.
So what do they want? Essentially, sales staff want the same things that customers want. They want simple rules, reliability of service and certainty of outcomes. If you want a sales representative to stand his or her ground with an angry customer then they need to be able to give simple promises and more importantly they need to know that these promises will be delivered. They want to be able to focus on selling and they want simpleto-use processes so that they are not distracted from selling for too long. Unfortunately, angry customers have a nasty habit of coming in to complain at the same time that lots of other happy customers want to buy. For a salesperson looking to supplement his or her income with bonuses this is seriously bad news. The person that could devise a way to separate these issues would not only be able to generate colossal savings, they would also become the best friend of just about every salesperson on the planet overnight. Sadly, there is no immediate fear of this revolutionary plan being delivered so your procedures just have to recognize these conﬂicting pressures. However, here is a key principle. The issues that salespeople
50 Aftersales Management
face are themselves usually fairly simple, it is the way that companies deal with these issues that makes them complicated. Remember that sales staff are usually chosen because they are good at what they do. They empathize with customers and they try to establish trust so that they can get them to buy (and if they are really good at what they do, the customers will come back and buy again). Anything that threatens that trust is something sales staff will usually want to avoid. However, and this is a very important point, if the aftersales process is actually helpful to sales staff because it strengthens this trust then they will not only tolerate it, they will embrace it and use it as a sales tool.
How do you give them what they want? Key messages You cannot give them an absolutely guaranteed panacea because there is no such thing, certainly not one that most companies can afford. Sales staff are often much maligned by other parts of their retail businesses, but it is my experience that provided you recognize their speciﬁc skill sets and focus, then they will stick to the rules and they will apply standard procedures. As above, the answer is to work with easy-to-use procedures that require a single set of actions and minimum recording of information.
Process design The key is simple instructions and actions. For example:
check basic functionality; collect all accessories; make sure that the customer has contacted the service desk; check guarantee validity; check for misuse.
In addition, provide simple ﬂowcharts with all options and escalation routes included. Do not make assumptions that they will just know
What do Sales Staff Want? 51
what to do. Design your process such that it will give conﬁdence to your company’s most recently employed and least experienced member of staff because ‘sod’s law’ says that this is the poor soul who will ﬁnd themselves dealing with the angriest customer with the most difﬁcult problem at the least convenient time.
Data recording If an issue is to be handled centrally or by a third-party company then sales staff should probably be discouraged from recording anything other than the most basic data. It is not cost-effective and it encourages customers not to stick with the company procedures and to come back to the store to complain too soon. However, if there are complaints or if a product is likely to need an exchange then store staff must record all of the relevant data and, more importantly, they need to capture the data that allows pressure to be put on the manufacturers so that they and not your company will take responsibility for the costs. In the ideal scenario, use computerized systems that ask standard questions and with drop-down menus for issues such as fault description. If you cannot easily provide this in-store then standard paper templates will sufﬁce, but here too try to incorporate questions that simply need a tick or a cross and avoid free text wherever possible. After many years of experience in aftersales you come to understand that even experienced engineers and repairers will generate multiple different descriptions of a fault. Sales staff have even less chance of getting consistency and the use of catch-alls like ‘broken’, ‘dead’ and ‘faulty’ is just pointless. When customers require an exchange then it is critical that you capture the right data, so if you cannot offer a computerized system in-store then consider a central helpdesk which will not only collate all of the necessary data, but will also act as a last hurdle to prevent needless and unveriﬁed exchanges. Sales teams usually have something like an events log or daily diary in which they will record information such as customer complaints. The problem is that it is not always easily available (for example in a large out-of-town superstore) and the format of the data is often only really understood by the person who wrote it down. These records are better than nothing, but should not replace structured information collection.
52 Aftersales Management
Escalation processes When there is a complaining customer on the phone or in the store then the salesperson’s best friend is the person they call who will help them unpick even the most tangled problem. If this person is good enough then they have personal contacts at all of the manufacturers and/or repairers and they will know just how to open the right doors when it appears to everyone else that these doors are ﬁrmly locked. The problem is that such people are a valuable resource and if the aftersales procedures are effective then these people should only need to be used sparingly. The trick is to make sure they are available enough of the time to ensure that sales staff do have a pressure valve when that angry customer is about to explode, but distant enough to avoid being embroiled in every piece of trivia such that sales staff start to believe they can bypass company policies and procedures. That said, keeping these specialists distant is not usually a problem as they are normally converted technicians or service managers. They will often doggedly insist that sales staff follow the procedures before they get involved in an escalation. It is sensible to have all such escalations recorded so you can be sure remedial action is actually taken. The initial escalation should be handled through a central customer service operation or the logistics call centre, for three key reasons:
Consistency of data recording – you need to get all of the facts and in a form that is meaningful to all who will need to use it. Effective reporting – feedback then relates to all of the issues and not just a select few. Follow-up and resolution chasing – even the best specialists need someone to remind them of their priorities and to prompt them when there are delays.
The interaction between the specialists and retail staff needs careful handling. As above, the specialists usually have a fairly healthy distrust of sales staff. This is usually based on the belief that they have been dumped upon for years with problems that the sales staff could have resolved themselves if they really wanted to. Therefore, you will need to put signiﬁcant effort into both managing the way that these relationships operate and breaking down barriers before they become obstructive to genuine progress.
What do Sales Staff Want? 53
Summary In this chapter it may seem as if sales staff are being singled out as requiring special treatment and protection. It may also seem to suggest that anything which is too complicated or too formal is beyond them, but nothing could be further from the truth. Over the years, I have moved from that same natural scepticism with regard to the motivations of sales staff as described above, to now having quite a healthy respect. I have seen some pretty bad retail operations and the sales staff here were completely bypassing virtually all of the rules, but that was almost always because of bad management, either within store or at regional or national level. Moreover, rarely did I encounter a case of poor service or bad practice that was occurring for malicious reasons. Retailers very obviously need people to sell their goods and even those companies who generate sales through heavy marketing rather than one-to-one selling need people who want to deal with customers and take pride in their roles. For that reason alone, it cannot be emphasized enough just how important it is to get the full buy-in and cooperation of sales staff. For procedures such as the ones described in this book it is not realistic simply to impose changes. My experience shows that time invested carefully here pays for itself many times over.
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What does the rest of the business want?
Marketing The marketing team obviously wants the business to put forward the best image that it can. The general perception is that their inclination is to throw money at the problem or to try to damp down the ﬁres long enough so that their message can be heard above the clamour. However, in truth most marketing departments just want a simple and manageable process so that they can be consistent in the message that they are trying to give to the media and customers. As with most things in life, consistency is everything. Even a very average customer service proposition is not necessarily a bad thing as long as it is consistent and there are other sound and reliable reasons for customers to keep buying. It is essential that you have a written policy, are prepared to back it up with actions as well as words, and that there is a clear escalation process. For marketing teams this ﬁnal point is the key one. It always seems the case that at some point during the year there will be a situation that threatens to boil over into something unpleasant. However, if you have a quick and effective way of resolving such issues then the marketing team can get back to what it should be doing, which is selling the good points of the company and encouraging customers to visit your retail outlets. Media management is a key focus for marketing departments. Invest in making sure that your aftersales team understand what
56 Aftersales Management
the key issues are for the media and how to answer them. In my time at Powerhouse I had one speciﬁc manager to whom I allocated this responsibility. All of my managers had to be involved in media management and this was not his only role, but it certainly helped to have an individual who was identiﬁed as the key contact. It allowed the company to give the media a name to focus on and demonstrated that we were prepared to take genuine ownership of our customer problems. Coming back to a point made in previous chapters, experience has shown that aftersales service does not sell. No one buys goods expecting that they will fail or need a repair so do not waste time on banner statements like ‘Guaranteed same-day service’. It will cost a great deal to maintain and the ﬁrst time you fail to deliver this service is the day that the press has great fun at your company’s expense! Therefore, before you get carried away, just take a moment to beware. A consistently good service, professionally delivered, will gain your company a reputation and it will help if you want to sell something like extended warranty, but do not fall into this potential trap.
Logistics Your company’s logistics process will be primarily set up to ﬂow towards the customer. There will be some thought and effort put into the returns and exchange process, but clearly this is not core and with the best will in the world it is always going to be an expensive diversion from the main purpose. The most important points are to ensure that everything which comes back is clearly labelled, not only showing what it is, but also why it is coming back. Most logistics processes are very simple and data recording is designed to allow transport in the least number of movements to the desired destination. The type of data required to effectively manage a reverse logistics operation is not usually well suited to the classic ‘throughput machine’ design of a retail stock warehouse. In addition the idea of setting up a check and test area with space for managing some goods to be returned to manufacturers and the rest to go back to store is not a happy one for most warehouse managers. These types of goods often have to wait around with no immediate date for movement and, further, they are rarely in
What Does the Rest of the Business Want? 57
a pristine or necessarily intact box so stacking is a major problem. There are also side issues such as theft of accessories because the boxes are open. At its most basic, the job of the aftersales manager here is to work very closely with the logistics team to set up the simplest and most effective process possible. However, the aftersales manager also has to make sure that there are good routes for communication with the retail outlets and, most importantly of all, they have to be the key problem solver in the relationships with the suppliers. The logistics team will hopefully have a good relationship with their equivalent teams at the suppliers, but often returns management within suppliers is handled by their own aftersales department and not within logistics. As we have explored elsewhere it is usual that the supplier’s aftersales team holds the keys to gates which block those questionable returns, so a strong relationship here is essential to take pressure away from the logistics team. Then of course there is the question of damage. Aftersales managers everywhere have almost certainly wept when they have seen the condition of some of their exchanged goods on return to the warehouse. The hard fact is that a supplier will accept goods back in a ‘fair wear and tear’ condition, but if the goods have large-scale dents and scratches then all bets are off. It might seem that logistics teams should just be much more careful, but if they are geared up for delivery of fully packaged goods then it is unsurprising that they do not do so well with collection of at best partially packaged goods. The aftersales manager has to work closely with the logistics team and invest time into ﬁnding solutions like protective packaging that will allow the logistics team to take ownership. My experience is that once logistics managers have a solution that works and it is easy to use then they will stick with it. Working on the same lines, it is also very helpful for logistics managers to better understand matters such as net costs and frequencies. The most important key measurement for most logistics managers is the average cost per box handled for storage, processing and delivery. If the costs of aftersales can be shown to be linked and negatively impacting on this indicator then they are rarely slow to act upon such information when it is supplied. Having made all of the positive points, it is also important to look for trends that show causes of ongoing problems. An example comes to mind where a small chest freezer was being repeatedly found to have ripple damage near its base. After investigation it was found to
58 Aftersales Management
be as a result of bad handling practices and not poor build quality. Negotiation with the supplier increased the polystyrene protection and the problem was eradicated.
Finance At the risk of painting an unfair caricature, the main concern of the ﬁnance team is simply to be able to understand where the costs come from so that they can allocate them properly within the accounts. However, a good ﬁnance team will also want to know why these costs are arising and will understand that if these costs can be attacked, there is a direct payback to the bottom line. As there is usually a great deal of misunderstanding and denial about such costs, the fact that they can actually be identiﬁed is of signiﬁcant interest to any ﬁnance director worth the title. The trick here is to make the data recording reliable and accurate. The function of the ﬁnance team is not normally to drive the proﬁtability but rather to make sure that everyone understands what needs to be done to maintain or improve it. The requirement is fairly simple – good data capture and attention to detail. However, as returns and exchanges are usually treated less well than pristine stock, collecting such data is not always easy. Focus on what it is that the ﬁnance team wants and not what you want. This will gain you a very useful ally and assist you enormously in focusing the attention of the business on a big potential saving. As we discuss several times within the book, your main challenge will be to demonstrate how these costs are created by other parts of the business. This can be highly contentious as it is to a degree pointing out the shortcomings of other departments. A good ﬁnance team, with a proper understanding of how these costs are derived, is very helpful as they can assist in preparing the reports. This in turn takes away some of the perceived stigma of what may be considered ‘ﬁnger-pointing’.
Purchasing The purchasing team is often at odds with the aftersales team and phrases like ‘You’re just trying to kill the deal’ are frequently used. A good purchasing manager will take ownership of the whole life cycle
What Does the Rest of the Business Want? 59
of the product that he or she is buying, but sadly this principle often gets lost in the thrill of doing the deal. The issue is not usually a question of poor management or lack of concern, but rather pressure to do deals that will ensure continued turnover and proﬁtability. Moreover, these individuals are usually from a marketing background and as such are creative rather than technical. As a result it is often difﬁcult for them to maintain a grasp of or interest in the whole supply chain. This is an example of a Friday afternoon conversation I once had to have in order to make a point: Service Director: Purch Manager: Service Director: Purch Manager: Service Director: Purch Manager: Service Director: Purch Manager: Service Director: Purch Manager: Service Director: Purch Manager: Service Director:
‘This new television brand you’ve bought, when does it hit the stores?’ ‘It’s the lead line this weekend.’ ‘So who is handling returns, exchanges and repairs?’ ‘Well I thought you were.’ ‘And how do I do that when I have absolutely no information or contacts at the supplier?’ ‘We can get to that on Monday.’ ‘So what about problems over the weekend?’ ‘Dunno. What do you want?’ ‘Can you just check that this is the right telephone number for queries on these goods?’ ‘That’s my home phone number!’ ‘And that’s the number that will go to the stores unless you help me.’ ‘You’re going to kill a great deal. What do you want?’ ‘Just the contact details of the supplier and 10 minutes of your time to explain the deal.’
The deal was a great success and it actually took just seven minutes for him to call his contact and put me in touch with the operations director, who of course had all of the answers that were needed. The problem cited in the section on logistics in this chapter was being caused by bad handling by the logistics team, but could have been averted if the purchasing team had put more thought into the way the goods were delivered into the warehouse and less on the great selling and buying-in prices. From the aftersales management perspective the keys to ensuring an effective purchasing policy are as follows:
60 Aftersales Management
Standardized procedures – if the buyers know that everything must come with a minimum guarantee then that is what they will ask for. This does not prohibit one-off deals but makes sure they understand they have to ask permission. Strong supplier relationships – the buyer will only have a relationship with the suppliers’ sales team, who again are creative rather than technical. Aftersales managers must foster strong relationships with their counterparts within the suppliers and I have always found it very useful for them to be consulted in any new deals or for any new products. Effective accounting – ideally this should be whole-life accounting but it is a very big exercise to set it up and the lead times to get effective information are frequently far too long to meet the requirements of a modern retail business. Therefore it needs a process which is easy to collate and can be monitored on at least a weekly basis. Failure and exchange reporting – the main concern for purchasing managers is how much of their margin will be eroded by goods that are returned. However, effective and accurate reports are not only a means of managing the activity of the purchasing manager. The better purchasing professionals actually use the data to both recover costs and drive a harder bargain on the next deal.
Ultimately if you foster the right type of relationship then you not only ensure recovery of costs, but you can also work together to develop some very creative deals. Remember that most purchasing managers spend a great deal of time working on their own and are extremely receptive to assistance, particularly when it allows them to concentrate on what they like to do best.
Human resources This may seem an unusual area of the business to discuss, but as we will revisit time and again, there is potentially a big ‘feel-good’ factor that should not be underestimated. Retail has notoriously high staff turnover levels and whilst much of this will be related to the ﬁnancial rewards one company offers over another, if staff are happier then they will always be likely to stay longer. The aftersales policy and practices can have a very signiﬁcant impact upon this happiness. For sales and customer service staff in
What Does the Rest of the Business Want? 61
particular it is not just that they have to deal with less Mr and Mrs Angrys. It is also the opportunity to close a problem effectively and receive the odd ‘thank you’ when it goes right. For sales staff there is also that opportunity to let the customer know that they are good at their job and these customers should tell all of their friends to come to that store or that company if they want good service. Moreover, you should not underestimate how much staff attitude can damage sales of particular brands or products if there are repeated problems and lack of conﬁdence means that they begin to avoid selling these goods.
The Board Ultimately, the Board of the company will want to see both a reduction in costs and greater certainty over future proﬁtability, although for some of the Board their issue will be a particular sensitivity towards negative media reaction and bad press. Few if any of them will really understand what the aftersales team does or why they are handling it in the way that they are. There will be cries of, ‘Just tell the supplier to do what he is told!’ ‘Do these guys want to lose our business?’ and, even worse, ‘Do these people know who we are?’ Therefore any information you provide will have to be carefully ﬁltered and simpliﬁed. There is no point in telling the Board that there is £2 million to save at your company when it relies so heavily on culture change and process rebuilding. Worse still, there is no point in proclaiming that there is a budget needed of, say, £200,000 to save £2 million per annum because the Board will almost certainly not understand why the £2 million is there (or perhaps not want to admit to their part in it) and will just criticize the £200,000 expenditure. On one occasion, my already very small budget was under attack and the managing director (MD) wanted to know what would happen if the company did not have the aftersales team. The following points were made to him:
Are the telephones ringing off the hook with angry customers? Are our exchange levels well above the industry norms? How are the company’s competitors handling this? Do store staff want to be without the aftersales managers? What is the opinion of the customer service manager?
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How many angry customers get through to the managing director’s personal assistant (PA)? When was the last time the company appeared on Watchdog? Does the managing director want to have to answer any telephone calls himself?
As you might imagine he was not very pleased with the answer as he had probably been set up for the discussion by a colleague. However, he took on board the comments and went away to seek further advice. He contacted a former colleague at a market leader (he had been a director there himself for several years), spoke to his PA and had a meeting with the customer service manager. His ex-colleague told him that his own company was having horrible problems with aftersales, but that the reputation of Powerhouse was very good. Both his PA and his customer service manager threatened to resign if he took away the aftersales team. Needless to say my team lived to tell another tale and the MD did, after some store visits, have the good grace to admit that the sales team thought the aftersales team was doing a very good job. However, there are some important points here:
The aftersales part of the business is always going to be viewed as a cost centre. The majority of the savings you will generate are in other departments and other parts of the business process. It is human nature that these other parts of the business will be quick to claim the beneﬁts and slow to give you the credit. If you are doing your job well then it is likely that you are exposing weaknesses in the way that your colleagues manage their respective parts of the business. Therefore whilst you will be popular with the front-line team who have direct contact with angry customers, you may be viewed as a problem by your more senior colleagues. Because it is less easy to quantify the overall savings and beneﬁts that you bring to the business, your expenditure will always be viewed as a potential saving by less well-enlightened members of the management team.
What Does the Rest of the Business Want? 63
Summary The main message that you should take from this chapter is that whilst you can make very signiﬁcant gains through the efforts of you and your immediate team, you can achieve much more by taking other departments with you. Having said this, there are potential pitfalls here and it is likely that at least initially you may be seen as ‘telling tales’ on your colleagues. Work closely with these colleagues and explain what you think might be the likely outcome of your review in relation to their respective business areas before you make it public to anyone else. This gives these department heads a chance to buy into the process and put their own spin on the way that the project is being implemented. In the end you have to ask yourself whether it matters who makes what claim, provided the end result is the one you wanted in the ﬁrst place. Finally, aftersales is ultimately a cost and one that in the ideal world you should be looking to make unnecessary. However, this isn’t an ideal world so the business will probably always need this support team. That said, it will not stop people asking what you and your team do, and you have to keep the pressure up to keep the focus of the business on the potential opportunity. Drive your results so that the question of whether your team has a value or not is never an issue.
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Problem resolution timescales
Basic principles As we explored in Chapter 3, the requirements of retailers in law are really quite loose and can be exploited to some degree by retailers. However, in the case of time taken, even the most unscrupulous retailer understands that angry customers get angrier as time goes on. Ironically, this understanding is the core of designing a good customer proposition. However, I have managed many large teams of repairers who were frequently so focused on repairing the goods that they forgot the customers and how long these customers had to wait for completion. Clearly, cost is a key issue and the resolution of the customers’ problems has to be done economically, but it is just not reasonable to expect a customer to stand for the fact that you cannot control your process or manage your supply partners. To be successful you need to ﬁx a maximum timescale that a customer should be expected to wait; tell the customer what this period is and then stick to it religiously (unless for some reason the customer has told you that it is alright to continue). For many companies the problem is very simple indeed. They are not in control of their aftersales process and so they simply hope for the best. That said, these companies are often very good at resolving the 80 per cent to 90 per cent of situations where the process goes well and they are normally quite cost-effective for these problems. The issue comes from the other 10 per cent to 20 per cent where something goes wrong and where instead of sticking to a deﬁned set
66 Aftersales Management
of service standards, the customers suffer because they cannot get a repair or exchange without it being at the companies’ cost. If it is a case of bad diagnostics, poor parts supply or lack of management control then who is at fault, the customer? The issue is often one of basic denial and to be successful companies must accept that these problems exist. Moreover they must not push these problems onto their customers and once they understand the issues they must work hard behind the scenes to make sure that these problems do not arise again. In my experience there have been dozens of examples of companies who would not allow an exchange even though a customer had waited ﬁve to six weeks, and the reason was simply that either they couldn’t identify the fault or they could get the parts. Who is at fault here and why is the person who is not at fault having to suffer?
Reasonable timescales In deﬁning timescales that a customer should have to wait, I always start from the premise of, ‘What would I tolerate myself?’ My wife might say I was a bit too laid-back or too willing to compromise, but this has usually served me well in that I tried simply to remember how I felt personally when I was being given poor service. When talking to employees of the company they normally took the company’s side and their reaction was often not representative of how they would respond if it was their own goods. Talking to service engineers, I frequently found that all they were focused on was the repairs, often without real consideration of the costs, the timescales or the problems caused for the customers. My favoured tactic was to ask them to speak to their respective partners and get them to give their opinions. The results were often very surprising, particularly for the service engineers. Despite other preconceptions, customers do understand that life is not all straight lines and that sometimes things do go wrong. Ideally, they would like problems resolved immediately but after this for most people, it is simply a question of levels of tolerance:
Time to respond – these days call centres are designed to answer calls quickly and there are numerous models for stafﬁng and process design that allow call centre managers to ensure a prompt response.
Problem Resolution Timescales 67
If the initial response is quick and effective then most customers will work with you (see page 68). Make sure that your repair solution is as efﬁcient as your call centre so the customer can see at least some progress as quickly as is reasonably possible. First-time ﬁx – realistically it is usually not possible for a repairer to visit immediately (unless you have a large in-house operation designed for emergency repairs like British Gas), so the target should be to complete as many jobs as is reasonably possible at the ﬁrst visit. In truth, customers do not mind waiting a few days longer if they only have to stay at home for a visit on one occasion. Unfortunately, in the electrical appliance sector the genuine ﬁrst-time hit rate (ie that which remains after customer education and ‘softﬁx’ calls are resolved over the telephone) can be as low as 20 per cent for brown goods and 50 per cent to 60 per cent for a multi-brand repairer of white goods. In the furniture sector ﬁrst-time ﬁx rates can be as high as 85 per cent to 90 per cent, but bad management practices can often generate results as low as 40 per cent. Time to complete – this is frequently a highly neglected area of the time taken issue. That is, the time taken to complete those jobs that cannot be resolved at ﬁrst visit. As we explore in the section on ‘Scale of tolerance’ (page 68), in my opinion there has to be very good reason for functional repairs to take much more than two weeks (or at a real stretch three weeks) to complete. As previously, cosmetic repairs which do not prevent use of the goods may take up to 28 days.
Why time is so critical The best analogy is that for customers, sales staff and customer service staff alike, a problem like an appliance breakdown often feels they have found themselves in a very dark tunnel. If they can see light at the end of the tunnel (ie there are deﬁned rules and ﬁxed actions) then they will walk towards the light. They will of course not be happy about ﬁnding themselves in this uncomfortable place, but they will be happy that there is a predictable outcome and a way out. If there is no light, or such light as there might be is very dim, then these customers either panic and try to ﬁnd short cuts to get them out or get angry and start shouting very loudly until someone comes to guide them out of this ‘horrible’ place. Sales staff and customer
68 Aftersales Management
service staff have similar feelings, albeit that they may have several problems to resolve at the same time. Time is without doubt the most critical factor, seconded only by information. Despite rumours to the contrary, customers do understand that resolution takes time, but they want to know how long this time period is going to be and what happens when they reach the various time milestones. If you do not tell customers where these milestones are then you are making the ‘tunnel’ darker and less comfortable with predictable results.
Scale of tolerance The scale in Table 7.1 is fairly general, but it has served me well as a reliable guide to the way that customers react to aftersales issues and the way that this reaction changes as time elapses after the initial incident or problem.
Customer scale of tolerance
Time After Average Customer Initial Response Problem
Customers are frustrated This is clearly heavily but understand that these dependent upon the age things happen. of the product – if it is very new then expectations are always much higher.
Day 2 to 7
Customers are mildly agitated but provided there has been action (eg an initial inspection of the goods) then they will normally wait.
Good communication at this stage is essential to let them know that something is happening – many companies fail badly here because they feel that there is nothing much more to say until, for example, the spares have arrived.
Problem Resolution Timescales 69
Time After Average Customer Initial Response Problem
Day 8 to 14 Customers are getting genuinely frustrated and likely to be making regular calls unless they know that there is action being taken on a speciﬁc date.
Conﬁrmation that parts will be ﬁtted on a speciﬁc date is a great tool in managing customer expectations – failure to update here is almost certain to go badly wrong later.
Day 15 to 21
Customers are now at the losing patience stage and seeking a ﬁnal date for resolution, replacement or refund.
If the problem is cosmetic and not preventing use of the goods then this is clearly much less of an issue.
Day 22 to 28
Customers are now angry and probably calling every day taking up considerable amounts of resource and generally being very difﬁcult to placate.
It is neither clever nor cost effective to allow a customer to reach this stage. The call taking costs alone are huge when measured against the margin that the original sale generated – to say nothing of the potential lost income from future sales.
Day 29 and Customers will now over be furious and simply not understand what is causing further delay. There are likely to be threats of legal action.
When customers get to this stage it causes enormous stress for call centre staff which generates increased staff turnover and absence. There is no real excuse to let a serious problem get to this stage.
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People who have run aftersales operations will of course be able to tell you of instances where customers have waited much longer than this without too much distress. However, as we all know, in life there are always those who do not really know how, or do not like to complain and struggle on regardless of their circumstances. It may also be that they have another television or the bed settee is not currently being used. However, to design an aftersales scheme on the basis that the company might get away with a few issues and risks is not only naive, it is frankly stupid. The spin-off costs and wasted resources generated by the majority of complainants will far outweigh any short-term gains made by taking advantage of a few shy and/or meek customers. There are exceptions and the furniture sector usually has a slightly longer lead time because the goods are often still usable. That is, it is either a cosmetic problem (eg a stain) or perhaps there is an issue such as ‘crushing’ which makes it less comfortable but still usable. However, even here one would suggest that the maximum lead time is only slightly longer at, say, 21 rather than 14 days.
Repeat repairs Remember that when a customer has already had a repair carried out then they are always much more sensitive to time taken. This is bad enough if the repair was perhaps 12 to 18 months ago, but if it is within three months, or perhaps the ﬁrst repair carried out last week was not successful, then this is a major issue, so expect that this level of tolerance will vary according to the situation. This said, there is nothing wrong with applying exactly the same processes and procedures for the second repair, but it may be necessary to make sure that the customer understands what tactics you are using. There is always a strong possibility that the problem is caused by something that the customer has done repeatedly, so take a measured approach but be prepared to escalate the problem more quickly if the fault is a genuine one.
Mr and Mrs Angry If given poor service, customers will become genuinely very aggressive. I have always taken a view that I should take some of the customer calls in order to stay in touch with what was actually happening. As
Problem Resolution Timescales 71
a result, in my time I have been threatened with everything from ‘a good kicking’ to ‘a massage with a baseball bat’. This is not a nice experience even if you are many miles away on the end of a telephone, but in-store this is much more frightening. When building your solution you should always consider the member of staff who has to convince Mr or Mrs Angry to wait a little longer when they are face to face with them in a shop full of other customers. Televisions are the centrepieces of almost everyone’s home and for many people they simply cannot live without them. In days gone past the fact that a customer had more than one television in the house meant that they might wait, but modern living means that each television is the ‘property’ of an individual within the house. Worse still, if it is the primary television in the lounge then it will be both the most expensive and the most treasured. You should expect that customers will be much angrier than you might have anticipated and that this issue is all-consuming in their lives. When you ﬁnish work at night you can forget all about the problem until the following morning or perhaps until the other side of the weekend. For the customer this is a 24-hours per day issue and many become very distressed indeed. Remember this when you are designing your aftersales operation and you will ﬁnd it much easier to be in tune with what you need to do in order to minimize angry customers and so-called ‘screamers’.
Summary I am constantly amazed by how little thought is put into the timetaken issue by companies in general; or if it is considered, then energies are directed at the ﬁrst visit. Ultimately, all that customers are interested in is how long it takes to resolve the problem and everything that goes on through the process is simply something that they feel they have to endure. Ask yourself what delays you would be prepared to put up with, and when you have worked that one out, try it on your best friend, your partner or close family. The results will surprise you and you will undoubtedly set target timescales that are shorter than you thought they would be when you started this process. Above all, do not let customers ‘slip through the cracks’ of your processes and procedures. Make sure that there is an effective catchup and progress chasing process and never leave customers to wait and wonder.
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Common sense For me, the design of an aftersales proposition is ultimately a question of basic common sense. If you think about what you would want and then you think about what your friends and family would want (not what the company wants to get away with) then in your heart you will know what needs to be included. The following is typical of the conversations I have had with parties involved in the supply chain: Service Director: Supplier: Service Director: Supplier: Service Director: Supplier: Service Director: Supplier: Service Director: Supplier: Service Director:
‘What is your maximum time to make the initial home visit?’ ‘We average two days, but three to four in remote areas.’ ‘What is your maximum time to complete the repairs?’ ‘We don’t really have one, but probably about four to ﬁve weeks.’ ‘Can we work on two weeks?’ ‘We probably do achieve that now for most customers.’ ‘OK, but what about the other customers?’ ‘Oh, I don’t think there will be many of them.’ ‘If I told you that those customers not getting a ﬁrst-time ﬁx are on average waiting four to ﬁve weeks to complete, what does that tell you?’ ‘I’m not sure I know where this is going.’ ‘If the average is four to ﬁve weeks then there must be some really bad cases and those
74 Aftersales Management
Supplier: Service Director:
Supplier: Service Director:
customers are not being given the service that either of our respective companies wants.’ ‘Well, it’s not that bad really, is it? And we’ve got to keep control of our costs.’ ‘Try telling that to your wife/husband/partner and see if they will wait that long. Then, when they are speaking to you again, think about who is at fault and why should your wife/ husband/partner suffer just because you cannot manage your business.’ ‘OK, so what do you want?’ ‘Let’s talk again about the two week cut-off!’
There are two principal issues. Firstly, how long should a customer be expected to wait; and secondly, why should a customer be made to wait because the company or its suppliers/partners have made mistakes and/or cannot resolve the problem? In Chapter 7, we explored the issues of reasonable timescales and in this chapter we will examine how this can be built into the design of an aftersales operation. The issues that cause the delays are clear, but none of them are really an excuse for the retailer or the supplier moving the problem onto the customer.
Timescales As in Chapter 7, unless you are prepared to invest a great deal of money in a like-for-like loan arrangement if the goods are not usable (ie so the customer has lost none of the facilities and beneﬁts that they have paid for), then a maximum waiting time of circa two weeks from date of ﬁrst access to the goods is recommended. The lead-time from initial call to access is less signiﬁcant, provided the access can be offered within 24 to 72 hours. However, often it is not convenient for customers and so access times are frequently more than that in any case. You should be prepared to state in your company literature that you are prepared to offer replacement goods if you cannot resolve the problem within this maximum timescale. This will give the customer and the sales and customer service teams a point in time to aim at where they know that the problem will be resolved. It will reduce chaser calls, and any calls that do come in are much simpler because staff have an easy message to give.
Proposition Design 75
Diagnosis and fault resolution A common cry is that the repairers are not sure what the problem is but they are trying their best. Well, what if their best is not good enough? Does it state in the terms of sale that the product will be fully functional provided they can ﬁgure out how it works? Well of course not! The answer is to stick to the maximum time window and then resolve problems of poor diagnosis or fault resolution ‘ofﬂine’ when the customer problem has been resolved and it is not so time-critical. This will perhaps cost a little more in the short term, but it saves the business a very large amount of money in the medium to long term. This is a difﬁcult point for many companies to grasp because so many businesses use this excuse. Just stick to the principle that your company’s problems should not be passed on to your customers and that if you do pass them on then your customers may not be yours for very much longer.
Parts availability In Chapter 9, we examine what it is reasonable to expect and we explore a process whereby a supplier might be persuaded to offer a two-week maximum supply time for parts. There is no reason why suppliers should need more than this for all key functional parts lines. If they need to put in procedures to allow them to do this then it is better to work with the supplier ‘ofﬂine’. That is, not to have to persuade a customer that you do not have the parts for a product that they bought less than two years ago. For cosmetic parts, this issue is nearly always more complex as manufacturers tend not to keep large volumes of cosmetic parts stock available. This is not a major problem in the electrical sector because the customer can usually still use the appliance. However, in the furniture sector this is much more of an issue because the goods are bought as much for their looks as they are for their use. As we explore in Chapter 9, there are plenty of ways that the traditional practices can be overcome and much stronger service standards can be offered as a result.
76 Aftersales Management
Multiple failures One of the most important points that retailers and suppliers forget is that all of the ‘written down rules’ in the world will never overcome the question of what the customer deems ‘fair’. The most common response from manufacturers when a product fails for a second or third time in 12 months is that it was not the same fault, but the customer does not really care. As far as the customer is concerned, the product has developed a second or third fault and that is the bottom line. Customers by this point will have lost faith that the product will ever be as it was sold to them, and they simply want a new one. Experience has shown that the third genuine failure in any 12 months is the upper limit for tolerance and most suppliers can be persuaded to accept such an argument once they have dropped their standard defence of ‘It’s not the same fault’. As with the parts promise, this multiple failure principle can deﬁnitely be built into the written terms and conditions and this type of commitment goes down very well with customers and sales staff alike.
Guarantee term How many people have, I wonder, had no problems at all with their goods for the whole of the guarantee period, only for a fault to occur within a month or two after the end of that period? If they have then this is usually regarded as just bad luck and if it worries them sufﬁciently then they can always buy the much-criticized extended warranty (which in itself is not such a bad idea; it is just that the margins made by retailers are sometimes quite high). The issue we are exploring here is not the fact that the faults occur outside of the guarantee period, but rather that there are frequently incidences where there is a major failure and it may be necessary to replace the goods entirely because the combined parts and labour costs of repair are just not economical. My argument has always been that if a product has only just made it past the guarantee period and there is no evidence of misuse or excessive use, then in all probability there was a problem with the goods in the ﬁrst place, but they unfortunately did not manifest themselves until that time. Without exception, I have also always
Proposition Design 77
found that the manufacturers privately agreed with me, but that publicly they had to protect their aftersales budgets. That said, with some constructive negotiation and applying the processes suggested in Chapter 9, there is the opportunity to be able to offer a free-of-charge exchange or at least a repair in the event of a major failure of this type for perhaps up to six months after the guarantee has lapsed. Indeed, with care and a proven track record of partnerships with suppliers, I have achieved this type of support up to more than two years after the guarantee has elapsed. This offers a very strong opportunity for a customer service proposition. It is not a point that can be formally advertised (because if you did then why would customers buy extended warranties?), but it is an excellent way to build conﬁdence initially in your sales staff and then ultimately in your customers as part of an overall reputation for ﬂexibility and support.
Loan equipment and products Obviously, customers will be more willing to wait for their goods to be repaired or replaced if they have something else to use in the mean time. The main point to consider is the duration of the problem, but there is a ﬁne balancing act which needs to consider the following:
How long will the customer be without their goods? If this is a very short time then the logistics of getting loan goods to the customer may make it impracticable. Does the customer have other similar goods that could be a stand-in if the time to resolve the problem is likely to be short? If it is a television then in all probability there are others in the house and it might be easier simply to get the problem resolved quickly. How quickly can a loan set be provided? If it is not practical to provide one quickly then ﬁnd another solution. What are the logistical issues? Is it practical to provide loan goods in the case of a sofa or an American-style fridge freezer? Like for like beneﬁts – it can be a case of ‘rubbing salt in the wound’ if the loan is poor (eg damaged or soiled) and if the features of the goods are nothing like the original (eg a black and white portable as a loan against a 50-inch plasma television).
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Bear in mind that loan goods can quickly become scratched and dented as a consequence of being moved around so often. If you can avoid this process then you might be well advised to do so, or limit it to very speciﬁc cases such as the elderly. If you do go ahead with a loan facility, then audit the goods frequently for condition and be prepared to replace shabby and jaded units or expect customers to be singularly unimpressed.
Compensation Most companies shy away from compensation payments because quite rightly they do not want to set precedents for big payouts for ‘discomfort’ or ‘lost beneﬁt’. These factors are not easy to evaluate objectively and it is better to concentrate on lower-level options and offers. For example, it might be better to offer a ﬁxed sum per day if the maximum period for problem resolution is exceeded. This demonstrates a commitment to customer service but it does not give the impression of being a pushover and it gives sales and customer service staff a much cleaner and easier procedure to work with. Whatever your preferred policy, you must have it written down. Even if it is not available to customers, the fact that there are guidelines will stop staff speculating or being bullied into making unrealistic promises.
‘Sorry!’ My hard-earned experience is that customer service staff and sales staff will too often use phrases like ‘We are sorry for the delay’, or ‘We apologize for the inconvenience’. These words are often said in a very functional manner with the result that customers are frequently left feeling that retailers are not actually that worried about their individual cases. A well-written letter from a senior manager or director is very effective in making a customer feel that they are being listened to but please avoid pro forma letters that are then signed on behalf of the director (frankly you are wasting the ink and the cost of postage). Better still is a telephone call from that senior manager or director, and anyone who says that they are just too busy needs to look very
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hard at what they are doing with their time and whether they are investing their time in the right places! This is always a very useful tool for the following reasons:
It often takes the heat out of a situation because the customer realizes that they are being listened to at the highest levels within the company. It gives senior managers the chance to ﬁnd out for themselves exactly what customers feel about the company’s service.
Finally, whilst as above, compensation payments are a questionable route to follow, you should not be shy of token gifts like ﬂowers and even chocolates. This is not intended as a sexist comment, but rather recognition of the fact that in most cases it is the woman of the house who has to deal with complaints. Whether this is because said woman is more often home looking after young children and/or because men tend to be much poorer at complaining or asking for their rights I am not sure, but it is in my experience the case. Therefore, when a difﬁcult complaint has been resolved, why not give a token gift of something like ﬂowers to say thank you for the effort that the customer has invested – problem resolution is not a one-way street.
Summary It may seem that the concepts listed here are very simple and indeed that is true. As we have discussed repeatedly, the problems are simple and the customer only wants what is fair and right, so what is complex about that? These complexities are created by companies either being overprotective or simply not understanding what they need to do in order to make the process simpler. Build a proposition that is simple and easy for everyone in the company to understand. Make sure that the customers can be in no doubt about their rights and then create a structure for delivery of that proposition that is robust and easy to adapt. Do not look for subtle beneﬁts and clever tricks; customers will either not understand them or not value them. Work from a base of fairness and honesty and you will not go far wrong.
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Supplier management and reverse logistics
Basic principles Without any question, the only real way to create a high-quality aftersales proposition in an economic manner is to be able to put the ownership of the costs of the programme where it actually belongs. Without wishing to generalize too much, the broad categories are as follows:
Suppliers – this is the area that most retailers will look at ﬁrst and try to use buying power to make suppliers take the cost. The issue is usually damage, poor manufacture or overpromising capabilities. Sales and marketing teams – who either oversell, overpromise or fail to use the company procedures and policies. Logistics teams – who fail to deliver on time or damage the goods in storage or in transit.
In truth, everyone in the supply chain has a level of responsibility and it is important to identify where the principal causes of the costs are in each element of this chain. We have covered the management of relationships within the company in depth in Chapters 5 and 6. This chapter is dedicated to the management of suppliers and manufacturers.
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Supplier management Key issues This is the area that most retailers get wrong. There appear to be two main models utilized by retailers that can be broadly described as follows:
‘It’s all your fault’ – that is, the retailer expects the supplier/ manufacturer to accept all liability and associated costs. This is a model used heavily by very large organizations like supermarkets. It probably works fairly well for low-cost commodities like grocery items because the supply chain is simple and the reasons for problems are fairly easy to identify. ‘It’s not our fault’ – this is a model often used by smaller organizations where they will have some degree of control but in general hide behind statements like ‘The supplier won’t let us exchange it’ and ‘Company policy is …’. This kind of approach can be reasonably effective for a while, but ultimately the shortcomings and the costs of the process catch up with retailers as they grow. In any case, this type of approach does not foster a good reputation for customer service.
The overriding principle here is that sometimes the answers to the queries raised by customer service are fairly black and white, but in the majority of cases they most certainly are not. An example of a usually clear-cut case is perhaps something like a packet of cornﬂakes. The packet is either within its ‘sell by’ date or it is not, and the cornﬂakes taste good or they do not. If the box is damaged then it should be possible to identify where they were damaged (eg if the outer carton was undamaged then in all probability the damage happened at the retailer’s premises unless there had been a breakdown in the packing process at the factory). The important point here is that there is little to argue about with the customer and, in any case, the cost of replacement is probably small. In the case of larger and more expensive goods such as televisions, the range of things that go wrong in the supply chain is huge and identiﬁcation of the source of the problem can often be quite a challenge. For example:
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Damage – the goods can be considered damaged if there is nothing more than a minor scuff on the goods. This can be caused in the manufacturing process, the delivery process or inadvertently in the post delivery process by the customer themselves (or perhaps the customer’s children). Performance – a television may genuinely have a poor picture, but it may be bad installation with incorrect tuning, a bad aerial, wrong set-up, interference from other appliances like cable or satellite systems, or it might just be that the customer’s expectations were set too high.
In the furniture market where product looks are all-important then this issue of expectations can be exacerbated further with issues such as in-store lighting, polish and the fact that the goods in-store had been used to some degree which meant that their look was completely different. It is not always a product or supplier issue and aftersales programmes must be built to take this into consideration. Suppliers will usually try to help, because ultimately they want to protect their brands and to sell more goods. However, if you take advantage of this or if your own internal processes are poor then the suppliers have no choice but to protect themselves and to put up barriers to prevent you returning goods.
Protective barriers Suppliers will lay down speciﬁc rules that must be adhered to in order for customers to get an exchange. You need to understand that the ﬁrst interest of suppliers is to keep the product with the customer and not to allow an exchange. This can sometimes make them a little too zealous in enforcing the rules and they do not always apply common sense. That said, it is probable that these suppliers already take back a great deal of goods as part of commercially driven deals so that they can generate the next batch of sales. As a consequence, they are forced to be a little bit more selective if they are not to be completely swamped by returns. The main issues that they are concerned with are returns where there is no fault found and products that are damaged to a point that they are not resalable. The level of returns where there is genuinely nothing really wrong can be quite shocking, and suppliers are rightly
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frustrated when they are expected to bear the costs for inefﬁciencies in the retailer’s processes.
Relationships The only effective way to circumnavigate these barriers is ongoing dialogue and relationship building. You must go into these discussions knowing that it is highly likely the individuals or teams charged with acting as gatekeepers hear nothing but bad news and complaints. It is essential you understand that if someone attempts to understand their issues then they are usually only too willing to be more cooperative. They will understand your gripes and they will probably have a degree of ﬂexibility in their decision making but it is essential that you or your team always ask and do not just assume unless it is written in indisputable form in a contract. Invest in specialists within your team who can talk technical detail and work more closely with the suppliers’ aftersales teams. Build the relationships and try to make sure that you not only share information, you enable regular relaxed meetings between the respective teams so that they are more comfortable in talking to each other. This will not give you ‘carte blanche’ to send everything back, but if you are careful, you will be very surprised just how much help you can get. A mature conversation should take a path something like this: Retailer: Supplier: Retailer: Supplier: Retailer: Supplier: Retailer: Supplier: Retailer:
‘I want to be able to offer a two-week maximum repair period from date of ﬁrst visit/inspection of the goods and after that they will be replaced.’ ‘Who pays for the replacement?’ ‘If it is caused by us then we will, but if it is because we can’t get parts or technical help then you will.’ ‘But I’ve got a 95 per cent ﬁrst-time pick rate for functional spares.’ ‘Agreed, but very often we struggle to get these parts from you.’ ‘Who decides that it is me who is responsible?’ ‘We both do, on a case-by-case basis.’ ‘How will we do that? On a monthly basis or something like that? Because that never works.’ ‘No, I will arrange that as part of our escalation process someone will contact your team and remind them
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Supplier: Retailer: Supplier:
that the clock is ticking so they can resolve it without a replacement. If they decide that they cannot then they will give my staff an authorization number so we know it can go back for full credit and you know what it is when it comes back to your warehouse.’ ‘Why would you want to replace the goods?’ ‘Because by the time the customer gets to two weeks from the ﬁrst visit and maybe had to wait a few days for the ﬁrst visit then they will be pretty frustrated.’ ‘OK, your staff contact us on a case-by-case basis and give us a day or two to resolve problems before you get to 14 days, and I will work with your proposed timescales.’ ‘There is of course another spin-off – your returns ‘nofault-found’ frequency will simply disappear on goods exchanged after the initial point of delivery.’ ‘If it works then it sounds very good to me!’
Operational management Basic principles It is usually good practice to assume that your own business will be the source of more of your problems than your suppliers. The suppliers’ goods work or they do not and they will have put procedures in place to try to handle those that do not. They may have problems with parts supply and diagnostics, but these are usually quite easily identiﬁed and manageable provided you are fair in your dealings with suppliers and you apply a healthy chunk of common sense. There is also the blindingly obvious point that you usually get what you pay for. Cheap goods will not normally last as long or perform as well as more expensive and better quality ones, although there are always exceptions. If your company is principally selling low-value entry price point (EPP) lines then you will obviously have a lot more problems to resolve, but this is not necessarily a supplier problem, it could be that customers’ expectations are unrealistically high. If the procedures are applied and there is a good dialogue with suppliers for escalations then most reverse logistics issues should be handled easily, but sadly not. Each of us in the retail selling chain has different pressures so it is necessary to build a system and process
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which accommodates each of these pressures and does not let ‘individual priority’ bypass these systems. Moreover, just exchanging the goods within a set policy and procedure is only part of the story. The goods still have to be protected and handled just as if they were brand new because damage in transit will undermine all of your hard work with suppliers.
Information gathering If a supplier is going to be willing to accept returns and exchanges for full credit then they will need the complete details on who bought them, what went wrong and why they were exchanged rather than repaired. Transparency is a very valuable tool in building credibility with suppliers. The supplier will perceive that if you are willing to share information then you must believe what you are reporting, and the fact that you are willing to let them check your data is something that many retailers simply will not tolerate. The main information required by the retailer is:
customer name; customer address; customer telephone number; brand; model number; product group; date of purchase; date of delivery (if major difference); date of exchange; fault history; most recent fault description; reason for exchange; sale note number; delivery number (if appropriate); consignment number (if available); store or outlet name/number; name of person requesting exchange; store authority number; In Home or In Store; date of collection; replace or refund; repairer name (if appropriate).
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age when exchanged (days); supplier exchange reference number.
For the supplier, whilst these elements are important, the key points are:
How old it is – this lets the supplier know whether the goods are still in the guarantee period and whether there are any special terms for handling the goods (perhaps there is a 14-day noquibble exchange policy). What went wrong – fault descriptions and who says it cannot be repaired. That is, was it a repairer, the supplier, a senior retail manager or someone else within the chain? Why it was replaced – why has the retailer decided to take these actions? What was the background to this and why was it not simply repaired? Under what authority the retailer is expecting to return it to the supplier – has there been a speciﬁc authorization given by a senior retail manager or the supplier or is it a low-value item which is simply swapped under normal policy and practice?
Ultimately the retailer needs to analyse the same points but there is usually more emphasis on trends such as frequency of a particular product failing and also how often a speciﬁc store or individual seeks an exchange. The majority of this information should already be held within a competent retailer system. Therefore, it should not be an onerous task to adapt the system to gather the additional data. For smaller-value goods, it may be acceptable to just use an information technology (IT) system that retail staff can access. However, for larger goods it is certainly essential to have human intervention by a team of call centre specialists. This is partly to ensure that the exchange process is properly managed and the customer issues are quickly resolved, but more importantly, it is so that the data is correctly gathered without fudging (eg: Reason for exchange – ‘It wasn’t working’). A good exchange desk team will ﬁlter out the spurious requests and short-cut takers. It will also make sure that the supplier is less likely to dispute returns and gives the key data that purchasing teams need to seek recompense in the event of regular occurrences. Figure 10.8 in Chapter 10 shows a typical ﬂow process for decisionmaking and veriﬁcation of the authorization process that should be used to sift out the incorrect exchange practices.
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Retail outlet practices It is essential that each store or retail outlet (including call centres and website support teams) have clear and concise procedures for the management of problems and the handling of exchanges or returns. The procedures should start with common-sense lists of contact names and descriptions of what to do for regular simple problems, but then move into more detailed policy and escalation practices so that staff understand not only what to do, but also what happens when these practices go wrong. Graphic guides and ﬂowcharts are helpful, but they are nothing compared to reliable lists of contact numbers and people on the end of those telephones who are constructive, creative and, most importantly, willing to chase and follow up rather than just make notes or send e-mails. We explored at length the way that customers and sales staff think when they hit problems in Chapters 4 and 5. This is the key time to exert control, and that control will only be maintained if sales staff believe that the processes will work and that everyone else in the supply chain is playing by the same rules. In order to generate greater levels of control over the quality of returns and exchanges it is best to use a form such as the one in Figure 9.1 to track the key issues of missing accessories and boxes. The same form should be used whether the goods are returned to store or collected from the customer’s premises by the logistics team.
Damaged returns All aftersales managers will afﬁrm that the bane of their life is when they have worked hard to follow procedures, the supplier has agreed an exchange at full cost recovery and the customer is happy, but the supplier gets the goods back to their warehouse only to ﬁnd they are excessively damaged. Here we are not talking about scuffs and minor dents of the type that normal use in the home will generate, we are talking about major damage that could only have come through bad handling. These can have happened in the store, in the collection process, in the repairer’s premises or in-store. The main problem is that psychologically, people in the supply chain tend to see returns as imperfect and therefore they do not
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FAULTY / DAMAGED / EXCHANGED RETURNS FORM Sales Note Number Please tick the appropriate box or boxes Damaged
Instruction Book Remote Control Pristine TV Stand / Cabinet (boxed) Non-Pristine TV Stand / Cabinet (unboxed)
Other Accessories Staff Signature
Staff Name (Print)
Date of Collection
Date of Collection
Show any significant markings, scratches or dents Back
Exchange quality management form
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apply the same levels of care that they would for new and pristine goods. It is critical that the returns are properly boxed (or at least protected using suitable materials) and they are given the same duty of care that is applied to new products. In some ways it is more important because the chances are that the boxes are damaged or not in the condition that they were when the goods were new so they do not stack so well and they are far more susceptible to poor handling. You will need clear procedures to check and record the condition of the goods and you also need accountability for the costs of damage and write-off all the way through the reverse logistics chain. In the ideal situation, the logistics team should have a condition report of the type used for deliveries, which would be completed to show any damage. The form shown in Figure 9.1 is a useful tool in generating ownership and focusing attention on the problem.
OEM suppliers and bought out guarantees Basic principles Many retailers prefer to acquire goods direct from the factory gate or through a handling agent or distributor for their entry price point and budget sales lines. This can be a good way to generate low selling prices and value for money, but it can present problems if the quality of the goods is questionable. It is a risk that retailers take, and they generally just hope that the failure and exchange frequency is low enough to ensure that their aftersales costs do not exceed the additional margin made on such goods. The most common problem is that customers buy such goods with mistaken understandings of what they are buying and then use them for something that they were not really intended. Sales and marketing teams should not get carried away with these types of products. They usually have a speciﬁc range of functionality and the price is driven by lower build costs, but frequently the quality of build is lower too.
Financial matters The whole point about original equipment manufacturer (OEM) and bought out guarantee (BOG) goods is that the retailer is usually wholly responsible for the aftersales costs although there may be
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terms that allow for recovery of costs in the event of large scale or epidemic faults. The guarantee is sacriﬁced in exchange for higher margins (ie the buying-in price is reduced), but as all good aftersales managers will tell you, this is often very misleading and the basis for the allowances that are given in return for a bought out guarantee are very rarely reﬂective of reality. The problem is usually that the level of discount is calculated from laboratory failure frequencies and those instances where the costs are deﬁnitely attributable to the manufacturer. They very rarely take into consideration customer education calls, and those instances where there is nothing wrong but you still have an unhappy customer so the only way to make them happy is have someone visit the house to prove that there is nothing wrong. I have always given a wry smile when service managers and directors within suppliers complained about the cost of aftersales in those instances when retailers went into receivership and the manufacturer had to take back the responsibility for brand protection. The sudden surge of calls associated with customer education and no-fault-found jobs is usually a big shock to them. The real issue with OEM and BOG goods is that the responsibility for costs and gathering of information is usually fairly poor. Frequently they are taken as an adjustment against margin with very little accountability and the marketing and purchasing teams, with whom the ‘budget’ sits (if there is one), are neither technical nor ideally suited to raise questions about these costs. Moreover, their personal bonuses are normally based on gross margins so they are usually not too keen to admit that there are problems. My advice is to start on the premise that unless signiﬁcant work has been done on this issue previously, there are almost certainly no controls and no reconciliation of allowances versus real costs.
Spare parts and technical support As OEM goods are often purchased through a small distributor or handling agent you will only really get one chance to mitigate your costs, which is when the deal is being done. Whilst I am not a great fan of vendor manuals, I do very much support being given the opportunity to contribute to the buying speciﬁcation. The key points that need to be considered are:
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User manuals – these need to be as clear as possible to reduce customer education calls. Technical information – even the best repairers will usually need at least some guidance on where to start, so get copies of the necessary plans and speciﬁcations up front because experience shows that after the event they are very hard to pin down. Spare parts – many OEM manufacturers and distributors will not have a managed supply line for spares and accessories. You need to arrange that at least some spares are purchased or ideally supplied free, so that you can place these with your spares handler (whether in-house or third party).
Moreover, you should probably insist that a stock of spares is provided along with each load of pristine goods. At least in this way you should be able to ensure you have spares for most situations before you need them. OEM suppliers keep their costs down by sourcing components from a wide range of places, often as ‘end-of-line’ deals. Therefore, it is not uncommon for OEM suppliers to not have the same components available, or if they do then they have to be taken out of production stock. In the furniture sector it is frequently the case that you simply cannot source a particular textile or leather in any form of acceptable timescale if you have not arranged stock up front. This is a very important point and you absolutely must not wait for repairs to happen before you try to order such components or you will simply not hit the target maximum job completion times we are aiming for.
Returns and exchanges Provided you have made sure you have all of the necessary parts and technical advice when the deal was done then there is no reason why you should treat the returns management process any differently to branded goods. Clearly you cannot send them back, so the supplier authorization process is not required (epidemic failures are usually very obvious and treated by exception), but the rest of the process should be the same, including management by the exchange desk team. Damage limitation is essential as it will impact even more directly onto the bottom line. It might be possible to get some form of contribution from a branded supplier even for badly damaged goods,
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but if OEM and BOG goods are smashed then it is your company that will suffer.
Claimbacks, contributions and cost recovery If the suppliers do not provide the aftersales repair process themselves then there is a need for the retailer to arrange for the work to be carried out and then collect a contribution to the costs from the suppliers. In the electrical sector this is usually through a process known as ‘claimbacks’. Parts are normally provided free of charge or recompensed on a like-for-like funded basis, but labour is paid for by suppliers on a ﬁxed price contribution arrangement. Labour is paid at a rate which is directly linked to the type of product. This concept seems reasonably equitable, but as previously discussed there is a shortfall against issues such as customer education calls (which are not paid for) and the top-up needed to maintain standard service levels across all product ranges. The process is not great from a cashﬂow perspective, particular in the furniture sector as it is usually the retailers who make the claims. However, in the electrical sector it is usually the repairers that make these claims.
Purchase terms and conditions Usual practices The very best supplier relationships are based upon exactly that, a relationship between two companies and individuals within those companies. A marriage contract is a very simple arrangement, ‘for richer for poorer, in sickness and in health, till death us to part’, etc. Just like a successful marriage, the parties in a supplier relationship have to learn about each other and accept the limitations of each other, but stick together because overall it works. Continuing with the marriage analogy, it is not usual (with the exception of the ‘prenuptial agreements’ favoured by Hollywood stars, etc) that a couple will predeﬁne duties and have complex clauses explaining exactly what happens in the event that one partner forgets to do the washing up.
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In a supplier relationship, the purchaser is often as guilty of as many minor misdemeanours as the supplier (frequently far more if the truth be told). If there is a clear route for discussion and clear processes of communication then all of these can be resolved without reference to a contract. However, some elements do need to be written down just to create the basic framework. Some retailers will aim to build in clear terms and conditions under which they buy goods, but most frequently these are fairly general and the emphasis is on the price of the goods and the terms for payment. Most will have some sort of reference to the policy in the event of large-scale returns or failure, but almost none will have terms of reference that are genuinely of value to the aftersales manager. There is a strong argument for negotiation of a completely separate set of terms that is speciﬁc to aftersales management and covers both customer repairs and reverse logistics. This is because it will necessarily have to be a complicated and technical document that would look out of place against the type of information and clauses one would normally see in a purchasing contract.
Formats There is no standard model that we must all follow religiously but there are a few basic rules that should be applied if you want to get it used by all parties in the chain. Basic buying terms
Deﬁnition statement – what are you buying? Are they new and pristine or used and refurbished? This is a very important point because the supplier probably expects to offer completely different levels of aftersales support in each case. Type of guarantee – parts and labour, labour only, parts only, epidemic failure only, none at all? The buyers will get very different prices for each of these, so be clear about what the company needs and stand your ground unless the deal is too good to refuse (and even then wonder if it is too good to be true!). Damage and pre-inspection – do you intend to quality check every unit as it comes into your warehouse? If not, then make sure that you have a great deal of ﬂexibility built in for damage found when it is delivered to the customer.
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Guarantee duration – how long does the supplier stand behind the goods? Is there a different level of guarantee after the ﬁrst 12 months? Initial guarantee – how long does the customer have to return the goods without the need for an attempted repair or inspection for reasons such as ‘damaged on delivery’ or ‘dead on arrival’? What rules apply in those cases? Costs recovery processes – in the event that a retailer prefers to use its own repairer and logistics operations (perhaps these might be third-party agents), how does the retailer recover costs from the supplier? Are there ﬁxed prices for speciﬁc tasks and limitations upon the circumstances that such costs can be recovered? Bought out guarantees – how does this type of buying deal impact on the overall aftersales proposition? Are the goods bought at factory gate prices without any repair guarantees or contribution at all or is there some form of limited cover? Are exchanges included in the deal or does the retailer still have the opportunity to recover further cost? How does this impact on issues like epidemic failures and recalls? A very important point to consider is, if the goods are purchased through an importer, then how does the retailer go about managing claims? Has the importer or distributor set aside an allowance or paid for an insurance policy to cover such costs and what are its constraints? More importantly, what happens in the event that the importer/distributor ceases to trade?
Repairer arrangement – is this provided by the supplier, the supplier’s contractor, the retailer or the retailer’s appointed contractor? This is very important because it deﬁnes not only the way that the relationship between the retailer and supplier will work, but also the way that the supplier will have to treat the appointed repairers. Parts supply – how long will the supplier maintain a supply of spare parts? In the electrical appliance market there are industry standards regarding functional spares, but what about other sectors? What about cosmetic parts or goods like textiles in the case of furniture? Does the supplier expect the retailer to buy and hold a stock of spares? Technical and diagnostic support – will the supplier offer any ongoing support and to what degree? How does the retailer and
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its repair partners access this support? What happens in the event that the supplier cannot assist in diagnosis? How long should the customer have to wait, and is an excessive delay grounds for a replacement at the cost of the supplier? Lead time to complete a repair – if the supplier has its own repair operation or has a contracted network of repairers, then what standards of service will they provide? How long to get the goods assessed and the repair completed? How long should the customer have to wait, and is an excessive delay grounds for a replacement at the cost of the supplier? Parts supply lead times – what happens if the supplier has committed to supply spares? How long should the customer have to wait, and is an excessive delay grounds for a replacement at the cost of the supplier? Multiple failures – if the goods require repair or attention on an excessive number of occasions within any 12-month period of the guarantee period, then what action is to be taken? What is deemed to be excessive, and is this grounds for a replacement at the cost of the supplier? Sympathetic warranty and out-of-guarantee failures – if the goods require major repairs or intervention for reasons other than fair wear and tear within 12 months of the end of the guarantee period then what support will the supplier provide? How does the retailer access this support? Lifetime failures – if the goods fail excessively over, say, the ﬁrst ﬁve years of use for reasons other than fair wear and tear then what contribution or support will the supplier provide (if any)? Low-value and simple goods – what are the rules for managing lower-value goods and items where repair is deemed unlikely to be worth repair? What inspection and control process is required? If a simple one-for-one swap out process is to be used, then what authorization process is required and what data needs to be captured? This ﬁnal point is very important because retailers do not usually capture the same amount of data for low-value sales of, say, a kettle as they would for something like a 32-inch LCD television.
Returns and exchanges
Returns approval – does every piece returned to the supplier require a pre-return authorization, and in what format is this
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required? Does this apply to all goods or just the higher-value ones? Returns conditions – do the goods need to be in full packaging or just properly protected? What are the rules regarding accessories and instruction booklets? What are the rules regarding the packaging itself? Are there penalties for missing or damaged packaging? Returns notiﬁcation – what is the process for notifying suppliers of returns? How quickly does the supplier have to respond and in what manner or format? Are there standard procedures (because if not, then the retailer will have to implement some to keep control of this)? Is there standard paperwork, and what is the process for getting access to this paperwork? Returns collection – how often are returns collected and what is the lead time from notiﬁcation to collection? Is there a minimum batch size or does the supplier just collect whatever is ready to return? Does this need to be palletized and/or shrink-wrapped? How is the retailer recompensed for returned goods? Is it a monetary repayment or is it just replacement goods? If there are associated costs then are these also paid for by the supplier or is it understood that the retailer bears these charges?
Customer repairs – what is the process for escalation and management of queries in those cases where a customer has been treated poorly or there is an excessive track record of failures? Will the supplier ensure that there is a nominated contact or contact group to handle all such issues? Returns – what is the process for suppliers to notify of problems with returns (eg no fault found, damage or missing accessories)? What timescales apply for notiﬁcation and resolution? Is the retailer required to visit the supplier’s premises to inspect the returned goods? In the event that the supplier is not willing to provide a full credit for returned goods, what terms are to be provided? Is there a ﬁxed returns allowance regardless of the condition of the returned goods? Epidemic failure – it is easy enough to agree a percentage level of goods that fail up front, but you must be very clear what it is a percentage of. Is it a percentage of the products purchased as
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a whole or is it those sold over a speciﬁc period? Is it a failure of the product as a whole or just a speciﬁc component? You need to be very clear on these points. It is reasonable for a manufacturer to say that a short-term problem was a batching issue and address it in that way. However, if there is a longer-term trend then there are a raft of associated costs that a supplier may quite reasonably be expected to contribute to. Recalls – again you should agree up front what the policy is and who organizes the recovery or repair process. More importantly, if a retailer agrees to handle the recovery/repair process then the retailer needs to make sure that the costs are within the recall allowance that the supplier is prepared to contribute.
Vendor manuals and supplier speciﬁcations The vendor manual is a set of standard terms that a supplier is expected to adhere to if the said supplier wants to provide goods or services to a particular retailer. This type of document has become increasingly popular but it tends to be a one-way document with the purchaser laying down the rules and the supplier expected to meet them. However, retail buying managers frequently enter into supply agreements in the knowledge that a supplier cannot meet all of these terms, but also knowing that the commercial terms are very favourable. These agreements are often further undermined by the way that they are used, or not as the case may be, within the retailer’s business. Unless there is buy-in and ownership, then they are either forgotten or just used as a ‘stick’ with which to beat the supplier as and when it suits the retailer. As previously, my preference is for a relationship based on a simple set of outline rules for each party and a lot of discussion and clear routes of communication. Vendor manuals are not a bad idea as such, but they only really work if they are simple enough to be read through in a few minutes and are ﬂexible enough to enable a mature relationship based on the practical requirements of real life. I much prefer the concept of supplier speciﬁcations (Figure 9.2) which are usually product-speciﬁc. They are fairly variable in nature, but broadly they deﬁne:
Yes Yes Yes
Assemble in Home £100 £110 £120
Buying In Cost
Sample supplier speciﬁcation sheet
11145 11146 11147
1.2m 4 legged table 1.5m 4 legged table 1.8m 4 legged table
Product Description £250 £275 £300
60% 60% 60%
£200 £220 £240
Promo Margin % 50% 50% 50%
Y N Y
80 80 80
95 95 95
10 20 30
23 28 33
Pack Dimensions H W D Wt (cm) (cm) (cm) (kg)
Furniture Ltd China Supplier Country and factory of origin Tables Contemporary Product category Style Wooden finish, expanding Features and benefits Oak None Range Description Trim Options Oak 12 Months Colours Exclusivity Chairs and non expanding tables Other Lines by same supplier Standard store layout Display plan 120 4 Stores to be stocked Grade 250 Build and restocking lead time 13 weeks Minimum order quantities Warehouse / 3rd Party / Direct Delivery Third party warehouse and delivery Standard terms Wire + 0% Deposit Purchase terms Order confirmation Slide Mechanisms at 50% Spares / textiles supplied Spares quantities supplied 40 per load discount
Photographs / Schematics
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Dimensions – this is essential for furniture but equally important for OEM electrical goods; General properties – eg padding and suspension; Colours – speciﬁc names and samples; Transport conditions including packing within containers; Boxes and protection – eg polystyrene corners and bases; Consignment size and make-up – minimum loads and mixes; Parts and accessories – amounts of fabric and/or components to be supplied with each load to enable quick access parts stockholdings to be maintained.
The main problem with this type of document is that it takes time to create and most of the information contained within it is not of direct interest to the purchasing team. In some cases, the production of this type of detail might actually undermine the purchasing team because it highlights the true proﬁtability of the deal. A simple option is to work closely with suppliers because they are usually quite willing to provide this type of data as they already compile it in order to plan their production and shipping arrangements. Provided the standard format used by the retailer is broadly in line with the suppliers’ own documents then this is not too onerous.
Summary Work invested in creating an efﬁciently run process at this stage will pay for itself many times. It is the bedrock of how you will manage both your suppliers and your internal operations and must, therefore, be one of the ﬁrst steps in developing a successful aftersales business. Do not make assumptions that people just know these things and, more importantly, do not just hope that you can resolve your problems after the event. The earlier you address these issues the more likely you are to minimize your overall cost, so get the job done properly before you buy.
Basic principles In order to have an effective aftersales and reverse logistics operation it is essential that you have an effective repairs and customer management process. Believe me, this is not as simple as it might seem. If the customer brings a product back to the retail outlet then you will in many cases already have ‘lost’, and sales staff will feel pressured into giving an exchange unless your proposition is very clearly stated; and even if it is then it probably does not meet your overall customer experience targets. Therefore, you must invest in a properly structured operation so that as many as possible of the problem goods are kept in the customer’s home. This must be backed with an effective, authoritative and easily contactable call centre team. Finally, you need clear rules and an insistence that everyone sticks to those rules unless they follow speciﬁc escalation procedures, because only authorized people can bypass the rules.
Repair operations The key here is to work on an efﬁcient end result based on generating customer satisfaction rather than a repair in its own right. Most repair operations have historically been run by promoted engineers, but this in itself is not a problem. However, managers must focus on achievement of the goals that will enable reaching the written customer service standards. As above, the repair is not the ultimate
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goal, it is a happy customer which may mean abandoning a speciﬁc repair in favour of an exchange and then ‘cleaning up the mess’ later. The question of an outsourced versus in-house solution is simply a matter of scale. If there is a large volume of work then it is probably better to have at least an in-house management team to control the process and handle escalations. In these days of outsourced solutions it is probably inadvisable to have an in-house repair team unless the costs are very tightly controlled or it is absolutely critical for the delivery of the customer proposition. It is very rare for any retailer or manufacturer to truly make proﬁt from servicing and repairs because so much of the activity is inhouse and therefore something of a ‘wooden dollars’ exercise. It is almost impossible to make money from offering work to thirdparty companies because the costs of managing such a service are often high and it quickly becomes a major distraction from the work associated with the core business. In truth very few aftersales businesses make real money unless they are extremely carefully run. Certainly very few large-scale aftersales businesses have made it by offering pure repair services and any that have are usually based around a large-scale business built on reliable business such as an insurer’s extended warranty programme or a manufacturer’s in-guarantee programme.
Repairs management Overview The keys to a well-managed repairs business are:
Reliable spares and parts supply – deﬁned processes for ordering and progress chasing. Strong diagnostics – provision of all manufacturer instruction and support books, combined with training and supply of ongoing updates. Predeﬁned escalation routes – combined with clear routes, lists of key contacts and resolution strategies in the event that the processes break down. Excellent communications – assume nothing is known and tell everyone everything again and again. Service companies are not
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usually built with this in mind so work on the basis that simple messages often repeated work best. Clear job booking and customer management processes – ideally a real-time system to allow customers to know when a visit is going to be made and to be able to give quick responses in the event that there is a question on the status of a repair. Excellent supplier and manufacturer relationships – as we explored in Chapter 9 it is essential that your suppliers feel genuinely involved in the process and want to own the problems. Hard work invested in developing these relationships will pay for itself many times over. Easily accessible and easy-to-use reporting systems – managers and key staff need to have access to information which is as near to real time as possible. Anything else will diminish their effectiveness and reduce credibility with suppliers and customers alike. Proactive managers – a team of managers who do not simply resolve problems as and when they come along. They must use reports and trends to take steps before customers get to the ‘angry’ stage and work with suppliers to have an answer as soon as possible which in turn costs the company as little as possible.
Of all of these the last is by far the most critical. The information can be poor and the relationships rocky, but if the management takes action before problems become really difﬁcult then a good service level can be achieved. However, if you want to do this cost-effectively then the other elements are also essential and are the way to make real breakthroughs.
Third-party repairer management There is huge variation in the size of these companies, from massive aftersales operations supporting businesses such as the Merloni Group with hundreds of thousands of repairs per annum through to a small family run business carrying out only a few hundred repairs per week. However, the basic rules are the same:
Prelaunch audit – you must check that they have the capability to do the work. Rules – make sure they understand what you expect of them and put it in writing.
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Communication processes – agree clear communication routes to handle queries, manage escalations and chase for updates. Reporting – have standard report formats and review them frequently. Review – establish a diary structure for face-to-face discussion to evaluate performance and to ensure that longer-term issues are being resolved. Relationships and updates – establish an ongoing relationship based on a feeling of understanding and being comfortable to be open about issues so that short-term problems can be quickly ﬁxed.
The following sections provide a little more detail on how this should be carried out.
Audit and set-up Figure 10.1 shows a typical service company audit sheet of the type that should be used by aftersales managers both for taking on a new repair company and for carrying out periodic reviews. The key is to make absolutely sure that repairers can actually carry out the work that they claim they can. The points scoring system can sometimes be a little subjective as there will be huge variation in the working conditions and facilities. However, it is still worth doing as it gives the repairers a benchmark of their current status. It is also important to check with the suppliers/manufacturers if they ‘recognize’ these repairers or there will be problems in sourcing parts and technical support later. Moreover, if they are not entirely happy with a speciﬁc repairer then they are more likely to challenge diagnostics or recommendations put forward by that repairer.
Rules As above, there is often huge variation in the capacity, capabilities and facilities of the various companies used, so it is essential that third-party repairers are given clear guidelines on how they are required to provide the service. The key points are:
Fee structure – labour rates (ideally ﬁxed and not at a rate per hour) split by product group and type of repair, for example:
Aftersales Operations 105 Agent Name:
Date of Visit:
AGENT AUDIT SHEET Servicing Policies Training and Development Records Guarantee (Recall Procedure) Care of Customer's Goods Calibration of Test Equipment Goods Show Job Number, Name & Address Final Tests and Quality Checking Procedures Corporate Identity Dress Identity Cards Premises Vehicles Data Protection Act
Mark /10 /10 /10 /10 /10 /10 /10 /10 /10 /10 /10
Statutory Requirements Healthy & Safety Statutory Legal Notices Accident Book Fire Equipment First Aid
/10 /10 /10 /10 /10
General Reception Area Days to Call Ratio First Time Completion Procedure for Informing Customers of Delays Overall Professional Appearance
/10 /10 /10 /10 /10
Performance Monitoring Work in Progress Customer Complaints Aged Debt / Invoicing
/10 /10 /10
Insurance and Legal Public Liability Goods In Transit Employee Liability Building / Vehicles / etc Other (Specify) Corgi Registration
Service company audit sheet
Value of Cover
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– – –
‘softﬁx’ – problem resolved over the telephone; full repair – complete repair with or without parts; inspection only – assessment of whether a repair is appropriate in the event of multiple failures or other problems (usually toplevel visual assessment rather than detailed fault analysis); – installations – when the original goods are replaced; – no fault found – when the goods have been fully tested but no functional fault has been discovered. Additional charges – any extra fees that can be claimed such as excess mileage (in remote locations) and congestion charges (eg in Central London). Parts mark-up – those occasions where parts mark-ups can be charged and the percentage that can be added. Parts sourcing – where they should be purchased and who to contact in the event of queries. Technical support – who to contact and what to do in the event that there are problems with diagnostics or completing a repair. Invoicing – who to invoice and in what format. Payment terms – timescales for payment. Invoice query resolution – process and timescales. Time to visit – target times for making the initial home visit. Time to complete – target times and penalties/bonuses for late/ early completion (if appropriate). Repair authority limits – deﬁning the maximum amount of money that can be charged (usually on parts) without additional authorization of expenditure. Beyond economic repair (BER) process – what to do in the event that the cost of repair is too high and the goods are to be replaced. Customer queries – how to handle them and in what timescales. Escalations – who to contact and how to manage them.
The best way to handle such information is to provide a service provider manual of some form that can be updated and amended as changes are required. However, it is sensible to have a shorter version for those smaller companies that are used much less frequently and will therefore probably be less interested in this level of detail (they just want to know what to do, how much they get paid and when you will pay them).
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Reporting Chapter 12 gives examples of the types of report that should be used with each repairer/supplier to highlight issues and target improvements. They need to be simple and most importantly they must be up to date. Smaller repair companies tend to have short memories and live a little ‘hand-to-mouth’. Therefore, if you are targeting issues of service delivery then you need current examples. If you are focusing on average costs then you will need a report that shows trends over principally the last three months. More than this is usually just too long ago for them to regard it as an issue they can do something about. Graphical presentations are useful because if they are well made then they tell a very clear message in as few words as possible. Remember that most repairers are run by technicians who are happier in an operational environment than they are behind a desk. The simpler the message, the more likely they are to actually take it on board and make changes. Good graphs will often be put on display to either show they are doing well or to demonstrate to their team where they need to improve.
Communication and review processes Without question aftersales managers need to foster the type of relationship that allows them free and informal access to repairers’ premises. This does not happen overnight and is built on a foundation of trust and certainty that the aftersales managers are both accessible and supportive. It is no use repeatedly attacking a repairer for taking too long to resolve a problem when the aftersales manager is slow to respond to queries or does not appear willing to address an ongoing problem. Regular reviews are important, but it is probably wise to make at least some of them fairly informal as it fosters more opportunity for repairers to lower their defences and for you to unearth the real problems. Remember also that repairers are rarely working only for one company so they have knowledge of the issues being experienced by other retailers. Whilst they may be bound by an element of conﬁdentiality in this respect, it is not beyond any creative manager to get hints and pointers without putting the repairer in any sort of difﬁcult position.
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The other key reason for a regular review is to understand better the costs that repairers are having to bear in providing the service. I have witnessed many situations where both retailers and suppliers have implemented repair labour rates that were supposedly properly calculated but were in fact nothing short of ridiculous for the service levels that were expected. Repair companies will often take on such low-paid work on the basis that it is supplemental and if an engineer is already on the road then it simply improves the work density. However, with rapidly rising fuel costs this is a short-term strategy. Many repairers, I observed, either tried to resolve the problem in the ﬁrst visit, or if that was not practical, ordered parts that were difﬁcult to source rather than make a second trip. This said, there are some fairly poorly managed repair companies and one should not be tempted to give in to every request for more money. Simply make sure that you understand the way that they work and provide a fee structure that is ﬁnancially rewarding but in balance with the amount of work that needs to be carried out. Finally, part of this communication process is that repair companies like to be able to say they carry out work on behalf of big and/or credible clients. Make sure that you provide certiﬁcates that can be hung in the reception areas of your approved repairers (eg Figure 10.2). It not only goes down well as a general principle, it also creates greater ownership and willingness to put in that little bit more effort when it is needed.
Testing and refurbishment of returns and exchanges Operating principles In an ideal world, your sales staff will follow the letter of the procedures and customers will understand exactly what it is that they have bought and how to use it. However, customers usually do not understand all of the features and beneﬁts of their products so it is entirely likely that there is nothing wrong. This said, sales staff still get pressured by customers (particularly on a busy Saturday afternoon) and no-fault-found exchanges ﬁnd their way back into your central stock warehouses.
Aftersales Operations 109
ABC Retailers Limited This is to certify that
Shire Appliance Repairs Limited
Is an approved and authorised z repairer member of the ABC Retailer national network
Day of Signature
Sample network membership certiﬁcate
In order to protect themselves manufacturers will almost always carry out an element of testing which will inevitably throw up the fact that there is a high proportion of goods where there is nothing wrong. This in turn generates arguments and disputes over the scale of refunds.
Check and test processes Check and test functions need to be thorough (at least 20 to 25 per cent of all goods returned) and within short timescales. The sooner the testing is done and the reports produced, the easier it is to generate accountability. This is particularly true in retail where staff turnover rates are high and managers will hide behind cries of, ‘Oh, that was the guy who left last week’, even although said ‘guy’ did what he did with the full knowledge of the manager! Testing does not necessarily need to be detailed and technical, it just needs to be functional. In the case of a television, it can be as simple as just making sure that all of the key functions work and that the error can be replicated (if it has been reported properly).
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In the case of something like a leather sofa then it can be a colour comparison or a check for damage. Therefore, it is only a semi-skilled job that does not need extensive training and it is more important that the testing team is quick and diligent in checking all of the key features or looking for faults. It is worth noting that many suppliers will still look favourably upon a retailer generating a high level of no-fault-found provided the retailer can demonstrate that they know about it and are trying to resolve the problem. In the case of products bought without a guarantee this process is even more important because:
It is a more reliable record of actual faults for recovery of excessive costs from a particular supplier. It classiﬁes a product more effectively so that decisions can be made on whether it is economic to carry out a repair or whether to simply sell or scrap it. It is a key way to identify which retail outlets need to be reeducated or which products are causing the most concern.
Such products and goods are often ‘entry price point’ items and the perception is that they are probably not of good quality. As such, the majority of people in the supply chain will expect them to fail or have faults and, more importantly, they will not regard them as signiﬁcant when they exchange them or scrap them.
Potential technological advances It is common practice in the insurance claims business, particularly in accident damage management for cars, to use cameras to record the condition of goods. This is of signiﬁcant value in reducing disputes and it may be that increased use of such technology can help in the aftersales market, particularly for furniture. It may also help with other products where damage occurs when transporting goods to another site to effect repairs.
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Aftersales and escalations managers Overview In Chapter 5, we examined the issues of escalations management and the people needed to fulﬁl this role. In this section we will look at both the speciﬁcs of the required role and the characteristics of the individuals you will ﬁnd in these roles. Successful escalations managers do have particular characteristics and as with any other role you can make your life much harder if you try to shoehorn the wrong type of person into this job.
Key characteristics The archetypal escalations manager is a proven engineer or specialist who has worked extensively in the industry or sector. They will often be fairly jaded and cynical, this coming from years of perceived misuse of their knowledge and experience. This, you would think, is not a happy combination for someone who will effectively be an account manager on behalf of the aftersales division. This is an example of an actual conversation I found myself in as a service director trying desperately to break from conventional practices: Service Director: Aftersales Manager: Service Director: Aftersales Manager: Service Director: Aftersales Manager: Service Director: Aftersales Manager:
‘Mrs Johnson got through to me because she is very frustrated by how long we are taking to ﬁx her fridge-freezer.’ ‘We’ve ﬁxed it twice but it keeps on breaking down.’ ‘You mean you’ve tried to repair it twice but you haven’t actually ﬁxed it.’ ‘Well, OK, I suppose strictly speaking that’s right.’ ‘According to the notes this has been going on for about three months.’ ‘Well, yes, but it has been working for some of the time.’ ‘Working properly?’ ‘Well, no, not strictly “properly”, that’s what she’s complaining about.’
112 Aftersales Management
Service Director: Aftersales Manager: Service Director: Aftersales Manager:
‘So what is the current plan?’ ‘We need to ﬁt another compressor.’ ‘And have we got one?’ ‘No, but we’ve got one on order from Sweden and we’re getting it special delivered overnight.’ ‘How much is it to ﬁt a compressor including Service Director: labour?’ Aftersales Manager: ‘About £80 plus VAT.’ Service Director: ‘But the fridge freezer retailed at £279.99 and cost us £180, so by my estimation we’ve not only spent umpteen times the gross margin, but all of the income too just on engineers and parts.’ Aftersales Manager: ‘Yes I know, but I’m sure we can ﬁx it this time.’ ‘You’ve got 48 hours and if it’s not ﬁxed Service Director: permanently this time we’re giving an exchange.’ Needless to say we gave ‘Mrs Johnson’ a new fridge-freezer and a lump sum in compensation for things like lost frozen foods. The aftersales manager was heavily disappointed but did concede after the event that he should have dealt with the parts supply chain and diagnostic issues a long time before. You should deﬁnitely not try to squash the natural inventiveness and determination of this type of person to resolve problems. However, you absolutely must ﬁnd a means to show that there is another way and that a happy customer is the desired outcome, not just a repaired product. If you already have aftersales managers then it is possible that you will have to break them of this habit of always seeing the ﬁx as the end in its own right. The best way to guide them away from this is to see if they can get the problem resolved much further up the supply chain. Whilst they will like the idea of not having to work so hard, they will not be that worried by the idea of dealing with angry customers. As mentioned above, they will probably have done this for a long time and as a result developed a suitably thick skin. Aftersales managers usually have a heightened protective nature towards the company and the most effective route is in proving to them that they can shift cost onto its rightful owner, whether that be a supplier or a repairer.
Aftersales Operations 113
Key management tools As previously discussed, the tendency of a technician is to concentrate on repairs rather than customers. Therefore, you will need reporting processes that focus on time taken and work-in-progress issues. These must allow the manager to identify quickly and without additional investigation where the problems are and who needs a ‘gentle prompt’. The majority of reports that we investigate in Chapter 12 are designed with this in mind. The escalations manager has relatively little time to go through extensive detail (especially in the early stages of the improvement programme) and in any case by the time he or she has carried out a detailed review then any potential impact has probably been lost.
Relationship management The common theme here is that improved relationships are the key part of the process improvement. In the case of the aftersales and escalations managers the most important relationships are with those people that in all probability are representing the location, department or supplier who is causing the most problems. As we have explored above, the majority of aftersales managers are embattled individuals used to being defensive, so this is not always an easy transition. In the case of in-house problems such as retail outlets it is important that the relevant senior managers are visible to reinforce (and from time to time gently modify) the message that the aftersales manager is trying to convey. Involvement in meetings with senior managers from the relevant departments also helps to amplify the message, but ‘on the ground’ it is the simpler and cruder instruments that are appropriate. Being able to reward a successful team in a speciﬁc retail outlet (who have perhaps reduced exchanges by 5 per cent) with something as simple as cream cakes (or ice creams in summer) goes a long way to building trust and support. The budgetary impacts are very small but the beneﬁts are huge. Retail regional management networks are frequently thinly stretched across large territories and visits by managers from any other department are often a rarity. The aftersales manager is therefore pushing on an open door if he or she makes a regular visit.
114 Aftersales Management
In the case of a supplier’s aftersales representative or servicing manager then here, too, good relationships are essential. This role can be a very lonely one and the majority of telephone calls are by the very nature of the role associated with complaints. A wise aftersales manager knows that time spent in building this relationship will pay for itself many times over. The cost of an allowance to let aftersales managers buy a simple pub lunch for their counterparts has almost no budgetary signiﬁcance, but afterwards the supplier’s representative is far more likely to be ﬂexible about giving authority to exchange on the ‘grey’ and questionable returns of which there are many. This brings us onto another very important point. This role cannot be done from behind a desk and any aftersales manager who believes that it can needs a very big wake-up call. The reasons for this are many, but the following are just a few of the most signiﬁcant:
Sales team – you cannot form the type of relationships you need with the sales staff by only seeing them at sales conferences or when they visit head ofﬁce. You have to see what they go through to understand why the problems arise and more importantly to allow you to design systems and processes that actually work. Supplier relationships – equally, you cannot hope to understand the problems that your business is causing them without going to their premises and seeing what your returns and exchanges look like when they arrive back at the suppliers. Logistics team – there are speciﬁc problems that the logistics team will experience and there are issues that they themselves will cause. You have to visit their operations regularly to understand how to work around these problems. Repairers – a well-run network needs attention to detail and regular visits to even the smallest provider. Much of the day-today work can be done over the telephone, but the review process has to be done face-to-face.
Even as a servicing director I normally planned to spend two to three days per week on the road visiting stores, meeting suppliers and repairers or reviewing stock issues in warehouses and workshops.
Aftersales Operations 115
Escalation processes Overview Without question, the most important tool in the armoury of the aftersales manager is an effective escalation route with the suppliers and manufacturers. This allows rapid solutions to be derived when problems appear to be at their most severe. It also allows retention of highly cost-effective relationships with suppliers without having to be aggressive or ‘unprofessional’.
Parts delays The ﬂowchart in Figure 10.3 is designed to show how to resolve complaints from customers about time taken, but which relate speciﬁcally to excessive time to source parts. Note that before raising an issue with the suppliers there are the key questions, ‘Have the parts actually been ordered?’ ‘When are they coming?’ and ‘Does the supplier have a back-up plan or option?’ This ﬁnal question is an important one as almost all suppliers can source options if given proper warning that a problem exists. Care has to be taken in investigating whether the service company actually ordered the parts in the ﬁrst place. It would not be the ﬁrst time that a struggling service company ordered parts knowing that they would not be able to source them and settled for the labour payment alone rather than revisit the customer several times.
Time taken Time taken issues (Figure 10.4) are a little more contentious as they relate to the thorny subject of diagnostics. It may be that the service company has simply not done its job or it could be that the supplier has not provided sufﬁcient technical support. This is usually a function of limited product training, but it can frequently be caused by difﬁculties in gaining access to the appropriate information from the suppliers. Although these days many suppliers provide such information in online formats, if it is an unusual and/or rare fault that will require escalation then often suppliers are reticent about admitting such problems exist for fear of opening the ﬂoodgates.
116 Aftersales Management
Have the parts been ordered?
Are the parts available?
No Yes Yes
Confirm date with customer for parts to be fitted and complete repair
Is the the ETA Is ETA within agreed within agreed timescales? scales? time
Can supplier arrange rapid solution?
Arrange replacement at retailer's cost
Is it the supplier's fault?
Supplier provides exchange authority number
Parts delay escalation ﬂows
Out of guarantee queries The issue of major repairs that can often make goods beyond economic repair, but which occur when goods are only just out of the guarantee period can be a sensitive one. Figure 10.5 shows a constructive escalation process. The main query to watch for is the question of who determined that it was BER in the ﬁrst place. Do not take the word of a local independent repairer with whom your company has no relationship as it is unlikely to hold much weight with the suppliers.
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Has the fault been identified?
Escalate to supplier to resolve
See parts delays escalation
Does it require parts?
Can the supplier diagnose the fault?
Ask customer to be patient and call back if there is no progress within 3 days
Is the planned completion date within target?
Arrange replacement at retailer's cost
Was the problem caused by the supplier?
Can the supplier arrange a rapid solution?
Supplier provides exchange authority number
Time taken escalation flows
Multiple failures Finally, there is the loss-of-confidence issue that comes from multiple breakdowns and interventions (Figure 10.6). Very often manufacturers will simply focus on it being the same technical fault, but for the average customer they really do not care what the problem is. In their mind, the only issue is that there is yet another fault. The main points to avoid being caught out on are whether there have been genuine faults previously or whether there were serious issues in resolving a previous problem.
Links with key business managers Much is made in this book about relationships and the need to help staff to resolve their own issues so that they can genuinely own the
118 Aftersales Management
Out of Guarantee
Has the guarantee ceased within the last month?
Treat as an in guarantee job and work with suppliers to handle as such in the event of query
Offer a free of charge inspection to confirm whether a repair is possible
Has the guarantee ceased within the last 6 months?
Arrange inspection of goods
Contact supplier and agree route for resolution of problem
Offer to complete the repair at discounted cost to customer
Out of guarantee escalation ﬂows
problems. However, it is still essential that even area and regional managers are held accountable, and in the ideal world they should make contact with either the aftersales managers or the customer service managers before they are allowed to authorize an exchange. Only the customer service manager and the aftersales managers should be allowed to use the escalation routes within the manufacturers/suppliers. This means that they can more effectively intervene and guide the management team so that the best overall result can be created for the company.
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Goods required more than 2 jobs in last 12 months?
Goods have had serious problems previously?
Apologize Apologise to to customer customer and and conﬁrm confirm action action if happens happens taken if again next 33 again in in next months months
Yes Same fault?
Customer lost faith in goods?
Offer goodwill vouchers or added value service such as extended warranty
Yes Was the problem caused by the supplier?
Agree replacement replacement or Agree or resolution at resolution at supplier’s suppliers costs
No Arrange replacement at retailer's cost
Multiple repairs complaints escalation ﬂows
Retail outlet support As previously, aftersales managers need to make regular visits to retail outlets to understand both the current status of the service being provided and the progress of improvement initiatives. It is usually best to organize this by allocating a number of stores to each manager and simply targeting the managers to visit each store a number of times per year. To ensure that as much as possible is achieved from the visit, use a standard form of the type shown in Figure 10.7. This requires a little preparation in advance with certain data to be pre-collated, so aftersales managers not only have key points to discuss, they also have speciﬁc targets to achieve. The form forces the aftersales manager both to carry out brieﬁngs on speciﬁc initiatives and to look for feedback on potential problems.
120 Aftersales Management Store
After Sales Service
Operational Review Gas Installs procedures explained Brown Goods Installs explained No of Gas Sales No of BG Sales
Installs Sold Installs Sold
� Tick � Tick
Store % Store %
Company % Company %
Verbal Updates Extended warranty issues Customer services Gas installer Brown goods installers Repair activity Complaint procedures & reports presented
Sample store visit form
In the example shown there has been a project to increase the number of gas appliances installed by the company’s contracted installers. This is because it both reduces aftersales problems and increases the amount of work passed to these installers (which in
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turn improves negotiation and management control). These reports must be logged and reviewed by senior management in the same way that the repairer audit reports are.
Customer service teams Overview Before closing this chapter it is necessary to pay homage to those groups of people who spend most of every day dealing with complaints and keeping unhappy customers at bay whilst the technicians and the logistics teams try to put problems right. I have worked with a wide range of customer service teams, both in-house and those provided by third-party companies, but one thing binds them together and that is the willingness always to go the extra mile. I have also been privileged to work with some very good customer service managers and I am certain I understand better than most what it is they need to be able to carry out their jobs effectively.
Regular communication The customer service team has to be able to get access to the aftersales managers at any time during the working day and frequently outside of this too. The customer service manager must have access to directors on exactly the same basis. Experience says that they will rarely call for minor trivia so if they do need to speak then it is something serious. Do not let them be fobbed off. It is the ﬁrst step on the slippery path towards poor customer support. If regular calls are impractical then have the aftersales managers call in at set times throughout the day to collect messages. This is not only effective, but it also gives the customer service team something to say to customers (eg: ‘The service manager will be calling me in about an hour and I will call you back thereafter’).
Certainty of updates If a person is to be expected to stand his or her ground then as we have explored several times in this book they must know that there
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are milestones and timelines to work within. If there are none or they are not strictly adhered to then they will fudge the solution or just give up. Aftersales managers must work to agreed timescales for updates (eg an update on a problem within 8, 12 or 24 hours).
Commitments to resolution On the same principle, aftersales managers must make commitments on when a problem will be ﬁnally resolved and be prepared to take ownership in the event that it cannot. By taking away the fear that they might be punished in some way if they concede that a problem cannot be resolved in a set timescale, it perversely generates greater ownership and more problems are resolved within the target timescales. This is a very strong basis upon which to allow aftersales managers to work in partnership with customer service teams.
Simple processes Whilst customer service staff are usually recruited because they can handle the problems and difﬁcult customers, they are no different to anyone else when faced with high levels of stress. They need simple processes for two reasons:
If they need to read up on them then they need to be able to do so quickly if they are being pressured by customers. If they have to explain these rules to an irate customer, then on the basis that the said customer is not usually really listening to what he or she probably sees as excuses, then the simpler the message the better.
Derive simple ﬂowcharts as per Figure 10.8 wherever possible to allow quick decision making and invest time in simplifying the messages to much more basic phrases. Take advice from the customer service teams and involve them in setting policy – the payback is very substantial indeed.
The opportunity to own the problem Whilst the escalation routes that you will negotiate with the various suppliers have to be carefully protected so that they do not become
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Customer wants an exchange
Is the product in guarantee?
In guarantee In guarantee when when initially initially queried? queried?
Arrange swap and record all required information
Auto 1-4-1 replacement item?
Other reasons for exchange or repair?
Repairable within terms?
Ask customer to be patient and wait for repair but limit time before exchange will be offered next time
Bad Bad Service? service?
Refer customer to terms
Refer to escalation manager Yes
Is this this a a Is supplier caused caused problem problem?
No Has supplier issued authority?
Authorized Authorisedby byescalation escalation manager?
Escalation manager does more investigation
Escalation manager gives authority
Product exchanged with full details recorded
Figure 10.8 Exchange veriﬁcation and authorization decision-making process
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overused, there is nothing wrong in allowing key members of the customer service team to have direct access to these contacts. If you are careful and agree that perhaps this is to be only the customer service manager and his or her immediate manager(s), then it is possible to spread the workload and give a greater level of control and ownership to the customer service team. If there is better ownership then it is likely that the customer service team will not only be more effective, but they will also be more inclined to stand their ground on the more complex or less well-deﬁned issues.
Summary Whilst there is no standard model for the way that an aftersales team should work, we have explored a number of key components. These are simple processes and effective procedures, but ultimately the most important element is basic common sense. Aftersales is always going to be a cost rather than an income generator, but the spin-offs from effective aftersales management are very signiﬁcant in terms of overall company proﬁtability. Invest time in recruiting the right managers and implement processes designed to both support these managers and allow them to get the most out of the operations that they run. Do not mistake dogged determination and a willingness to keep going whatever the workloads for effectiveness or contentedness. Understand that theirs can often be a fairly lonely and stressful road. Finally, remember to praise and say thank you when good things are being achieved because it is unlikely that anyone else within the business will do it for you.
Principal issues As we have discussed repeatedly, whilst the efforts of the aftersales manager can generate a signiﬁcant impact on proﬁtability, ultimately aftersales is a cost and as such the budget (if there is one) will always be challenged. The argument usually goes something like this: ‘What is this “aftersales” cost?’ ‘That’s what it costs to manage the returns, repairs and exchanges.’ ‘Is that like my customer service Managing Director: team?’ Finance Director: ‘No, that’s the team that deals with issues before and after they get to the customer service team.’ Managing Director: ‘The customer service team always seems to have loads of complaints, so do we really need this extra cost?’ Operations Director: ‘Well, you could try without aftersales support, but I suspect that things would be much worse.’ Customer Service Manager: ‘Much worse!’ Managing Director: Finance Director:
Unless the company has a large in-house repair operation then there is probably not too much to go after in terms of manpower cost anyway, but that has never stopped directors trying! As we have also explored, the real costs and opportunities this book is targeting are often missed because ﬁnance directors do
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not really understand them. As a result, these costs become the unnamed ‘margin adjustments’, and whilst other directors might understand these adjustments they usually do not want to take all of the responsibility for what can be a complicated story, so they just keep their heads down. For the managing director the size of such margin adjustments is always a source of frustration, but as he looks across his boardroom table, he is often struggling to ﬁnd the right person to pin the problem on. The second argument often goes something like this: Managing Director: Finance Director: Managing Director: Finance Director:
Managing Director: Finance Director:
Managing Director: Finance Director: Managing Director:
‘What is this margin adjustment? It equates to several percentage points.’ ‘That’s the cost of write-offs and exchanges.’ ‘Well, who is responsible for them?’ ‘As far as I can work out, it’s the marketing director because he does bad buying deals, the sales director because he does bad sales and doesn’t follow procedures on returns, and the operations director because his distribution guys keep breaking things.’ ‘Well, we need to tell them to stop doing these things.’ ‘If you remember, we tried that 12 months ago but we couldn’t really ﬁnd out who was responsible for what part and how much of a saving each of them should be targeted to achieve.’ ‘You’re right… let’s put it back on the agenda for the next Board Meeting.’ ‘The agenda’s pretty full.’ ‘I know, but we’ve got to do something!’
This chapter seeks to lift the fog of war and give far clearer guidance on how to both calculate and tackle these costs.
Operational costs This is the easy part and is simply the cost of manpower, facilities, vehicles, etc for the team that actually carry out or manage the work. Unless you have a large directly employed team of engineers then this is probably going to be a small cost in the scheme of things encompassing a service manager or an aftersales manager.
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The typical costs are:
management salaries and costs; vehicles; telephones; head ofﬁce cost apportionment.
It is likely that there is also a customer service cost that is taken centrally under a company customer services budget and deals with everything from bad selling practices to payment issues. However, as it is also likely that at least circa 50 per cent of the customer service issues relate in some way to aftersales, you need to break down this budget into its component parts such as compensation.
Write-off and exchange costs Overview The key components are:
Customer management – sales team cost. Collection of the old unit from the customer or retail outlet – usually a logistics cost. Delivery of the new unit – a logistics cost. Storage and warehouse space – it is not uncommon for aftersales operations to take up 20 per cent to 30 per cent of warehouse space once all of the test and check area and the product storage space is taken into account. Exchange desk processing and logistics scheduling – either a logistics cost or a sales operations cost or perhaps part of the aftersales operation. Testing and reconciliation of components and accessories – usually an aftersales cost. Communication with suppliers and management of the return process – usually a logistics or purchasing team cost. Redelivery of ‘manager’s special’ units to retail outlets – a logistics cost. Delivery to customers of ‘manager’s specials’, usually given free as part of the discounting process to get the products sold – a logistics cost.
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Repair and refurbishment of units that cannot go back to suppliers – aftersales cost. Written-off costs – scrap and general lost income. Discount applied to ‘manager’s specials’ to generate an interest in a sale – sales team cost. Reinstallation cost – if a product is replaced that was previously installed it will have to be reinstalled but this time free of charge.
Logistics costs General The logistics cost should be the easiest to calculate because it is essentially transport and administration cost. The only questionable element is whether it is a true cost to collect and deliver units from or to retail outlets if vehicles are already on these routes, but this is a fool’s argument and only really holds up if the exchange volumes are very small indeed. The administration team cost is fairly clear as they have to make and take more phone calls and they have to update and maintain the systems. There is also the cost of preparing e-mails and completing supplier paperwork. The unseen cost here is in the additional time to process requests to suppliers to collect the goods. Many large suppliers may now have online systems for notiﬁcation of goods to be collected, but these are usually aimed at smaller retailers processing small numbers of returns. If the retailer is large and looking to send back many pallet loads of units then this is a great deal of work, particularly if the supplier is looking for full supporting details (including serial numbers) for every unit before agreeing a collection date. Even small, low-value goods need to be counted and recorded on some form of standard document, which is again more work and effort. If the supplier is not so well organized or is awkward about arranging collection, then it can be a great deal of work. That is, to arrange the data transfer, to marshal the goods and despatch them at the correct time when a supplier may be using a third-party carrier or simply only visits once per month. Damage At this point, it is also worth returning to the subject of damage in general. Logistics teams and, to be fair, sales teams also, traditionally
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treat returns as scrap. The result is that huge amounts can be written off this stock and any potential for return to the supplier is wiped out. The logistics team must use protective packaging and plan ahead for handling goods that are usually not in their original boxes etc. Having witnessed the end result and understood the associated costs from televisions crammed unprotected into roller pallets and washing machines with the paint all removed because two were not separated by something as simple as a piece of cardboard, it cannot be overemphasized just how important this part of the process is. In the furniture sector there are enormous problems caused by poor protection whilst in containers, such as crushing and structural weakening. When delivering the goods there are scratches and scuffs created by squeezing the furniture through spaces which simply are not made for it. Furniture is much more a visual product and people want their purchase to look and feel good. If there is any question about this, then the customer will either reject the goods on delivery or create an ongoing complaint which generates even more cost. Installations and redeliveries Next, there is the cost of reinstallation. If an exchanged appliance was installed previously, then fairly obviously the new appliance will also have to be installed. The customer is highly unlikely to pay again so the logistics team will have to pick up this additional cost. Even if it is something like furniture then there is still the cost of redelivery and unless the team is careful then they may of course damage the goods again. In some cases it is a third-party company that will be required to carry out installation and therefore this cost may be accounted for within the aftersales team budgets. There is also the more subtle issue of extra attention to detail and fussy customers. The ﬁrst delivery and installation will be part of the standard process and booked to arrive at the customer’s home in the normal way. The second one takes many more telephone calls, will probably require the company to accommodate the customer’s speciﬁc needs, and usually takes much longer because the customer will quite rightly want to be absolutely sure that the goods are all right this time.
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Aftersales team costs Clearly, this will depend on the volume of goods sold, the relationships (or contractual arrangements) with manufacturers and principally the overall reliability (or frequency of problems) with these goods. If there is a need to source and manage your own repairer network then there will be managers and administrators involved in the chain. If on the other hand the product is very simple and reliable then it may only be necessary to have a contract manager who oversees the supplier relationships. It will also depend upon whether the customer service function is separate to or included within the aftersales team function. As shown in the overview to this section, there is normally a handling team whose job is to process goods when they are returned to the warehouse prior to refurbishment or return to the supplier. This may be ‘owned’ by the logistics director or it may be part of the servicing director’s empire. There is quite a strong argument that it should not be part of the logistics director’s operation because he or she can then cover up misdemeanours such as damage. Although the service director might also cover up poor service, the budget structures are less easy to manipulate and it is more likely to give an accurate statement of true costs.
General sales team costs The sales team will incur costs on several levels:
General complaints handling – the customer is usually in front of the sales person so the urgency is all the more pressing, but on a busy Saturday or Sunday afternoon it can be very difﬁcult to get through to a manufacturer’s or a repairer’s call centre. Follow-up and progress chasing – if the process is poor then this can be enormously time-consuming and costly. Further, most retailers now work seven days per week with extended opening hours, so there are issues of continuity because the person the customer spoke to last time is on their day off. Worse still, most retailers do not invest in effective computer solutions to handle such queries so sales staff are working with paper, which is just a painful way to operate. Processing of exchanges and replacements – the paperwork trail can be complex and the processes for arranging uplift and
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return to a warehouse are usually subject to a few built-in hurdles in order to discourage exchanges. However, even legitimate returns require in-store handling, recording, repackaging (to avoid damage on the way back to the warehouse), checking accessories and then physical manipulation to get the products onto the returns van; this usually at a time when the storeroom is ﬂooded with new goods to be sold that weekend. Discounting of refurbished stock – the next section covers the rights and wrongs of this, but the key point here is that it is the sales team who will have to negotiate with customers and then spend time later justifying their decisions. Lost sales whilst handling exchanges and queries – in the ideal scenario the customer comes in on a quiet Tuesday morning to ask for an exchange, but in real life they come in whenever it suits them. If this is on a busy Saturday afternoon then the chances are that another customer walks out of the store whilst waiting for your sales person to resolve the issues of the complainant who is in the queue ahead of them. Lost sales through lack of conﬁdence in the products or the process – we have all been into a store and seen the sales team hiding in the stockroom or in the administration area. There are lots of reasons why sales staff might do this (eg poor management), but one of the most common is because they don’t like the hassle and problems that go with selling certain goods.
The true costs or lost proﬁts from the last two of these categories are very difﬁcult to calculate, but it does not take much time spent in a busy retail outlet to understand how much time is wasted and how many sales may be being lost. For analytical purposes, it is best to take a simple but defendable percentage ﬁgure and then always explain what this cost or potential income is when using it in any reports. There is a tendency to ignore these categories just because they are difﬁcult to calculate, but to do so is to miss a serious opportunity to sell the beneﬁts of creating a much more effective aftersales operation.
Discounting Most of the costs above are fairly easy to calculate with some creative analysis. However, the discount issue and way that discounts are used by retail outlets is a whole different matter.
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Retail store managers are normally allocated a budget for discount that is meant to be used to help in clearing ‘manager’s specials’ and securing those late Saturday or Sunday afternoon sales that mean weekly targets can be achieved. However, it is common practice for the majority of this budget to be used on sales of pristine goods, rather than refurbished and used ones. Thus the used and refurbished goods go unsold. This is a bad habit to get into because the longer these units stay unsold then the less attractive they are because they are old stock. The net result is that retail outlets have to offer an even higher discount to generate the sales. The question then is, why is it so hard to control? The answer lies in the typical point-of-sale and stock management systems used by retailers. These systems are usually product code driven and it is difﬁcult to allocate different prices to several categories of the same product code (eg for refurbished goods). As a result, the discounting gets lost amongst the overall sales discounts and the true cost of disposal of such goods can get a little foggy. For example, the typical system has just one code for a particular product and model number and it would mean duplication of the entire product code listing if you wanted to have a different price for a refurbished unit. In theory, it should be possible to add a preﬁx or sufﬁx to the product code that will then indicate that this is the same product but at a different price, but even this is far more complicated that it appears at ﬁrst. It would still generate huge increases in the number of codes, require a great deal of management time and is generally just seen as another opportunity for mistakes. Moreover, there will always be more than one condition so there is more than one reduced price. That is, the price for a refurbished nearly new unit is clearly higher than for one with signiﬁcant damage. Table 11.1 shows some examples of typical discounting structures. The answer is to ensure quick stock turnaround and to set realistic discounted prices in the ﬁrst place. There is no point in knocking 10 per cent off an item with a few scuffs on it when the pristine equivalent is nearby. Moreover, for the potential customer it is likely that another retailer is selling a similar unit for a lower price, so why buy a used one? It is a sad sight when a retailer is trying to sell an almost pristine unit of last year’s range at 10 per cent discount when the brand new range is sitting a few feet away at a price which is really not much more than the used one.
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Comparison of discounting levels based on condition
Discounting Structure Normal Selling Price (no discount) Recent model line as new refurbished unit (10% discount) Dented and scratched manager’s special (30% discount) Last year’s model with dents and scratches (50% discount)
Price £199.99 £179.99 £139.99 £99.99
Careful recording and monitoring of overall discounts will deﬁnitely help, but nothing is as effective as getting rid of them in the ﬁrst place.
Repairs costs Check and test The most basic cost is in the checking and testing of goods when they come back into the central warehouse. In the ideal scenario, your goods have been tested in a retail outlet or there is a test history from a repairer or installer. However, life is simply not like that and in a large percentage of cases the returns will simply come in with very woolly fault descriptions and this means that the retailer has to arrange the checking and testing of a large-scale sample at the very least. If the check and test work is carried out by an efﬁcient thirdparty specialist then this can reduce cost but then there is the cost of getting the stock to the specialist and the potential for additional damage. Possibly the ideal scenario is for the specialist to provide staff to work within the retailer’s warehouse because although there is still a need to provide a test area both the handling costs and the ﬁxed overheads are much reduced. That said, there is an increased potential risk of security and problems with management of staff working on the retailer’s site but employed by another company.
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Refurbishment repairs There are two absolutely critical rules in the refurbishment of stock by retailers:
Invest as little as possible in the repair because you are after all reselling used goods and the retail outlet will always discount (probably more than you expected), no matter how good the repair. As above, get the repairs carried out as quickly as possible because product life cycles are increasingly short, and trying to sell refurbished versions of last year’s model for a 10 per cent to 20 per cent discount when there are pristine versions of this year’s model already on display is simply not practical.
Set a target for the repair price by product category and where practical by model. It may be that you have large volumes of entry price point returns of a particular original equipment manufacturer (OEM) line. Here you must set very tight limits because in all probability the buying-in price was very low in the ﬁrst place. Table 11.2 shows the ﬁnancial implications of a typical low-value white goods return, for example a washing machine. This example shows that once all of the costs associated with this product are taken into account, there is less than £5 available to spend on parts and accessories. In real terms this means that anything Table 11.2
Typical costs for domestic washing machine
Cost Element Retail Price (exc. VAT) Purchase Cost (exc. VAT) Gross Sales Margin Margin Likely Discounting to Resell as Manager’s Special Discounting Value Re-delivery Costs Extra Logistics Administration Costs Refurbishment Inc Cleaning and Wrapping Check & Test Maximum Parts Spend
Cost/Impact £250.00 £150.00 40% £100.00 20% £50.00 £20.00 £1.25 £25.00 £4.00 £4.75
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other than fairly simple components should not be replaced if the original cost of the appliance is going to be recovered. Moreover, it is likely that unless the fault is very simple such as a broken or disconnected wire, or something needs to be cleaned, then it is not worth repairing at all. In these cases a better result can be achieved by moving straight to jobbing with very much newer products available sooner. It could be argued that perhaps this item could be sold on some form of interest bearing credit scheme and/or maybe an extended warranty will be sold with it, but against that it should be remembered that there has already been £20 spent on collecting it from a customer and delivering a replacement. Jobbers and scrap handlers The jobbing decision is made when the other options have been exhausted but in assessing what value the stock has you need to consider the following:
Condition of the goods – is there excessive damage and can the jobbers refurbish this unit or are they going to have to make one good one out of two bad ones? Cost of potential repair – if the repairs are major (eg a screen for a television or a compressor for a bearing for a washing machine) then it is unlikely to make much if any proﬁt for the jobber. Resale market place – if the jobber has a number of routes to move the stock on, including to third-world countries, then there is much better chance of getting interest and sales. Brands – obviously, there is more value in getting cheap access to mainstream brands than from OEM or unbranded goods.
Essentially jobbers are more likely to pay more overall for a batch which has at least a few opportunities to make money in it. Therefore, if there is any grey in the decision making (particularly over whether the retail outlets will sell the goods quickly) it is probably best to make the sale to a jobber and get the cash back into the company’s coffers as soon as possible. Jobbers will normally purchase based on a percentage of original buying-in cost rather than selling price because the buying-in cost is probably more stable. It tends to be a cash-in-hand type business so make sure that the cash is in hand or the cheque has been cleared before releasing the goods.
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In-home repairs Key issues On the face of it most of these costs should stay with the supplier but there are three key problems:
Supplier repair allowances – the amount that a supplier will pay to a third- party company or to the retailer’s own repair business for each repair carried out and which may not enable a consistently high level of service to be paid for. Genuine faults – those goods that have real operating faults which either prevent them being used at all or which prevent them being used to manufacturer speciﬁcation, but where the said faults are sometimes open to debate particularly if the problem is an infrequent and/or intermittent one. Customer education faults – those goods where there is nothing actually wrong with them because they meet the manufacturers’ speciﬁcations, but where the customer does not believe that or does not understand what the manufacturer’s speciﬁcations actually mean.
The net result is that in order to minimize the number of exchanges, the retailer can be left with a great deal of unplanned cost. This does not of course take into account the costs associated with bought out guarantees and OEM goods, a subject we will explore later.
Supplier allowances If a supplier has its own repair operations and the retailer is happy to let the supplier provide this service, then in theory there should be no additional cost for repairs or parts. However, the supplier may not have a reliable repair operation (in-house or third party) so the retailer is forced to source a solution of his own. A classic example of this is in the brown goods repair sector where very few manufacturers have a comprehensive repairs operation and most retailers use a managed network solution for at least part of their business. Sourcing a repairer may not necessarily be a problem, but the scale of the allowances may be. In order to generate a quality service, with one standard across all brands sold by that retailer, it is necessary to set standard rates that encourage the repairers to provide this quality service regardless of the brand.
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A frequent problem in the brown goods and IT sector occurs where the supplier will only pay a fee based on the goods being brought into a repairer and not for in-home service. This appears to go against the principles of the Sale of Goods Act in relation to customer rights and not having to incur costs, but it is quite common practice. Therefore, it is common that retailers pay a top-up fee to the repairers to ensure that the service levels are consistent across all brands. This top-up can vary from 50 pence to several tens of pounds per job. This in itself is not a major problem but it is an unplanned cost and one which should be reduced by working on the relationships with suppliers to generate improved repair charges speciﬁc to just your business. If suppliers have ﬁxed repair fee structures paid direct to the repair agents, then this can be overcome by agreeing additional fees paid direct to the retailer to reduce the net cost to the retailer. In the furniture market it is common practice for retailers to arrange for the repairs to be carried out by their own repair networks and then to recover the cost of these repairs from the suppliers of the goods later. This has a number of potential pitfalls:
Claims validity disputes – the retailer pays the repairer and then claims the costs back later. This delay makes follow-up and dispute resolution much more difﬁcult. Cashﬂow – unless the retailer is very slick in managing this process then it is likely that the retailer will be out of pocket to the tune of at least one month’s worth of repair costs at all times. Customer education – the issue of customer education ‘repairs’ becomes even more acute both because of the delay in making the claim and also because suppliers can hide behind terms and conditions, a trick which is not quite so easy for them if they are dealing directly with angry customers.
Customer education jobs We have made several mentions of customer education calls and repairs. Customers are usually anything but stupid, but like anyone else faced with something new, they need a little time to get used to it. Quite simply there is no easy answer and companies just have to set up the best possible ﬁltering systems to minimize the cost of dealing with such issues.
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The calls that this category of work covers are wide-ranging and various, but the following are typical of some seen in the electrical appliance sector:
Timers – these often lock all other facilities within the appliance so that it appears as if no functions will operate on everything from a DVD player to a cooker. However, usually a single button press to clear the timer is all that is needed to resolve the problem. Reception issues – the television picture is bad and there may be issues with sounds and other functions. This is almost always linked to the feed from a poor, sometimes old aerial or a malfunctioning satellite or cable system and not the television. Intermittent faults – these have a huge impact and are the bane of all aftersales managers. They can take the form of a noisy washing machine that happens once per month, or a colour problem with a television that happens once or twice per day. In the case of the washing machine it may be that once per month the customer washes a particularly heavy item. In the case of the television it may be linked to interference that occurs when the central heating system goes on and off. Memory foam mattresses – customers like the concept but do not necessarily understand how it works. It is not uncommon for customers to complain of unevenness in the mattress when they get up in the morning.
Suppliers spend large amounts of money on user manuals and quick set-up guides, but people being what they are, they simply do not read them. Then the inevitable happens, there is a perceived problem and the customer makes a complaint. The retailer or the supplier has to deal with the call and it usually takes a great deal of effort, ﬁrstly to check that the goods are within correct speciﬁcation, and then secondly persuade the customer that they may have made a mistake. To put scale on this problem, there was a case of one of the early recordable DVD players where one manufacturer claimed they could clear up to 70 per cent of all calls by an effective ‘ﬁltering system’ using ‘softﬁx’ techniques to allow customers to resolve their own issues. An example dear to my heart was a customer who complained about the picture quality of his rear projection television. After testing and retesting the product only to ﬁnd it well within speciﬁcation we ﬁnally narrowed the problem down to customer misuse. The unit
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was designed to be viewed from 15 to 20 feet away but the customer had it located at the end of his bed with the result that the image was fuzzy. It took some six months to resolve with a great deal of management input, and by the time we had proven it was not a product fault, the television had been scratched and there were minor dents arising from being moved in and out to the repair company. The key to managing these costs is to be able to identify what they are and how frequent they are. It varies from sector to sector, but you should expect that there will be at least as many customer education and non fault calls as there are genuine ones. Once you understand the scale of the problem then it is possible to make improvements and track the effect of these improvements. It will also have a fundamental impact on the amount of the repair costs that can be passed back to the manufacturers. Finally, do not fall into the trap of ignoring these and hoping that they will resolve themselves. Remember that these customers genuinely believe they have a problem and are equally as grumpy as someone with a ‘real’ issue. In fact, they will often be angrier because they perceive that nothing is being done, or they are being fobbed off. Manage these calls as carefully as any other and look to seek resolution as quickly as is reasonably possible.
OEM suppliers and bought out guarantees OEM goods can be a good way to generate differentiation from competitors and the higher gross percentage margins can be a very helpful way to boost key business indicators. However, because these tend to be low value and entry-price-point goods then the actual cash margin improvement is usually fairly modest. The other potential banana skin is that they usually come with bought out guarantee arrangements. The classic bought out guarantee (BOG) arrangement offers between 1 per cent and 3 per cent of the buying-in price as a contribution towards aftersales costs. As Table 11.3 shows, even before customer education calls are taken into account, this generally does not give a great deal of money to work with. As above, the customer education jobs can more than double these costs. Moreover, these ﬁgures do not include the cost of exchanges either which as we will discover later can be much bigger than the cost of repairs.
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Table 11.3 Typical costs for domestic washing machine with bought out guarantee Washing Machine 32-inch Television Normal Selling Price Selling Price Exc. VAT Margin % Buying In Price BOG % BOG Allowance Average Labour Repair Cost Expected Repair Frequency Equivalent Repair Cost / Sale
£249.99 £212.76 40% £127.65 2.5% £3.19 £45.00 £6.0% £2.70
£399.99 £340.42 30% £238.29 1.5% £3.57 £65.00 4.0% £2.60
BOG and OEM deals can be very helpful for retailers, but as we explore in more depth in Chapter 13, they can leave a very big unplanned hole in a company’s budget if not extremely carefully managed.
Supply chain issues Basic principles We have explored at length the impact of the purchasing decisions on aftersales costs. Put simply the key issues are:
Product quality – the fundamental capability of the goods to perform the task for which they were intended. Logistical issues – the ability to get the goods to the customer in a condition that it was originally intended and in the best possible timescales. Bought out guarantees and allowances – matching real costs to contributions. Product support – after the sale, sourcing of parts, technical support and customer service.
These are not just pure purchasing team issues as they will almost always cross over into stock management and internal logistics areas of your company. The deal and decision making is normally
Financial Evaluation 141
controlled through the purchasing team but after that it becomes a little more complex. This section provides a little more information on these costs and how they can be evaluated.
Product quality By proper use of the supplier speciﬁcation described in Chapter 9, page 98, it should be possible to set the standards for the goods and ensure accountability for them once they have been sold. However, this is on the rash assumption that any genuine thought has been put into product quality or whether the purchasing decision was based on the ‘look and feel’ of the goods. All too often purchasing managers are asked to make quick buying decisions to generate deals. This is not such a major problem if the goods are an established product line or brand and the decision is based on volume sales or end-of-line negotiations. However, for OEM and built-to-order arrangements this can be quite damaging. Before the deal is completed, seek to check sample products thoroughly wherever possible. After the deal, review fault frequency and causes with a view to recovering costs before the opportunity is lost (eg because the next deal is bought from another manufacturer).
Logistical issues Whilst this does not at ﬁrst glance have a direct link to repairs and general aftersales, it does, on closer inspection, have a greater impact than you might think. This is particularly the case in the furniture sector where the delays in sourcing associated with build time create more opportunity for customers to change their minds or be extra demanding when the goods eventually arrive. One of the most common problems in the furniture market is the backlog and delay associated with overmarketing and undersupply. That is, customer expectations are raised by what look like excellent prices and attractive products, but the reality is that there is a limited supply line established and even it has quite a few problems within it. For example, a set of table and chairs deal looks on the face of it to be at an excellent price but perhaps the chairs are sourced from one mainland European factory and the tables from another. If the logistics of getting the goods to the warehouse are not very carefully established and managed then the retailer will not be able to meet demand and there will be large numbers of back orders.
142 Aftersales Management
Aside from the basic issue of handling grumpy customers’ queries, there is the cost of having to contact them all again when the stock arrives. Then there is the chance that by that time they have started to look elsewhere so that when the goods are delivered they will tend to seek out faults. They will look for problems, however trivial, so that they can perhaps look to cancel without any penalty, or maybe they are just seeking some form of price reduction. If the goods are rejected, then they will probably not be in proper packaging and will therefore be more susceptible to damage. You should look for trends associated with returns of certain goods, particularly lead marketing lines. Finally, your company should be looking to create a more coordinated approach to sourcing goods. This is not to take away any of the purchasing managers’ deal-making and negotiation ability, but rather to make sure that you are not expecting too much of them in closing off all of the necessary details of the deal. Retail purchasing managers are usually a long way away in nature from those who source components for major corporates. They often have to move very quickly to source alternatives when mainstream deals are falling behind or are overselling. They are usually less focused on the detail than they are on the potential sales so it is a little unrealistic to expect them to apply the same type of processes and your company needs to reﬂect this in its supply chain operating procedures.
Bought out guarantees I discuss this at length elsewhere in the book, so there is no beneﬁt in repeating the detail. However, make sure that the true cost of aftersales matches the contributions from manufacturers, and insist on knowing both exactly how the deal is built up and what your company’s expectations are about the overall gross margin. Once you have established these, track actual spend against the supposed contributions, taking into consideration all associated costs of repairs and exchanges.
Product support I have also discussed in detail the key issues and ﬁnancial risks associated with not being in control of parts supply and technical support. Make sure that the company makes full use of available processes such as the purchasing terms and conditions agreement.
Financial Evaluation 143
Ensure that the people responsible for aftersales management within the suppliers know what is expected of them and do not be afraid to challenge the structure of any purchasing deal if the minimum standards of these key components are not being met. Lastly, prepare and circulate regularly those reports that indicate where the problems are and which suppliers/manufacturers are causing the biggest problems.
Summary The accurate ﬁnancial evaluation of any company’s true aftersales cost is not an easy task. Retailers are no different and in fact may well be substantially more complex. This said, the costs can be calculated and monitored provided you are dogged enough not to take no for an answer. You will face resistance because some people within your company will be nervous about your intent and some may indeed have something to hide. Try to avoid the ‘witch hunt’ mentality and let anyone you are asking questions of know that you too are probably guilty of not being as diligent as you should have been. When you ﬁnally do reach your sum total of costs then you will almost certainly be very surprised, both by the scale of the cost and the fact that the company has borne this cost without serious action for many years. Some companies will be small enough and their deals tight enough that the net cost is not too penalizing, but then again many companies make similar statements about all sorts of costs. It is when the company grows and the number of ‘distractions’ grows with it that the true potential for damage becomes clear. Therefore, if your company is growing fairly quickly or making acquisitions, then make sure you fully understand how these costs are changing because it is unlikely to be directly in proportion. Finally, you may not be able to get anywhere near the true costs for many months, but this does not stop you making signiﬁcant savings as new information becomes clear and the project progresses.
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Overview As described many times so far, it is often quite difﬁcult to isolate the ﬁne detail, so aftersales issues are frequently poorly reported, and when they are the information is longer-term historic. Weekly reporting is an absolute must and with as much detail as can reasonably be gathered. Everyone in the supply chain will have their own perspective on what the issues are and who or what is causing them, so be warned, make sure that you have all of the facts and do not make any assumptions about how your reports will be received! Honesty is essential and this will be all the more difﬁcult because managers will either not really understand the full scale of the problem or not want to admit to their part in the failures within the system. For that reason, an ‘amnesty’ is often a useful tool in the early stages. There is a more subtle point here however. Much of the information you discover may well be a worry to your customers and potentially useful to your competitors, so a degree of secrecy is important when compiling the results of your evaluation. In truth your competitors will have at least as many problems as your company and the issues raised have probably been accepted as standard practice by your customers. Remember that the purpose of this exercise is only in part about improving customer service standards and is much more about reducing costs. Be careful how you communicate your results and keep a focus on the end game whilst still enjoying the beneﬁts of the short-term gains.
146 Aftersales Management
Product failures and faults There will be several ways this information can be gathered as follows:
Repairer companies – they will give a list of the faults actually repaired, but remember that they may not actually repair all of the goods because they are beyond economic repair (BER) and you may end up with a lot of BER ‘unclassiﬁed’ items. If using this route then make sure that your repairers are actually providing a full, timely and reliable report (be aware that many will not normally provide any information at all unless they are invoicing for work carried out or parts used!). Central administration functions – this will come from a combination of sources from the customer services and complaints handling functions to support functions and third-party administrators of services such as extended warranty and consumer credit. This information is only helpful if accurate and consistent descriptions are used. Logistics functions – they will be collecting goods that have both been designated as due for return by retail outlets or central admin functions, and also those that were damaged in transit or ‘dead on arrival’. This is often an overlooked area because goods refused on delivery are usually easier to return to the supplier. However, they generate and handle a large proportion of the exchanged or returned goods and are often the area where there is the highest proportion of ‘no fault found’. Moreover, there is a high cost of handling in processing these goods, which few retailers are able to recover from their suppliers.
The hardest part of this process is to determine from these reports the difference between genuine and perceived faults. In the next section, we will discuss issues like common terminology and avoiding free text-type descriptions.
Reporting descriptions One of the most common faults of any reporting process is the use of free-text to allow staff to record fault descriptions. This can generate a horrible array of frankly useless records.
Reporting Techniques 147
In the electrical sector, the worst and most common offenders are phrases such as: ‘Not working’, ‘Not working properly’, ‘Goes off sometimes’, ‘Dead’, ‘Faulty’, ‘Poor picture’, ‘Noisy’. In the furniture sector there are stock phrases like: ‘Lumpy’, ‘Uneven’, ‘Uncomfortable’, ‘Noisy’, ‘Faulty’, ‘Broken’. The computer industry has spent a great deal of time and money on standard phrases so that they can computerize fault analysis trees and enable low-skilled call centre operators to resolve common faults. This has been very successful with products like printers where the majority of problems are caused by operator error or misunderstanding. However, it is a little more complicated than this with televisions, washing machines or furniture. The electrical sector has struggled manfully with coding systems like IRIS, used for brown goods, in order that they can produce standard reports. However, if even trained engineers can generate 15 different versions of the coding for the same fault, then what hope have the rest of us got? Therefore, the golden rule is that common sense must prevail. If data is being recorded on a common information technology (IT) system then use drop-down lists so that users have less opportunity to record spurious or confusing information. Wherever possible, try to link descriptions together to allow monitoring of obvious trends. Table 12.1 gives an example with a television.
Table 12.1 Customer Fault No Power
Examples of effective fault description management Detail to Capture
Power light on? Power light off? Does power come on sometimes? Poor Picture Lines? Pixelation? Poor colour? Patchy colour? Poor sound Broken sound? Variable sound? Sound disappears?
Additional Detail Burning or sparking? Fuse tested? Speciﬁc colours obvious? Speciﬁc parts of the screen? Intermittent or continuous? Speciﬁc programmes? Speciﬁc types of sound – music / spoken word?
148 Aftersales Management
Once terminology has been at least standardized then turn your attention to fault and query frequency:
When does the problem occur – immediately it is switched on, after an hour, after several hours? Does the problem ‘cure’ itself and then happen again later? Is it an intermittent fault in that it only happens infrequently; say, once per day?
From this, it should be possible to build up a picture which the manufacturer can use with his own fault diagnostic trees to assess whether there are trends and to identify whether action needs to be taken. More importantly for the retailer, it provides the opportunity to be far more effective in discussions with manufacturers.
Customer service standards There is a tendency amongst service managers and customer service managers to try to categorize customer queries and complaints to minimize the damage that reports may produce. That is, managers will try to discount or ignore speciﬁc types of problem because, for example, they could not inﬂuence the issue directly or perhaps the problem was not caused by that speciﬁc operation or location. One favoured route is to ignore telephone complaints and only look at written ones on the basis that it is only serious if the customer actually puts pen to paper! My experience suggests that it is best to take all queries and problems into consideration and provided all operations or suppliers are measured in the same way then any short-term anomalies will even themselves out in the longer term. This ﬁrst report (Table 12.2) simply compares the number of queries, whether by telephone or written, against the number of jobs given to these repairers. The ﬁrst comparison in the fourth column is of queries to jobs which is the most obvious indicator of performance. The overall scale of problems that the repairer causes are balanced in the ﬁnal two columns. The ﬁrst of these columns compares the number of jobs that each service company carried out with the total jobs issued to the service companies overall (the table is only a sample of the worst 10). The second column compares the number of queries that each service company received with the total queries received by the retailer overall.
39 27 30 26 34 8 18
11 13 8
103 76 87 98 171 41 97
61 78 54
M25 Repairs A B Smith Hoppers J G Johnson S E Services N E Repairs Midlands Service McDonalds Service R Us Jacksons 18% 17% 15%
38% 36% 34% 27% 20% 20% 19% 1 2 1
9 3 10 5 4 1 3 1 0 1
3 1 2 1 2 1 2 6 3 2
12 6 2 10 2 2 7 0 5 1
5 2 11 2 1 2 2
Total Query Time Attitude Time To Failed Query vs. Jobs To Visit Comp Appt %
Table 12.2 Customer service standards report
2 2 1
6 2 3 7 1 1 3
1 1 2
4 13 2 1 24 1 1
4% 5% 4%
7% 5% 6% 7% 12% 3% 7%
2% 3% 2%
8% 5% 6% 5% 7% 2% 3%
150 Aftersales Management
This shows that in the case of M25 Repairs they had 39 queries but received only 7 per cent of the jobs and generated 8 per cent of the queries. S E Services on the other hand had 34 queries but took 12 per cent of the jobs and only produced 7 per cent of the queries. Looking more deeply into this example it can be seen that:
M25 Repairs have signiﬁcant scheduling problems with most of their issues being in time to visit and failed appointments. Their service overall is also poor with high queries in time to complete and repeat repairs. Hoppers also have scheduling problems with almost all of their issues being in time to visit and failed appointments. Other than that, however, the general quality of service appears to be good when they get there. J G Johnson have diagnostic issues with their main problems being in time to complete and repeat repairs.
The same logic can be applied regardless of whether you are evaluating major manufacturers or smaller service companies and, in fact, it is often a real eye-opener to look at major companies in this way because it dispels many myths and commonly held perceptions.
Exchange reporting Principles This section may seem a fairly simple one to build reports for, but in fact it is rarely done well. The key is to target and compare all of the areas that have an inﬂuence on the decision making. Best results can be produced by looking at both percentages and actual numbers, because whilst percentages take into consideration the fact that a particular product has sold in big volumes by comparison with another line, there may still be big numbers of exchanges and this is important in order to target your improvement efforts. It is also best not to worry too much at this top-level reporting stage about what happened in the past two to three months. It is much more effective to look at global trends and the simplest comparison is against rolling 12-month totals (although it is important to remember that a product line may have been sold for only part of this period). If there is an epidemic fault then you will have picked this up through other fault frequency reports.
Reporting Techniques 151
This is a large report with a great deal of data to compile and use. Therefore, although some of the indices included in it may already be reported weekly, a frequency of once per month is quite adequate or it will simply not be used.
Retail outlets This allows you to determine whether any of the stores have a particular propensity to allow exchanges. A minimum of 10 stores is needed to focus attention properly unless it is a very small company. The example in Table 12.3 suggests that branches 10003, 10006 and 10007 need much closer investigation. It also appears that branch 20004 had a serious problem but that there have been improvements for at least this month.
Branch level returns and exchanges analysis
Branch Month Month Month Rolling Rolling Rolling Numbers Exchange Sales Exchange 12 Months 12 Month 12 Month % Exchange Sales Units Exchange % 10003 10007 10006 20004 40007 40005 30001 10001 20001 20009
25 20 18 16 18 19 15 15 12 16
400 380 375 400 460 500 400 410 420 600
6.3% 5.3% 4.8% 4.0% 3.9% 3.8% 3.8% 3.7% 2.9% 2.7%
295 235 222 323 208 232 185 180 249 277
4,754 3,785 4,523 4,615 5,538 5,954 4,800 4,892 5,077 6,462
6.2% 6.2% 4.9% 7.0% 3.8% 3.9% 3.8% 3.7% 4.9% 4.3%
Retail regions It may be that one regional manager is weaker on controlling exchanges than others and Table 12.4 will highlight that point. Here it is clear that Region 4 is a major problem and that signiﬁcant savings can be made if this is addressed before any others.
152 Aftersales Management
Table 12.4 Region
4 2 1 3
Sales region level returns and exchanges analysis
Rolling No of Month Month Month Rolling Rolling Branches Exchange Sales Exchange 12 Months 12 Month 12 Month Exchange % Exchange Sales % Units
15 14 16 15
400 292 300 235
6,000 5,000 6,050 5,900
6.7% 5.8% 5.0% 4.0%
4,754 3,512 3,692 2,954
71,723 60,009 65,077 69,323
6.6% 5.9% 5.7% 4.3%
Delivery depot Here we are looking to assess whether there is a tendency for more damage or problems during delivery from speciﬁc sites. These realistically need to be taken alongside the local performance retail outlet results for damaged and/or failed deliveries. The example in Table 12.5 tends to suggest that most of the issues are in the South East and the North West (although it has improved a little) but that good progress has been made in Scotland. It also suggests that many of the issues relate to products found to be damaged on delivery. This is of particular signiﬁcance in the furniture sector where a combination of storage issues and limited access within customer homes make scratches and scuffs not only commonplace, but also very costly.
Regional warehouse Determine whether the damage or delivery issue trend originates from the warehouse or regional distribution centre that feeds the high exchange delivery depots. Again, look at the local performance on damaged and/or failed deliveries. Table 12.6 clearly shows that Enﬁeld is the main area that needs to be addressed. Although Motherwell looks high, the net beneﬁt to the company of tackling this is small, so it should be deferred until later.
Reporting Techniques 153
Delivery depot level exchange and returns analysis
Month Month Month Month % Failed % Exchange Sales Units Exchange Major Deliveries Damaged Units % Delivery On Delivery
Enﬁeld Manchester Stafford Bristol Motherwell Southampton Leeds Depot
Enﬁeld Manchester Stafford Bristol Motherwell Southampton Leeds
215 199 191 191 138 148 145
3605 3525 3610 3690 2695 2900 2925
6.0% 5.6% 5.3% 5.2% 5.1% 5.1% 5.0%
2,625 2,925 2,890 3,100 2,250 2,100 2,450
6.0% 4.0% 3.0% 4.0% 5.0% 3.0% 3.0%
3.8% 2.9% 1.7% 1.8% 2.0% 1.9% 1.7%
Rolling Rolling Rolling 12 Rolling Rolling Rolling 12 Months 12 Month 12 Month 12 Month 12 Month Month % Exchange Sales Units Exchange Delivery % Failed Damaged % On Deliveries Units Delivery 2,594 2,409 2,262 2,331 1,754 1,938 1,569
43,523 40,892 43,154 44,317 32,446 34,062 34,163
6.0% 5.9% 5.2% 5.3% 5.4% 5.7% 4.6%
31,500 35,100 34,680 37,200 27,000 25,200 29,400
6.0% 4.1% 3.0% 4.0% 5.1% 3.0% 2.9%
4.0% 3.0% 1.7% 1.8% 2.7% 1.9% 1.6%
Model This is the most obvious report and it is essentially designed to see whether there is a trend arising from a particular product line. It is not really necessary to split it into further categories. What you are looking for is simply to highlight those products that are causing the business the most pain and cost. The example in Table 12.7 shows only a few products, but in reality, you need to look at no less than the top 30 lines and potentially the top 50 worst performers. It is usually a good idea to also look at the scale of turnover on these goods as it brings into better perspective the potential from addressing this issue. It gives better focus on the fact that an item may generate large numbers of exchanges but it has a low sale value and thus there is limited beneﬁt in the short term. That said, if you
154 Aftersales Management
Table 12.6 RDC
Enﬁeld Stafford Motherwell RDC
Enﬁeld Stafford Motherwell
RDC level exchange and returns analysis Month Exchange Units
Month Sales Units
363 726 138
6,505 13,750 2,695
Month Month % Failed % Exchange Major Deliveries Damaged % Deliveries On Delivery 5.6% 5.3% 5.1%
4,725 11,365 2,250
4.7% 3.5% 5.0%
3.0% 2.0% 2.0%
Rolling 12 Rolling Rolling Rolling Rolling Rolling 12 Months 12 Month 12 Month 12 Month 12 Month Month % Exchange Sales Exchange Deliveries % Failed Damaged Units Units % Deliveries On Delivery 4,184 8,571 1,754
77,585 162,526 32,446
5.8% 5.3% 5.4%
56,700 136,380 27,000
4.7% 3.5% 5.1%
3.1% 2.0% 2.7%
could build even a nominal collection and delivery charge into your calculations then it may show these lower-value high-volume exchanges in a completely different light. The example in Table 12.8 is typical. It shows that some product lines have a high failure rate but the volumes suggest they have only been sold for a short period. Others have been sold for a long time with no major improvement in exchange rate. This may be a function of poor build quality or it may be down to poor aftersales support such as parts supply. The example also shows that some product lines were a big problem several months ago and are now either no longer sold or the problem has been resolved. On the face of it the Daewoo DVD567C is a big problem but in terms of associated costs it is actually much less signiﬁcant than the Daewoo LCD32YY4. If the DVD is written off then the net loss is collectively much less penalizing and it will almost certainly be a carry-away item so the collection and redelivery costs are much less. The next level of reporting is also at the model level and helps to highlight why the problems occurred in the ﬁrst place (Table 12.9). In this example, there are a large number of interesting indicators as to where the problems are coming from:
AWM1400B LCD32Y47B LCD21AA4 TD55D AWM1200DX DVD666C DVD3XYC AWM600Y37 AWD1100Y RP42RR44
DVD567C LCD32YY4 TD55D AWM1400B LCD21AA4 AWD1100Y DVD3XYC AWM1200DX AWM600Y37 DVD666C
Servis Panasonic Philips Hoover Hotpoint Sony Sanyo Servis Electrolux Toshiba
Daewoo Daewoo Hoover Servis Philips Electrolux Sanyo Hotpoint Servis Sony
1,394 1,615 1,985 1,615 1,671 863 969 1,338 2,308 1,154
Rolling 12 Mth Exchange Units
320 175 225 165 235 245 335 385 71 55
Month Exchange Units
8,465 11,538 19,108 15,969 17,585 9,877 11,354 16,154 29,123 17,077
Rolling 12 Month Sales Units
2,550 1,455 2,120 1,750 2,560 2,730 3,900 4,500 ,900 , 705
Month Sales Units
Table 12.7 Product level exchange and returns analysis
16.5% 14.0% 10.4% 10.1% 9.5% 8.7% 8.5% 8.3% 7.9% 6.8%
Rolling 12 Month Exchange %
12.5% 12.0% 10.6% 9.4% 9.2% 9.0% 8.6% 8.6% 7.9% 7.8%
Month Exchange %
£838k £4,604k £2,656k £5,589k £3,499k £4,445k £1,419k £4,765k £4,368k £2,715k
12 Month Sales
£893k £800k £422k £245k £755k £434k £488k £675k £405k £564k
£679k £3,453k £1,859k £3,801k £2,659k £3,200k £1,036k £3,431k £2,840k £2,036k
12 Month Sales @ Cost
£616k £592k £321k £171k £544k £326k £356k £439k £292k £429k
Sales @ Cost
AWM1400B LCD32Y47B LCD21AA4 TD55D AWM1200DX DVD666C DVD3XYC AWM600Y37 AWD1100Y RP42RR44
DVD567C LCD32YY4 TD55D AWM1400B LCD21AA4 AWD1100Y DVD3XYC AWM1200DX AWM600Y37 DVD666C
Servis Panasonic Philips Hoover Hotpoint Sony Sanyo Servis Electrolux Toshiba
Daewoo Daewoo Hoover Servis Philips Electrolux Sanyo Hotpoint Servis Sony
1,394 1,615 1,985 1,615 1,671 ,863 , 969 1,338 2,308 1,154
Rolling 12 Months Exchange
320 175 225 165 235 245 335 385 71 55
8,465 11,538 19,108 15,969 17,585 9,877 11,354 16,154 29,123 17,077
Rolling 12 Month Sales Units
2,550 1,455 2,120 1,750 2,560 2,730 3,900 4,500 900 705
Month Sales HD HD CA HD HD CA CA HD HD HD
£12.8k £7.0k £0.9k £6.6k £9.4k £1.0k £1.3k £15.4k £2.8k £2.2k
£893k £800k £422k £245k £755k £434k £488k £675k £405k £564k
£616k £592k £321k £172k £544k £326k £356k £439k £292k £429k
Sales @ Cost £11.5k £10.7k £5.1k £2.4k £7.5k £4.4k £4.6k £5.6k £3.5k £5.0k
Expected Net Loss
16.5% 14.0% 10.4% 10.1% 9.5% 8.7% 8.5% 8.3% 7.9% 6.8%
CA HD HD HD CA HD CA HD HD CA
£5.6k £64.6k £79.4k £64.6k £6.7k £34.5k £3.9k £53.5k £92.3k £4.6k
£838k £4,604k £2,656k £5,589k £3,499k £4,445k £1,419k £4,765k £4,368k £2,715k
£679k £3,453k £1,859k £3,801k £2,660k £3,200k £1,036k £3,431k £2,840k £2,036k
£16.8k £72.5k £29.0k £57.7k £37.9k £42.0k £13.3k £42.6k £33.8k £20.6k
Rolling 12 Carry Away Collection/ 12 month 12 Month Expected Month or Home Redelivery Sales Sales @ Net Loss Exchange % Delivery Cost Cost
12.5% 12.0% 10.6% 9.4% 9.2% 9.0% 8.6% 8.6% 7.9% 7.8%
Month Carry Away Collection/ Exchange % or Home Redelivery Delivery Cost
Table 12.8 Product level exchange and returns ﬁnancial impacts analysis
CF27Y1 AWM1400B LCD32YY4 TD55D AWM600Y37 LCD21AA4 UR121Y AWM1200DX DVD3XYC DVD666C
Norfrost Servis Daewoo Hoover Servis Philips Dyson Hotpoint Sanyo Sony
CF27Y1 AWM1400B LCD32YY4 TD55D AWM600Y37 VAC447P UR121Y AWM1200DX DVD3XYC DVD666C
Norfrost Servis Daewoo Hoover Servis Hoover Dyson Hotpoint Sanyo Sony
Rolling 12 Months
240 559 456 360 432 445 120 252 299 440
20 51 38 30 41 5 10 21 55 33
1,450 402 420 490 264 396 36 216 48 60
128 33 35 45 22 33 3 18 4 5
756 713 449 420 780 501 540 468 214 252
63 65 45 35 65 55 45 39 16 21
Table 12.9 Product exchange and returns split by reason
432 216 264 344 132 333 300 108 204 156
51 18 22 34 11 54 25 9 17 13
180 132 276 300 60 144 492 384 264 202
15 11 23 25 5 12 41 32 22 35
120 48 108 84 84 36 60 48 24 12
10 4 9 7 7 3 5 4 2 1
96 56 115 58 165 12 21 21 28 29
12 15 10 5 15 2 2 2 3 3
3,274 2,126 2,088 2,056 1,917 1,867 1,569 1,497 1,081 1,151
299 197 182 181 166 164 131 125 119 111
158 Aftersales Management
Norfrost CF27Y1 – there is a problem with the damage on delivery on this chest freezer which further investigation will probably indicate was caused by a combination of poor packaging and bad handling. Servis AWM1400B – this washing machine shows a tendency towards high levels of failure and problems with not working to speciﬁcation on delivery. Further investigation here will also probably indicate there is a build quality problem. Philips LCD21AA4 – this suggests that the problem may be short term and may be batch related, but equally it may be the beginning of a trend. The results suggest that it has a high cost of repair and that replacement is most often the preferred route for resolution. Hoover VAC447P – there was obviously a general problem but either the matter has been resolved or the model has been withdrawn.
Brand Clearly it may well be that a particular supplier has an overall weakness and this will allow you to put this into perspective against the other suppliers to focus the attack on those costs that will give you the best possible return. Again, in Table 12.10, we can see a trend that shows Servis as having ongoing issues which make it very much the one to target overall. However, in addition there have clearly been issues with Daewoo, albeit that they have either been removed as a supplier or have resolved some short-term issues with speciﬁc lines.
Operational reporting Weekly and current analysis reports This section covers the types of reports that your operational managers need to review on a weekly basis to stay on top of the business. This is usually very much a snapshot and because it is over a short period it will necessarily vary much more than monthly reports which show smoother trends. However, these reports are essential in order that immediate action is taken to generate control over the monthly trends. Some of these
Reporting Techniques 159
Brand level exchange and returns ﬁnancial impacts analysis
Month Exchange Units
Month Sales Units
Month Exchange %
Sales @ Cost
715 335 165 290 388 200 235 225 200 75
8,000 4,500 2,220 3,990 5,550 2,950 3,750 4,110 3,900 1,500
8.9% 7.4% 7.4% 7.3% 7.0% 6.8% 6.3% 5.5% 5.1% 5.0%
£2,200k £945k £833k £1,017k £971k £1,254k £1,181k £1,229k £1,365k £1,125k
£1,518k £662k £599k £763k £709k £928k £851k £934 £887k £855k
Servis Hoover Electrolux Sony Sanyo Panasonic Hotpoint Philips Glen Dimplex Toshiba Supplier
Servis Daewoo Hoover White Knight Sanyo Hotpoint Electrolux Philips Panasonic Sony
Rolling Rolling Rolling 12 Month 12 Month 12 Month 12 Month 12 Month Sales Sales @ Exchange Sales Exchange Cost Units Units % 8,580 8,312 1,758 ,808 3,462 2,538 1,435 2,354 1,615 1,523
96,000 101,538 26,640 13,938 60,000 44,769 26,631 49,385 34,615 47,880
8.9% 8.2% 6.6% 5.8% 5.8% 5.7% 5.4% 4.8% 4.7% 3.2%
£26,400k £13,098k £5,594k £2,091k £10,500k £14,102k £9,987k £14,766k £14,712k £12,209k
£21,384k £9,824k £3,916k £1,464k £7,665k £10,154k £7,190k £11,222k £9,563k £9,157k
reports are monthly but have much more emphasis on resolution of operating problems than of long term strategic planning and forecasting.
Stock summary We have examined the problems arising from exchanges and the costs of processing but in order to stay on top of these a report of the
160 Aftersales Management
format shown in Table 12.11 is useful. This shows how a total stock holding in the workshop is made up of:
Check and test – that which is still to be assessed. Reprocessing – that which will be refurbished and resold as ‘manager’s specials’. RTV – those items going back to manufacturer for full credit. Jobber and scrap – the goods which will be sold at a percentage of cost in a trade sale. In transit – don’t forget that at any point in time there will also be a proportion of goods that are on their way back to the warehouse for processing.
This example shows that there is a running total of over £110,000, which at an interest rate of, say, 5 per cent is costing the company over £5,500 per annum in lost interest and much more if the business is not cash positive. It also shows that the total has been building up and the main bottleneck is in the initial processing, which at the time of year shown is not likely to be as a consequence of a sales peak. It may, however, be as a result of staff shortages due to bank holidays. It also looks as if the reprocessing is a problem, which is a pity when such refurbished goods should be moved along and targeted to be sold over a bank holiday weekend period. The main issue within the check and test process is in seating. In the case of tables and chairs there is a delay within reprocessing. Both of these suggest short-term stafﬁng problems and neither of these are necessarily major problems provided the management team regains control once the short-term absences are over. It is also very important to track the stocks that should be going back to the manufacturer (return to vendor – RTV) but are still being held by the retailer because the manufacturer has not yet arranged uplift (Table 12.12). This example tends to show that Merloni, which owns Hotpoint, Creda and Indesit, unsurprisingly has a large running amount of stock in RTV because it has a huge percentage market share. It also suggests that Merloni are making regular collections as the overall quantities are not increasing substantially. That said, these are not very large numbers and for major retailers the stock holding can be many times these ﬁgures, which is potentially a much more serious problem. If not carefully managed this can become a headache with large amounts of storage space being taken up when it should be available
Reporting Techniques 161
Weekly returns and exchange stock monitor report
Check & Test Seating Tables & Chairs Beds Cabinets Reprocessing Seating Tables & Chairs Beds Cabinets In Transit Seating Tables & Chairs Beds Cabinets RTV Seating Tables & Chairs Beds Cabinets Jobber & Scrap Seating Tables & Chairs Beds Cabinets Total Stock Seating Tables & Chairs Beds Cabinets
£8,300 £16,500 £13,000 £16,000
£8,000 £16,000 £11,000 £17,500
£8,600 £15,000 £10,500 £17,000
£9,800 £16,000 £10,000 £15,000
£10,500 £20,000 £12,000 £18,000
£14,000 £7,500 £1,700 £2,500
£14,500 £9,000 £1,300 £3,000
£16,000 £8,500 £1,000 £3,500
£18,000 £6,000 £1,300 £3,000
£20,000 £5,000 £1,200 £2,500
£2,000 £1,500 £1,000 £1,200
£1,800 £1,600 £1,300 £1,100
£2,000 £1,600 £1,300 £1,400
£2,100 £2,000 £1,400 £1,200
£2,300 £2,100 £1,400 £1,400
£7,000 £3,000 £2,200 £1,750
£9,000 £4,000 £3,100 £1,500
£8,000 £3,500 £2,800 £1,800
£5,000 £3,500 £2,500 £2,100
£6,000 £2,500 £2,000 £1,500
£2,550 £3,900 £1,800 £3,450
£2,450 £4,500 £2,000 £3,800
£2,100 £3,800 £1,400 £3,700
£2,750 £3,900 £1,200 £3,300
£2,600 £3,800 £1,200 £3,400
£33,850 £32,400 £19,700 £24,900
£35,750 £35,100 £18,700 £26,900
£36,700 £32,400 £17,000 £27,400
£37,650 £31,400 £16,400 £24,600
£41,400 £33,400 £17,800 £26,800
£110,850 £116,450 £113,500 £110,050 £119,400
162 Aftersales Management
Weekly return to vendor stock monitor report 01-May
Electrolux Group Panasonic Merloni Hoover / Candy Philips Sony Sanyo Other
£2,100 £780 £2,500 £2,300 £1,300 £1,800 £1,500 £1,670
£2,100 £1,850 £4,100 £2,300 £1,650 £2,100 £1,700 £1,800
£1,500 £1,850 £3,100 £2,400 £1,650 £2,100 £1,700 £1,800
£2,100 £1,400 £2,100 £2,300 £1,100 £1,100 £1,700 £1,300
£500 £900 £3,000 £1,300 £1,650 £1,100 £1,700 £1,850
£13,950 £17,600 £16,100 £13,100 £12,000
for pristine stock. Whilst clearly some manufacturers will only have small amounts of stock to take back, they should still be encouraged to make regular collections to speed up the ﬁnancial returns. Equally important is that if there are long delays in returning the goods then it is much harder to settle quality and validity disputes that may occur when the goods are eventually returned to the manufacturer. Leading on from this has to also be the weekly jobbing and writeoff activity report (Table 12.13) as this is a key indicator of trends and important for ﬁnance directors to feed into their forecasts. Check the recovery on scrap and jobbing separately so that the logistics director, who will probably be responsible for a fair proportion of the scrap (as in transit damage) can effectively manage improvement plans.
Exchange trends Weekly trends must also be tracked and in this case graphs are by far the most effective means (Figures 12.1 and 12.2). These examples show that the sales peaked around the bank holiday weekends in May and there has been a marketing promotion in early July. However, there was a lag in bringing back and processing the exchanges from May associated with both customers and staff being on holiday and therefore not able to agree collection dates.
Reporting Techniques 163
Weekly jobbing and scrap stock write-off report 01-May
Jobber Starting Stock £8,260 Stock Added £2,030 Stock Sold £2,100 Closing Stock £8,190 Income £550 26.2% % Recovery -£1,550 Write Off Scrap Starting Stock £3,540 Stock Added £870 Stock Sold £900 Closing Stock £3,510 Income £75 8.3% % Recovery -£825 Write Off Non Sale Total Starting Stock £11,800 Stock Added £2,900 Stock Sold £3,000 Closing Stock £11,700 Income £625 20.8% % Recovery –£2,375 Write Off
£8,190 £2,450 £1,715 £8,925 £500 29.2% -£1,215
£8,925 £1,750 £2,975 £7,700 £700 23.5% -£2,275
£7,700 £2,205 £2,100 £7,805 £610 29.0% -£1,490
£7,805 £2,100 £2,135 £7,700 £530 24.8% -£1,605
£3,510 £1,050 £735 £3,825 £65 8.8% -£670
£3,825 £750 £1,275 £3,300 £75 5.9% -£1,200
£3,300 £945 £900 £3,345 £65 7.2% -£835
£3,345 £900 £915 £3,300 £50 5.5% -£865
£11,700 £3,500 £2,450 £12,750 £565 23.1% –£1,885
£12,750 £2,500 £4,250 £11,000 £775 18.2% –£3,475
£11,000 £3,150 £3,000 £11,150 £675 22.5% –£2,325
£11,150 £3,000 £3,050 £11,000 £580 19.0% –£2,470
Exchange evaluations Whilst the ﬁgures and tables we have examined so far have given an assessment of the general reasons and causes, Table 12.14 shows another level of evaluation that must be done and this comes out of the check and test work done when the goods are outsorted at the warehouses. This example provides a valuable insight into what is actually happening at ‘ground level’. Here it is clear that the stores in Regions 1 and 2 are genuinely trying to both reduce exchanges and make sure that any exchanges made are for genuine reasons. However, the levels of damage suggest that there is still a problem in the logistics
164 Aftersales Management
Weekly exchange trends analysis
Weekly sales versus exchanges trends analysis
process, particularly in the depot(s) serving Region 3. Region 2 enjoys relatively low levels of damage but is weak in allowing exchanges for non-valid reasons.
Reporting Techniques 165
% Genuine Fault
110 83 110 30
Exchanged as Damaged On Delivery
75 45 55 35
No Fault Found
400 292 300 235
Damaged But Authorized Faulty
Damaged & Faulty
4 2 1 3
Weekly sales region exchange reasons analysis Supplier Authorized Undamaged
45 35 54 75
101 101 45 40
69 28 36 55
189 108 145 165
47% 37% 48% 70%
75% 65% 85% 83%
Repairs Table 12.15 is a summary that should be quite easy to generate on a weekly basis, if not for review on Monday then for Tuesday. It focuses on time taken and work in progress (WIP). The report gives a top-line view of repair costs, but because it does not split these numbers between in-guarantee and extended warranty jobs, it is only a base-level indicator. Nonetheless, it is a very helpful top-level view. This example shows the impact of the bank holidays from another perspective. In this case, it is not just refurbishments that are affected by absence; it is the ability to close jobs. This either as a consequence of lack of manpower or not being able to source spares. It could also be impacted by customers not being available as a result of taking extended holidays spinning-off from the bank holidays. The work completed in under 14 days falls back from 72 per cent to 69 per cent during the ﬁve-week period, but the under21-days ﬁgure only falls back by 0.5 per cent over the same period. This suggests that the team has worked hard to make sure that the maximum time taken has not gone too far adrift. If, as in the furniture sector the retailer has to claim back the net costs from the suppliers then there is a subsidiary report as in Table 12.16. This example shows that it is costing this particular retailer well over £1.5 million per annum in retained aftersales repairs cost and this of course excludes the exchange and logistics costs. Table 12.17 shows a sample report used in the furniture sector to show the reasons why customers complained about goods, or sought repairs or exchanges. These ﬁgures are extracts from the September reports of a much bigger furniture retailer and show the scale of the problem that retailers have in relation to aftersales issues.
166 Aftersales Management
Weekly repairs activity and status report 01-May
Total Expenditure Average Rate Per Job Average Labour Average Parts / Other
£67,283 £68,931 £91,420 £85,968 £67,198 £68.10
Total New Jobs Total Closed Jobs Total WIP
1,010 988 2,994
1,233 999 3,005
1,198 1,306 2,932
1,266 1,255 2,875
1,101 977 3,164
< 8 days 8 to 14 days 15 to 21 days 22 to 28 days > 28 days < 8 days 8 to 14 days 15 to 21 days 22 to 28 days > 28 days
1,400 766 441 331 56 46.8% 25.6% 14.7% 11.1% 1.9%
1,475 730 445 321 34 49.1% 24.3% 14.8% 10.7% 1.1%
1,398 706 441 331 56 47.7% 24.1% 15.0% 11.3% 1.9%
1,265 755 449 347 59 44.0% 26.3% 15.6% 12.1% 2.1%
1,174 1,002 565 355 68 37.1% 31.7% 17.9% 11.2% 2.1%
Exchanges 305 330 321 331 309 Total Exchanged £110,850 £116,450 £113,500 £110,050 £119,400 Stock £8,775 £9,563 £8,250 £8,363 £8,250 Write-Off Refurb Costs £4,804 £5,198 £5,056 £5,213 £4,867 Table 12.16
Weekly repair costs split report 01-May
Total Expenditure Retailer Split Retained Retailer Cost
45.2% 44.9% £30,412 £30,950
Reporting Techniques 167
Sample fault reasons/causes report
WEEK ENDING FAULTY or BROKEN Arm collapsed Broken zip Leg broken Leg loose Components misaligned Creased leather Dented / bruised corner Dented / bruised top Dirty Does not assemble Door doesn’t hang Excessive ﬁller Feet damaged / do not attach Foam collapsed Frame broken Knife cuts / puncture / rips Glass broken Frame creaking Large knot Leather puckering Leather peeling / cracking Mechanism broken Mechanism not working Mouldy / damp product Padding soft Scratched / scuffed BER Seat sinking
21/10/2007 1st 1st After Total On Day of 1st Del Del Week Month Year 1st Year
1 1 4 4 10
3 2 16
1 1 2 4
12 5 12 8 47
14 4 2
8 1 7
2 1 5 1
29 8 14 1 21
2 2 16
5 7 11
1 13 4
3 64 8 5
7 21 2 2
19 15 3 15
40 154 28 25
1 3 10 3 1 1
10 41 11 3
8 2 2
8 20 67 28 7 1 27 9
168 Aftersales Management
WEEK ENDING FAULTY or BROKEN
21/10/2007 1st 1st After Total On Day of 1st Del Del Week Month Year 1st Year
Split seam / poor stitching Split table / chair leg Loose spring Upholstery fault TOTALS MISSING PARTS
On Day of 1 1 1 After Total Del Del Week Month Year 1st Year
Joining brackets Feet Fittings pack Goods Parts TOTALS
3 13 1 3 3 23
On Day of 1st 1st 1st After Total Del Del Week Month Year 1st Year
Colour match on single unit Colour match on multiple Colour variation on single unit Colour variation on multiple Wrong colour received Wrong goods TOTALS
4 11 211
4 37 922
5 14 2 5 36 62
8 1 3 46 58
1 5 1 1 14 22
2 1 1 11 15
9 42 6 13 111 181
On Day of 1st 1st 1st After Total Del Del Week Month Year 1st Year
Reporting Techniques 169
The cost of resolution of these will vary considerably but the administration and call handling alone will be in the range of £2.50 to £5 per claim, which is between £300,000 and £600,000 per annum. The job processing and exchange handling costs (excluding missing parts claims) are expected to be between £50 to £80 per claim (excluding physical write-offs), which has a combined cost of between £3 million and £5 million per annum. The ﬁgures also show that although there are ongoing quality problems, the dominant problem is damage. These problems are caused by a range of reasons from bad stacking in transit (ie in containers) to poor delivery service. However, the net impact is still the same, with signiﬁcant and largely avoidable damage to the net proﬁtability of the company overall.
Customer service standards Without any question, it is essential to begin by looking in detail at issues such as call taking and work content ﬁgures such as shown in Table 12.18. In this example, it shows that the seasonal impacts of bank holidays and main school vacation periods are the main inﬂuences. This affects both the work volumes (people do not buy or complain about what they have bought when they are on holiday) and the ability to handle the work volumes. It also throws up another interesting point in that customers are often very unsure whom to call in the ﬁrst place. Around one-third of these calls are misdirected, which either means that the point-of-sale materials are ineffective or the other alternatives for the customer to call are not very good (perhaps the abandonment rates when calling the retail outlets are very high).
Repairer performance In addition to the overall performance comparisons shown in the section on customer service standards it is necessary to produce weekly analyses which show how individual repairers are behaving. Figure 12.3 looks at the amount of work being passed to the speciﬁc repairer and Figure 12.4 compares the average costs against the averages for the repairer group as a whole. These graphs show that workloads are falling off as the year moves away from the peak sales season around the new year period and
170 Aftersales Management
Daily/weekly call-taking performance analysis Calls Received
Service Avg Talk Avg Repairs/ Level Time Abandon Claims
Monday Tuesday Wednesday Thursday Friday Saturday Sunday Totals
750 451 465 506 470 195 0 2,837
132 47 81 129 30 18 0 437
82.4% 89.6% 82.6% 74.5% 93.6% 90.8% 0.0% 84.6%
1:43 1:49 1:49 1:43 1:45 1:21 0:00 1:23
1:32 1:36 1:02 3:11 1:06 0:59 0:00 1:24
281 189 169 149 164 106 0 1058
CSB Repairer Manufacturer Resolved Misdirected Total Genuine Claims Service Level
, 692 , 451 , 199 , 92 , 727 2,161 1,434
, 671 , 427 , 173 , 56 , 699 2,026 1,327
, 599 , 511 , 68 , 71 ,752 2,001 1,249
,614 , 417 , 163 , 54 , 733 1,981 1,248
, 461 , 338 , 92 , 48 ,439 1,378 , 939
,525 , 368 , 104 , 29 , 673 1,731 1,058
93.93% 92.60% 91.98% 86.00% 84.10% 84.60%
into the ﬁrst of the holiday seasons. They also show that S E Services is generally a little expensive, although the spike in the middle two weeks may just have been as a result of some particularly big repairs as the labour charges are generally fairly stable.
Summary As with all reports, they must be accurate and simple. They must have immediately obvious messages and they must create impact. If a report takes more than a day or so to prepare, then move it to a monthly or at least fortnightly frequency. If you do not, then you will spend so much time preparing and analysing the information that you will have no time left to use it. Retail is a rapidly changing environment and current information is essential. Companies can carry out longer-term reviews to look for
Figure 12.3 Weekly repairer activity/costs analysis
172 Aftersales Management
Weekly repairer cost comparison analysis
trends and avoid longer-term pitfalls, but in the short to medium term, they must look to more immediate opportunities. Remember also that much of the information that the aftersales manager produces will be of a fairly technical nature, so avoid jargon and if it is being passed on to anyone who is from another department within the company then always try to link it back to bottomline impact on the overall company performance. Finally, as we have discussed several times earlier, much of this information will point to problems caused by or at least not fully understood by colleagues from other departments within the company. Communicate the reports effectively and do not assume that your colleagues will take action immediately. Use these reports to brief and agree targets, then make sure that positive steps taken by colleagues are noted in the next period report.
Example ﬁnancial analyses
Overview In order to enable the reader to fully understand the potential beneﬁts of implementing the processes in this book, the following are some worked examples of the costs companies actually experience and of what the net savings might be. They are based on actual retail experience gathered in the electrical appliance and furniture sectors. The retail model here has a national network of 100 stores with a turnover of circa £225 million operating out of one warehouse and ﬁve delivery depots. The retailer sells a mixed range of goods from small domestic appliances through to large screen televisions and major kitchen appliances. The average unit sale value is £187.50. Before the exercise, the exchange level was running at 8.4 per cent and the overall repair frequency including customer education calls was running at 8 per cent. It should be noted that this is not a bad company and the problems are fairly modest. Many other businesses will be in a much worse condition.
Exchange costs – non-bought out guarantee The ﬁgures below show the numbers of exchanges and replacements that the business was producing, this split between major appliances (televisions and washing machines) and small domestic appliances (SDAs) (kettles, toasters, etc):
174 Aftersales Management
Total Turnover Other Sales Other Sales / Services Appliance Sales Avg Unit Sale Value Unit Sales
£225M 5% £11.25M £213.75M £187.50 1,140,000
Split Appliance Sales Avg Unit Sale Units Appliance Sales at Cost Exchange Frequency Exchanged Units Exchanged Value Avg Sale Margin Exchanges at Cost
Majors 85% £181.69M £300 605,625 £127.18M 7% 42,394 £12.72M 30% £8.9M
SDA 15% £32.06M £60 534,375 £19.24M 10% 53,438 £3.21M 40% £1.93M
Total 100% £213.75M £187.50 1,140,000 £146.42M 8.4% 95,832 £15.92M 32% £10.83M
The next set of calculations shows how the returns were split into categories. It is necessary to carry out the calculations in terms of average cost rather than sale value as these are not necessarily lost sales but they are potentially ‘lost’ goods.
Return to vendor (RTV) – those units that can go back to the original supplier for full credit. Scrap – those units that are beyond economic repair (BER) and/ or were damaged in transit and the supplier will not accept them back. Resale – the appliances that can be refurbished to a salable condition as ‘manager’s specials’. Jobber – the appliances that are not scrap but are deemed BER within the terms of reference applied by the retailer and are thus sold to a specialist who will export them to poorer countries or rework them for sale in local rental and low-value retail outlets.
Percentage Split Return to Vendor Scrap Resale Jobber
Majors 65% 5% 17.5% 12.5%
SDA 96% 1% 0% 3%
Total 82.3% 2.8% 7.7% 7.2%
Example Financial Analyses 175
Units Return to Vendor Scrap Resale Jobber Value at Retail Return to Vendor Scrap Resale Jobber Value at Cost Return to Vendor Scrap Resale Jobber Recovery % Return to Vendor Scrap Resale Jobber Recovery Return to Vendor Scrap Resale Jobber Total Net Loss % Loss vs. Exchanges % Loss vs Turnover
27,556 2,120 7,419 5,299
51,300 534 0 1,603
78,856 2,654 7,419 6,902
£8.27M £0.64M £2.23M £1.59M
£3.08M £0.03M £0 £0.10M
£11.35M £0.67M £2.23M £1.69M
£5.79M £0.45M £1.56M £1.11M
£1.85M £0.02M £0 £0.06M
£7.63M £0.46M £1.56M £1.17M
100% 0% 80% 25%
100% 0% 75% 15%
100% 0% 80% 24.5%
£5.79M £0 £1.25M £0.28M £7.31
£1.85M £0 £0 £0.01M £1.86M
£7.63M £0 £1.25M £0.29M £9.17M
Majors £1.59M 17.88% 0.88%
SDA £0.07M 3.55% 0.21%
Total £1.66M 15.33% 0.78%
This shows that the net loss is just over 15 per cent of the value of these goods at cost. The net loss versus appliance turnover is 0.78 per cent; however, this does not take into account the handling and administration costs as follows: Repair Cost Check & Test Cost Handling Charges Majors Handling Charges SDA
£20.00 £4.00 £20.00 £1.50
176 Aftersales Management
Extra Logistics Admin Cost Major Extra Logistics Admin Cost SDA Repair Charges Check & Test Transport Administration Totals
Majors £0.15M £0.03M £0.85M £0.053M £1.08M
£1.25 £0.45 SDA £0 £0.01M £0.08M £0.024M £0.11M
Total £0.15M £0.04M £0.93M £0.077M £1.19M
If you add these ﬁgures back into the net loss ﬁgures then the results are as follows: Amended Net Loss % Loss vs. Exchanges % Loss vs Turnover % Loss vs Sales at Cost
£2.67M 29.99% 1.47% 2.10%
£0.18M 9.41% 0.56% 0.94%
£2.85M 26.34% 1.33% 1.95%
These losses and costs are now far more signiﬁcant and to achieve another 1.33 per cent at the margin level overall to cover these costs would be no mean feat! In the furniture sector there are substantially higher margins with gross ﬁgures of over 70 per cent not being unusual. However, this merely makes the ﬁgures look much worse. It means that although there is more scope to discount and still make a margin, the recovery on a piece of furniture may be very low indeed. It is not uncommon for a furniture retailer to sell to jobbers for no more than 20 to 25 per cent of buying-in price. For an item that was bought for £120 and was supposed to resell at £400, to only recover £25 to £30 is not good at all. Moreover, the discount levels are usually much higher too. If a retail manager is efﬁcient then refurbished stock can resell for discounts of 10 to 30 per cent, whereas in the furniture sector the discounts are usually 30 to 50 per cent.
Exchange costs – with bought out guarantees The following shows the potential costs of selling with a fairly high proportion of goods purchased on a bought out guarantee basis.
Example Financial Analyses 177
Total Turnover Other Sales Other Sales / Services Appliance Sales Avg Unit Sale Value Unit Sales BOG Majors BOG SDA
£225M 5% £11.25M £213.75M £187.50 1,140,000 30% 10%
Split Appliance Sales Avg Unit Sale Units Appliance Sales at Cost Exchange Frequency Exchanged Units Exchanged Value Avg Sale Margin Exchanges at Cost
Majors 85% £181.69M £300 605,625 £127.18M 7% 42,394 £12.72M 30% £8.9M
SDA 15% £32.06M £60 534,375 £19.24M 10% 53,438 £3.21M 40% £1.93M
Total 100% £213.75M £187.50 1,140,000 £146.42M 8.4% 95,832 £15.92M 32% £10.83M
The next set of calculations are the same as on page 174 and again show how the returns are split into four categories. As previously, it is necessary to carry out the calculations in terms of average cost rather than sale value as these are not necessarily lost sales but they are potentially ‘lost’ goods. The key difference here is that because there will be a far smaller proportion of the goods that will have a returns arrangement, then the company has to try to recover the costs against the returns themselves. This means a much higher proportion of refurbishment and resale, or indeed a much higher proportion of goods sold to jobbers at a signiﬁcant loss. Percentage Split Return to Vendor Scrap Resale Jobber Units Return to Vendor Scrap
Majors 35% 5% 35% 25%
SDA 86% 1% 0% 13%
Total 63.4% 2.8% 15.5% 18.3%
178 Aftersales Management
Resale Jobber Value at Retail Return to Vendor Scrap Resale Jobber Value at Cost Return to Vendor Scrap Resale Jobber Recovery % Return to Vendor Scrap Resale Jobber Recovery Return to Vendor Scrap Resale Jobber Total Net Loss % Loss vs. Exchanges % Loss vs Turnover
£4.45M £0.64M £4.45M £3.18M
£2.76M £0.03M £0 £0.42M
£7.21M £0.67M £4.45M £3.60M
£3.12M £0.45M £3.12M £2.23M
£1.65M £0.02M £0 £0.25M
£4.77M £0.46M £3.12M £2.48M
100% 0% 80% 25%
100% 0% 75% 15%
100% 0% 80% 24.5%
£3.12M £0 £2.49M £0.56M £6.17
£1.65M £0 £0 0.04M £1.69M
£4.77M £0 £2.49M £0.59M £7.86M
Majors £2.74M 30.75% 1.51%
SDA £0.23M 12.05% 0.72%
Total £2.97M 27.43% 1.39%
This shows that the net loss is just under 28 per cent of the value of these goods at cost. The net loss versus appliance turnover is 1.39 per cent; however, this does not take into account the handling and administration costs as follows: Repair Cost Check & Test Cost Handling Charges Majors Handling Charges SDA Extra Logistics Admin Cost Major Extra Logistics Admin Cost SDA Repair Charges
£20.00 £4.00 £20.00 £1.50 £1.25 £0.45 SDA £0
Example Financial Analyses 179
Check & Test Transport Administration Totals
£0.05M £0.85M £0.053M £1.25M
£0.03M £0.08M £0.024M £0.13M
£0.08M £0.93M £0.077M £1.38M
Again, if you add these ﬁgures back into the net loss ﬁgures then the results are as follows: Amended Net Loss % Loss vs. Exchanges % Loss vs Turnover % Loss vs Sales at Cost
£3.97M 44.77% 2.19% 3.13%
£0.37M 19.02% 1.14% 1.90%
£4.35M 40.20% 2.04% 2.97%
These losses and costs are clearly much more signiﬁcant than for the ﬁnancial model that was based on no bought out guarantee goods at all. However, it must be remembered that there was a contribution to these costs from the supplier, this negotiated by the purchasing team as part of the deal for the BOG goods. We cannot yet evaluate whether this contribution is a good one or not until we have reviewed the in-home and customer repair costs that we will investigate in the next two sections.
Repairs costs – non-bought out guarantee Turning now to the cost of repairs we must consider two types of repair:
Genuine faults – those goods that have real ‘operating’ faults which either prevent them being used at all or which prevent them being used to manufacturer speciﬁcation. Customer education faults – those goods where there is nothing actually wrong with them because they meet the manufacturer’s speciﬁcations but where the customer does not believe that or does not understand what the speciﬁcations actually mean.
This is an important distinction because very often the manufacturer will not pay for these costs or will only pay for part of these costs. Moreover, unless a manufacturer has his own repair operation he will only pay a rate that he believes is sufﬁcient to resolve the problem. However, as we discussed earlier, retailers often have to pay more
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than this in order to be able to have a standard service level which is in keeping with the image that the retailer wishes to portray. We can now examine the repair costs of the company we are reviewing. Note that SDAs are rarely repaired, and if they are it is seldom in-home because they are deemed too low in price to make it cost-effective.
Split Appliance Sales Avg Unit Sale Units Appliance Sales at Cost Repair Frequency Customer Education Freq Repair Jobs Customer Education Jobs Total Jobs
Majors 85% £181.69M £300 605,625 £127.18M 8% 6% 48,450 36,388 84,788
SDA 15% £32.06M £60 534,375 £19.24M 0% 2% 0 10,688 10,688
Total 100% £213.75M £187.50 1,140,000 £146.42M 4% 4% 48,450 47,076 95,475
Looking at the average cost of these repairs the following is a reasonable guide (excluding parts that are usually free for the ﬁrst 12 months after purchase): In-Home Repairs Majors SDA
Labour £55.00 £0
Parts FOC FOC
Customer Education Jobs Majors SDA
Labour £55.00 £20.00
Parts FOC FOC
The cost of an SDA job is purely the handling or telephone calls in a central location or at a retailer outlet. This relates to providing guidance on use, replacement accessories (including user guides) or plugging it in to see if it is nothing more than a blown fuse.
In-Home Labour In-Home Parts Customer Edu. Labour
Majors £2.66M £0 £2.0M
SDA £0 £0 £0.21M
Total £2.66M £0 £2.21M
Example Financial Analyses 181
Total Repairs Cost Repairs % of Retail T/Over Repairs % of Appl Cost % Taken by Suppliers Revised Total Repairs Cost Revised Repairs % Retail Revised Repairs % Appl Cost
£4.66M 2.6% 3.7% 80% £0.94M 0.51% 0.73%
£0.21M 0.7% 1.1% 70% £0.06M 0.20% 0.33%
£4.87M 2.3% 3.3% 79.6% £1.0M 0.47% 0.68%
Repairs costs – with bought out guarantees When looking at a company which sells a reasonable volume of bought out guarantee goods the issues of repair costs becomes much more important because all of the costs of these repairs relating to the original equipment manufacturer (OEM) goods are borne by the retailer. This is particularly signiﬁcant for customer education ‘faults’ and this is why it is so important to address properly issues such as user manuals and technical support when the deal is being struck (as discussed in Chapter 9). Looking again at the revised repair costs of the company we are reviewing:
Split Appliance Sales Avg Unit Sale Units Appliance Sales at Cost Repair Frequency Customer Education Freq Repair Jobs Customer Education Jobs Total Jobs
Majors 85% £181.69M £300 605,625 £127.18M 8% 6% 48,450 36,388 84,788
SDA 15% £32.06M £60 534,375 £19.24M 0% 2% 0 10,688 10,688
Total 100% £213.75M £187.50 1,140,000 £146.42M 4% 4% 48,450 47,076 95,475
Looking at the average cost of these repairs, the following is a reasonable guide (excluding parts which are usually free for the ﬁrst 12 months after purchase): In-Home Repairs Majors SDA
Labour £55.00 £0
Parts FOC FOC
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Customer Education Jobs Majors SDA
Labour £55.00 £20.00
Parts FOC FOC
In some cases there may be a charge for parts in the case of BOG or OEM, but usually the deal covers labour only.
In-Home Labour In-Home Parts Customer Edu. Labour Total Repairs Cost Repairs % of Retail T/Over Repairs % of Appl Cost % Bought Out Guarantees % Taken by Suppliers Revised Total Repairs Cost Revised Repairs % Retail Revised Repairs % Appl Cost
Majors £4.66M £0 £2.0M £4.66M 2.6% 3.7% 30% 50% £2.33M 1.28% 1.83%
SDA £0.21 £0 £0.21M £0.21M 0.7% 1.1% 10% 60% £0.09M 0.27% 0.44%
Total £4.87M £0 £2.21M £4.87M 2.3% 3.3% 27% 50.4% £2.42M 1.13% 1.65%
As discussed previously, in the furniture sector complete bought out guarantees are less common because many retailers either own factories or have goods made under licence. However, it is common practice for retailers to claim back fees from the suppliers as a block invoice once the repairs have been completed. This causes the twin problems of delayed cashﬂow and rejected claims, which as we have seen in Chapter 12 can be really very signiﬁcant.
Combined costs The bottom line of the calculations above is as follows:
Net Exchange Cost Exch Cost vs Turnover Exch Cost vs Cost of Goods Net Repair Cost Repair Cost vs Turnover Overall Cost
Non-OEM/BOG £2.85M 1.33% 1.95% £1.0M 0.47% £3.85M
With OEM/BOG £4.35M 2.04% 2.97% £2.42M 1.13% £6.77M
Example Financial Analyses 183
Overall Cost vs Turnover 1.80% Overall Cost vs Cost of Goods 2.63%
The BOG/OEM goods obviously have a much higher cost, but you might expect that this is covered by the contribution from the supplier in a form of a reduced buying-in price. In reality it is usually not sufﬁciently covered because in the electrical appliance sector the BOG allowance is normally in the range 1.5 to 2.5 per cent of the buying-in price at very best. To evaluate this further it is essential to understand exactly how much these BOG allowances were worth.
Total Sales at Cost BOG Splits % BOG Sales at Cost BOG Rates % BOG Allowances
Majors £127.18M 30% £38.15M 2% £0.76M
SDA £19.24M 10% £1.92M 1% £0.02M
Total £146.42M 27% £40.07M 1.95% £0.78M
As may be seen, the contribution from the BOG allowance is a long way short of the difference between selling with BOG goods and not doing so. It might be argued that the overall margins that can be generated from OEM/BOG goods is usually much larger than for branded goods just because the manufacturers do not have the same overheads and brand related costs. This is entirely true, but usually this additional margin has been taken fully into account by the purchasing team when proposing the deal. Further, the average purchase value is usually much lower and the calculations above were both based on the same average sale and purchase value for simplicity. In reality the cash value of the BOG allowance would be lower still because it is based on a lower buying-in price. That said, of course the average value of write-off would also be lower so the net evaluated impact from these calculations is still correct.
Exchange costs – potential savings This section evaluates savings based on the following assumptions.
Exchange frequency – if there were no other gains but the average exchange frequency was dropped by only 1 per cent overall.
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RTV Split – if there was no reduction in exchanges but there was a 5 per cent increase in the amount of the major appliances going back to suppliers and an equivalent drop in jobbing and refurbishment. Combined – there is cross-over because if there are less exchanges then there is less to RTV but there are signiﬁcant combined savings from these simple improvements.
Easy Savings Reduced Exchange Frequency Increased RTV Combined
Non-BOG Model £0.40M £0.43M £0.74M
BOG Model £0.61M £0.38M £0.93M
In reality, it should be possible to push for much bigger savings such as:
Exchange frequency – if there were no other gains but the average exchange frequency was dropped by 2 per cent overall. RTV Split – If there was no reduction in exchanges but there was a 10 per cent increase in the amount of the major appliances going back to suppliers and an equivalent drop in jobbing and refurbishment. Combined – as mentioned above, there is cross-over because if there are less exchanges then there is less to RTV but there are signiﬁcant combined savings from these simple improvements.
Harder Savings Reduced Exchange Frequency Increased RTV Combined
Non BOG Model £0.80M £1.02M £1.53M
BOG Model £1.21M £0.89M £1.86M
Bear in mind also that this is not a big retailer and the scale of the problems is actually quite modest compared to many other companies. That said, these savings demonstrated by the ‘combined’ ﬁgure equate to well over 1 per cent of total appliance turnover where the retailer has a reasonable exposure to BOG and OEM goods.
Repair costs – potential savings
Genuine repair frequency – if there were no other gains but the average repair frequency of the majors was dropped by only 1 per cent.
Example Financial Analyses 185
Customer education calls – if there were no other gains but the customer education call frequency of the majors fell by 1 per cent. Combined – in this case there is no cross-over.
Easy Savings Reduced Repairs Reduced Customer Education Combined
Non-BOG Model £0.07M £0.07M £0.13M
BOG Model £0.17M £0.17M £0.33M
Again as above, in reality, it should be possible to push for much bigger savings such as:
Genuine repair frequency – if there were no other gains but the average repair frequency of the majors was dropped by 2 per cent. Customer education calls – if there were no other gains but the customer education call frequency of the majors fell by 2 per cent. Combined – again in this case there is no cross-over.
Harder Savings Reduced Repairs Reduced Customer Education Combined
Non-BOG Model £0.13M £0.13M £0.27M
BOG Model £0.33M £0.33M £0.67M
Net projected savings The combined effects of these initiatives are obviously signiﬁcant, but to understand the true value they need to be measured against the overall business turnover and performance. Taking the appliance turnover ﬁgure of £213.75 million alone, the following shows the net impact on gross margins of these improvements. Easier Projects 1% Reduced Exchanges 5% Increase in RTV Combined Exchange Impacts 1% Reduced Repairs
Non-BOG Model 0.19% 0.2% 0.34% 0.03%
BOG Model 0.28% 0.18% 0.44% 0.08%
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1% Reduced Cust Edu Calls Combined Repair Impacts Overall Beneﬁts Overall Financial Saving
0.03% 0.06% 0.40% £0.87M
0.08% 0.16% 0.59% £1.26M
Harder Projects 2% Reduced Exchanges 10% Increase in RTV Combined Exchange Impacts 2% Reduced Repairs 2% Reduced Cust Edu Calls Combined Repair Impacts Overall Beneﬁts Overall Financial Saving
Non-BOG Model 0.36% 0.46% 0.69% 0.06% 0.06% 0.12% 0.81% £1.73M
BOG Model 0.57% 0.42% 0.87% 0.16% 0.16% 0.31% 1.18% £2.52M
These are very large net savings and as commented at the beginning of this section this company is a long way from being the worst. Therefore, the size of the potential beneﬁt for your company could be much larger still.
Summary The scale of the net costs and the savings potential highlighted indicates clearly why these issues are so very important. These calculations are based on an electrical appliance retailer but the basic story is the same across a broad range of large product retailers. The causes of the cost are slightly different and the names given to the various categories will almost certainly be different, but the net impact on a company’s proﬁtability is always very signiﬁcant. The calculations are realistically very simple once you know where to go to get the information and you fully understand how your company actually works in relation to these costs. However, just because they are simple calculations, does not mean that they have little value. Clearly, this chapter shows that is not the case and if aftersales managers invest quality time into making sure that they have all of the key data, they can very quickly show just how much beneﬁt can be derived from implementing at least some of the improvements highlighted in this book.
Implementation and retaining the beneﬁts
Setting the standards Before making any decisions about what the aftersales operations should look like, it is essential to think carefully about what standards the company wants to work to. As discussed previously, it is not essential that your company has the very best standards in its sector and it can be quite acceptable to have simply above-average standards, provided they are delivered consistently for all customers. In setting the standards, there are essentially three points to consider:
Impact – what improvements and changes will make the greatest impression on customers and sales staff? You could make a massive improvement on the overall process but if customers and sales staff do not perceive it then you may lose a large part of the desired potential effect on the business. Cost – what can the company realistically afford? It could be that offering exchanges and not repairs is seen as being the best way forward, but if the net cost is much greater and there is no real beneﬁt to proﬁtability then do not do it. Timescales – how long will it take to implement the various components of the improvement programme? If every element of the process takes a long time to implement and even longer to see results, then it may be a difﬁcult ‘sale’ within the business and you may lose momentum before the real gains are achieved.
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Remember also that if these improvements are to be built into a sales or marketing proposition, then the basic rules of getting a message across to customers mean that you get very little time and the simpler the concept the more likely it is to have impact. For example, ‘28-day no-quibble exchange’ or ‘Guaranteed replacements if functional repairs not completed within 14 days’. Agree the key points of the proposition, assess the ﬁnancial impacts and get buy-in from the key directors and senior management. Be prepared to adapt the proposition if any managers have valid arguments for change, and publish the new standards for internal use within the company as soon as possible. Finally, it is clearly important that you do not publish the details of the new proposition for external use until you are certain that the company can deliver the new standards. However, be prepared to either drip-feed the improvements or publish before the company is absolutely 100 per cent ready in order to let people within the business see that you are making progress. It will also win over a few more of those members of staff who inevitably did not really believe the improvement could be made.
Benchmarking As with any project it is essential that you understand where you are before you get started. Aftersales is no different, but it is even more important that you are absolutely honest in making this assessment. That said, it is likely that this will unearth some information about your company you will not want your clients or competitors to know. It will usually be quite difﬁcult to ﬁnd out what your competitors are achieving, because either they are coy about such matters or, more likely, they are in no better shape than you are! However, your suppliers will have information on the cost of service relating to issues such as frequency of no-fault-found, damage and net returns. Indeed, it is often quite a sobering experience to see yourself as your suppliers see you. You are unlikely to get detailed information on your competitors through this route, but it will give you a less biased place to start. You will need to take into consideration the importance of any individual supplier’s feedback because, for example, your business may be small in comparison to their overall sales. You will also have to ask
Implementation and Retaining the Beneﬁts 189
yourself how good each supplier is at recording such information themselves. The simplest way is to interrogate a representative sample of returns and repairs and categorize each based on the information available. It is not at this stage essential that you grab every detailed piece of information, as by the time you do it will in all probability be out of date and therefore useless.
Planning principles We have explored on several levels the reasons why there are problems and the key message that has hopefully been made clear is the need for careful planning. This planning has to take into account all areas of both the supply chain and the sales operations and no assumptions are safe. Check every component and if there is such a thing as a safe assumption, it is that the area you leave as a ‘safe bet’ will be the one that will cause you the most problems. The fact that certain individuals in the management team appear stronger or more conﬁdent counts for nothing if they either do not understand how their part of the business impacts on this area or if their team is less conﬁdent but is just good at defending their corner. Remember that very few people will have anything like a handle on the overall supply chain and even fewer will have a clear idea of how to truly effect change. Communicate effectively and frequently. Record progress and be prepared to repeat elements of the exercise more often than you may have expected prior to commencing the process. Once the improvement process has commenced, effective reporting is critical. Whilst providing information on the gains and improvements is important, it is almost certain that there will be several big shocks for the management team regarding the scale of some of the issues. For example, a particular product line may have a very high level of exchange or the true cost of aftersales for a speciﬁc lead line is two to three times higher than has been budgeted for. This type of information can be very helpful, but it can also create very negative and defensive reactions. Be prepared to have to canvass again for support for the project in the face of such a negative response. Be aware also that some product lines and processes may have been sanctioned and supported by very senior people within
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the company and the fact that there is a serious problem will be a source of embarrassment. Avoid the trap of simply pointing out the problems. Have simple and palatable solutions ready which will allow such senior managers to give support without losing face or credibility.
Suppliers and manufacturers The most important rule is to understand exactly both the written terms of the buying deal and the ‘understood’, ‘implied’ or ‘accepted’ terms. Most buyers create deals that are based at least in part upon a tacit understanding. The ‘understanding’ usually relates to a service component a supplier knows they cannot deliver consistently and therefore is nervous about putting in print. For example, a supplier may not always be able to guarantee parts supply but the frequency of problems is small and the buyer has been ‘convinced’ that in any case the failure frequency is also very small. The supply agreement includes full parts supply and support, but the supplier can perhaps only achieve this on speciﬁc parts lines. In many situations, I have seen buying arrangements worth tens of millions of pounds settled with nothing more than an exchange of letters (some of them with less than a page of actual terms). I am sure you have guessed that these letters made absolutely no mention of the aftersales terms and conditions! In fairness, some of these referred to the suppliers’ standard terms and conditions. However, it is almost always the case that if the supplier does have a generic terms and conditions document it will in all likelihood not match what has been agreed when the deal was done, and it will certainly not ﬁt comfortably with your own company’s policy. Contracts can be difﬁcult to put in place because purchasing decisions are often made on the run and generic contract phrases will not cover the speciﬁc issues of a particular product line. This does not stop you very quickly putting in place generic terms and then reﬁning these as the relationship goes along. Chapter 9 gives a detailed summary of the way that these terms and conditions can be structured. All of these terms are important, so do not try to fudge around this or miss them out. It is also important to implement supplier speciﬁcations so that you can set the standards for new products to be delivered to your warehouse. This also sets the conditions for parts and replacement
Implementation and Retaining the Beneﬁts 191
materials to be made available for repair companies. This is particularly signiﬁcant for the furniture sector where fabrics and leathers are frequently a major problem with long lead times for supply unless sourced up front.
Short-term gains As with any project, quick wins and short-term gains are hugely important because they generate conﬁdence, encourage enthusiasm and, more signiﬁcantly, they can produce some worthwhile savings and improvements which may be helpful in funding the next phase of development. The role of the aftersales manager is to identify where such quick wins may be and ﬁnd ways of implementing them as quickly as possible. The key areas to target will be:
Anything that can quickly reduce the pressure on hard-worked customer service managers and call centre staff such as enhanced service standards or reduced time to have to make customers wait. Reduction in net exchanges for those product lines that are generating the biggest workloads. Increases in the opportunity to transfer the cost of exchanges and returns back to the original suppliers.
The following are excellent ways of generating both short term gains and winning credibility:
Ownership and escalation processes – develop clearer routes for handling queries which include your aftersales managers and the key personnel at the most problematic suppliers. Visibility – ensure that your aftersales managers are well known to the key problem handlers within your company (eg customer services) and that they are easy to make contact with (ie all mobile telephone numbers are known and frequently used). Exchange ﬁltering – set up a call-taking team that has a speciﬁc responsibility for handling all returns and exchanges regardless of the cause. Establish recording procedures to allow more accurate reporting and to track progress of the improvement process.
192 Aftersales Management
Supplier visits – arrange visits for meetings between the frontline key problem handlers from the suppliers and from your company. These meetings should not be heavily formal and mainly be aimed at improving communication and/or reducing friction. Reporting suites – create and set up regular reporting cycles for any area of the process that does not need heavy investment or information technology (IT) development. This allows directors a measure to chart progress and it gives the ﬁnance team something to start working on in developing forecasts.
All of these can be started and generate positive results within six to eight weeks. If properly implemented, they show that you are making genuine progress and win the type of support that builds real momentum towards your ultimate goal.
Medium-term development Projects These can be categorized as follows:
supplier agreements; full exchange ﬁltering and follow-up; new supplier escalation processes set-up and management; customer services team training; preparation of standard working procedures; implementation of new aftersales structure; retail sales staff training; full reporting suite.
There is no real routine which stipulates that one should be done before another, as realistically most can be done concurrently. However, common sense says that any formal training for retail staff should be towards the end because it is expensive and time-consuming, so really you only want to do this once.
Supplier agreements The full roll-out of the new terms and conditions with all suppliers is by far the most important of the project elements. The logistics
Implementation and Retaining the Beneﬁts 193
of getting to see 40 to 50 suppliers (and maybe a good deal more) means that this cannot be done quickly although clearly you can focus on the biggest suppliers ﬁrst. You should expect that this will take at least four to six months. Expect that most suppliers will need at least two meetings and that the legal review process will take several iterations. That said, once there is a clear understanding between the parties then the legal conﬁrmation process can run alongside the implementation. For many suppliers the type of arrangement being sought is just too high risk or too politically sensitive. Therefore, it may be that your ﬁnal agreement is based more on relationships with exchanges of letters and less on legally binding contracts. If there is any query or issue then do not let this become a stumbling block. Be ﬂexible and do not assume that the agreements have to be the same for all suppliers. Remember that you are trying to win the trust of a naturally wary party and you are asking for a ‘grown-up’ relationship. If you begin the process in childish manner, demanding that you get what you want ‘or else’, then you will only gain a fraction of the beneﬁt you potentially could have. I have seen many attempts by retailers to drive home what they saw as opportunities to save costs through inﬂexibility and hardnegotiated contracts. Few of them achieve anything like the savings they could because these retailers forgot that the majority of their problems were internal. The suppliers knew these facts and those that were forced to sign into such formal agreements simply sat back and waited for the retailers to make mistakes that were not covered by these agreements. Try to agree on as many points as possible and get these moving. If there are issues to be conﬁrmed then ask for monitored trials so that the suppliers can see that you are genuine in your desire for change. Give your suppliers as much certainty as possible that you are not going to hold anyone to ransom just because they have conceded a point in an effort to show goodwill.
Full exchange controls It is easy enough to set up a central bureau and then insist that all exchanges are authorized through this team, but there are a number of potential pitfalls you must overcome:
Saturday afternoon exchanges – that is, those that are carried out when retail staff are under pressure to generate sales. They will
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often bypass the bureau and try to catch up with administration later (the excuse being that they were very busy and did not have the time to wait to get through on the telephone). This is not a problem if the reason for exchange was genuine but if not then you will end up in a situation where the shop cannot arrange collection by the logistics team and the customer will not take the goods back. The result is that goods are very frequently left in limbo at the back of the shop, gathering dust and losing value very quickly. Part time and casual staff – the key to this process improvement is accountability and ownership. However, if the exchange is done by a salesperson on a casual contract, or someone who only works only on, say, Saturdays, then you can easily generate more of the type of problems described above. Price banding – one of the really important questions is with regard to whether or not you will have all goods approved through the exchange bureau or whether you will limit only to goods over a certain value. It is probably not worth being overly complicated when processing goods that are very low value (eg a kettle or a duvet) or in those cases where the suppliers themselves offer very ﬂexible terms regarding exchange (eg automatic one-for-one swap-outs). That said, you should always record as many basic details as possible for the exchanges of these items but perhaps not with the same level of supporting detail as for larger and/or more expensive goods.
New supplier escalation processes If you have done your negotiations correctly then your suppliers will have provided you with much clearer routes for query management and resolution. They will probably also have provided names and contact details for key managers and staff within their respective businesses. You need to be careful how you use this information and if you simply distribute all of these data to everyone in the company then the gates of cooperation that you have worked so hard to open will close again very quickly. Equally, you do not want the escalation managers within your company to become inundated with queries. Remember that there was a process previously and it probably worked fairly adequately for at least 80 per cent of the cases. Therefore, you need to develop escalation procedures for each product group with a resolution route that goes strictly through
Implementation and Retaining the Beneﬁts 195
the escalations managers (if required) so that they (and only they) can access the additional support and beneﬁts you have negotiated. These were discussed in depth in Chapter 10.
Longer-term projects and holding the gains Key components The main elements of this part of the process are fairly obvious:
Avoid complacency – do not assume that the problem is solved; it will come back if you let it. Suppliers – continue to manage the relationship with suppliers at least as closely as when you set up the new procedures. If anything you should be working more closely and building on previous successes. Rewards and recognition – publicize the achievements to date within the business and focus on those who have made the biggest gains. Establish new goals and roll out the next stage of the improvement process – make improvements and adjustments to reﬂect what you have learned in the implementation to date. Customers – put your money where your mouth is and publish your new standards for both sales and customers to prove that yours is a company worth buying from.
Complacency The main way to avoid complacency setting in is to carry on producing the weekly and monthly reports and then take ongoing action to ensure that everyone within the company knows what costs are being incurred. Staff turnover is commonly quite high in retail, so there will always be new staff and new managers to be brought up to speed. The quality of sales management can be highly variable and it always seems that there is a store that has been found to be having problems, but no one appears to have been doing anything about it. Remember that in the main the job of the regional or area sales manager is to generate and maintain high margins and turnover. If there is a need for increased operational focus at a retail outlet then
196 Aftersales Management
it is highly likely that aftersales will not be top of the list of ‘must do’s’. In addition, there are always new products and suppliers. Buyers will always be bringing in new deals, which may be simply large volumes of an established line, or they may be new suppliers or endof-line deals which have many logistical and management issues to consider.
Supplier support Look to hold regular ongoing review meetings and be prepared to be open about your company’s issues. Avoid heavily formal meetings and seek to create the type of relationship where even if the buyer has ‘forgotten’ to involve the aftersales team in the new deal, it is not hard to recover ground and solutions can be put in place very quickly. Once the relationship has strengthened further and there is increased trust, then look to achieve further gains by extending the terms to give increased customer support. For example, I started with an agreement to give help to customers whose goods had shown a major failure but were outside the guarantee period by up to six months. By building trust and growing the quality of dialogue, it had been possible to persuade most suppliers to extend this to 12 and in some cases 24 months after the guarantee period had ended. The golden rule is that suppliers actually want to be involved in supporting their products and their brand. They may not always be that good at doing so, but if you work closely with them rather than against them then it is possible to achieve excellent results with no extra costs.
Rewards and recognition As above, publicize the results and praise those that are achieving signiﬁcant gains. I have known many store managers who have been able to use good aftersales management results to fend off frustrated area sales managers when the sales ﬁgures have been below target. Obviously, you have to focus on the problem stores in order to achieve the big savings, but do not forget to praise the good stores and good delivery depots. At the most basic level, let your junior aftersales managers use the ‘cream bun’ or ‘ice cream’ fund to thank front-line staff for going out of their way to help speciﬁc customers
Implementation and Retaining the Beneﬁts 197
or resolve particular local supplier issues. The payback for such a modest investment is very signiﬁcant and it does wonders to build the relationship between sales staff and aftersales managers.
New goals and targets As in the section above on supplier support, it is always possible to improve on what you have achieved to date. If you are creative then additional savings can have very signiﬁcant knock-on effects of added-value services such as extended warranty schemes. Finally, it is likely that the cost of service for suppliers in working with your company will have signiﬁcantly reduced too. Work with the purchasing team to try to share these beneﬁts and achieve improved buying-terms or additional contributions to advertising and promotions.
Customer service It may be that once you have exceeded speciﬁc customer service standards then the company will feel happier to publicize the enhancements you have achieved. Work with the marketing team to create a stronger message, but always take care to focus on those gains that are most easily retained and avoiding the pitfalls of making strong claims in areas where you are most exposed. For example, a particular supplier may have very variable service standards which overall are quite acceptable, but when they go wrong they do so in a spectacular manner.
Summary The main issue the aftersales manager has to address is that of company culture. Whilst it is unlikely that aftersales managers can effect this kind of change on their own, it is possible to make a very signiﬁcant impact just by virtue of the simplicity of the processes described in this book. That said, the aftersales manager has to have the full support of at least one main board director. However, if the analytical stage is thorough enough and the evaluation of cost savings big enough then it is highly likely that the ﬁnance director will sponsor this change, if no one else. This will be on the grounds that it is a saving that had not been obvious
198 Aftersales Management
previously (so it will not have been budgeted anywhere) and it does not require long timescales or signiﬁcant expenditure. Obviously, careful planning is critical, but nowhere near as important as effective communication and reporting procedures. In starting this process, it is as we have discussed, highly likely that you will be criticizing the practices of colleagues within the business. Therefore, you must make sure you have a very ﬁrm understanding of what is going on at all stages within the improvement cycle. Moreover, if you are going to make people within the business aware of problems then it is much more effective if you can at the same time suggest a few alternative creative options that allow the person responsible to make the necessary changes without losing too much face. This said, if you are diligent in preparation, effective in canvassing for support and effective in pointing out problems (but without being deliberately negative or aggressive) then you can achieve very signiﬁcant savings, quickly and without heavy expenditure. Better still, with a little ongoing attention to detail you can hold onto the gains and make further improvements with even less expenditure.
Fundamental principles It is not the purpose of this book to discuss the structures and subtleties of ﬁnancial services products, nor is it the intent to show means of generating more sales. I will discuss and review the whole subject of extended warranties and guarantees in their various guises in full detail in my next book dedicated to the subject. However, there is unquestionably a link between the quality of the aftersales proposition and the effectiveness of staff in selling ﬁnancial services and other added-value products. Every retailer of large goods knows that very little margin is made from the goods themselves and that ﬁnancial services products are a key tool in maintaining proﬁtability. It is an increasingly competitive market and whilst supermarkets are not always able to offer the range of goods that a specialist can, they do have almost guaranteed footfall on their side (ie from sales of food and other goods). Supermarkets do, however, struggle to sell extended warranties and extended credit at point of sale because they are not set up to do so. Therefore, specialist retailers must promote and sell such addedvalue services; but there are key points to consider. The main issue is a question of trust. If you as a customer believe that someone is going to deliver consistency and quality in one area then you are more likely to believe that they will do the same in other parts of their business. This is the key driver of repeat sales, and there is no question that the way a customer is treated after a previous sale is one of the main inﬂuences over where that same customer goes to make the next purchase. Even more importantly, if your sales staff genuinely believe that the aftersales experience is a good one then they will obviously be more willing to sell an added-value package that is based around that experience.
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Extended warranty programmes Basic principles Clearly, the whole principle of an extended warranty is that a customer buys an insurance or insurance-type policy so that in the event of a breakdown outside the guarantee period the goods will be repaired and/or replaced without further or unplanned cost. Therefore, your aftersales programme must be able to demonstrate not only high-quality repairs but also, more importantly, excellent problem resolution processes. It is of no advantage in having the best repairs operation in your sector if when the process breaks down (and break down it will from time to time) the customer feels as though they are left in limbo with no feedback and no immediate chance to resolve their problems. However, there is a more signiﬁcant inﬂuence here. The pricing is based around the cost to provide the service, so the lower the net cost of the service the lower the selling price and hence the greater the chance to sell the warranty. Alternatively, if costs can be constrained then there is a greater opportunity for the retailer to make more proﬁt from the same amount of income.
Extended warranty costs Extended warranty costs are principally driven by the cost of exchange or replacement and spare parts because they are less easy to control. If a customer problem can be quickly resolved with a single visit using small amounts of parts and no exchange results then the net costs are very low, provided the frequency of such problems is also low. The key drivers of extended warranty costs are:
Frequency of claim – the aftersales manager needs to work with the purchasing teams to ensure that the quality of the goods is sound in the ﬁrst place and that in the event of excessive failure there is an opportunity to recover costs from the suppliers. Average labour costs – the aftersales manager must establish best value for money service networks. Lowest cost is a combination of labour rates and effectiveness. Multiple visits are expensive and usually denote poor diagnosis or inefﬁcient practice. Frequency of parts replacement and net cost of parts – this is a more obvious area and is clearly a function of reliability and build
Financial Services 201
quality. However, there is also the question of effective diagnosis such that repairers only ﬁt the parts that are actually needed. There is a need to secure reliable parts supplies for the workable life of the goods (which in most cases is at least ﬁve to seven years). Moreover, it is essential that in those cases where the manufacturers have no effective aftersales processes of their own then the retailer has to create some using third-party specialists to store the parts and manage the supply chain. Frequency of total replacement – this is a function of net cost of repair and the trick is to ensure that a repair is more cost effective than a replacement. However, if diagnosis is poor and too many parts are used then this will not be possible.
In addition, if a customer is given poor service then they may not be willing to wait for a further repair and may insist on a replacement. All of this is very much within the control of the aftersales manager.
Scheme types – repairs versus replacements Broadly, extended warranty schemes fall into two types: repair and replacement, and simple replacement. The classic repair and replacement scheme is usually aimed at larger, higher-value items (eg washing machines and televisions) where a repair is likely to be economical and the replacement is only used as a last resort. The replacement-only schemes are therefore typically aimed at smaller, lower-value items (eg toasters and kettles). However, the ongoing effects of price deﬂation are blurring the boundaries of these schemes and I have run very successful replacement-only schemes for entry price point laundry items and televisions. The key message here is the same as elsewhere within this book; think about your customers as if they were your friends and family. Think about what they would actually want and think about trying to sell these schemes to your family and friends. My experience is that they will want something very much more speciﬁc than you think. Put simply, they will want something that meets their needs, and the nearer the ﬁt, the more likely they are to buy.
202 Aftersales Management
Consumer credit In modern society, the vast majority of goods like electrical appliances and furniture are sold on some form of extended credit. At its most basic this will be the customer’s own credit card, but it could also include service options like ‘buy now pay later’ and interest-free credit schemes. In the case of extended warranties, this is even more signiﬁcant. I would guess that very few people actually go to an electrical superstore with the money in the back pocket ready to buy both an appliance and an extended warranty. Therefore, if the aftersales service proposition is good then there is a better chance to put together structured packages that include warranties and other services all bundled in such a way as to generate a huge amount of customer loyalty and the opportunity for repeat sales. As with any retailer, trust is vitally important so if your aftersales proposition is right then you can have a direct inﬂuence over the sales performance of the company as a whole.
Regulatory authorities Over recent years there have been repeated attacks on the extended warranty sector by various regulatory authorities. In most cases this seems to have been driven by some belief that retailers and insurers are getting away with some great scam when in fact most are simply trying to ﬁll the hole in their ﬁnances driven by the huge price deﬂation that occurred in the late 1990s and early parts of this century. Some of the initiatives have undoubtedly been driven by a belief that if greater control can be generated then more of the funds involved can perhaps be siphoned off into the coffers of the Exchequer. In many other cases the whole drive has been to try to introduce some form of free market force into the sector by increasing information and thereby improving customer choice. However, to believe that this would have any dramatic effect was to not really understand the sector at all. It has repeatedly saddened me that despite full investigations into extended warranties by the Ofﬁce of Fair Trading and the Competition Commission there has so far been no real effort made to look at what the customer actually gets for their money. The issues
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of quality of aftercare service and some of the points made repeatedly in this book are rarely even considered. That said, you should still build your extended warranty service on the same principles, because customers do recognize quality and, dare I say it, eventually the regulatory authorities will wake up to what is truly important to customers.
Summary The huge success of the scheme I implemented in the latter days of Powerhouse Retail was built around two key interlinked advantages we had over the competition:
Cost control – we knew what our costs were down to a very ﬁne degree and more importantly we knew exactly what the impact would be of changing the way that we worked or extending the offering to customers. Service standards – we knew what we could deliver consistently and we were therefore more than happy to publish our standards.
The combination of these two points meant that our sales staff could point clearly to the beneﬁts, knowing that if there was any comeback then the aftersales team would resolve the issues, but sticking to the overall company commitment. The same points also allowed Powerhouse to enjoy very strong underwriting relationships. Insurers like clients to be able to demonstrate a level of control. It minimizes the risk of unplanned costs and permits accurate forecasting of future proﬁts. Neither of these issues is particularly hard to deliver and you too can create the opportunity for signiﬁcant increases in added value services as a spin-off from creating your new aftersales proposition.
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Summary and conclusions
Financial gains The purpose of this book is to both raise the proﬁle of the aftersales team and process and to explain the reasons why companies and organizations need to invest more into this key driver of cost control. We have explored the reasons why this is an undervalued area and why this tendency needs to be avoided. We have examined the scale of the potential savings and the net impact across the whole business structure. Put simply, there is a great deal of wasted effort and wasted opportunity if your business or organization does not invest in this area. That said, it does not need to be the classic old-fashioned model with workshops full of men in overalls, and it can be a small and highly efﬁcient team managing third-party contractors and supplier relationships. If historically your business has not been well run in this area, then the returns may be in the range of several points at the margin level. Even if your company has been in a better position on aftersales, the combination of increased sales and reduced costs will still be very attractive.
Consumer reputation If you follow the processes described in this book then you will without question have improved your company’s reputation with your customers. They will now be beginning to believe that if they
206 Aftersales Management
have a problem they are treated fairly, and that whilst the company will stand its ground on points of principle, it also demonstrates a refreshing pragmatism and realism in its approach to customers. If you have been able to make substantial enough gains then you will feel comfortable to publish some of the company’s new service standards. Whilst it would be foolhardy to market these new standards actively straight away, it will very soon be quite normal for customer service staff to quote exactly what customers are now entitled to and what the company will provide in the event that the standards are not met.
Staff self-respect and increased conﬁdence Whilst clearly an enhanced reputation for good customer service is very valuable, it is nothing by comparison with the beneﬁt that arises from increased staff conﬁdence. When you have created your new aftersales proposition, your customer-facing staff will be far happier and less likely to shy away from or try to fudge problems. Sales staff will be equally happy selling any of the brands and will have conﬁdence that they can handle any queries. More important still is that they will seek to take ownership of the problem and customers will be far more trusting. The net result of increased customer trust is less confrontation, increased sales and, in particular, signiﬁcantly increased sales of added value services like extended warranties. Finally, your company should also beneﬁt from a drop in staff turnover. Some people will always be driven by money and will move from retailer to retailer in search of bigger commissions, but for a majority they simply want a fair reward in a good place to work. Sales and customer service staff, particularly the experienced ones, know all too well that some companies have major issues with aftersales issues and will be very happy to work within an environment where these issues are much less signiﬁcant.
Supplier position If these procedures have been properly implemented then the relationship with suppliers will have improved markedly. There should be much less friction and certainly radically less time spent on dealing with issues.
Summary and Conclusions 207
If the improved relationships are correctly maintained and developed then suppliers will not only respond to the fact that they have much lower cost of service with your company, but they will offer enhancements and sales opportunities because they would prefer to deal with a company like yours.
Stability and the opportunity for growth Once there is greater control and the cost of service has been reduced then it is not unreasonable for the company to seek to capitalize on this and grow the sales business substantially. Prior to these improvements, the company may have seen an exponential increase in certain aftersales costs when new sales initiatives were introduced. This should now be much less of a problem and it will be much easier to predict that such initiatives will have positive outcomes. As described in Chapter 15, there will be far greater opportunity to sell added-value services and staff will feel much less self-conscious in doing so. Indeed staff will now be beginning to make very positive statements about these services, secure in the knowledge that such statements will no longer come back to haunt them.
Closing notes and comments There is no one-size-ﬁts-all solution and every retail business has its own quirks and problems. However, the unassailable fact is that there are always aftersales problems and companies can either resolve them so that they become a marketing advantage or try to fudge their way around them with predictable results. I have been fortunate enough to see many aftersales operations and some of them were much better than others, but very few were truly optimizing their costs and even fewer were able to use their stronger position to their advantage. The processes and improvements described in this book have been proven in a very demanding and fast-moving environment, so I am conﬁdent that they are adaptable and transferable to a wide range of scenarios and can make very signiﬁcant improvements to the bottom line of a great many companies. Finally, my advice to you is to at least try some of these improvements. None are expensive and all can be quite quickly implemented. I assure you that you have nothing to lose and a great deal to gain.
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Appendix 1: Key actions for process improvement
1. Customer requirements
Survey customer needs and look closely at complaint trends. Understand what it is that you need to build into your proposition in order to make a real difference.
2. Deﬁne the true cost of service
Use whatever information is available to try to determine just how much time, money and effort the aftersales issues are costing your company.
3. Company requirements
Understand what it is that will make a difference to key members of staff, taking each department or division separately.
4. Design the proposition
Once you know the key drivers of cost and the potential beneﬁts that can be derived, these can be matched against the customer requirements and a formal policy or strategy document prepared.
5. Management buy-in
Gain support from the Board and senior management and deﬁne the changes that each department head will have to take on.
210 Appendix 1
6. Supplier support Win support from suppliers for the new strategy and formalize a new form of relationship. It may be necessary to have some of this built on relationships rather than written contracts. 7. Financial evaluation
Create standard procedures for calculating savings to demonstrate progress and maintain optimum levels of support.
Create standard reporting formats that will properly communicate the issues and the progress against them. Set up review processes to ensure key problems are being addressed and managers know how to resolve their concerns.
9. Communication Ensure key staff, in particular sales teams, know that progress is being made. Put the new service standards in print and stand behind them. Formal external marketing is of limited value, but internal marketing pays signiﬁcant dividends. 10. Improvement cycle
Create progress through a series of planned phases, starting at ‘short-term wins’, moving through ‘major change implementation’ and then ‘holding the gains’, but expect that this will be an ongoing project with no end date or permanent resolution
Appendix 2 – Further reading and key sources of information
UK law and consumer rights 1. 2. 3. 4. 5. 6. 7. 8.
The Sale of Goods Act 1979 The Sale and Supply of Goods Act 1994 The Sale and Supply of Goods to Consumers Regulations 2002 The Unfair Contract Terms Act 1977 (as amended by the 2002 regulations) The Ofﬁce of Fair Trading – http://www.oft.gov.uk/ Trading Standards Ofﬁce – http://www.tradingstandards.gov. uk/ The Citizens Advice Bureau – http://www.citizensadvice.org. uk/ The Financial Services Authority – http://www.fsa.gov.uk/
US and Canada law and consumer rights 1. The Uniform Commercial Code 2007 (USA) – Chapter 72, Sales 2. Federal Trade Commission (USA) – http://www.ftc.gov/ 3. Ofﬁce of Citizen Services and Communications (USA)– http:// www.usasearch.gov/ 4. National Consumer Law Center (USA) – http://www. consumerlaw.org/
212 Appendix 2
5. The Consumer Protection Act 2002 as amended (Canada) 6. Ofﬁce of Consumer Affairs (OCA) (Canada) – www.ic.gc.ca 7. Consumer Measures Committee (Canada) – www.cmcweb.ca
European law and consumer rights 1. The EU Directive 1999/44/EC on Sale of Consumer Goods and Associated Guarantees 2. The Unfair Contract Terms Directive (1993/13/EEC) 3. Europa – Gateway to the European Union – http://europa.eu/ index_en.htm 4. Swedish Consumer Agency Konsument Europa – http://www. konsumenteuropa.se/
Australia and New Zealand 1. Consumer Guarantees Act 1993 as amended (NZ) 2. The Sale of Goods Act 1908 as amended (NZ) 3. The Ministry of Consumer Affairs – http://www.consumeraffairs. govt.nz/ 4. The Trade Practices Act 1974 as amended (Aus) 5. The Fair Trading Act 1987 as amended (Aus) 6. Australian Competition and Consumer Commission – http:// www.accc.gov.au/
NB: page numbers in italic indicate ﬁgures or tables aftersales proposition, designing a 73–79 apologizing 78–79 availability of parts 75 common sense, using 73–74 compensation 78 diagnosis and fault resolution 75 guarantee periods 76–77 loan equipment 77–78 multiple failures 76 timescales 74 token gifts 79 aftersales, cost of 1–7, 125–43 and customer requirements 1–2 exchanges, costs of 3–4, 3, 4 in the electrical sector 4, 4 in the furniture sector 4, 4 in-home repair costs 136–40 bought-out guarantees 139–40, 140 cost recovery 137 ‘softﬁx’ jobs 137–39 supplier allowances 136–37 operational costs 126–27 principal issues 125–26 slush funds 2–3 supply chain costs
bought-out guarantees 142 logistics 141–42 product quality 141 product supply 142–43 and understanding 5–7 apportionment of costs 6 deal-led buying strategies 7 ownership issues 6 write-off and exchange costs 127–35 aftersales teams costs 130 damage in transit 128–29 discounting on refurbished goods 131–33, 133 installation and redelivery 129 jobbers and scrap handlers 135 logistics 128–29 repairs 133–35, 134 sales teams costs 130–31 aftersales, history of 13–19 general practice 13 service standards 14–15 failure to diagnose fault 14 time to repair 14 suppliers 15–17 and returns 16
aftersales, implementation 187–98 benchmarking 188–89 company standards, setting 187–88 long-term measures complacency 195–96 customer service standards 197 new targets, introducing 197 rewards and recognition 196–97 staff turnover 195, 206 supplier turnover 196 medium-term measures exchange controls 193–94 new supplier escalation processes 194–95 supplier agreements 192–93 planning 189–90 reporting 189 short-term measures 191–92 supplier agreements 190–91 Apple 15 Argos 44 beyond economic repair (BER) products 106, 116, 146, 174 bought-out guarantee (BOG) goods 6, 16, 90–93, 95, 139–40, 140, 142 British Gas 40, 67 computer industry 147 Consumer Association, the 24 Consumer Guarantees Act 1993 37 Consumer Measures Committee 33 Consumer Product Warranty and Liability Act 1978 33
Consumer Protection Act 2002 33 customer services team, support for 121–24 accountability and ownership 122, 123, 124 commitment to resolution 122 communication 121 simplicity of processes 122 updates 121–22 customers 39–45 consistency 42 difﬁcult customers 43–44 ideal qualities of a company 41–42 and larger companies 42 managing perceptions 42–43 data capture and reporting 43 escalation processes 43 guarantees 43 non-published standards 43 published standards 43 and price 40 and published service standards 39–40, 43 and smaller companies 42 and your reputation 41–42 damage in transit 6, 17, 26, 57–58, 86, 88–90, 128–29 and exclusion clauses 25 see also exchanges, ﬁnancial evaluation, operational management, reporting techniques, supplier management dead on arrival (DOA) goods 28, 35 ‘deshopping’ 44 electrical sector 147
4, 4, 75, 93,
entry price point (EPP) goods 6, 16, 23, 85, 110, 134 escalation processes 43, 52, 55, 115–19, 191, 192, 194 accountability and ownership 117–18 escalation ﬂows multiple failures 117, 119 out of guarantee queries 116, 118 parts delays 115, 116 time taken 115, 117 escalation specialists, traits of 52, 111–12 relationship management 113–14 European Commissioner for Consumer Protection 34 European Parliament 34 exchange management 28–29, 191, 193–94 cost of exchanges 3–4, 6, 9, 127–35 exchange desk time 87 exchange quality management 87, 89 exchange reporting 150–58 by brand 158, 159 by delivery depot 152, 153 exchange evaluations 163–64, 164, 165 exchange trends 162, 164 by model 153–58, 155, 156, 157 principles 150–51 by regional warehouse 152, 154 by retail outlet 151, 151 by retail region 151, 152 exchange returns form 89 exchange veriﬁcation process 123 ﬁnancial analyses, example exchange costs – non-bought
out guarantee 173–76 exchange costs – with bought out guarantees 176–79 potential exchange savings 183–84 information gathering 86–87 no-quibble exchange policies 21, 29, 41, 44, 47, 77, 87, 188 and original equipment manufacturer (OEM) goods 16, 92–93 and purchase terms and conditions 96–97 testing and refurbishment of exchanges 108–10 see also legal matters, operational management, reporting techniques, sales staff, supplier management Fair Trading Act 1987 37 faults, cosmetic 14, 15, 67, 70, 75 faults, functional 14, 67, 188 ﬁnancial analyses, example 173–86 combined costs 182–83 exchange costs – non-bought out guarantee 173–76 exchange costs – with bought out guarantees 176–79 net savings 185–86 potential exchange savings 183–84 potential repair costs 184–85 repairs costs – non-bought out guarantee 179–81 repairs costs – with bought out guarantees 181–82 ﬁnancial services 199–203 customer credit 202 extended warranties 199, 200–01
costs 200–01, 202 scheme types 201 principles 199 regulation 202–03 furniture sector 4, 4, 5, 15, 17, 67, 70, 75, 92, 93, 110, 129, 137, 141, 152, 165, 167, 176, 182, 191 internet retail IRIS 147
legal matters 21–38 in Australia 36–37 in Canada 33–34 consumer rights 24–28 acceptance of goods 25 burden of proof 28 ‘consumer champions’ 24 durability 26 exclusion clauses 25, 26–27 ‘fair wear and tear’ 26–27 ﬁtness for purpose 25 merchantable quality 25 satisfactory quality 25–26 spare parts 28 time taken 27 in the rest of Europe 34–36 exchanges 28–29 guarantees 30–31 main legislation 22–23 limitations of legislation 22–23 in New Zealand 36, 37 refunds 30 repair vs replacement 29 in the USA 31–33 warranties 30–31 Lemon Laws 33 Magnusson-Moss Act 1976 Marks & Spencer 13 Merloni Group 103
Ofﬁce of Consumer Affairs 33 Ofﬁce of Fair Trading 202 operational management 85–90 damaged returns 88–89 information gathering 86–87, 89 operational reporting 158–70 exchange evaluations 163–64, 165 exchange trends 162, 164 stock summary 159–62, 161, 162, 163 weekly and current analysis reports 158–59 retail outlet practices 88 original equipment manufacturer (OEM) goods 6, 16–17, 90–93, 134, 135, 136, 141, 181 epidemic failures 92 exchanges 92–93 ﬁnancial matters 90–91 returns 92–93 spare parts 91–92 technical support 91–92 Pareto principle 18 Powerhouse 44, 56, 62, 203 repair operations 101–08 audit and set-up 104, 105 certiﬁcation of repairers 108, 109 communication 107–08 guidelines 104, 106 outsourced vs in-house solutions 102 process management 102–03 reporting 107 review processes 107–08 third-party repairers 103–04 reporting techniques 145–72
customer service standards 148–50, 149, 169, 170 exchange reporting 150–58 by brand 158, 159 by delivery depot 152, 153 by model 153–58, 155, 156, 157 principles 150–51 by regional warehouse 152, 154 by retail outlet 151, 151 by retail region 151, 152 medium-term measures projects 192 operational reporting 158–70 exchange evaluations 163–64, 165 exchange trends 162, 164 stock summary 159–62, 161, 162, 163 weekly and current analysis reports 158–59 product failures and faults 146 repairer performance 169–70, 171, 172 repairs 165, 166, 167–68 reporting descriptions 146–48 fault analysis trees 147, 147 reputation, corporate 205–06 retail outlet visits 119–21, 120 Sale and Supply of Goods Act 1994 22 Sale and Supply of Goods to Consumers Regulations 2002 22, 25, 28, 29 Sale of Consumer Goods and Associated Guarantees Directive 1999 31, 34, 36 Sale of Goods Act 1908 37 Sale of Goods Act 1979 22, 25,
27, 28, 137 sales staff 47–53 common problems for sales staff 48–49 conﬂicting pressures 49–50 data recording 51 escalation processes 52 process design 50–51 Sony 15 Southern Electric 44 suppliers, management of 82–85, 206–07 claimbacks 93 cost recovery 93 key issues 82–83 protective barriers 83–84 relationship building 84–85 supplier speciﬁcations 98–100, 99 terms and conditions 93–98 aftersales terms and conditions 94 buying terms 94–95 disputes 97–98 epidemic failure 97 repair terms 95–96 returns and exchanges 96–97 vendor manuals 98 see also original equipment manufacturer (OEM) goods Supply of Goods and Services Act 1982 27 support and buy-in, securing of the Board 61–62 of the ﬁnance department 58 of human resources 60–61 staff morale 60–61 of the logistics team 56–58 check and test areas 56 labelling 56 stacking 56–57
theft 57 transit packaging 57 of management 18 of the marketing department 55–56 media management 56–57 written policy 56 of the purchasing team 58–60 reporting 60 standardized procedures 60 supplier relationships 60 whole-life accounting 60 of sales staff 53, see also sales staff testing / refurbishment of returns 108–10 check and test processes 109–10 cost of 133 photographic records 110 timescales, for problem resolution 23, 42, 65–71, 74 and aftersales managers 122
aggressive customers 70–71 basic principles 65–66 customer scale of tolerance 68–70, 68–69 and the law 27 and original equipment manufacturer (OEM) goods 92 reasonable timescales 66–67 repeat repairs 70 time as a critical factor 67–68 Trade Practices Act 1974 37 Unfair Contract Terms Act 1977 22 Unfair Contract Terms Directive 1993 35 Uniform Commercial Code 2007 32 Waste Electrical and Electronic Equipment (WEEE) Directive 4 Watchdog 62 Which? 24