AFTER-SALES LOGISTICS

It is undeniable that most publications on logistics topics are dedicated to the planning and execution of the logistical activities associated with the delivery of new products. Even when it comes to customer service, more attention is devoted to aspects of the relationship between manufacturers and distributors, emphasizing attributes such as reducing and meeting delivery deadlines, product availability, physical delivery support, order status information and others. needs of wholesalers and retailers, than to aspects related to the maintenance and conservation of products previously sold, such as, for example, the availability of spare parts, the response time to a repair request for a defective product and other items that have to do with the customer being able to continue using the product without problems for a reasonable period of time.

The purpose of this article is to discuss the difficulties and challenges of post-sales logistics, compared to the logistics of distribution of original products. Although the logistical aspects of after-sales can be perceived as a major problem for manufacturing companies, they need to be taken seriously because, more and more, after-sales service is an element of loyalty for the product's final customers.

The article begins by showing the importance of after-sales service, continues with a discussion of the challenges of after-sales logistics and some ways to face such challenges, and ends with a set of conclusions.

THE IMPORTANCE OF AFTER-SALES SERVICE

Maintaining a good relationship with customers is, nowadays, a basic foundation in the business world. It is by maintaining a portfolio of loyal customers that a company can minimize its dependence on continually conquering new customers, in a frantic struggle with an ever-increasing number of competitors. This relentless pursuit of new customers has dramatically increased marketing costs and, for this reason, we often hear that retaining existing customers is cheaper than attracting new customers.

As early as 1983, in a classic article (After the sale is over…), marketing “guru”, Theodore Levitt, said that “people buy expectations, not things”. The author defended that the relationship between consumer and supplier should be characterized much more by being lasting and continuous than being restricted to the moment of sale. In the future, continued Levitt, delivery, service, reliability and quality of interactions will be much more important than the product and the technology employed in its manufacture. When making an analogy between the stages of a purchase (before, during and after) with the stages of the relationship between couples (dating, engagement and marriage), the author said that if there is concrete evidence of attention, concern and respect “once concluded ” the sale, the relationship will be solid and lasting. If, on the contrary, it is clear that what the seller wants is just to sell his product, no link will be established and we will probably witness a rejection relationship when making a new purchase.

Almost twenty years later, we see that Levitt's prediction has come true. The reduction in the level of differentiation between competing products meant that the purchase decision on the part of the customer was influenced not only by the relationship between the perceived value of the product and its price, but also by the comparison between the quality of the service offered and its cost to the client. Many companies needed a long time to understand that it is not enough to manufacture a good product to get customers. Unfortunately, customers may not appreciate the more sophisticated technical aspects, the result of many hours or years of work by highly paid designers and researchers. It is easier and faster, however, for the customer to notice that the product at some point stops working and that getting it repaired ends up being a nightmare either because the diagnosis is delayed or because there are no spare parts available.

In this way, customers expect after-sales service to be as much an attribute of the product as quality, design, performance and price. The satisfaction that a product provides is not only related to the product itself, but also to the service package that comes with it. The function of the after-sales service is to guarantee this satisfaction, helping to build customer loyalty and publicize the company's good reputation to other potential buyers as well.

Several social, economic and competitive factors combine to justify the growing interest in after-sales issues and explain why, through after-sales service, a company can differentiate itself from its competitors and gain the loyalty of its customers:

• Customers, more and more, want to make the money they spent on buying products worth it and, for this reason, are concerned about increasing the useful life of the products they purchase. – The basic objective of after-sales service is to ensure that the customer obtains the most benefit and value for his purchase. Understanding value as the relationship between the benefits provided by the product and the price paid by the customer plus the costs of accessing the product or associated service, creating value for the customer through after-sales means reducing these costs. Of course a product can fail. The role of after-sales would then be to minimize the time the customer spends without the product that has a defect, providing him with accessibility to the repair service, availability of spare parts and even, why not, offering replacement product while the first one is being repaired.
• Increasingly complex products are more sensitive to the need for specialized services. – Products with electronic components such as televisions, computers and even automobiles, require specialized support when they have a problem. Amateur “technicians”, who understood everything and improvised cheap solutions, had their careers ended with the advent of technologically sophisticated products. In this way, the manufacturer's after-sales service became the only way to ensure reliable repair of purchased products.
• Product sales grow, but the number of people qualified to maintain them does not increase in the appropriate proportion. – This factor follows the same line as the previous one. The lower prices of some products and the credit facilities available to consumers, increases the demand for equipment that until recently was the privilege of a few: sound equipment, air conditioners both for domestic use and for cars, computers, automobiles and a series of other examples, began to require installations, specialized technicians, stocks of spare parts spread over a wide geographic territory. Not all companies are adequately prepared to have after-sales structures proportional to the growth in sales of their products.
• Inflationary pressures drive up the cost of repairs. – It is more and more frequent for the customer to receive in response, when looking for technical assistance, that it is more worthwhile to buy a new product than to repair the one that was defective. The customer may even accept the advice, but, depending on the age of the equipment, it is very likely that he will change brands because he sees that the useful life of the product he had ended with the first defect it presented and that the after-sales service of that brand it is very expensive, justifying the purchase of a new model. Thus, it is not enough to have an after-sales service structure. It needs to be efficient, seen as a business unit and not a necessary evil. It must be managed in such a way as to have its costs controlled considering the level of service to be provided. It needs to have a competitive pricing policy to offset the costs of providing services. This caveat is appropriate because many companies mistakenly include in the price of repairs the costs incurred with the warranty periods, costs that should be allocated in another way so as not to burden the after-sales service. This explains why many customers only use the authorized technical assistance service during warranty periods. The first time they resort to technical assistance after the warranty period, they do not agree to pay the price charged to them, thus resorting to alternative services.
• Customers increasingly motivated to assert their rights. – Consumer protection movements have changed, among other things, the care that companies need to have with their after-sales service. Even in Brazil, where the habit of complaining is lower than in other more developed countries, surveys show that customers are more demanding, are complaining more, go to PROCONS more regularly and comment with other people on positive results or negatives (much more the negatives) of their initiatives. In addition, after-sales service outsourcing experiences by some companies are not always successful, causing the reputation of well-known brands to be seriously damaged.

Even without going into considerations about the type of product that a company manufactures, it is not difficult, from what has been exposed so far, to understand the strategic importance of after-sales service. Turning this understanding into reality, however, is not a trivial task. The design of an after-sales service structure faces a series of uncertainties, difficulties and challenges that we will now discuss. We will see that after-sales logistics have different aspects from those associated with the delivery of original products.

THE CHALLENGES OF AFTER-SALES LOGISTICS

Forecasting Difficulty

A basic element for the planning of logistics activities is the estimation of the demand for parts and services. If the task of forecasting the demand for products to be manufactured and then delivered is already complex, this complexity is even greater when it is necessary to forecast the demand for the immense number of parts that can constitute a final product and that will be necessary for the activities of maintenance and any replacements due to defects. What parts will need to be replaced? How much? When will the failure occur?

A number of factors contribute to making it difficult to forecast demand in the after-sales service environment. For example, when the failure rate is low, there is high relative variability of average demand. This fact has significant implications for spare parts inventory management. The ability to make reliable predictions regarding the need for spare parts and service structure requires maintaining databases on the installed base of equipment including current and past customers, where they are located, types and ages of equipment, condition of use, history of repairs by type of equipment and what the maintenance contracts say. The use of historical data, however, faces a number of obstacles and criticisms. Is it realistic to think about obtaining data on, for example, how customers use the product (do they use the product correctly?, do they carry out periodic reviews recommended by the manufacturer?); on the other hand, there are products that only show problems after a long time of use (or never show failures), the customer prefers to buy a new model and the information about the failure is not collected by the system.

Another factor that makes it difficult to predict the demand for spare parts is that in addition to being used to replace defective parts, they are used by maintenance technicians to perform diagnostics. In the possession of technicians, they are not always packed and maintained according to the specifications that guarantee their operation. Thus, another demand arises: parts used to support diagnostics.

Inventory Management

The difficulty of predicting the need for spare parts and/or the high variability of average demand generates the need to maintain high inventories to meet low probability events. It is always more costly to hold inventory to meet demand for low-volume products because it is not possible to match the demand of a large number of customers. The geographic distribution of the installed equipment base aggravates the problem because the demand can be divided into small regions.

In reality, spare parts inventory management constitutes a separate chapter in the literature and practice of inventory management. Readers interested in going deeper into the subject can consult the Logistics Report (year 8, n.32, Jan/Feb/Mar 2002, available on the website www.ilos.com.br). There it is mentioned, for example, that stocks of spare parts can mean a significant portion of corporate costs. So, for example, in the auto industry, the annual costs of opportunity, warehousing, depreciation, insurance, and moving spare parts vary between 25 and 35 percent of the book value of all inventories in a typical company.

Manufacture of Spare Parts

Aftermarket parts availability can be limited because aftermarket parts manufacturing is often considered secondary compared to original equipment manufacturing. Especially during the introduction of new products or at times when demand exceeds capacity, manufacturers are quite resistant to using the “precious” capacity they have to manufacture spare parts whose demand is uncertain and which will certainly be stocked.

A company that innovated in this sense was Saturn. It has created a new function in its factories – the material flow coordinators – whose mission is to prevent the replacement parts schedule from being disobeyed.

Cost of missing parts and service

Depending on the equipment in question, response time is critical because the cost of missing a part or having a technician diagnose and repair a failure can be extremely high. One hour of stoppage of a machine in a large manufacturing facility, due to a defective part, can represent a loss of several thousand reais. A failure in the computer system of a large bank can make transactions that would move a lot of money unfeasible. Thus, the after-sales service structure needs to be permanently prepared to minimize the costs arising from the failure of a part in its customers' equipment. In other words, the greater the impact of the failure on the user, the faster the repair should be performed. Caterpillar, for example, has an exact idea of ​​how much an hour of machine downtime costs its customers. For this reason, it uses express transport in its after-sales logistics for spare parts, unlike the practice adopted in its distribution logistics for original machines.

Even where the cost of shortages is not as dramatic as those just exemplified, research shows that in general the customer is more dissatisfied with the product he bought and which does not work than with a possible delay in delivery right after the purchase. In many cases this occurs because the new equipment will come into operation to replace an old one, but which still works. When the customer puts the new equipment into operation, he usually discards the old one. Thus, if the new equipment presents a problem, it seems easy to understand that their dissatisfaction is greater now than the delay in delivering the product.

Equipment usage time

One of the elements that mark the intense competition between companies is the pace of launching new products. Technological innovations, consumer needs, new performance standards, the use of lower cost components and other drivers are among the factors that reduce the life cycle of products. However, the time of use of the products is longer than the period of time that the product is still manufactured and sold. Thus, the factory must schedule the “last run” contemplating the production of parts to cover future replacement needs or have the flexibility to continue manufacturing parts, preferably in small quantities. For many products, consumers are even legally protected, that is, during a certain period the supplier is obliged to offer replacement parts.

The constant introduction of new products, just mentioned, is another factor that complicates the management of inventories associated with after-sales service. The proliferation of models leads to a proliferation of parts, generating costs whose existence ends up being allocated to after-sales service.

Difficulty achieving economies of scale

Many logistical situations present significant opportunities for economies of scale, notably when there are high volumes involved. This is not quite the case in the after-sales service environment. The difficulty of stimulating demand makes it difficult to get high volumes.

Incidentally, the difficulty of influencing demand is a characteristic of after-sales service. With original products, advertising or pricing can be used to work out demand for the products. The same does not happen with spare parts or repair services because, without the “culture” of preventive maintenance, the demand will only happen when there is a problem with the operation of the equipment. The reader may recall promotional campaigns by car dealerships calling on customers to change brake pads or shock absorbers, or by air conditioning service companies urging car owners not to put off gas for the summer. on your devices. The effect of such campaigns, however, is not encouraging. So much so that few examples can be cited.

Dispersed Geographical Area

Once the products leave the factory, the place where the products will be sold and used is not entirely under the company's control. Thus, carrying out after-sales service may be necessary in a dispersed geographical area. This fact, combined with the pressure for shorter response times, makes it very difficult to meet demand from a consolidated inventory (of parts, service personnel, diagnostic equipment, etc.). This makes the fragmentation of storage units practically inevitable and the consequent need to dimension the stock of parts in each location.

A study conducted in the computer sector, for example, revealed that the geographical dispersion of users constituted a very serious logistical problem. The speed with which companies provided support to customers and the quality of the service provided were considered by customers as the elements with the greatest influence on the possibility of buying equipment from the same brand when replacing the model they were using.

Geographical dispersion, combined with the factors already mentioned, such as the type of product, the cost that the lack of a product may represent for the user when a repair is needed, and the support needs for carrying out the after-sales service, lead to an important question. : what type of organization structure is most suitable for after-sales service. Figure 1 reproduces an organization model suggested by two English authors who have dedicated themselves to studying the issue of after-sales service. Considering the type of product and after-sales service priorities as independent variables, the model suggests the type of organization to be used to perform the services.

More resources are needed

Everything exposed in the previous items converges to the conclusion that after-sales logistics requires more resources than in the delivery of new products. In addition to stocks of spare parts, often geographically dispersed, personnel and diagnostic and repair equipment are needed. In addition, the planning of logistical needs requires information technology in the form of a database of problem history, usage time, contractual information, etc.

The question of inventories is perhaps the most critical. Safety stocks are calculated based on three factors: replacement lead time, demand variability during the lead time and the level of service to be provided. These three variables, as has just been explained, tend to have higher values ​​in the case of spare parts. Lead time is high because manufacturing spare parts is not usually a priority in factories; the variability of the demand for these parts is high because the randomness of their need is exactly a characteristic of their demand; and the level of service is high when the company is aware of how much the cost resulting from a defect means to its customer.

CONCLUSION

The first part of the article showed that after-sales service is important and the second part showed the logistical challenges of an after-sales structure. The attack on these challenges, in a first evaluation, represents high costs. Our vision is different. We see the structuring of an after-sales service as an investment. An investment that may be high, but it pays off. Its counterpart is the revenues that are being lost as a result of poor service. Unfortunately, companies do not measure lost sales or customer defections. Even in a sector considered cutting-edge in many aspects of its business, such as car assemblers, which sell a product with high added value, we can say that they do not know, and do not even bother to know, how many customers have changed brands in due to the poor after-sales service provided by its dealerships. If they had this information, they could assess the earnings they would have during the "useful life" of customers who abandoned it, that is, the time interval in the future that these customers could buy their products and services, and compare the present value of these revenues future with the necessary investment to improve after-sales service. And if they subtract from that investment what they spend on costly marketing campaigns to attract customers to replace those who have left, they would see that the return on investment in improving after-sales service would be very rapid.

BIBLIOGRAPHY

• LOOMBA, ARVINDER. Linkages between product distribution and service support functions. International Journal of Physical Distribution & Logistics Management, vol. 26, n.4, 1996.
• COHEN, MA; CULL, C.; LEE, HL; WILLEN, D. Saturn´s Supply-Chain Innovation: High Value in After-Sales Service. Sloan Management Review, Summer 2000.
• INGLIS, PF Profit is in after-sales. HSM Management, n.32, May-June 2002.