At Your Service

Is your service center living up to its potential? Find out how to get all you can from yours.
Magazine Contributor
4 min read

This story appears in the October 2003 issue of Entrepreneur. Subscribe »

As co-founder and head of the factory service center for ImageStream Internet Solutions, Doug Hass is in charge of making sure his company services the Linux-based network routers it manufactures. But there's more to the repair work done by the Plymouth, Indiana, business than keeping customers happy by replacing burned-out circuit boards and soldering loose sockets. ImageStream's factory service center is an important source of ideas for new products and product improvements, while also profiting from hourly service fees. "What comes back from customers helps us design for customers--everything from where the power switch is located to the fact that a cable is hard to get to," says Hass.

ImageStream's effective use of its factory service center sets it apart from most manufacturers, according to a 2002 study by New York City management consulting firm McKinsey & Co. Most companies have realized only a fraction of their service center's potential, McKinsey & Co. found. It's not just about using customer feedback, either. Many companies selling products for as little as $100 per unit could generate 20 percent of revenues-and an even higher percentage of profits--from fully realized service center networks, but most produce less than half that.

The first thing to do to make sure you're getting all you can from your service center is to look at its location or locations. Many manufacturers locate service centers in industrial parks or similar out-of-the-way locations, according to McKinsey & Co. That makes sense to manufacturers because they typically locate their factories there and sell to other businesses also often located in business parks. But if their products wind up in the hands of consumers, they'd be better off locating their service centers in high-traffic retail locations where foot traffic will generate sales of accessories and add-ons, in addition to making it easy for customers to bring in units for repair.

You should also make sure your service centers are well-managed. Manufacturers often need to hire executives with retail experience to handle their service centers. Attention should be paid to things like product display, merchandising, lighting and general store ambience-items not high on the lists of most manufacturers who sell to distributors.

Before you start expanding the number or activities of your service centers, think about the potential for channel conflict. Many manufacturers have developed networks of third-party service providers who also provide important sales distribution. If you start taking away their repair business, you may damage your relationships.

The McKinsey group recommends finding ways to support and complement well-developed dealer networks rather than competing with them. You can do this by providing training classes to dealer technicians. This will help them out while giving you an opportunity to snag complicated repairs for your own service unit. You can also set up parts distribution centers to provide dealers with faster access to less commonly used or high-cost parts and supplies.

What will all this cost? McKinsey & Co. says an investment of around 3 percent of product sales should enable you to generate 20 percent of revenues from service centers. But don't just throw money at the project and start renting locations and staffing up service departments. Hass says one of the most important components of ImageStream's service center is a Web-based ticket-tracking system it developed in-house. The system allows employees to analyze failures on a product-by-product basis-even by individual serial numbers-so they can tell when a line or lot is prone to failures and may need redesign or replacement.

"If we have 300 customers calling about some problem, we'll know it's pretty important to get that done," Hass says. "In the end, it generates more sales opportunities."

Mark Henricks writes about business and technology for leading publications and is the author of Not Just a Living.

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