RL Magazine
Edition 43
Technical Trends: Profit? We need an APP
by L. Bryant Underwood

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I spoke to several folks recently who are associated with large CM operations supporting the cellphone reverse logistics market. One had a very large operation in Mexico, the others all had US shops. These are big operations that are processing tens of thousands of units each week. They all reported a pretty negative status. Each one describing conditions with lots of WIP and defective product backlogs plus the typical parts issues. Some parts shortages were major, most were minor. In the world of RL I would call it a C-minus status and declining. When I tried to dive into what they are doing to turn things around, everyone I spoke with was just plain frustrated. The main frustration was that the business was not making money at all or not making money proportional to the risk of their investment and the pain inflicted from the Clients. Of course there are the issues of the economy and the replacement cycle of new cellphone models that are amplifying some of these concerns. However what I heard over the past week from some of these folks was really a sense of resigned despair. Not really the response I expected from some very competent people who possessed endless force of will to make things succeed.

I believe we arrived at this point in the business cycle as the outcome of continued and aggressive competition between major contract manufactures. That competition just moved work around and provided little value-add beyond the capacity of low-cost labor and a good location to lower freight costs. The result is that the cellphone repair business for large volumes has become a commodity business and can only win commodity pricing. I believe however that this is a point with enough pain that someone will decide to do something different.

There is an oft used rule of good managers. Basically its this-‘don’t bring me problems without solutions…’. My take on a solution is to leave the commodity model, go retail and chase a profitable trend from the PC side of RL. Every day you will see televised ads for some type of automated PC performance SW. These products are typically sold to fix an immediate problem and then stay resident under the subscription model, generating monthly residual income. On the PC side these services are really focused on the ‘soft fix’. The manufacturers warranty or a local provider is then used for the rare repair of HW as needed. The process works because of the value-add that is provided from a soft-fix that protects the Customers’ information and saves the Customer time. Because of that value and the direct connection with the retail user, these offerings are very profitable and generate positive cash flow from the retail connection.

In contrast to PCs and notebooks cellphones are often more costly and almost always more valuable. The fact is that cellphones are the most personal piece of equipment we will ever own short of a prescribed medical device from a Doctor. We sleep with our phones we use them in restrooms; we would even rather forget a purse or wallet than be without our cellphone. Imagine the profit from an App that provided just a few features;

  • Scanned the phone for immediate critical problems
  • Performed regular health checks and emailed a performance report
  • Kept a log of dropped calls by geo tag to smartly assess phone issues vs. system issues.
  • Accrual of part of the recurring subscription fees for advance replacement of the HW, if needed.
  • Could run self tests on demand for the user interface to test the keypad, display, ringer, backlight, etc…
  • Monitored battery life and with one button provided a replacement to be sent out.
  • Monitored connections/charging for intermittent cabling or very high temperature that would point to a defective accessory
  • Advised the user of chronic problems and solutions other users have experience with the same product.
  • Track acceleration events from dropping to better identify intermittent failures that need to be physically returned.

Imagine the value of the data that could be easily collected, aggregated and resold? The profit would be significant. Proportional to the profit of the business would be the value to the user. Both would be high and the RL provider would be rescued from the maddening commodity trap and the joys of zero profit with net 90 day terms. Volume has little value if it is not generating incremental margins. Some of you may say, I cannot afford to hire developers and write an App. Really? Have you seen how much money you are loosing? What is the ROI on your current model?

Mark Cuban wrote a very interesting article that better describes this trend. It can be found on his blog titled “Which USA do you work in?”. Read it. It is brilliant. There Mark describes that he sees dozens of App proposals like this each week. Dozens. The fact is there is no choice here. This is the future. Need more profit, go retail. There’s an App for that, or there will be. I hope the App comes from you, not your competitor or Mark Cuban…

Bryant Underwood manages Public Safety Sourcing for Cassidian Communications, an EADS North America Company in Frisco Texas.

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