Service In A Time of Rapid Change: Balancing Cash Flow and Inventory in an Upended Environment

Business leaders understand what Greek philosopher Heraclitus proclaimed more than 2500 years ago: the only constant is change. But it matters whether that change is evolutionary or explosive, and response to the global health threat that is COVID-19 has produced change of the latter variety.

Leslie Paulson leads the Servigistics business unit in the technology company PTC. Servigistics offers decision support software for the service parts industry. It creates forecasts using historical, real-time, and causal information, and then optimizes to figure out how much supply is needed and where. The planning component helps the company figure out material sourcing.

“Many companies make a significant portion of their profit managing the service lifecycle well,” Paulson says. And the service lifecycle is also critical to maintaining and growing the customer base. “That lifecycle experience is crucial to your brand and it’s crucial to repetitive behavior from your customers.”

But the pandemic is making service lifecycles trickier than ever to manage. “In times of uncertainty managing this lifecycle is even more important and difficult. You can’t look backwards and say, ‘how did my supply chain behave historically’ and use that as a predictor of the future, because there is no history that looks like this,” she says.

Inventory and liquidity

With many suppliers down, inventory is a huge problem now, Paulson says. “Current inventory is not what is needed because it was ordered before the market fell apart,” she says. “At the same time companies are suffering because they cannot get their hands on what they actually need.”

Liquidity is another challenge. Even with the government incentive programs, many are struggling to stay afloat, pay their bills and keep their suppliers and supply chains intact, she says. And demand has changed dramatically. Some firms cannot keep up, but others are experiencing no demand at all.

How to respond to a seemingly impossible set of circumstances? Steady the course, while making deft tactical adjustments, Paulsen says.

First, Paulson encourages companies to continue to navigate by strategy. “Your fundamental, go-to-market approach – your long-term strategy – in my opinion shouldn’t change significantly. At least not yet,” she says. “But for some, how you deliver on your strategy changes dramatically.”

For example, she says, if your service parts demand has spiked, how do you prioritize and reallocate both stock and supply chain to the areas of highest service level requirements first? If your demand has tanked, how do you shift your tools to manage based on cash flow impact?

Tools matter, she added, whether its your tele-conferencing tool, expert collaboration tools, or the Servigistics’ tools. But most important is knowing how to use them. Companies that deploy them well will make better decisions and get better results.

Plotting the pivot: When and how

Paulson says the unprecedented nature of this disruption makes forecasting more difficult. Leaders must be able to filter out “noise” and focus on the data that matters. Leaders of companies with restricted capabilities will need to make hard choices.

Cash-strapped companies may decide that they need to err on the side of liquidity. “They know they will take a hit in customer satisfaction,” she says. On the other hand, some organizations will accept the financial consequences to continue providing services at a pre-disruption level. “The military will err on the side of readiness, not cash flow,” she adds. Do what you must, and plan how you will recover.

“Knowing what knobs you have at your disposal, how to turn those knobs and how far to turn them, is really critical,” she says.

-Written by Elizabeth Farquhar for the Center for Services Leadership