UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Trƣơng Hồng Chuyên INEFFICIENT AFTER-SALE SERVICE PERFORMANCE AT SAMSUNG SYSTEM AIR CONDITIONER DEPARTMENT MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2018 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Trƣơng Hồng Chuyên INEFFICIENT AFTER-SALE SERVICE PERFORMANCE AT SAMSUNG SYSTEM AIR CONDITIONER DEPARTMENT MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR TRẦN PHƢƠNG THẢO Ho Chi Minh City – Year 2018 Inefficient after-sale service performance at Samsung system air conditioner department Table of Contents Executive summary CHAPTER 1: PROBLEM IDENTIFICATION 1.1 Company overview 1.2 Problem mess 1.2.1 Symptom 1.2.2 Situation analysis 1.2.3 Initial cause-effect map 10 1.2.4 Updated cause-effect map 11 1.3 Problem identification 14 1.3.1 Possible problems 14 1.3.2 Main problem validation 15 1.3.3 Main problem definitions and measurements 16 1.3.4 Consequences of the problem 18 CHAPTER 2: ALTERNATIVE SOLUTION 21 2.1 Cause validation 21 2.1.1 Lack of service and product training 21 2.1.2 Lack of human resource number 22 2.1.3 Shortage of technical capability of the service team 23 2.2 Final cause-effect map 27 2.3 Alternative solutions 28 2.3.1 Internalizing 28 2.3.2 Outsourcing 30 Inefficient after-sale service performance at Samsung system air conditioner department 2.3.3 Partnering 31 2.4 Solution selection 32 2.5 Action plan in the organization 34 2.5.1 Recruit technical engineers 34 2.5.2 Select and sign contract with dealer service centers 36 2.6 Action plan 37 CHAPTER 3: SUPPORTING INFORMATION 40 3.1 Interview guide 40 3.2 Transcript 46 3.3 Data for the existence of inefficient after-sale service performance 64 References 67 Appendix 73 Inefficient after-sale service performance at Samsung system air conditioner department Executive summary The intensely competing market called for the shift from primary product offer to more customized solution package.5,6 After-sale service played an equally important role in the value chain of the company45 to enhance customer value,46 which eventually benefited the organization in higher competitive advantage,14 long-term customer relationships, and sales effectiveness.6 The objective of the research was to identify the central problem happening at the Samsung system air conditioner department, to explore the causes and effects of the issue on the performance of the company, and to provide the direction for a solution In this study, the research method comprised of literature review and interviews with different informants (the head of the department, the manager and the technical engineer in the service team, and two customers) The findings from the interviews suggested that the company encountered inefficient after-sale service performance, which affected the competitiveness of the end-to-end service solution to attract a higher number of large projects, and eventually on the sales effectiveness of the department Based on the main cause, the alternatives for the shortage of human resource number included internalizing, outsourcing, and partnering options An action plan for the 14-month project of improving the efficiency of after-sale performance of all three regions was developed, which would cost about 71,000 USD By doubling the number of internal engineers and dealer service centers, the expected result of the project was to reduce the average time responding to service requests by 50% From financial perspective, the outcome of the project would expect to increase sales and profit for end-to-end service solution by 390,000 USD and 319,000 USD respectively Inefficient after-sale service performance at Samsung system air conditioner department CHAPTER 1: PROBLEM IDENTIFICATION 1.1 Company overview Headquartered in Seoul, Korea, Samsung was one of the largest conglomerates in Korea Since its establishment in 1938, Samsung expanded its business from a small trading company into numerous fields including food processing, insurance, securities, retail, electronics, construction, and shipping After the founder passed away, Samsung was divided into four business groups: Samsung, Shinsegae, CJ, and Hansol Since the 1990s, Samsung Group focused its activities in electronics, mobile phones, and semiconductors on a global scale Among many subsidiaries of Samsung, Samsung Electronics was the largest electronics company based on revenue and the fourth largest brand in the world in 2012 Since its arrival in Vietnam in 1996, Samsung contributed significantly to the Vietnamese economy regarding job creation, GDP growth, and export volume By 2018, Samsung invested total 17 billion USD in Vietnam, contributed 25% to Vietnam’s total exports and created 110,000 jobs Samsung had four factories, namely Samsung Electronics Vietnam (SEV), Samsung Display Vietnam (SDV) in Bac Ninh province, Samsung Electronics Vietnam Thai Nguyen (SEVT) in Thai Nguyen province, and Samsung Electronics HCMC CE Complex (SEHC) in Ho Chi Minh City These factories were responsible for manufacturing electronic devices, communication equipment, and display panels These products were exported to 52 countries, which generated 61 billion USD in revenue and billion USD in profit equivalent to 30% of the global revenue and 16% of the global net profit of Samsung In addition to major factories, located in Ho Chi Minh City, Vietnam, Samsung Vina Electronics (SAVINA) was one of the most critical business entities of Samsung, which was responsible for all sales and marketing activities of Samsung’s products and services in Vietnam The company followed the business structure of the headquarter and included two major business divisions: consumer electronics (CE) and information technology and mobile communications (IM) CE division included audio and visual, digital appliances, system air conditioner, remote and microphone, and display units while IM division consisted of mobile and network units (Chart – Appendix) Inefficient after-sale service performance at Samsung system air conditioner department Besides, in order to support the operation of the company, there were customer service, marketing, management support, product inventory, human resources, general administration, and strategic sourcing teams (Chart – Appendix) System air conditioner (SAC) department belonged to the consumer electronics division Hence, the head of SAC department reported to the director of the CE division and managed five business functions including sales, product management, business development, customer service, and admin Product management was responsible for inventory management, pricing, ordering, and marketing activities Business development was responsible for system design drawing, design software training provided to partners and university students as well as relationship establishment with technical departments of partners Customer service was responsible for system installation, training, repair, and maintenance Admin was responsible for administrative tasks There were total four managers and 22 employees (Chart – Appendix) Except for project sales, business development and admin teams having only staffs, other teams had a manager and at least one staff All teams in the SAC department were expected to cooperate well with each other and commit towards the goal of growing SAC revenue and profit The product portfolio of air conditioners consisted of room air conditioners (RAC) and system air conditioners (SAC) Based on the product type, RAC was usually seen hanging on the wall with one indoor unit and one outdoor unit, so it was best suitable for a room On the other hand, SAC was a system that connected multiple indoor and outdoor units It included technical solutions such as commercial air conditioners (CAC), free joint multi-air conditioners (FJM), digital variable multi-air conditioners (DVM), heating, ventilation and air conditioning (HVAC), which was suitable for residential houses with multiple rooms, small to medium-sized commercial buildings, or high-rise buildings Between the two product types, SAC contributed the higher share of 95% to the total sales compared to 5% of RAC (Table – Appendix) Based on the customer type, the company utilized a distribution network to sell to retailers and business customers such as contractors, installers and investors of construction projects including but not limited to residential houses, luxury apartments, hotels, office buildings, shopping malls, retail stores, restaurants, galleries Inefficient after-sale service performance at Samsung system air conditioner department To reach its customers, SAC department utilized a sales force comprising of two sales managers (the head of SAC department and channel sales manager) and 12 sales reps Within 12 sales reps, two-thirds of them work in the project team and the rest worked in the channel team The significant difference between two groups was that channel sales reps had to move customers to buy through distribution with a fixed price scheme, while project sales reps sold directly to customers with more flexible price scheme depending on the project value Project team sold to projects worth 50,000 USD and above while the channel team sold to project worth less than 50,000 USD However, sometimes the divider to distinguish the project value between two units could be unclear, so both teams worked closely with each other to ensure that there were no overlapping accounts 1.2 Problem mess 1.2.1 Symptom Firstly, Samsung SAC faced small market share compared to its competitors Market share of Samsung AC (5%) was lower than key competitors including Daikin (25%), Panasonic (25%) and LG (7%) Daikin was the market leader because of its specialization in one business of air conditioner In Vietnam, Japanese brands such as Daikin and Panasonic gained popularity not only because of product efficiency but also attentive after-sale service network.41 For example, Daikin had a plan to invest nearly 90 million USD on building the training center and showroom in Ho Chi Minh City in order to seek about 10,000 technicians from universities, colleges and retailers for their installation, maintenance and repair service by 2020.41 It was in accordance with their expansion plan to increase the number of store to 2,000 and repair center to 25 by 2020 while meeting 900 million USD by 2022 which doubled from 2017.41 Table 1: Vietnam AC market share (2017) Samsung 5% LG 7% Panasonic 25% Daikin 25% Other brands 38% 41 Source: Nikkei Asian Review , internal information Inefficient after-sale service performance at Samsung system air conditioner department Secondly, Samsung SAC experienced low sales From 2015 to 2017, Samsung SAC sales experienced a slower growth rate than that the whole company, its largest competitor – Daikin as well as the global, Asia, Vietnam AC markets Table 2: CAGR of Samsung SAC, Samsung Vina Electronics, Daikin, global, Asia and Vietnam AC markets (2015 – 2017) Samsung SAC 13% Samsung Vina Electronics 25% Daikin 30% Global AC market 2.5% Asia AC market 34.3% Vietnam AC market 14.64% Source: Nikkei Asian Review, TechSci research, Samsung business report41-44 The forecast of 2018 revealed that total sales would be lower than 2017 result The target was set at the beginning of the fiscal year based on history sales Based on the target, each sales person was assigned with sales quota Sales forecast was conducted and reviewed quarterly based on sales opportunities in the pipelines of the sales team The management compared sales forecast with the target to evaluate sales performance and develop sales plan Based on the sales forecast, there would be a gap of 13% in the total sales Specifically, captive sales would be 19% higher than the target, but local and channel sales would be 11% and 42% lower than the target respectively Table 3: Sales forecast vs target (2018) Unit: million USD 2018 Forecast 2018 Target Gap Captive 5.7 4.8 19% Local 10.8 12.2 -11% Channel 3.5 -42% Total 20 23 -13% Source: internal sales report Samsung SAC experienced low sales in channel and local project From 2015 to 2017, the average captive sales had the highest contribution of 50% to the total Inefficient after-sale service performance at Samsung system air conditioner department sales, while local and channel sales had smaller contribution of one third and one sixth to the total sales respectively Table 4: Sales by destination to total sales (2015 – 2017) Unit: million USD 2015 2016 2017 Average % Average Captive 11.1 11.2 10.2 10.8 51% Local 5.2 8.9 33% Channel 2.4 2.7 4.6 3.2 15% Total 18.7 20.9 23.7 21.1 100% Source: internal sales report Thirdly, Samsung SAC experienced an increased number of after-sale service complaints In the last nine months of 2018, 63% of 19,000 customer calls to the call center of the company was after-sale service requests Among 12,000 requests, about 13% of them were after-sale service requests for SAC, which doubled that of 2017 Besides, the recorded customer complaints revealed that the highest number of complaints about after-sale service came from the largest captive projects (300 cases) and the largest local projects (180 cases) Table 5: Number of after-sale service requests and after-sale service complaints (01/2018 – 09/2018) Number of after-sale service requests Number of after-sale service request (SAC) 2017 01/2018 – 09/2018 % Change 10,600 12,000 13.2% 750 1,500 100% 175 300 71.4% 100 180 80% Number of after-sale service complaints (captive projects) Number of after-sale service complaints (local projects) Source: internal meeting 1.2.2 Situation analysis Inefficient after-sale service performance at Samsung system air conditioner department 62 - Place: phone interview - Purpose: to understand the impact of after-sale service performance on the customer’s confidence to buy Interviewer: Thank you for your time I was introduced to contact you from Mr Dat who was the salesman of Samsung SAC As discussed earlier, the purpose of this interview was to help me understand from the customer viewpoint, the impact of after-sale service performance provided by Samsung AC on your confidence to buy Your provided information would be only used in my MBA thesis and would be kept confidential Could you share with me about your latest experience with after-sale service provided by Samsung SAC? Interviewee: I had three to four times contacting Samsung for replacing the spare parts for our newly installed system Although my company was in the same building with Samsung, it took long time for them to come I remembered they checked and replaced spare parts for two or three times, but the issue was yet to be resolved Interviewer: How did you evaluate the after-sale service performance provided by Samsung AC? Interviewee: I thought the service response for warranty was quite long Interviewer: How about installation, training and delivery service? Interviewee: I did not have issue with those services Interviewer: How did the after-sale service performance affect your confidence to buy? Interviewee: Yes, it definitely affected my confidence to buy Actually, the committee normally referred to internal business groups for shared customer experience with aftersale service of an SAC brand from Therefore, besides perquisite criteria such as price and product quality, we scored a brand based on after-sale service in the contract bidding Inefficient after-sale service performance at Samsung system air conditioner department 63 Interviewer: Were you confident to continue to buy or suggest to your friend and family about this brand? Interviewee: Honestly, after the experience of long service response, I did not feel really confident about this brand, so I might need to carefully consider other brands before making purchase next time Interviewer: Thank you so much for your information Interviewee: You were welcome Interview - Informant: Mr Trung - Position: sales manager of Samsung SAC distributor - Job tenure: years - Time: after office hour - Date: September 26, 2018 - Place: phone interview - Purpose: to understand the impact of after-sale service performance on the customer’s confidence to sell Interviewer: Thank you for your time I was introduced to contract you from Mr Dat who was the salesman of Samsung SAC As discussed earlier, the purpose of this interview was to help me understand from the customer viewpoint, the impact of aftersale service performance provided by Samsung SAC on your confidence to sell Your provided information would be only used in my MBA thesis and would be kept confidential Interviewer: What types of after-sale service did you receive from Samsung SAC? Interviewee: We received training tool on installation and repair services to help reduce service cost for us Besides, we received support for in and out of warranty service Inefficient after-sale service performance at Samsung system air conditioner department 64 Interviewer: How did you evaluate the after-sale service performance provided by Samsung SAC? Interviewee: Compared to other competitors, I thought that Samsung came to the market for a long time but it was not a powerful brand I thought that the response to service was still slow and technical trainings were still very general and basic Interviewer: How did the after-sale service performance provided by Samsung SAC affect your confidence to sell? Interviewee: Firstly, it affected our ability to serve our customers and the ability to sell better so that customers could buy better Interviewer: Could you explain what you meant by selling better and buying better? Interviewee: I could be confident to consult customers not only price and product quality but also which brand had the best after-sale services so that customer could make purchase decision easier Interviewer: Thank you so much for your time Interviewee: You were welcome 3.3 Data for the existence of inefficient after-sale service performance - Presenter: Mr Duong - Position: customer service manager - Job tenure: year - Place: Samsung office - Date: October 1, 2018 - Purpose: to report on the current service level of the department and related issues “From the data I had, for B2B service, there were two main measurements including first-time visit and turnaround day The first-time visit and turnaround day for Inefficient after-sale service performance at Samsung system air conditioner department 65 RAC on average was to days, while those for SAC were to days However, there were 125 jobs where the turnaround day exceeded 20 days… There were more than 19,000 customer calls to the call center from which 12,000 was the number of service requests There were 1,500 service requests for SAC, which doubled the number in 2017 As you could see, this number was only in the last nine months compared to the full year of 2017… We had 300 cases of customer from captive projects (Samsung companies and factories) and 180 cases from medium to large local projects (Dienmayxanh, Citadines, banks, schools…) The number of customer complaints also nearly doubled from the year 2017 Most of the customer complaints went through the system reported their dissatisfaction with long service completion and frequent product breakdown …We looked forward to have at least 52 projects with sales volume from 50,000 USD interested in buying end-to-end service solution, but we currently faced with many challenges in after-sale service We faced with 80% product defects due to improper installation from the installers and contractors because of lack of training Training per head count was beyond expectation but only met half of our goal, which directly affected the results of installation and repair Our service partners and authorized service center did not have sufficient technical capability Our dealer service center coverage was limited Our service team had only two engineers Those reasons significantly contributed to increased customer complaints for the long service completion and frequent product breakdown… Currently, Samsung SAC was yet a powerful brand compared to competitors due to limited resource Hence, our service plan for the next phase was to continually support the sales team, especially in the offer of end-to-end service solution for project investors from 50,000 USD and above in order to increase the competitive advantage, revenue and profit for the company Our focus would be site inspection and practical training to partners to prevent defects as well as increase the service coverage for all geographical areas to better support our customers.” Table 11: 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Spare parts and after sales service MIT Sloan Management Review 1990;31(2):55 48 Ward PT, Leong GK, Boyer KK Manufacturing proactiveness and performance Decision Sciences 1994 May;25(3):337-58 49 Takeuchi R, Lepak DP, Wang H, Takeuchi K An empirical examination of the mechanisms mediating between high-performance work systems and the performance of Japanese organizations Journal of Applied Psychology 2007 Jul;92(4):1069 50 Aryee S, Walumbwa FO, Seidu EY, Otaye LE Developing and leveraging human capital resource to promote service quality: Testing a theory of performance Journal of management 2016 Feb;42(2):480-99 Inefficient after-sale service performance at Samsung system air conditioner department 73 Appendix Table 7: Sales by product type (2017) Unit: million USD 2015 2016 2017 Average % Average SAC 17.7 19.9 22.6 20.1 95% RAC 1 1.1 1.1 5% Total 18.7 20.9 23.7 21.1 100% Source: internal sales report Table 8: Human resource of the customer service team in the SAC department Job position Years of experience Job location Customer service manager year South Technical engineer years North Technical engineer year South Source: internal information Table 9: Distribution of the current contracting service dealers Region Area Number of dealer service centers Service coverage Ho Chi Minh 25% Mekong Delta 60% Southeast 0% 30-40% Hanoi 20% Bac Ninh 30% Thai Nguyen 0% 20-30% Da Nang 0% Nha Trang 0% Subtotal 0% Total 30% South Subtotal North Subtotal Central Source: internal information Inefficient after-sale service performance at Samsung system air conditioner department Table 10: Estimated number of projects per year Region Number of projects North 150 South 120 Central 30 Total 300 Source: internal information 74 Inefficient after-sale service performance at Samsung system air conditioner department 75 Chart 1: Business structure of Samsung Vina Electronics SAVINA-S CE AV DA SAC IM CE RMCE CE Display IM Sales CS Corporate Marketing Management Support PI HR & GA CS Customer Experience CMI Accounting MIS HRBP PI Network Learning & Development AV Sales DA Sales SAC PM/Planning CE Display PM & Sup IM MD CS Regional Operations Product PR BM AV PM DA PM SAC Channel VAP CE Display LCD IM Sales Operations CS Risk Management Citizenship Compliance Talent Acquisition AV Marcom DA Marcom SAC PJT Sales CE Online Logistics HR Operations AV Channel Management DA Channel Management SAC Service Management AV Biz Operations DA Biz Operations CS Service Parts Operations CS CE Service CS Operations CS IM Service Source: internal information Strategic Sourcing Inefficient after-sale service performance at Samsung system air conditioner department 76 Chart 2: Business structure and human resource of SAC department Head of system air conditioner department Product management (1 manager, staff) Business development Service Sales (1 manager, staffs) (2 staffs) Channel (1 manager, SR) Project (3 team leaders, SR) Korea North (1 team leader, SR) (1 AM, SR) Local Central (2 team leaders, SR) (1AM, SR) South (1 AM, SR) Source: internal information Chart 3: Estimated share of sales to dealer’s revenue 19% Daikin LG 5% 47% Mitsubishi 7% Samsung 10% Others 12% Source: internal information Panasonic Admin (1 staff) ... provide service to distant locations, especially in repair service Therefore, the alternative solution would focus on Inefficient after- sale service performance at Samsung system air conditioner. .. performing after- sale service Inefficient after- sale service performance at Samsung system air conditioner department 2.2 27 Final cause-effect map Potential causes Symptoms Lack of service and... manager revealed that improper installation and repair caused not only difficulty but also high cost in the Inefficient after- sale service performance at Samsung system air conditioner department