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it in exchange for a price, which is lower than what it currently is when provided internally. We are not dissecting the benefits and dangers of outsourcing here; it is enough to say that it is a move to be considered carefully, as problems in this area can endanger future purchases. Quite often, the third party will require logistical support (like original spares and materials), knowledge transfer (upgrades and changes), and even personnel assignment in resolution of the most complicated cases. Nonetheless, it can considerably offload some constrained resources or create support availability in regions devoid of it, further increasing sales potential. Sometimes the outsourced work is performed by companies specializing in CS, the so-called Multi-Vendor Service Providers. These are companies that provide technical support to a wide range of equipment, produced by a variety of producers. Usually such companies have good presence in wide regions and due to their efficient usage of resources and very low overhead, they can provide their services at very competitive prices.

Installations, Implementations, and Projects

If there is an area in which TOC applications can drastically improve the performance of the CS staff, it is at the first stage of its involvement in the service of the equipment, namely at installation of the equipment or (at the so-called “turn-key” deals) implementations. Options such as bringing the equipment to the status of “up and running” is a multistage activity, usually designed as a project. Even the installation of a simple system is comprised of, at least, unpacking, installation of separate units, their integration, customer training on its operation and day-to-day maintenance, and performance of the acceptance tests. As it goes in projects, it usually takes longer than planned, delaying the start of the warranty period and preventing the team involved from moving to their next commitments. The TOC Critical Chain Project Management (CCPM) methodology provides a much better way to deal with the inherent uncertainty characterizing projects while significantly lowering the risk of exceeding the plan’s confines.

An additional domain that can be addressed in order to improve the integration between CS and the entire company has to do with problems stemming from the current arrangement regarding the warranty.

Instead of allocating a fixed, time-proportionate amount from the sales to the service revenues as warranty revenues, a different method is recommended:

1. When a product is sold, some of the product revenues will be deferred-till the end of the warranty period. Those product revenues will accrue during the warranty period on a periodical (say, quarterly) basis. The amount to defer and the length of the warranty are 100 percent business decisions that are made by the product business entity. Of course, the longer the period of warranty, the slower the income accrues to CS.

2. CS will charge the product business entity a “readiness expense” for that product (a rather small amount that covers CS infrastructure expenses such as Response Center, Logistics, etc.) and a fixed amount per every warranty event. CS no longer receives any fixed warranty revenues. The warranty becomes an expense that will be charged to the product business entity on a quarterly basis. The fixed amount per event will be agreed to with the product business entity at the product launch or during the budgeting process. As with every “transfer price,” which is arbitrarily set between two sister units within the same company, one should devote utmost care in setting it. For example, it should be structured in such a way that it will not push one of the units involved to prefer interaction with an external entity rather than the sister unit.

As mentioned already, in this approach there is no longer such a thing as “warranty revenues” as a subsection of CS revenues. Product revenues remain product revenues. This makes sense as, after all, customers refer to what they pay as an amount paid for the product and all that