Lessons From Tesla – Service Is Not a Profit Center

In almost every business, customers weigh the downside of poor product reliability more than the upside of new product features. Consumer demand for reliability has driven automotive industry design improvements for the last few decades.

Achieving reliability for innovative products is pretty hard. Tesla has delayed new models to hit performance, cost and reliability objectives. My guess is that they have some pretty sophisticated product testing. Nevertheless, real world experience is never the same as bench testing, and even for Tesla the need for after-sales service is a fact-of-life.

Most vehicle manufacturers and medical equipment manufacturers manage after-sales service as a profit center. Tesla has taken a different approach to its real world reliability issues. Innovative medical equipment companies can learn a few things from Tesla’s approach.

First, Tesla CEO Elon Musk is on the record that after-sales service is not a profit center, and Tesla tries to operate their service business at break-even.  Tesla is trying to align its own incentives with its customer’s needs.

Second, Tesla recognizes the value of customer time, and the importance of getting their customers back up and running quickly. The potential negative impact of poor reliability on the Tesla brand outweighs the repair costs, so Tesla service minimizes customer downtime, at the expense of higher short-term warranty costs. In an interview with Edmunds.com owner Dan Edmunds, Fortune magazine reports that:

The company is known for replacing an entire electric motor within 24 hours instead of tinkering with one troublesome part on the unit for days, says Edmunds, who adds that it seems to be Tesla’s preferred way of doing service.

“In a regular car, if your water pump went out, the company wouldn’t give you a new motor,” Edmunds says. “The company has an Apple Store approach to service. They’ll change the whole unit, give the customer a new one and then take back the problematic one, rebuild it, analyze what went wrong, learn from it, and put it into somebody else’s car that needs that part.”

Tesla optimizes for customer time. To do so, they’ve designed their vehicles to be modular, so the faulty module can be rapidly replaced, and the customer can get on their way.

For hospitals and physicians, the need for reliability is even stronger. Patient schedules, OR schedules, and facility space commitments are pretty fixed. If a hospital scheduled your cardiac catheterization for next Wednesday at 10:00am, the room needs to be ready, the physician and cath-lab staff need to be ready, and the equipment needs to be working. If your device is not reliable, the patient needs to be rescheduled, and everyone loses income that they can’t make up. Your customer’s business is thrown into disarray, and everyone is unhappy.  This very real cost never appears on your income statement.  Ignore it at your own peril.

Third, most medical device engineers debug the product failure at the customer site, and replace the faulty part. This approach optimizes for service cost (and service center profitability), at the expense of the customer’s time. Further, the failure analysis is often lost, as the customer is running again, and the engineer moves on to the next customer. The corrective action is complete, and the opportunity for a preventative action is often disregarded. Tesla, on the other hand, sends the faulty module back to a repair center who can take the time to analyze the failure and feed the analysis back to the design team.

What are the lessons for medical equipment companies?

  1. Stop thinking of service as a profit center. Your customers certainly don’t see it this way.  Align your incentives with your customers’.
  2. Spend the time/effort to design reliability in, and think carefully about the trade-off between earlier shipment date and better product reliability. There is never an exactly right answer here, so limited market releases are often a good approach to this issue.
  3. Optimize service for customer time, not for internal repair costs. Design modularity in, to enable expedited faulty-module replacement.  Your brand reputation will thank you later.
  4. Set up a rapid feedback system to analyze field failures and fix product designs. Do the debugging of faulty modules at your centralized repair center, rather than in the field.  Optimize for learning and continuous improvement.

One thought on “Lessons From Tesla – Service Is Not a Profit Center

  1. It is a big help when you design your device for reliability when you can, for serviceability and for modular manufacturability when you can’t. That said, your post-installation service strategy needs to be a big part of your initial device design controls, something often left out until its too late.

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