All supply chains — including the service spares supply chain — have been transformed by the ripple effects of the past few years’ catastrophic events. Headlines are filled with news about the havoc still underway in the manufacturing supply chain. Stumbling blocks include factory manufacturing supply shortages, cargo capacity shortfalls, rising costs, termination of carrier service contracts, labor shortages and delays of all kinds. Cars, computers, MRI machines, telecommunications equipment — and much more —either can’t be manufactured at all or face long production lead times.
Many corporations focus primarily on the sell side of their business — getting new products to market, which is the critical source of funds for any manufacturer. But it’s become essential for business operations to factor in their ability to service their customers’ assets with service spares, a critical aspect of the supply chain, especially in industries like high tech (e.g., telecommunications and computing assets, lifesaving medical diagnostic equipment, power grid monitoring equipment). Downtime for these assets gets very expensive very quickly, yet the service spares supply chain is often treated as an “afterthought” supply chain — that is, until a critical asset breaks.
The service/spares/replacement supply chain is not as straightforward as the manufacturing supply chain: It is not simple. Budgeting for, and procuring, service spares inventory is often under-measured, under-tracked and financially complex. Return on investment, cost of outage, cost of asset downtime and brand impact metrics are often absent.
However, companies that ignore the service supply chain may be squandering a 30% return on inventory investment annually by not effectively servicing products in the field. This investment constitutes inventory that companies already hold or may have on order. Assets may be poorly tracked, improperly positioned to predicted market demand, and reside in suboptimal locations, tying up funds while collecting dust and becoming obsolete. The result is an inadequately visible inventory pool called on to perform in a highly reactive manner, a far cry from a predictive, analytics-based supply chain.
Following are five key concepts for transforming this “afterthought” global service parts supply chain from a loss leader to a profit center.
Build out visibility and management.
Excellence in service spares logistics requires visibility across the installed base and management of service spares or hardware to maintenance or end-of-life disposition. The above require tapping into manufacturers’ databases and strategically pre-positioning spare parts or equipment based on customer locations, as well as predictable asset lifecycle expectations and customer usage patterns.
All this centers on predicting demand and failure rates based on the manufacturers’ installed base and creating a supply chain and inventory strategy to align with these analytics. State-of-the-art platforms can now enable a predictive service supply chain model that anticipates failure and repair requirements.
Focus on predictive speed.
Speed matters in the service parts logistics world. If an asset sits idle for three or four months awaiting repair or replacement, the business loses the revenue that asset would produce.
“Often big tech companies rely on the other giant tech companies to fix their assets in the field,” notes Kris Michel, chief operating officer of Flash Global. “They wait until something breaks, panic and call one of the giant tech repair firms. But it may take a company months to get your equipment scheduled and repaired. You’re at their mercy, so to speak.”
This is where analytics can help. In the manufacturing supply chain, companies typically know everything about every single component that goes into producing a final product. They can calculate immediately how much and how fast they need those components. They know their lead times. They can predict their production output.
In contrast, in the service parts supply chain, companies apply far fewer — if any — analytics to predicting item failure, demand rates and volumes. As a result, they operate in a reactive mode.
By using better analytic tools to predict failure rates, companies could manage their service parts supply chains just as well as they manage their manufacturing supply chains, make better business decisions and ensure that parts get to where they’re needed on time in full.
Stay current on trade regulations.
Regulatory, social, consumer, investor and financial pressures are reshaping the asset service and recovery side of the supply chain. Trade rules are tighter than ever, so a solid, up-to-date understanding of trade implications for service spares and returned products is mandatory. “This is a completely different animal than the original sale trade rule regulatory environment,” says Michel, “especially now in the COVID-19 era.”
Many companies or trading blocs — the European Union for example — are concerned about parts or equipment disposal regulations and are now keeping strict compliance records and databases on their products and parts. The computer sector, for one, has long had strong regulations in this area, including the Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS) Directive in the EU, and Waste Electrical and Electronic Equipment (WEEE) legislation.
Considering environmental, social, and governance (ESG) regulations — which include sustainability and carbon neutrality — is increasingly important, not only among businesses and consumers but among investors and regulators as well. By some estimates, supply chains make up 90% of all carbon emissions globally, so many companies are making commitments regarding reductions, especially around carbon footprint. ESG is fast rising as a vital part of a company’s overall business strategy and operations.
And finally, many countries now require that maintenance activities be performed locally. “The countries want the jobs and the commerce to stay in-country,” explains Kris. “Export-import regulations and classifications vary by country and must be abided by.”
Taken together, these regulations will continue to reshape the compliance landscape for the service parts logistics industry.
Invest in inventory visibility.
New systems and analytics capabilities are increasing visibility for the service spares supply chain, uncovering “dusty” and obsolete inventory assets and once identified, providing tools for management to strategize.
Inventory visibility systems also track assets in the field. “If you don't know what’s out there, you don't know what to do with it,” Kris notes. “Does ROI justify retrieving the asset? What’s the asset worth and is it retrievable in the first place?” Sophisticated analytics provides answers to these questions.
Embrace new metrics.
The service parts supply chain has been under-measured in terms of performance and ROI. Good, current, accurate data enables analytics to see the economic impact of either repairing or replacing an asset, which includes calculating downtime. Rigorously applied ROI metrics can show the benefits of bringing service parts logistics up to the same standard of performance as all other supply chain activities. This can eliminate the 30% waste incurred when parts sit idle, age out or are in the wrong place.
Savvy spare part management improves the bottom line, boosts service to customers and creates greater business resiliency and risk management — all of which are certainly worthy of c-suite attention.
Flash Global: Local Solutions for Global Problems
Headquartered in New Jersey, Flash Global designs and implements end-to-end service supply chain strategies for rapidly expanding companies, including many of the world’s top high-tech companies. Flash Global creates global solutions that are locally fueled, which enables companies to efficiently scale in countries all around the world.
Companies leverage in-region and in-country expertise throughout Flash Global’s worldwide infrastructure of global service centers, customer response centers, distribution centers and forward stocking locations, to seamlessly move products across international borders and serve their customer bases.
Resource Link: www.flashglobal.com
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