Three Keys to Successful Service Parts Management

By Andy Reese

Opportunity continues to grow as industry matures

[From Supply & Demand Chain Executive Print Edition, August/September 2005]

Not too long ago, in an industry very close to yours, leading companies squandered millions of dollars in their quest to develop killer new widgets.

While manufacturing garnered all the attention, an unknown, under-invested and lucrative opportunity lay lonely on the service side of the house. Historically, it was all about the sale. Companies focused the majority of their attention and resources on building and selling new products. More recently, with the economy struggling and corporate spending coming to a halt, these same companies have been forced to look for other means of generating revenue and found a major profit lever within their existing service organizations.

“Particularly in industries where service is a critical differentiator, companies are optimizing and automating service parts management to deliver immediate value to service delivery capabilities,” said Mark Vigoroso, vice president of post-sales service research at the Aberdeen Group. “As leading service organizations are beginning to realize, optimized service delivery will dramatically impact overall company profitability and performance.”

Tapping the Service Parts Opportunity

Supporting Vigoroso's claim, various major enterprises — including the likes of Agilent Technologies, Essel Propack, Equant, Hitachi Data Systems, Lucent, Verizon and Vanguard — have made the strategic decision to focus on generating greater profits, creating a competitive advantage by providing better service and fixing installed base rather than buying new products.

How are they doing this? It begins with service parts.

To maximize the return on investment (ROI) on your service parts endeavors there are three keys that industry observers recommend considering: logistics, planning and order fulfillment.

Getting the Logistics Right

The experts say that the logistics of service parts boils down to applying finite expertise, systems and strategic capabilities to meet the diverse logistics requirements of today's complex service operations. These services must be global in scope, or have the capability to expand globally, and have the scalability to manage this growing industry's real-time service parts demands. By focusing on spare parts management, logistics solutions companies can better service their clients around the clock and around the world.

We're not just talking about getting these parts around the world sometime tomorrow — today's fast-moving enterprises often expect these parts within 24, 12, eight, four and sometimes as little as two hours. For high-tech companies supporting industries such as networking, data storage, telecommunications, medical and computer equipment, spare parts alone can cost hundreds of thousands of dollars. Moreover, the expense of an unavailable part in a machine-down situation for any length of time can mean millions of dollars in lost revenue.

According to the experts, features to consider when looking for a service logistics provider or third-party logistics provider (3PL) are:

Of course, companies have been doing these things all along — just not as effectively as possible. Just ask John Guisto, vice president of global services for net.com: “We were running a good program, just not good enough. We needed to tap the expertise of a company that solely focused on service logistics and that was 100 percent dedicated to client satisfaction.”

Net.com, which provides platforms for broadband, IP telephony and multi-service networks, last year tapped New York-based Choice Logistics to manage its logistics infrastructure, and so far the company has been happy with the results. “Since tapping the expertise of our third-party logistics provider, net.com's logistics operation is more efficient, supports our overall service delivery and is completely scalable, allowing us to focus on our expertise,” Guisto said.

The importance of the logistics component of this process cannot be undervalued, the experts say. If you do not have the network in place to deliver the parts, planning to ensure that the right part is at the right place at the right time is a waste of time.

The Planning Imperative

That being said, industry observers note that planning is the essential ingredient to any successful endeavor, and that this has never been more evident than in service parts management. You need a planning vendor that is experienced and knowledgeable, who will work side-by-side with you to lower costs, improve service and build your business.

According to Greg Baxter, CEO of Baxter Planning Systems, the key elements to successful parts planning and management are value, visibility and velocity. “If you can see exactly what's going on across your service supply chain at all times and can get the required spares into the hands of the engineers within the committed service-level agreement (SLA), you will consistently exceed the expectation of your clients who, in-turn, can pass these savings and benefits on to their clients.”

Improving client satisfaction seems to be a running theme in service parts management, so it only seems logical to tap a solution provider with the highest level of customer support, continually working to raise the bar.

Ultimately, parts planning optimizes placement of warehouses and field stocking locations, locally and worldwide. It defines where your sites need to be in order to support customer contract commitments, and where existing sites are no longer needed. Planning optimizes the target stock level for each part number and site, providing intelligent logic to maintain the target stock levels through replenishment and rebalancing of inventory.

Does this utopia exist? It just might…

When discussing his parts planning experience, Craig Fix, global supply chain manager for automated test at Baxter customer Agilent Technologies, said: “The experience of our planning provider and the breadth of the solution offering were key differentiators resulting in Agilent standardizing on their platform. When the time came to make a decision on an outsourced service parts planning solution, this solution met all our near-term and long-term requirements.” Agilent utilizes the service parts planning and forecasting solutions provided by Baxter.

Depending on the size of your company, experts say that you may select a tightly focused task-based planning model covering project-specific programs or product lines, or a specific time-based service offering or a fully deployed outsourced model. Whatever your need, it starts with parts, and parts start with planning.

Available to Promise?

Finally, managing allocations while processing orders is the backbone of efficient service parts management and customer service. The ability to respond immediately to a product or part availability request with an accurate delivery date, and then to follow through on the commitment, is critical to providing the highest level of customer service.

Improved capabilities in this area translate into a positive impact to the bottom line, resulting in increased revenues and profits through higher customer satisfaction, and decreasing the cost of goods sold. It is especially critical and difficult for today's leading enterprises to be able to manage supply commitments to customers when demand is greater than supply, as well as when products and parts need to go on allocation. After orders are taken, commitments are made to the customers that need to be honored — even as the order backlog or supply availability changes.

There are currently many companies exploiting the vast opportunities within this segment of SPM. Take Essel Propack, the world's largest laminated, seamless tube packaging company, which uses solution provider Adexa for its service delivery capabilities.

According to Ashok Goel, Essel Propack's vice chairman and managing director: “Being able to consistently deliver world-class customer service at an affordable cost is extremely important. Since tapping this opportunity, we have shortened lead times and planning cycles, reduced supply chain costs and increased on-time delivery performance, which has added significant, measurable value to our operations.”

So when it comes to service parts management, parts availability, logistics infrastructure, delivery mechanisms and speed are king, according to experts in this space. In most industries, service level agreements have shrunk to four hours or less. Inconsistency in the service supply chain, late deliveries and frequent stock-outs can lead to a loss of business — and we wouldn't want that, would we?