By Micheal Blumberg
Service Parts Logistics Management represents the largest investment and second largest operating expense within an Aftermarket Service or Field Service Organization (FSO). Service parts also represents one of the most critical resources required for ensuring high first-time fix rates and recurring revenue. Therefore, anything that a FSO can do to improve the productivity, efficiency, or quality of the service parts logistics pipeline will have a dramatic positive impact of financial performance and customer satisfaction.
To understand where and how to improve service parts management, let’s first examine critical operational issues that impact financial performance of the service parts function. Our research indicates that 60 to 75 percent of all service requests require spare parts to resolve the issues. As a result, an FSO is likely to experience low inventory fill rates and/or low first-time fix rates if they do not have adequate systems or procedures in place to ensure parts availability where and when needed.
Another issue is that nearly 50 percent of the value of an FSO’s parts inventory can be found below manned parts depots or warehouses (i.e., vans/trunks, branch offices, or consigned to the customer site). The problem is that many FSOs don’t know exactly where this inventory is located or what the dollar value is at each location. Without this understanding, FSOs run the risk of having too much inventory in manned warehouses to compensate for their lack of information.
Before you click away, disappointed that I brought up something as practical and boring as time management, hear me out. My intent is not to crush your spirits.
One reason why spare parts are often located below manned warehouses is because the FSO has not implemented the appropriate controls to track these parts. Another is because the parts have not been returned through the FSO’s reverse logistics and/or depot repair operations when it is deemed defective or no longer required. Approximately 80 percent of the value of spare parts in the logistics pipeline fall into this category. However, it is also important to consider that 30 to 35 percent of parts returned to depot repair operations are actually good parts. The reason they are returned, if at all, is because either the FSO’s FSE misdiagnosed the problem or used the spare part as a test procedure. In other words, replacing a spare part in a problem unit to determine if the problem is indeed due to a defective spare part.
Navigating The Complexity Of Spare Parts Management
As a result of these issues, spare parts management becomes a complex task. Having too many spare parts on hand can have a negative impact on the balance sheet and income statement; too few parts can result in degradation of service quality and customer satisfaction. Fortunately, there are several best practices that FSOs can implement to avoid these challenges. These include:
- Track and control spare parts: FSOs can utilize bar codes, RFID, and blockchain to track and control the volume and value of spare parts in all stocking locations whether manned or unmanned.
- Leverage IT Infrastructure: Utilizing enterprise management systems and best of breed software solutions to manage, plan, forecast, and coordinate spare parts inventory can have a dramatic positive impact on improving first-time fix rates and inventory availability levels.
- Expedite delivery to reduce logistics investment: By moving toward same-day or next-day parts delivery and storing spare parts in Forward Stocking Locations (FSL) that serve multiple FSEs or customer sites, an FSO can significantly lower their investment in spare parts.
- Improve front-end diagnostics: Implementing remote support and IoT solutions to identify the problem, symptom, and root cause of a problem prior to dispatch will increase the probability that the FSE has the right part on hand and that he/she does not utilize spare parts as a form of test equipment.
- Advance Depot Repair Operations: Transforming depot repair activities from a job shop to assembly line function, implementing test and screening procedures pre- and post-repair, and performing these functions in FSLs and Regional Return Centers will improve spare parts velocity (i.e., cycle) time and reduce inventory stocking level requirements.
Benchmark research by Blumberg Advisory indicates that significant improvements in efficiency and productivity can be achieved by implementing the strategies identified above. The average percentage improvement by key performance indicator is as follows:
By implementing these best practices, FSOs will also find they operate a stronger balance sheet, healthier profit margins, and higher levels of customer satisfaction. These strategies all have several things in common, namely a heavy reliance on data, technology (i.e., information systems), and process improvements.
Companies that operate asset-intensive field service operations, in other words those that maintain a high investment in spare parts, should give serious consideration to implementing the strategies identified above. This requires that FSOs examine how well their internal logistics management systems align with the state of the art, as well as assess the impact these systems have on KPIs related to Service Parts Management. In other words, conduct a benchmark evaluation of these systems, process, and KPIs against industry standards and best in class performance.
To learn more about Service Parts benchmarks and best practices check out Blumberg Advisory Group’s Operational Excellence consulting practice at https://blumberg-advisor.com/operational-excellence/