Manufacturers today must also support customers in ever more far flung corners of the globe. The market for high-tech products is no longer concentrated in the West: corporates and endconsumers across the Far East, South America or Africa now expect this same level of service/support.
In our fast-moving world, with its delicately balanced reliance on technology, maintaining compliance with tighter customer Service Level Agreements (SLAs) is also a key management priority. Manufacturers are increasingly using service as a differentiator with demanding SLAs helping to boost sales, while the SLAs themselves can form valuable add-on extras to increase profits. Significantly, too, failure to deliver world-class aftersales service can mean losing ground to competitors and ultimately devaluing the brand.
At the same time, manufacturers are under continuing pressure to keep stocks to a minimum to improve operational performance. In the past the field service engineer with his fully equipped vanload of service parts may have been a viable option: not any more. No manufacturer in such areas as IT, electronics or telecommunications equipment – or indeed consumer or medical electronics or many other industrial sectors – can maintain stocks of service parts for every component, in every geography in which they operate, to support customers: it is simply too expensive. The result is that Service Parts Logistics (SPL) now tends to be outsourced and has become a key growth area for the global logistics sector helping manufacturers to contain costs while meeting demanding SLAs.
That word ‘global’ is important: today the emphasis has to be on achieving increased geographical reach with a consistent level of service and support. That can be far from easy with possibly thousands of components needed in dozens of geographies and, seemingly, on an almost ad hoc basis.
In addition, Service Parts Logistics (SPL) can include the collection repair and refurbishment of defective parts or products. It can include managing the returns management authorisation process as well as using predictive analytics to improve forecasts of likely spare parts requirements to help control inventories and reduce costs.
Ten years ago, the vast majority of hi-tech companies managed their own SPL operations but today that demand for global reach, as well as the need to control inventory costs, means that the outsourcing option is now preferred.
Outsourced models generally include use of geographically central Regional Distribution Centres (RDCs), as well as a range of second tier facilities, usually called Strategic Parts Centres (SPC’s) or Forward or Field Stock Locations (FSLs), which are close to main markets and capable of fulfilling parts needs within an hour. Use of Pick Up/Drop Off bases (PUDOs), where deliveries can be left overnight for service engineers to collect the next morning before starting work, has also increased steadily in the past few years. These PUDOs could be at corner shops, post offices, petrol stations or other neighbourhood locations that are convenient for both the logistics service provider and the field engineers. In addition some outsourced models also include direct delivery to the site to coincide with the arrival of the engineer.
At DHL Exel Supply Chain, for example we have a network of 290 SPCs across Europe which facilitates delivery of spare parts across 75 per cent of the continent within two hours. Other Logistics outsourcing specialists, such as UPS or TNT, are developing similar networks.
Obviously not everyone needs that degree of rapid response service but in such fields as medical equipment it really can be a matter of life or death to meet this level of service demand. In many cases, ‘next flight out’ is perfectly adequate so you will find many RDCs located next to key airport hubs, such as Singapore, Brussels or Wilmington.
Just as manufacturers cannot afford to have every spare component in every geography, then to be efficient and cost-effective logistics providers offering SPL have to rationalise stock-holdings. This demands good IT systems capable of monitoring stocks in real time and predictive planning to ensure that the relevant parts will be stored where they are needed. SPL really is mission critical so consistent service with the right items delivered every time is essential.
Sun Microsystems, for example, has been a global DHL customer for SPL since 2005 with a contract covering more than 300 logistics facilities globally, housing thousands of different parts, to be used for service support to 1.5 million Sun customers in over 100 countries. Vital components can be shipped by air, sea or road as appropriate to meet required SLAs. Like other high-tech players, Sun Microsystems believes in focusing on its core strengths so outsourcing service parts supply made a great deal of sense for the company. Being a global player, Sun also wanted to deal with a single partner capable of supporting its widely dispersed customers and it needed the flexibility and scalability in resource and systems to fulfil customer demand in both planned and unscheduled circumstances.
Sun has in place a leading edge global IT architecture specifically designed for SPL management, so that it can monitor spare parts availability on a global basis in real time to optimise its supply chain and minimise inventory investment. Sun’s premium customers receive same-day orders 24×7 – 365 days a year – with more than 200,000 mission critical deliveries each year, as well as handling returns management. Sun acknowledges that outsourcing SPL has achieved greater cost savings than could be obtained by managing the process internally.
Last year also saw the beginning of a similar global project with Unisys Corporation, the worldwide information technology services and solutions company. The seven-year contract involves the consolidation of Unisys’s previous SPL operation, which relied on over 70 transportation and warehousing vendors worldwide. This contract involves some 270 SPCs in 55 countries with a combination of DHL’s same day, express, ground and freight services to meet customer needs. Like Sun, Unisys wanted to streamline its services with a single partner and also to improve reverse logistics services.
Rapid spare parts delivery is not the only aspect of SPL that must be addressed, however. With the WEEE Directive now taking effect in Europe, reverse logistics must be addressed and this can be a major problem for makers of electronics and electrical products and components. It’s now essential to track items and manage end of life disposal.
Obviously it can be complex, time-consuming and expensive for field service engineers to have to return end-of-life components using standard logistics options – such as personal delivery to a regional distribution depot or time-spent arranging collection. This is an area where PUDOs – pick up and drop off points – can provide a very real alternative. Many of these networks are managed by specialist providers, such as ByBox and Kiala, others have been developed by the SPL outsourcers – DHL have a network of around 6,000 locations across Europe, for example. PUDOs can be based on either unmanned lockers or staffed drop off points. These are typically at petrol stations, local convenience stores or similar easily accessible locations where parts can be securely left.
For customers who do not require the sort of one, two or four hour response times offered by the SPCs, but for whom an in-night drop is perfectly adequate, the PUDO network can represent a very convenient means of getting vital parts to the field force early in the morning. Equally it is quick and easy for engineers to leave items for return at the PUDO as they no longer need make special trips to return goods in order to comply with WEEE.
While interest in service parts logistics services really began in the high-tech, sector, we are now seeing companies in other industrial sectors taking notice. With much manufacturing in the automotive and consumer goods sectors moving to China, Vietnam and other Far Eastern countries, the Western-based manufacturers of the heavy engineering products used in the production lines also need to provide local support and maintenance.
Jasper van der Wulp is vice president marketing and sales, service parts logistics (EMEA) at DHL Exel Supply Chain. Email email@example.com
- Maintaining compliance with tighter customer SLAs is a key management priority. Manufacturers are increasingly using service as a differentiator with demanding SLAs helping to boost sales.
- Demand for global reach, as well as the need to control inventory costs, means that the outsourcing option is now preferred.