Streamlining service parts logistics

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In today’s complex marketplace, the aftersales supply chain is no longer an afterthought. In 2003, annual global service parts logistics (SPL) spend was estimated to be US$21Bn (£11Bn), increasing at a rate of 7% per year.* Streamlining service parts logistics can ensure a reduction in inventory levels, improved customer service, increased operational efficiencies, as well as a rapid return on investment. For finance directors, inventory reduction has become the corporate mantra as they seek to field capital, while increasing customer service.

With this in mind, reliable aftersales support, including specialised expertise and technology that may be difficult for a business to achieve on its own, is essential to satisfying customers and sustaining competitive advantage. Nowadays, companies require national, regional and global strategies to meet rising customer demands while containing costs.

From service parts logistics and parts planning, to repair and returns management and field tech support, the need to drive efficiencies and improve performance throughout the aftersales supply chain has become crucial. However, as businesses expand, service parts logistics and aftersales support often present businesses with a growing challenge.

The SPL industry supports the overall repair and maintenance of equipment as it moves through its post-sales lifecycle. SPL includes the management, distribution and return of parts, as well as parts repair and refurbishment. A service parts network includes order and inventory management, distribution and technical support, call centres, technical couriers, repair engineers and repair centres. An effective SPL network must provide for storage of parts in close proximity to field engineers and customer sites around the world.

Companies that previously met expected service levels by holding inventory at multiple points to ensure its availability “just in case” are now facing economic pressures to decrease inventory carrying costs or the expense of holding goods. Compounding the problem are huge product and parts lists, global customer bases and increasingly demanding service levels of eight, four and even two hour response times. Parts availability is key to meeting final customer expectations.

Outsourcing parts logistics

Successful SPL management requires more modern and complex competencies than traditional supply chain management. UPS Supply Chain Solutions has multiple distribution points throughout Europe, with materials flowing in various directions. Technology-enabled un-manned drop-off boxes are currently being trialled in Germany and the UK. This allows engineers to pick up and drop off goods without a lengthy diversion to a warehouse.

However, to work, this system requires companies to coordinate sending new replacement parts to the specified location, whilst arranging for the return of defective parts. Given the complexity of these tasks, many businesses outsource service parts logistics to a single company that can provide an integrated solution.

Our work in the aftersales market has steadily evolved over the past five years, initially developed because of a growing need from UPS’ small package customers who required products for the aftersales market. In effect, the bespoke solutions that UPS is selling to organisations, are becoming an additional revenue stream, as well as offering superior after sales service that can differentiate a business from a competitor that does not provide the service.

UPS Supply Chain Solutions has just announced a new laptop computer repair scheme with Toshiba in the US, designed to reduce turnaround time for customers to four days or less. The move is part of a wide-ranging customer service initiative by Toshiba designed to raise the bar in the highly competitive PC market. As well as building customer loyalty, Toshiba expects to save millions of dollars by streamlining its service operations and gaining better visibility by using our information technology.

The complex structure of an aftersales solution requires a very advanced IT platform and we have made significant investment in this area, building on a number of customer-driven solutions to develop best in class systems, providing businesses with greater inventory visibility and control. Toshiba expects to gain valuable data about product performance that will help improve future product design and manufacturing.

The quality and delivery of post-sales service is becoming increasingly critical for manufacturers as they seek to gain an edge over competitors. Businesses are doing everything in their power to be more cost-effective, boost profit margins and meet customer demand for near-continuous availability of products.

Companies face a number of inefficiencies in post-sales service that increase costs and cause delays. Topping the list is inefficient network design, followed by factors such as poor visibility into inventory, long cycle times, inconsistent customer service, inventory obsolescence and the significant costs of brick-and-mortar investments.

To overcome these obstacles and turn post-sales into a competitive advantage, more manufacturers are seeking global service parts logistics assistance.

Industries that are most attracted to SPL such as high-tech, telecoms and medical, are those that are often tied into service level agreements (SLAs) of aftercare. Customers in these industries demand the highest reliability levels of equipment availability and are willing to pay a premium for these services. This compresses allowable response time and creates service revenue opportunities and challenges.

Post sales service is often tied to SLAs that have stringent performance metrics, and specific penalties for non-compliance can be severe. To ensure adherence to SLAs, companies often invest heavily in inventory management systems, planning and design tools, warehouses and service technicians which can detract from their core competency of product development, innovation and sales.

Because of the complex SLAs involved, these companies have often over-invested in multiple warehouses and have too much stock in facilities and the field. Now, they seek to reduce those levels and increase the efficiency of their field stock.

Optimal support levels

To help post-sales services remain a profit centre rather than a cost centre, equipment manufacturers must ensure key business processes are in place, helping to minimise investment in facilities, tighten inventory control, help manage and predict service call needs and provide visibility and management of vital information. The complexity and scope of these key areas often lead companies to choose one logistics partner as a single-point of contact for end-to-end post sales service logistics.

Decision makers typically try to differentiate their business from the competition often by offering services that can justify premium pricing. Services such as rapid on-site restoration, returns processing, spare parts fulfilment and equipment refurbishment all fall within this category.

Companies with significant post-sales commitments need to evaluate their operations to ensure they are providing optimal levels of support while at the same time gaining the benefits of business growth, customer loyalty and premium pricing.

UPS Supply Chain Solutions’ returns management system enables businesses to place inventory back into their supply chains fast. Specialised technology tracks and reports performance metrics to help speed inventory flow and improve fill rates. UPS can manage the entire process, from transport to tracking and closure of the repair order. We also work with scrap and recycle vendors to help businesses eliminate obsolete inventory and meet environmental requirements.

UPS Supply Chain Solutions’ returns material authorisation (RMA) process provides options for recovering assets, while tracking the complex flow of information and products. To make returns simple, a return label is attached to the box at the moment that the part is shipped.

The engineer conducting the repair/swap activity at the customer’s site pulls the return label out of the pouch and attaches this return label on top of the original shipping label, ensuring that the part will be returned to the central distribution centre (CDC). Once this part is received at the centre, the tracking number is scanned, closing the call. At any given time, UPS knows where parts are, their value and the time stamps.

The common tasks of managing facilities, inventory, people and information are difficult in running an efficient and profitable manufacturing operation. Service parts logistics provides an additional layer of complexities that require ongoing evaluation and adjustments.

However, while the process can be complex, the approach involves fairly simple considerations: getting parts and technicians close to customers and ensuring that inventory is being tracked and used in an optimal way. It all boils down to responsiveness and accuracy – basic principles of operating any successful service business. n

David Eastland is director of business development for UPS Supply Chain Solutions EMEA, based in Antwerp. Tel: +32 (0) 3 223 82 78.

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