Just In Case Logistics

Oct. 6, 2009
Insight for a successful mission-critical service parts management operation

Mission-critical service parts logistics is a unique subset of supply chain management that can be challenging, yet profitable for manufacturers. While logistics execution in the manufacturing process revolves around a "just in time model," the world of mission-critical service parts hinges on a "just in case" scenario.

These service parts are critical to the performance of high-tech equipment that cannot tolerate extended downtimes without causing costly operational disruptions. This encompasses a wide range of technology, from network servers and data storage devices to IP communications systems and medical equipment.

Although preventative maintenance and demand history can help, it is difficult for manufacturers to pinpoint exactly when and where the next piece of equipment will fail. Regardless, service level agreements (SLA) commit them to be prepared and react to the unknown, or face the risk of significant fines and a damaged relationship with customers.

For mission-critical service parts, availability and repairs are further compounded by an extreme sense of urgency. Outages must be curtailed to only a few hours at most. To keep equipment operational under these strict parameters, field engineers must have access to service parts within two- to four-hours. The complexities involved with managing these expedited services commands comprehensive expertise and extensive resources.

To control this process, some manufacturers mistakenly assign service parts management to field engineers. While this may seem logical, it is not an effective use of their expertise. Resources are wasted when highly trained and skilled engineers are burdened with tracking and delivering service parts. Plus, it is incredibly inefficient in terms of inventory control and cost management. There must be a dedicated service parts logistics process in place to manage the high-velocity flow of inventory for expedited usage.

Typical Challenge

A multi-billion dollar international provider of digital document management including printers, scanners and copiers has significant mission-critical service parts needs, as its equipment serves a broad spectrum of Fortune 50 and 500 companies. These large organizations in industries such as finance, publishing, legal and government, rely on the provider to deliver solutions that enable 24/7 productivity.

With more than $15 million of high value service parts inventory ranging from $75,000 to $100 per unit, a reliable logistics process that could deliver parts as expeditiously as possible, without compromising performance with lost or damaged equipment was required. To face the challenge, the company employed a comprehensive mission-critical logistics solution comprised of a global IT platform and forward strategic stocking locations to ensure they could meet the demands of their end-users and fulfill SLA obligations.

Comprehensive IT Platform

In order to efficiently manage service parts inventory, accurate visibility of all service parts, their location and quantity is needed. Disparate, regionally based systems do not provide enough data to maximize worldwide inventory levels and control costs. This divergence limits information sharing, leading to duplicated efforts, which wastes significant resources by creating unnecessary capital expenditures. Without a global network, the surplus parts in one region are not visible in another region, and may be needlessly purchased. When factored exponentially, these costs become enormous, particularly for high value parts.

A global IT platform provides a comprehensive perspective that creates, in essence, one massive inventory pool. This can be a significant advantage for companies with tens of thousands of service parts that must be easily accessible for aggressive SLA support. In addition, the network should provide real-time information, so all systems are consistently up to date, regardless of location. This allows for strategic decision-making in the distribution process, or to supplement inventory in certain locations in lieu of new inventory purchases.

Global Reach

To support an international equipment install base, forward stocking locations must be strategically positioned on a global basis. This network of stocking locations should warehouse adequate levels of service parts to provide complete coverage of all equipment throughout each region.

Stocking levels are determined by referencing the global inventory management system, which tracks demand history, failure rates and usage levels of specific parts. These measurements help create a delicate balance of the appropriate amount of parts necessary to meet customer requirements without over committing inventory. If asset levels are not carefully analyzed, there could be too many parts stocked, wasting precious resources. Too little inventory can jeopardize customer service. Careful monitoring is the key to maximizing service parts inventory and remaining profitable.

For global support to be effective, the operations and sales teams must be aligned to ensure that as equipment is sold, adequate resources are available in the corresponding regions for timely service and maintenance. Without this cooperation, customer relationships can be compromised.

Stocking Locations

Within the stocking locations, the parts must be stocked, organized and managed at extremely high velocity to ensure that they can be dispersed within a matter of minutes. If a repair is needed within two- to four-hours, the field engineer must have the part with enough time to make the correction under strict SLA parameters.

Making the right part available, at the right place, at the right time is the culmination of the comprehensive IT platform and global reach that is executed from the stocking location. The IT network will ensure that adequate levels are in place, but there must be ongoing diligence to ensure that the physical inventory is in sync with what the system shows.

It is crucial to conduct regular cycle counts, at least weekly, to verify that parts are where they should be. The counts should ideally be performed during non-peak times, to avoid the need for reconciliation. Parts will then be ready when expedited delivery is needed. Searching for parts, when there are urgent requests to fulfill, can lead to significant delays resulting in extremely negative outcomes. By preparing in advance with careful cycle counts, these shortfalls can be avoided.

To support cycle counts, a physical inventory is strongly recommended for each stocking location at least annually. This physical analysis serves as an important baseline to measure against cycle counts to guarantee accuracy. They are also important for financial and compliance purposes to determine exactly what assets are held.

The Results

By leveraging the fundamental components for mission-critical service parts logistics, including a global IT platform and forward strategic stocking locations, the digital document management provider vastly improved its inventory integrity to 100%. This translates to parts being where they are assigned on a consistent basis, so they can be efficiently and reliably delivered.

What's more, the average on-time performance of mission-critical service parts delivery rose to 98%, and the accuracy of pick and ship measurements increased to 99.9%. Most importantly, mission-critical capability has significantly improved their overall service organization.

Mission-critical service part logistics demands high levels of precision, backed by proven processes. By utilizing an effective IT platform and stocking location network, a manufacturer can strengthen and grow current customer relationships, thereby increasing revenue, while attracting new business with this specialized capability.

Paul Malamet is executive vice president of account services and business development of Choice Logistics, an outsourced service parts logistics provider for mission-critical, high-tech global service organizations www.choicelogistics.com.

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