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Key Success Factors for Service Parts Inventory Management

by Michael R. Blumberg, President & CEO, D.F. Blumberg Associates, Inc.

Reverse Logistics Magazine, Winter/Spring 2006

Normally, the largest investment and the second largest operating cost (after establishing the service workforce) associated with Aftermarket Service involves the purchase and acquisition of parts and subunits and the labor costs associated with the management of the inventory, logistics pipeline, and depot repair operations, to ensure availability of parts when and where required.

Any action that can improve logistics support productivity will help to contain or reduce such sizeable expenses. The key actions involved with improvement of Logistics Support productivity begin with gaining control over the Logistics Support Pipeline. In essence, parts and materials used in an Aftermarket Service Operation should follow a unique, distinct, and closed path or "pipeline" as outlined in Figure 1.

Figure 1

In such a model, materials and parts are received from outside vendors, the manufacturing line (either external or internal), or depot refurbishing and repair operations. The materials are then stored in a central warehouse until they are shipped out to regional or local storage locations, and eventually placed into the hands of the service engineers at customer sites.

In examining this service logistics pipeline, it is important to recognize a number of critical parameters or factors affecting productivity. These include:

In summary, experience suggests that the productivity of a service organization could be improved by 10%-25%, or more, by utilizing a combination of the new technology improvements and practices we've described. In addition to the basic improvements in productivity and efficiency of existing operations, there is also a general mechanism for achieving productivity and efficiency improvement on a strategic basis. This involves the utilization of advanced strategic logistics service planning models, in order to examine the optimum tradeoff between service response to a customer (i.e., service quality) and service cost (Figure 4).

Figure 4

Such tradeoff analysis can be completed through the use of a simulation or "closed form" model designed to explore the tradeoffs between the manpower and logistics support levels, the customer's willingness to pay for given levels of service, service efficiency, and cost. A computational strategic planning model can be extremely useful in establishing the optimum, strategic allocation of service staff and logistics support to meet a given hardware-based customer service requirement. Thus, the keys to service productivity and quality improvement lie in the establishment of a formal, optimized business plan and model, that define: a) the role and importance of service, and b) the scope of products supported (i.e, focus on the service on one's own product or technology only). It is important to recognize that, given the array of standard and best-in-class enterprise and point solution software, systems integration becomes a vitally important issue in successfully implementing and utilizing a Service Logistics management system.

Michael R. Blumberg is a Certified Management Consultant (CMC) and President & CEO of D.F. Blumberg Associates, Inc. His firm focuses on providing strategic and tactical assistance to client organization for improving the overall profitability and quality of aftermarket service operations. Mr. Blumberg has established himself as an expert and industry authority on Reverse Logistics and Closed Loop Supply Chain Management. Mr. Blumberg also serves as a member of the Board of Advisors to the Reverse Logistics Association.

Reverse Logistics Magazine, Winter/Spring 2006

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