Service Parts Management

by Stephen Buckler, Horizon Technology

Reverse Logistics Magazine, Fall 2006

Beyond Planning, Success Through Market Execution

Today's macroeconomic environment of globalization, outsourcing and consumer market visibility has resulted in the commoditization of products and erosion of margins. This has put pressure on manufacturers to not only drive efficiencies from their supply chain through outsourcing of non-core competencies, but to distinguish their products through superior levels of customer service. After-market service has not only proven to be a critical component of customer satisfaction but is a key component of top line revenue and profit. According to the Aberdeen Group, after-market service generally accounts for up to 20% to 30% of gross revenue and 40% of profits. To realize these gains manufacturers must have end-to-end supply chain solutions that encompass planning and execution with equal weight. The selection of strategic partners throughout the supply chain is critical to the success of any service parts management program.

The challenge of maintaining a seamless supply chain in the technology sector that preserves customer satisfaction where product quickly falls into obsolescence is critical to maintaining a company's reputation and brand loyalty. Challenges identified by manufacturers are many. Lack of visibility into inventory levels and demand, resulting in stock-outs, excess inventory, and poor response time to customers have proven to be critical pain points. Manufacturers quickly realized that their existing systems and planning software, geared towards production runs, were ineffective in managing their service parts programs. This in combination with relentless pricing pressure and revenue demands has resulted in OEMs parceling out processes that are not core competencies to strategic partners that are better suited to drive efficiencies from their after-market service programs.

Use of strategic partners within the electronics industry, such as third party logistic providers (3PLs) or electronic manufacturer service (EMS) providers, has helped original equipment manufacturers (OEMs) improve service levels of after-market services (AMS). The purchasing function of execution within the electronics industry takes three forms: direct from manufacturers, franchised distribution, and independent distribution to support repair demand. However, many AMS programs fail to realize the full potential of their supply chain by failing to apply the same due diligence when selecting an open market supplier. To realize the gains of effective planning one requires best in class execution throughout the supply chain. Selection of best in class distributors that understand the AMS business model, possess the tools, requisite quality systems and strategic relationships that drive out inefficiencies and mitigate risk within the supply chain is critical in driving superior revenues and customer satisfaction levels.

In selecting a supplier as a strategic partner, it is critical that they possess the required insight into the AMS provider's business model with the proper focus on items that will drive the greatest value into the supply chain. By narrowing down the list of service parts to the highest cost and highest failure rate components, the best service parts supplier is able to focus its services and business model on supporting the line items that cause AMS programs the most difficulty. Industry research has identified storage and display as two of the highest cost and highest failure rate items impacting the AMS supply chain for computing and technology applications. It is important that the selected distributor structures its business model and services to best support those line items that give the AMS the greatest value in terms of market intelligence, cost reduction, quick response times, and re-distribution of excess inventory.

Identifying independent distributors that have the necessary tools that give the AMS supply chain visibility into the global market will prove critical in supply chain execution. An example of such a tool is software that allows customers to create pre-established preferences of price, quantity, utilizing both their internal and manufacturer's part numbers, which monitors global supply and demand on a real time basis. Such a database leverages the liquidity of the global market by aggregating LCD and storage supply and demand globally by matching past, present and future product supply against customer defined metrics. When a match occurs, the customer is immediately alerted. Such tools give AMS providers critical agility by having the ability to monitor global supply and demand on a real time basis. This greater visibility and control in supply, allows AMS providers to make critical adjustments to their supply chain, resulting in reduced stock outs, improved response times and a reduction in excess inventory.

In addition to analytical tools and global sourcing capabilities, the supplier should have relationships with component manufactures to fulfill end-of-life part number demand. As an example, for storage products this may mean being an authorized distributor of Seagate and Western Digital's factory re-certified hard drive programs. One of the major markets for factory re-certified hard drives is fulfillment of repair demand for Enterprise, Desktop, Mobile Computing, and Consumer Electronics applications.

The last requirement of a best in class distributor is mature quality systems that are ISO 9001:2000 certified. As well as a global logistics footprint and the resources to fulfill value added programs required in AMS fulfillment such as testing, repair and firmware updates, ensure that your suppliers track critical metrics on a real time basis, offering full documentation of their quality procedures. A few examples of metrics to look for include Customer Satisfaction, On-Time Delivery, Supplier Performance, In-Bound Non-Conformance and Sourcing Fill Rates.

Today's business environment requires a robust supply chain with flawless end-to-end execution that contributes to net revenue while delivering a superior customer experience. Selecting best in class suppliers with the requisite database management tools, strategic relationships, quality programs encompassing test and repair, global footprint and logistics capabilities will allow AMS providers to realize the full benefit of their supply chain.

About the Author: As Vice President of Business Development, Stephen Buckler brings a decade of industry experience to Horizon Technology. Along with being responsible for the advancement of the company brand, Stephen will align Horizon's quadrant focus with its strategic account development.

Reverse Logistics Magazine, Fall 2006