Many companies miss out on achieving maximum efficiency from their parts service inventory.
Product manufacturing organisations frequently use their manufacturing supply chain to support service parts. This often leads to conflicting priorities which results in compromise either for manufacturing or for service. By truly focusing spare parts processes on customer service, it is possible to improve customer satisfaction, increase engineer efficiency and, at the same time, lower spare parts inventory! Organisations adapt and transform to become fully customer centric. This means not only selling market leading products, but guaranteeing uptime, capacity or the continuous use of a customers’ product.
Service Parts Management is complex. An after-sales network must support all the goods a company has sold in the past as well as those it currently makes. Each generation has different parts and vendors, so the parts delivery network often must cope with 20 times the number of SKUs that the manufacturing function deals with. Our 2016 research found that, from a list of hundreds of challenges, more than 70% of Spare Parts Managers indicated that they had similar challenges:
- Inventory visibility – ability to track parts throughout the service lifecycle
- Managing the end of life of a part / product
- Quality of service spare parts forecasts - match service demand
- Balancing inventory across all stocking locations
- Siloed nature of the organisation
- Variability of part lead times
Regardless of the complexity and challenges, the potential benefits you can achieve by going for best-in-class in Service Parts Management is worth your while. Our research identified that the top benefits of Service Parts Management improvement are (1) improved customer satisfaction/retention, (2) reduced inventory carrying costs, (3) improved product uptime/availability, (4) increased service profitability, and (5) increased service revenues. Keeping these benefits in mind, it is crucial that Service Parts Management becomes a priority.
This case study provides practical insight into the typical challenges of setting up a global service parts management organisation and how to define the strategy. We also developed a handbook for service business leaders as a guideline on how to successfully start building a global service parts management organisation by:
- Providing a proven approach for defining the service parts strategy
- Introducing best practice frameworks and tools that help engage stakeholders and facilitate change
The current situation
The company referred to in this case study is a large multinational engineering conglomerate, operating in the food processing and pharma industry, with consolidated revenues of several billions of Euro in 2018, and which employs approximately 20,000 people worldwide.
The challenge
Originating from a manufacturing background, the company’s supply chain focuses on new machine design and build projects, with a service logistics network that has been established through varied acquisitions. Yet, despite having global presence under one brand image, limited sharing of best practices and resources has made it difficult for the company to provide a completely satisfying customer experience.
The challenge we identified was the absence of service parts management (i.e. outbound and return parts processes) because parts were taken from the manufacturing parts production and there were no dedicated service parts. The objective was to achieve best in class service parts management that would:
- improve customer satisfaction and retention,
- reduce inventory carrying costs,
- improve product uptime and availability,
- increase service profitability, and
- increase service revenues.
The Strategy
Undertaken as part of a larger service strategy review, we focused on the activities pertaining to service parts management, including:
(1) Assessing the service parts organisation
Noventum assessed the impact of growth and margins that new parts organisations may experience, focusing on solving customer satisfaction issues, improving growth, and beating the competition. The assessment was based on the Service Capability and Performance (SCP) Standards for Service Parts Management that provide operational benchmarking. In-depth interview sessions were held, and financial and operational data collected to get a clear picture of the performance of the service parts set-up.
(2) Defining the Vision for Parts Management
Noventum conducted a strategy workshop to compare the company’s current situation against that which it sought to achieve. The SCP Standards for Service Parts Management were used to demonstrate what the best practice for each topic was.
The topics discussed were Sourcing, Parts Order Management, Planning, Inventory Management, Logistics Model, Transportation Management, the Distribution Network and Master Data Management.
Having the SCP Standards for Service Parts Management at hand, the workshop sessions were supported and structured based on industry best practices. “It is a “ready-to-go” knowledge base and saves tremendous costs and time. It provides a focused set of tasks for us to improve the business”, described one of the company’s Project Managers. Best practices were discussed in the workshop, making it easier to compare the company’s current status to the agreed-upon vision of the future.
You can find more about the SCP Standards for Service Parts in the Service Transformation Centre.
The best in class model gives clarity to all stakeholders and avoids discussions about too many other unnecessary options. This is because best practices have consistently shown superior results for the companies that have been involved in identifying and describing the SCP Standards for Service Parts Management.
(3) Getting a decision from the management team
Based on the assessment findings and workshop conclusions, Noventum and the manufacturing company worked together and developed a vision and strategy. This included a roadmap detailing how the Service Parts Management model should look and how the desired outcome can be achieved. This was presented to the Management Board who accepted the recommended parts management strategy.
The result
Having the SCP Standards for Service Parts Management as a reference, the Project Manager was able to align his team on a shared vision, aiming to:
- Globally align processes (with central control)
- Centralise parts planning by specialists
- Consolidate main stock locations to central hubs to reduce inventory, outsource logistics and improve service levels
- Improve economies of scale
- Outsource non-core activities to a professional logistics company with much bigger economies of scale
- Reduce duplication/obsolesce of parts
A structured approach to building a global service parts management Organisation
Find the steps enabled by methodologies, tools and coaching available through our Service Transformation Centre here:
http://stc.noventum.eu/register
Don't miss the chance to gain access to Noventum's service expertise and best practices, tools and methodologies, all gathered together in the STC!