For decades, companies have focused on the finished goods supply chain. And while it is very important and contributes to a massive amount of revenue for any organization, there is another type of supply chain slowly growing in the background—the service supply chain.
As companies look to maximize their revenues, many have overlooked the massive revenue potential that the service supply chain has—until now. Many of the organizations we speak to are going through the transformative process where they are beginning to sell service contracts, uptime, and make money off servicing their clients. But just because you see the revenue potential doesn’t mean it will come without costs or process changes. One important process that companies need to upgrade is spare parts planning.
Signs It’s Time to Start Using Spare Parts Planning Software
Inventory on the rise – If your inventory is increasing, I am sure that you are very aware because finance is most likely calling or emailing frequently. While inventory will increase as you sell more installed base into the field, it should not increase at a rate of 1 to 1. The question is why is it increasing at such a fast rate? It depends on how you are setting target stock levels in the field, how you are forecasting for new purchase and repair orders at the main fulfillment locations, and how you are replenishing and rebalancing inventory in the network. If you are on spreadsheets, chances are all of that is manual and or not done frequently.
Excess Inventory – Many planners that are working on spreadsheets deal with what they refer to as “trapped” inventory left out in the field. The more field stocking locations an organization has, the greater chance they have for inventory to be shipped to a stocking location and sit there and collect dust. For example, at one point in time, your planner decided you needed a quantity of 10 of Part X in the Austin Forward Stocking Location (FSL). The part cost for Part X is $20,000 each; over three years you only used two of them. The other eight sat there and could have been used at a different FSL, but spreadsheets didn’t give you visibility to rebalance them. Now that part is obsolete, and you are throwing away $160,000 +shipping cost. Trapped inventory can be an even bigger issue if a planner has been urged to order more than needed to get a bulk discount. If the planner has spare parts planning software, they would be able to see that the bulk order is unnecessary.
[Related Reading: Top 4 Metrics for Asset-Centric Service Success]
Expedited Shipping – Customers, products, parts, service contracts, warehouses, logistics companies…so many competing processes and data; and key decisions to be made every day. In a spreadsheet environment, it is impossible to incorporate all the necessary data needed to create accurate target stock levels per part, per stocking location. What ends up happening? The planning team, or better yet logistics team, updates target stock levels once a year, maybe once a quarter using simple demand history data. In that year or quarter, new installed base is sold into the field, increasing probabilities of future failures. Since the target stock level process is lagging and not very accurate, it causes the need for trains, planes, and automobiles to expedite service material from the wrong place to the right place. Extreme costs are incurred every year on what we refer to as expedited shipping costs (seriously, millions of dollars).
Digital Transformation for Spare Parts
There’s a better way than spreadsheets. Adoption of a new spare parts planning solution will involve change management, but it is a must if your organization is serious about capturing current and future service revenue!