February 2004 | Commentary | 3PL Line

Pulling the Profit Lever of Spare Parts Logistics

Tags: 3PL

Like many supply chain professionals, you probably rarely, if ever, consider the world of spare parts logistics. After all, why should you? How could you know that strategic logistics planning of your spare parts inventories will increase revenues, reduce costs, improve profitability, and have a direct impact on both the top and bottom line, while significantly affecting the overall success of your business?

To those who have already pulled the profit lever and are benefiting from effective spare parts logistics management, it's a no-brainer. To those not in the know, it's an opportunity. Several blue chip companies are currently reaping benefits such as more than 99-percent first-time fill rates, 99-percent service levels on two- and four-hour response time contracts, and dramatically increased customer satisfaction ratings.

Tapping Into Spare Parts

Closely tracking your spare parts cycle impacts your ability to meet your reliability goals, dramatically improve customer satisfaction, and increase productivity. While spare parts impact several critical areas of your day-to-day service operations, these parts are also vital to supporting your long-term, automated supply chain solutions and communications networks.

In a nutshell, spare parts logistics is the key component to the overall effectiveness of your spare parts inventories and a key profit lever to your business.

The world of spare parts is very different from most of the supply chain in dimensions of time, sourcing, cycle management, planning and sourcing.

From a time perspective, many industries have seen their service response times change from a next-business-day model to a same-day model, and from same-day to within hours or minutes. The next-business- day model can be handled by a single distribution center, but a two-hour response time situation dictates that parts must be within a short driving distance—zero to 120 miles.

If the parts are inexpensive, a popular option is to give them to your service technicians as "trunk stock." But for many high-technology companies, these parts are quite expensive and trunk stock is not appealing. Therefore, a strategic network of distribution centers is needed to store the parts in close proximity to their client base. The problem is further compounded when you consider that some of these critical parts are supporting older/legacy systems or tools that are no longer manufactured.

Cycle management is the next dimension. Finished goods go out and one expects a small percentage to come back to be refurbished and resold. When spare parts are sent to fix a problem, there is nearly a one-to-one relationship for returns.

This return process—or reverse logistics—is a critical component. The faster the service provider can get parts back, the faster the parts can be fixed and put back into circulation, reducing the amount of new product buys or the waiting time to repair a broken piece of equipment.

Sparing the Hassle

Because many leading companies do not have the luxury of downtime, they are turning to reliable and experienced third-party logistics providers to help develop these networks. The 3PLs help ensure that the right parts get to the right places at the right time. They also ensure that response time contracts are met, or even exceeded, and that the defective parts are accurately retrieved and rapidly repaired as needed.

Finished goods planning is based on demand and life cycle management, while spare parts logistics planning is predicated on parts failures. This means one must analyze component reliability and the frequency of failures. The 3PL uses statistical tools to calculate how many parts you need at any given time, anywhere in the world.

Only a small cadre of companies can truly support manufacturers and service providers with the scope of service and care needed for effective critical parts logistics management. These companies have the depth of strategic locations, coupled with stringent inventory control and the technology needed to track and trace service parts throughout their lifetime.

After all, it is value, velocity, and visibility that will help you exceed the goals of your customers.