December 2002 | Commentary | Supply Chain Technology

Using Aftermarket Service As a Strategic Weapon

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Web-based inventory, supply chain planning, and forecasting tools are among the more important and growing applications in the supply chain industry. Within this maelstrom of supply chain management, customer relationship management, warehouse management, and ERP offerings, Atlanta, Ga.-based Servigistics is taking an aggressive position in aftermarket service.

"Global leaders such as Dell, Toshiba, EMC, and CNT use aftermarket service as a strategic weapon to gain competitive advantage by better serving their customers after their products are sold," says Mike Landry, founder and chief technology officer of Servigistics.

"In today's market, these industry leaders find that it's much less expensive to keep their existing customers happy than it is to find new customers. The goal of these companies is to effectively use their aftermarket service organizations to ensure customer satisfaction," he adds.

Not surprisingly, replacement or service parts are a critical element in delivering after-sales product service.

"It requires an inventory management process and infrastructure to order, stock, move, and fulfill critical service parts," says Landry. "Service Parts Management (SPM) is the solution that drives this operation to deliver each required service part where and when needed in the most efficient way."

Servigistics has built a portfolio of solutions that provide a decision support platform for everyone that impacts service parts operations—including logistics, planners, product management, sales, marketing, buyers, and suppliers.

Better service parts management allows companies to do more with less—and these efficiencies trickle down into financial as well as service metrics.

"Revenue increases with enhanced service capability, which accordingly translates to greater asset utilization and revenue for businesses that charge their customers or are subject to penalties according to product availability or up-time," says Landry. "Better part availability and fill rates means increased parts or service sales in competitive situations.

"Studies have also shown that good service generates more customer loyalty than even product quality," he adds. "With better SPM, companies understand the service operation's capacity and capability. This visibility and control can open the door to new service offerings, such as faster response times, or even entire new business models with vendors, dealers, partners, and customers."

Similarly, by optimizing the field or remote stock, there is less demand to rush parts to the point of need, thereby reducing expediting costs, Landry points out.

"With the right part, technicians do not have to make a second trip to the customer, which increases technician productivity," he says. "With the right stocking plan, companies can often reduce inventory levels by 20 to 60 percent. Lower inventory means less capital, less holding or carrying costs, and improved cash flow.

"By managing the process all the way from new product introduction to end of life with a SPM solution, there is less obsolescence and inventory write-offs," Landry says.

Servigistics enables the requirements for each part to be planned simultaneously at all locations within the network, rather than sequentially and independently at each stocking location.

"Servigistics' multi-echelon optimization technology can deliver a given service level in the field at a significantly reduced inventory investment," says Landry. "By balancing the trade-off between central and field inventory levels, multi-echelon optimization can deliver customer service expectations with less total inventory.

"Pending demand at supported field locations (demand not yet sufficient to trigger field replenishment) is considered in determining the central order point," he says. "Central inventory tends to shift closer to the customer until central begins to experience backorder delays. The system chooses the optimal central reorder point where further reductions would not create central backorder delays long enough to impact field service levels.

"Results typically range from 15 to 25 percent savings over the inventory investment required to achieve the same service level in single-echelon (sequential) planning," Landry notes.

To better define and calculate the potential dollar impact of each possible change in business strategy and environment on the service organization, Servigistics has created a series of "what-if" capabilities to test its applications' strategies and plans.

"The 'what-if' capabilities allow companies to assess the impact on decisions and changes before they occur," says Landry. It helps management answer questions such as:

  • How much does it cost to maintain my current level of service?
  • How would that change if I increased or reduced my service level?
  • How much would I save by switching to a new vendor who guarantees quicker lead times?
  • At what point can I no longer afford to accommodate demand for infrequently used parts at the regional level?

Additionally, Servigistics offers a set of forecasting alternatives that are configured to the varying requirements of different part and location attributes.

"Forecasts are calculated for every part at every location," says Landry. "Results include both the forecast and the expected variability, which is the key to managing service demand that is intermittent and hard to predict."

Important features include:

  1. Best fit forecasting automatically analyzes patterns in the demand history of each service part at each stocking location, and selects the forecast method that delivers the most accurate results.
  2. Leading indicators forecasting looks at product BOM, customer contracts and locations, and causal factors. It can even self-adjust the expected usage rate by looking at actual demand and failure rates.
  3. Seasonal profiles can be created and applied.
  4. Configurable "guard rails" automatically monitor forecasting accuracy and alert users of important exceptions. This way, users can avoid stockouts or excesses at the earliest sign of trouble.

As for the future of SPM, Landry sees great potential. "The focus on service parts management is in its infancy. Currently, less than five percent of companies that would benefit from improved service part management are capitalizing on this opportunity," he says.

For more information about Servigistics: www.servigistics.com.

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