SCDigest Editorial Staff

The News:  Supply Chain Digest got the chance to review a new report from European researchers Transport Intelligence that analyzes the market and key trends for service parts logistics by technology-related companies in Europe. Though primarily written with the Logistics Service Provider in mind, the report has a number of observations and insights valuable for companies managing service parts supply chains.

The Impact: The report notes the growing importance of service parts business in supporting the bottom lines of most high tech companies, and that most are putting a lot more effort into optimizing their parts delivery networks and performance than they did a few years ago. Different models and relationships with logistics service providers (LSPs) to support parts delivery are emerging, with large tech companies in Europe (IBM, HP) playing LSPs off against each other to control costs, and some tension between neatly “packaged” services offered by LSPs and the need for customized programs.

The Story: The report (Global Service Parts Logistics in the High Tech Sector), notes the growing impact of service operations on a company’s profits. Citing data from a recent study by Deloitte Consulting, the numbers are actually eye-opening, given the relative inattention many companies pay to the after-market supply chain.

The report notes that “From a supply chain perspective, the importance which manufacturers are now placing on the service side of their business has led to much more stress in the system, as locating parts close to customers can lead to vastly over-stocking.”

The service parts supply chain is very different that those for most finished goods networks. They are typically characterized by irregular, intermittent and largely unpredictable demand. “For large periods of time a particular part may not be required, but when it is, it is required very quickly to minimize what may be high levels of consequential loss if, for instance, a production line or server goes down. It is very difficult to forecast just when this is going to happen, and therefore a very flexible system is required if levels of customer service are not to be compromised.”

LSP Market for Service Parts Logistics is Large and Complex

A growing number of technology companies use LSPs for some element of their service parts supply chains, often nearly all of it. The range of services provided and contracted is wide, and includes the following:

• Forecasting and inventory management
• Parts delivery to customers
• Collection and/or return of defective parts/products
• Management of Returns Management Authorization (RMA) process
• Repairs and refurbishment
• Technical assistance (call centers)
• Engineering Management

The LSP market is itself complex, with parcel carriers such as USP, FedEx and DHL vying for the market with LSPs such as TNT, Cat Logistics, Kuehne + Nagel, and many other large LSPs, plus hundreds of smaller players. The report says some contract manufacturers are also looking to provide service parts management capabilities, adding another option to the mix.

The report notes that in the past few years, the market has seen the rise of “global integrators” pitching a single source solution to clients. But, it says, that does not mean the LSP has all the required capabilities and infrastructure in-house: “They may manage the warehousing aspect of the role as well as provide a level of IT, but in many cases their own networks are still not of the quality that they can guarantee to meet the most exacting of Service Level Agreements (SLAs) in every market. To overcome this issue, they will themselves contract national or even regional operators in markets where they are weak. This means that they have to have a strong quality control program in place as regards service, security, facilities etc.”

Who Has the Clout in Service Parts Logistics – the LSP or the Customer?

It is not clear how many companies are using the “global integrator” model. The report notes that some of the largest technology companies, such HP and IBM, contract with many LSPs – in IBM’s case as many as 200. “It appears to be the case that the power is shifting away from LSPs towards IBM and HP. These companies have a very aggressive logistics purchasing posture – playing off one large LSP with another,” the report notes, though HP and IBM outsource nearly all of the actual physical storage and delivery functions.

Standardize or Customized Service Parts Networks?

The report notes that many LSPs would like to plug technology companies into their “standard networks”, while some of the larger technology companies demand more customized solutions. The report notes: “Usually it is only the biggest [technology] companies which are able to demand customized solutions from service parts logistics providers. Small to medium sized players are most often satisfied by a generic, menu driven approach. They can pick and choose a range of options provided by the suppliers, but not necessarily fulfilling their complete set of requirements. Many SPL providers are also happier with this plug and play approach as it reduces sale cycle time which is rarely costed fully into a customized solution.”

The report also nicely summarizes the various delivery service requirements:

• Next business day: Typically used to replenish forward parts stocking locations.
• PUDO/Sunrise: In this model parts are dispatched overnight from a regional distribution centre to be delivered at a manned or unmanned Pick Up/Drop Off point (PUDO). The delivery is usually fulfilled by 8.00am (‘Sunrise’ delivery) to allow the engineer to pick up the parts before they set off on their day’s schedule. The use of “unmanned” PUDO delivery is increasing due to better track and trace technology.
• In-night Delivery: In this instance delivery is achieved typically prior to 6.00am to defined addresses. In many cases this could be the home of the engineer where parts would be dropped into a car boot/trunk. It could also be to a garage or a customer site with the courier having key/security access, etc.
• Emergency: For emergency deliveries of ‘critical’ parts, fulfillment can be undertaken by air or road. For long distances, parts banks are usually located at the main airports and ‘Next Flight Out’ or indeed “Best Flight Out” services are provided.
• Smart or Technical Couriers: For some levels of repair, it is possible to train the delivery courier to install the part as well as deliver it. This obviously saves on the cost of dispatching an engineer and/or ensuring that the part arrives with the engineer prior to or at the same time as the engineer.
• Collect & Return (C&R): The customer will typically call up the contact centre, which will direct a courier to the customers’ premises to pick up the defective product. This is then dispatched to a repair centre where it is fixed and then dispatched back to the customer. Theoretically this can take just a couple of days, minimizing downtime for the customer, whilst providing the manufacturer with a more cost efficient way of fulfilling warranty requirements.

The report covers a wealth of other ground, including detailed analysis of requirements and strategies by different industry segments, profiles of the service parts networks of leading technology companies, and profiles of the strategies and capabilities of leading LSP companies.

Do you see companies investing more in their service parts supply chains? What’s needed to improve performance there? Anything in this summary catch your attention? Let us know your thoughts at the feedback button below.