How To Manage Turbulence & Minimize Risk in Service Supply Chains

Across the Service Supply Chain (SSC), problems are infectious: When one node along your process goes awry, it has downstream, and even upstream, effects. The same is true for the relationship between the SSC and the world at large. From natural disasters to vendor delays and regulatory changes, outside influences create a considerable amount of turbulence for your operation.

To stay standing, you must anticipate the chaos and roll with it when it inevitably arrives. This article will explore how to develop adaptability and resilience as a service organization in today’s unpredictable world.

Accurate Forecasting for Erratic Patterns

Baxter Planning has decades of experience in Service Parts Management. Our team understands the importance of tools and guidance for service companies. This helps our team plan for unexpected events. One major example of “the unexpected” in the SSC has to do with forecasting.

How do you make sure you have enough inventory to meet customer demand when customers are unsure of their needs? Understanding data requires a careful balance of using lots of data and strong tools. This helps to analyze the data in a detailed and flexible manner.

Perhaps the most challenging piece of forecasting involves anticipating when your customers might experience outages or delays. Sometimes machines break and parts wear out in a predictable fashion, but these events usually come as a surprise. Your task is to minimize unexpected downtime for customers by providing a cost-effective backup plan – a difficult job.

Balancing the Need for Guaranteed Uptime with Cost-Effectiveness

The SSC needs your forecast to consider irregular demand patterns for materials that are no longer in production. These materials are not part of the production supply chain. This shifts the paradigm from “just in time” to “just in case.”

Make sure you have the right parts available in case your customers have a problem. This is important because your service agreements often require you to resolve the problem within a defined timeframe or risk penalties beyond unhappiness. This might be under warranty or an extended post-sale service contract. You may be required to stock up on legacy materials before they are no longer accessible from vendors.

However, you know it is possible to purchase so much additional material that you accrue an unnecessary financial risk by overspending on the parts themselves, by accruing storage costs, and by disposing of obsolete inventory.

Traditional forecasting methods struggle to comprehend the seemingly sporadic patterns and ill-structured demand patterns of Service Parts Management. Additionally, the SSC must account for reverse logistics and core repair considerations while forecasting across a complex network, from distribution centers to field stocking locations, all the way down to a technician’s trunk stock.

So, how can you guarantee uptime for the lowest dollar amount possible and how do you balance the risk between the two? Good forecasting starts by looking at the factors that impact how each customer makes purchases. This includes considering the variables that influence them and your ability to collect information.

Baxter Planning helps customers achieve confident forecasting with its Installed Base Demand forecast method, alerts, and expert support for continuous improvement:

The Installed Base Demand forecast method takes a dynamic approach to forecasting, using a predictive model that accounts for past, present, and potential future demand data. It captures demand spikes to enhance the lifecycle management of materials.
Forecast Alerts keep planners in the loop on exceptions by flagging data that falls outside of pre-defined limits. For planners who manage hundreds or thousands of products and materials, these alerts help organize and prioritize planning activities.
Continuous improvement starts with the use of a performance scorecard based on decades of experience, which helps us identify and recommend opportunities for improvement. Hit rate analysis being one area of continuous improvement that many service organizations find particularly helpful.

Diversify Partnerships to Minimize Risk

Another layer of complication around inventory accrual has to do with the way you source and distribute your materials. You might have a great plan for buying the right number of parts, but what if the supplier has problems? Your vendor’s problem becomes your problem. Since issues are infectious in the SSC, relying on a single vendor can cause a lot of pain.

That said, it makes sense to diversify your roster of vendors and distributors. When deciding who to work with and how many partnerships to form, there are a few factors to consider:

Pricing: If you work with multiple vendors, you have the option to compare prices between the two. This principle also comes into play when you assemble your roster of vendors in general: Search for the highest value at the most reasonable price.
Location: Although you want to avoid unnecessary expenses, going with the cheapest suppliers won’t always serve you. You should weigh the cost of materials with the cost of transit times. Plus, geographic diversification comes in handy in the case of localized disruptions such as natural disasters or geopolitical events.
Gravity of clients: It might also make more sense for you to align with a pricier vendor if they’re located closer to your biggest customers. You’ll feel more inclined to splurge on shipping costs to keep these clients happy, so opting for a vendor closer to them will save you on shipping. Furthermore, you may want to source from a cheaper vendor to service lower-impact clients or clients who do not require the highest quality parts.
Volume: A similar principle applies when you consider the volume demands of various clients. Efficiency and reliability are key for your high-volume clients who require immediate, frequent attention. For them, you may want to opt for a vendor that’s very proximal to their operation. For your slower, one-off clients, you could find it advantageous to source from a more remote vendor.
Strategic partnerships: Often, the relationships you form with your vendors are just as important to your business as the ones you form with your customers. The more synergistic partnerships you establish, the better, as each partner can bring a different flavor of value to your enterprise.
Expertise: Since each vendor has various strengths and weaknesses, an assortment can help meet your array of needs. For some functions, in-house sourcing may serve as your best option.
Vendor health: As we mentioned earlier, your partners’ problems can become yours. If a vendor runs into financial issues or loses operational momentum, you minimize the risk of their challenges impacting you by having multiple backups. To detect potential vendor downfalls early, you should conduct regular vendor audits and performance evaluations.

150 executives shared their vendor diversification strategy in the Service Council Report: 2024 Service Leader’s Agenda Summary Findings. Here are some of the results of their feedback:

In the SSC world, problems might be infectious, but success is contagious as well. Are you ready to experience the compounding effects of more intelligent forecasting and more strategic partnerships? Contact us to learn how Baxter Planning can help lessen the effects of potential disruption today.