Inventory Planning & Service Execution: Part Two
Service Supply Chain Optimization Software
You may have heard the phrase “statistics don’t lie.” Well, we’ll assert that that’s not entirely true. As we covered in part one of this blog series , many companies struggle to harmonize their Service Parts Planning (SPP) and Service Execution (SE) operations. This disconnect leads to a number of inefficiencies and unnecessary costs which often remain hidden in the data. It’s a prime example of how the contextual rendering and presentation of statistics can be misleading.
Let’s say a customer paid for a four-hour service level agreement (SLA), and Part A just failed. The planned primary location doesn’t have Part A in stock; however, based on SPP optimization logic, a fully compatible Part B is available. Part A is stocked at a distant location and can be shipped next flight out or overnight to the client location. Ideally, the SE system should automatically recognize that Part B is available and should be used to support the client. In spite of this, what often happens is that Part A is selected and expedited to the customer. It arrives on time to meet the SLA, and is therefore measured as a successful hit.
This simple example occurs worldwide thousands of times a day. In general, companies can track and measure inventory fill rate and part availability (when the part was delivered on time). But in most cases, companies can’t determine if a functionally equivalent part was available and they select “any part” delivered in “any manner/from any location” instead.
As you might imagine, a measurement system that allows “any part in any location” to be used and measured as a “success” without consideration of personnel, transportation, and other costs will yield vastly different bottom line results than an integrated Service Parts Planning and Execution model. The latter focuses on ensuring that service parts demands get filled from the primary planned stocking location.
Measurement and Root Cause Analysis
Operational reporting and the review of parts fill rate, inventory cost, and transportation cost metrics intend to improve overall bottom-line results. If you limit your review of these items to a macro level only, they won’t drive continuous planning and execution improvement. To get a true measure of success, firms must analyze every demand for a service part. Each failure to source the part from the optimal, primary planned location should classify as a sourcing failure. Given the complexity of the typical service parts operation and the volume of material requests, most firms can only manage this with an automated solution.
Via detailed parts level analysis, “part misses” may be categorized into various root cause categories:
- Planned: The planning system made the choice not to stock the part at that location.
- Data Failure: Service parts are missing from product bills of material or demand is captured incorrectly.
- Execution: The planning system established a target stocking level at the required location, and when the on-hand inventory level fell below the target, the replenishment process ordered more. However, the material couldn’t be acquired per the committed lead time due to issues with the supplier, transportation, or the central warehouse.
- Operational: The part was available in the correct location, but that part wasn’t used.
Determining the root cause of each “part miss” is the first step toward improving results and lowering costs. The next step is to implement corrective action to ensure that the failure doesn’t happen again.
Each root cause leads to different SPP or SE corrective action paths. For example, the identification of:
- A missing part in a service bill of material may alter the optimal target stocking levels for that part number in multiple locations.
- An execution system failure to replenish material on a timely basis may identify the need for an alternative supplier for that part number.
- A missing product on a service contract will drive improvement of service level fulfillment for that contract.
As you can see, root cause measurement and corrective action plans provide the foundation for continuous SPP and SE improvement.
The Power of an Integrated Systems
Your Service Parts Planning and Execution platforms should provide the functionality required to optimize and automate the planning, parts sourcing, measurement, and root cause analysis processes.
Look for a suite of planning and reporting tools that:
- Determines the optimal logistics network for each of your locations.
- Calculates the optimal target stocking level for every part in each tier of inventory.
- Recommends purchase, repair, replenishment, and redeployment orders required to maintain all locations at their optimal inventory level.
- Bridges your SPP and SE processes to determine the optimal location and part number to fill a parts request.
- Analyzes every request for a service part to determine if a part was available or unavailable to fill the demand order, categorizes unavailable parts as a “part miss,” and accumulates these misses into a specific category.
- Recommends corrective actions to ensure continuous improvement across your Service Parts Supply Chain.
An integrated SPP and SE system, combined with root cause analysis and a proactive correction plan, ensure that your Service Parts Supply Chain is operating efficiently, the total cost of service is under control, and your data is accurate. Additionally, when your service parts execution process aligns with real-time planning rules, it can help drive call center productivity, improve fill rates, and reduce emergency transportation costs. You can compare customer service level measurements in Germany to calculations for North America. Root cause and corrective actions taken after a service parts miss in Atlanta will eliminate a similar issue from occurring in Singapore.
Just as an easy-to-miss disjunction between processes can contaminate your entire operation, minor tweaks to your daily decisions can cascade into a substantial, business-wide improvement. It all starts by taking a small step back from the minutia, then getting an honest look at it.
For more in-depth coverage of this topic, check out our whitepaper, “Service Parts Planning and Execution Optimization & Automation.”
If you’re in need of the best software combination for Service Parts Planning and Service Execution, look no further; Prophet and LynX have you covered! Contact us today to learn more about adding these best-of-breed saas products to your arsenal.
John P. Peterson III, CPIM
Enterprise Solutions Consultant
John is a supply chain professional with more than 30 years of experience; 25 years focused on the service supply chain. In 20 years at Baxter Planning, he has leveraged his expertise and experience to drive Implementations, Consulting, and Planning engagements.
In his current Enterprise Solutions Consultant role, John serves as a subject matter expert providing technical demonstrations and solutions development in support of our sales team. He continues to do extensive work on independent inventory analysis projects, to date identifying over $1B in inventory optimization opportunity alongside the opportunity to reduce service misses due to inventory shortages by over 30%. In 2019, John was named as a Supply Chain “Pro to Know” by Supply Chain & Demand Executive magazine.
Certified in Planning and Inventory Management by ASCM (formerly APICS), The Association for Supply Chain Management, John has served on the Board of the Dallas and Austin, Texas ASCM (formerly APICS) chapters.
John lives in the Austin, Texas area with his wife, Lisa, with whom he has twin sons. He enjoys spending downtime motorcycling through the Texas Hill Country, drumming, and ‘glamping’ around Texas.