Inflation has been “the” topic for a year now. Due to inflation and uncertain global economies, organizations must be mindful of spending. The Service Supply Chain of an organization can be an integral part of that.
What are some of the greatest expenses in a Service Supply Chain? Well for sure inventory, but also the operational costs of procuring it, moving it, expediting it, counting it, writing it off, chasing it down, and so on (exhausting). There is no question that there is money to be saved. The main question is, can you reduce expenses and continue to meet or exceed your customer’s complex Service Level Agreements (SLAs). In this article, we will explore six of the best ways to do just that.
Why do Spare Parts Expenses Cost Organizations Money?
Spare parts can be expensive, and expensive to store, but they’re essential to keeping the world running. When semiconductor machines, servers, MRI, and Elevators go down, people start to notice. For example, if the machine which produces semiconductor chips goes down, then chips don’t get produced, shipped, and installed… you the consumer starts to notice that there is a shortage of laptops, cars, TVs, and on and on the list goes.
Lost revenue, negative customer experience, it is imperative that products like these are repaired quickly and that’s much of what makes your role in Service Parts tricky –service parts all over the world with varying SLAs that must be met. Failure to have the correct part in the right place can be catastrophic, but to be clear having excess inventory of the wrong parts is not only costly to the business, but won’t help solve the customers problem.
The world of service is dynamic, and many businesses have realized that spare parts = PROFIT to the business. How? Well part of it, they are changing their approach and strategy to how they manage and plan their parts. They are looking for the right tools and they are evaluating, questioning, and adapting their supply chain processes. With the rising inflation, labor costs, and limited labor availability, more organizations are asking tough questions of themselves and reflecting on how they better optimize their Service Supply Chains
You know that an effective spare parts strategy is one that aims to find that sweet spot between cost and Service Level Agreements (SLAs), but you also know that this is not as easy as it sounds because the SLAs all have different constraints you must meet, you have certain parts that break more often than others, you have some parts that expire, you have pandemics that shift use of just about everything, and more.
Bottom line is that you are likely responsible for millions worth of spare parts and that’s anything but simple. Trying to achieve this with a spreadsheet as a planning tool is nearly impossible.
Reduce Your Spend on Spare Parts
Reducing spare part expenses and the cost to service the customer does not just free up capital and resources, it also allows businesses to maintain or improve service levels without sacrificing quality. Here are six ways to reduce your spare parts expenses:
1. Accurate Demand Forecasting
How often is your team looking at the demand forecasts? If you aren’t forecasting demand accurately for your spare parts inventory, then it doesn’t matter how efficiently you stock them or where you store them. You will frequently be left with either an excess or a shortage of parts that could have been used on the production line if only more had been ordered in time.
Accurate demand forecasting can help businesses identify when more parts are needed and when less are required. This means that companies can reduce the amount of inventory they keep on hand while still ensuring service levels are met.
2. Service Parts Management Analytics
When businesses take the time to find out what works and what doesn’t when it comes to planning service parts, they are taking the first step in reducing risk. Organizations make it a whole lot easier on themselves when they have access to an automated way to analyze every part demand to determine if the material needed was available (a “hit”) or was not available (a “miss”) in the optimal location at the time a customer demand occurred. Even better when there’s an automated way to determine the root cause of each “miss” so that corrective action could be taken.
Evaluating and revising your stocking plan so that it becomes as efficient as possible, reduces misses, and reduces expedited transportation costs is imperative. Successful Service Supply Chain organizations not only meet customer expectations while optimizing inventory, but they use analytics to assess and measure the plan, always in pursuit of continuous improvement.
3. Supply Chain Visibility
It’s no secret that visibility in supply chain is a challenge. You’ve likely had these questions before:
- How are my suppliers performing to committed lead times?
- Are actual lead times adequately reflected in my planning assumptions?
- Are my 3PL providers performing to expectation or are their operating issues causing additional expedite expenses or customer satisfaction issues?
Technology and increased communications are the most effective ways to increase visibility. Increasing your visibility by having the best tools in place will help your analytics, your operations, your team’s sanity, and of course, your bottom line.
4. Automated Replenishment
Proper replenishment and redeployment practices are crucial to optimizing inventory across a complex network to ensure Service Parts Management organizations deliver on the service promise.
The traditional method of demand planning calls for human intervention every time more parts are needed. Yet this can lead to errors and expensive delays if businesses don’t have enough staff members on hand. Automated spare parts replenishment eliminates these issues by automatically predicting future customer demands so that no excess inventory is ordered.
5. Strategic Location of Inventory
When it comes to supply chain logistics, many businesses overlook where spare parts should be kept. Inventory storage location plays a vital role in how quickly and efficiently you can access the parts needed to restore services.
There are three things that companies should consider when choosing a strategic location:
- How critical the part is to your business. Keeping inventory at the point of consumption will reduce transportation costs and improve response time but will add to inventory costs.
- How quickly and how often do you need to replace parts so that you can determine how many and where you should store your spare parts inventory?
- Remember that the temperature and conditions in which spare parts are stored impact their longevity and viability for future use.
6. Service Parts Management Software
Investing in Service Parts Management software can help companies save money by improving their forecasting and automating the entire replenishment process. Using a solution built for the Service Supply Chain reduces planning effort and leads to inventory optimization through improved service parts management.
Using excel for your planning needs will not suffice and can lead to inaccuracies due to inconsistency when transferring data between departments. Not to mention that those spreadsheets get so big that they crash relatively regularly.
When it comes to spare parts expenses, prevention is key. By taking the time to invest in spare parts planning software, businesses can ensure that they have the most accurate information possible when it comes to forecasting future demands and optimizing their inventory.
Organizations strive to balance inventory expenses and service levels when formulating a service strategy, but as you know too well, it’s not easy. This, in turn, will lead to significant cost savings and a better overall customer experience.
When it comes to spare parts inventory, businesses should always remember that accurate forecasting, stocking, and automated replenishment solutions are critical to preventing stock shortages or excesses. By taking the time to invest in analytics and by strategically locating inventory, companies can ensure that they have a well-oiled machine when it comes to spare parts.
Investing in Service Parts Management software, such as Prophet by Baxter Planning, reduces risk by automatically predicting future demands so that no excess inventory is ever ordered.
This investment may be the best way for your business to save money while also increasing revenue over time because it will provide all the insights needed to make smart decisions about what products are needed and when.
Saving this money can help safeguard the organization from inflation and recession, but there are also other valuable investments that can be made with those savings, check some additional ideas here.