This is part one of a three-part discussion on Total Cost Optimization, Baxter Planning’s unique, proprietary optimization approach to service parts planning.
In this article, we’ll discuss the often-overlooked cost of service parts logistics, the costs a company incurs when a part is not in the right place at the right time, which we call Stockout Costs. I’m sure you’re all saying to yourself, “we don’t overlook this, I get weekly/monthly reports from my logistics team of how much we’re spending on expedited shipping, such as Next Flight Out (NFO) deliveries and overnight deliveries from my DC.”
That’s a great start! Every service parts logistics organization should be tracking this and looking for trends or unexpected changes in operational expenses. Perhaps you have even started creating groups of parts and locations where you have manually adjusted target service level goals to minimize these costs by trying to balance the expense of inventory with a reduction in these operating costs.
Wait, did I just say “manually adjusted” in a document about service parts planning?
If you are MANUALLY adjusting or arbitrarily setting service levels targets in your planning tool or spreadsheet for groups of parts, locations, or for key customers in an attempt to balance operational costs and inventory costs, then you really aren’t really optimizing! That’s the topic for the final article in this three-part series –when we’ll bring together all of the aspects of Total Cost Optimization.
The key point here is that even if you are tracking expedited shipping costs, that’s only part of the total cost of not having the right part in the right place at the right time.