Customer Care

6 Strategies to Optimize Global Spare Parts Management

By Dan Caldicott - September 10, 2018

The management of spare parts is a complex process. In global after-sales networks, distribution structures are multifaceted and include both local service centers and central repair factories. In addition, it is often difficult to predict when and where spare parts will be needed.

At the same time, the range of spare parts is wide, but order quantities are small and demand patterns fluctuate. Proven planning methods drawn from the classic supply chain do not work in the after-sales area. For this reason, service organizations responsible for the planning and distribution of spare parts face major challenges on a daily basis:

  • A large spare part inventory means high depreciation risks if the parts are no longer needed.
  • Although low stocks reduce the risk of scrapping, they can have a negative impact on the customer experience if parts are not readily available.
  • The centralization of manufacturing sites in countries such as China increases the complexity of logistics for making parts available worldwide.
  • Shorter product cycles and more model variants further increase the complexity of spare parts management.
  • Customer expectations are rising, which means that long waiting times for service due to slow deliveries for spare parts are unacceptable.

In the article Winning in the Aftermarket, which was published more than a decade ago in Harvard Business Review and is still worth reading today, the authors stated: “An after-sales network has to support all the goods a company has sold in the past as well as those it currently makes. Each generation has different parts and vendors, so the service network often has to cope with 20 times the number of SKUs that the manufacturing function deals with.”

The challenges in spare parts management are an evergreen topic for which there may never be perfect solutions. However, you will be able to overcome the biggest challenges by focusing on a few strategic approaches. In this blog post you will learn:

  • Why you should separate your after-sales supply chain from your forward supply chain.
  • How you can learn from supply bottlenecks and improve your spare parts planning.
  • Why you should check spare part inventories, even if they are not your own.
    How to ensure the availability of spare parts when introducing new products.
  • How the intelligent connectivity of devices via the Internet of Things improves forecast quality.
  • Why artificial intelligence could represent a quantum leap in spare parts planning.

Spare parts management is an integral part of the after-sales supply chain. If you want to find out why supply chain organizations are facing growing customer expectations and how you can respond with new strategies and technologies, we recommend that you start by reading this blog post.

1. Break Away from your Forward Supply Chain

Separate worlds sometimes have a positive aspect, especially for your company’s forward supply chain and after-sales supply chain. In organizations that do not clearly separate their product-related and service-related supply chain tasks, the after-sales organization is regularly losing out.

Product business is simply too dominant, meaning that investments in processes and systems primarily benefit the forward chain supply, with the after-sales supply chain lagging behind. However, the requirements for each one differ enormously. Therefore, as an after-sales organization you should work with your own budget and invest to meet your own requirements.

2. Fully Document Bottleneck Situations

Unfortunately, it is often the case that spare part stocks do not cover the service demand. The alternative would be high disproportionate investments in spare part stocks, which no sensible company would actually accept.

Look into the reasons for shortages and document them completely. In most cases, the cause is a delay somewhere along the supply chain. If you stay on the ball and analyze every delivery bottleneck, you will discover recurring patterns which, in turn, you can incorporate into your spare parts planning.

3. Establish a Process for Stock Checks

Planning is good, control is better. Though you run the risk of your service partners thinking you’re a micromanager, it is best to check spare part stocks regularly along the entire after-sales supply chain.

Spare parts are mainly considered to be a financial risk, especially when service centers and repair shops work on their own account. To ensure that your partners do not have too few spare parts in stock, you should keep control of stock levels. Even if you have no direct influence on the purchasing behavior of your partners, regular stock checks alone can have a positive effect – it suggests that you have everything under control.

4. Demand Delivery Commitments for New Products

When your company launches a new product, all priorities shift to ensuring a perfect launch. Production must guarantee that demand is met and that your logistics provide seamless distribution. But who is responsible for the availability of spare parts?

In order to avoid spare parts shortages right after the launch of new products, you as an after-sales organization must require binding delivery commitments from your colleagues in product planning when launching a new product. It is difficult to predict how new products will behave, which makes it all the more important that your production can supply spare parts at short notice if required.

5. Improve Forecast Quality Through Intelligent Connectivity

The need for spare parts is determined by demand patterns that are difficult to predict. The biggest unknown factor is the behavior of end users, since every customer uses their product differently. Service requirements can vary greatly depending on the conditions under which they use their devices.

With increased connectivity thanks to the Internet of Things, we are taking a big step forward towards solving this problem. Intelligent connected devices equipped with fine sensors send signals to the service organization, which can then be used to forecast the demand for service and spare parts more precisely. This approach is still a long way off, but the concept is promising and the technical conditions are already in place.

6. Learn to Trust Artificial Intelligence

Specialized software providers have been working on algorithms for modeling demand behavior in spare parts management for years. Let’s face it – the big breakthrough was a long time in coming. The planning parameters are too varied and the demand patterns are too unstable. It’s clear that this challenge cannot be overcome with rigid algorithms.

On the other hand, machine learning opens up a new perspective. Artificial intelligence can automatically process and independently get to grips with large tasks containing vast amounts of data. Whereas previous software solutions failed due to the complexity of spare parts management, new attempts at a solution are promising: millions of spare parts variants, fluctuating error rates and other variables – all this is a classic case for artificial intelligence.

Specialized outsourcing providers can support you in spare parts management. Many companies cannot afford to invest in their own know-how nor in systems for spare parts planning and distribution. Read this blog post to find out why after-sales outsourcing could be a superior alternative.

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About the Author

Dan Caldicott

Dan Caldicott is Head of Global Supply Chain at B2X.