Effective Service Parts Logistics Management Is Key

By Bill Pollock, chief research officer, The Service Council, www.theservicecouncil.com, wkp@theservicecouncil.com

According to Strategies For Growth, a recent survey on service parts logistics management shows that it’s a key component of any field service operation.

The results of The Service Council’s 2011 service parts logistics benchmark survey, conducted by official research partner Strategies For Growth, clearly underscore the importance of effective service parts logistics management. In fact, nearly 88% of respondents cite effective service parts logistics management as key to their company’s financial performance, and 93% believe that it also plays a critical role in building customer relationships.

The survey focused on numerous areas, including key market drivers, top organizational challenges, principal actions being taken, and plans for supporting overall field service operations (i.e. through outsourcing).

Key Market Drivers
Nearly two-thirds of survey participants cite both the need to enhance the customer experience (66%) and the need to reduce or contain costs (65%) as the top two drivers in improving service parts logistics operations. This corresponds directly to the findings of The Service Council's 2011 field service benchmark survey conducted earlier in the year. Fifty-one percent also cite the need to reduce or minimize service parts inventories as an important driving factor that goes directly to the orgnization's bottom line.

Top Organizational Challenges
However, regardless of how strong a service organization's performance is, it must still be able to effectively manage all of the related functions that ultimately support the customer — including service parts logistics. In fact, 53% of survey respondents identify the need to improve the speed/velocity of returns as the number one challenge they currently face with respect to parts management. As 36% of respondents report year-over-year improvement in the speed of parts returns, it is evident that some organizations are successfully addressing this key challenge. Yet, a disappointing 26% of all respondents report that they either "don't know" or "don't measure" this important key performance indicator — a critical oversight that may ultimately inhibit their ability to reduce otherwise escalating parts-related costs.

Principal Actions Being Taken
Fifty-eight percent of respondents report that they either have or are in the process of developing standard, formal processes for managing their organization's service parts logistics operations. Forty-seven percent are also focusing on improving spare parts forecasting and planning, and 42% are investing in new technologies to automate the reverse logistics flow. Many respondents that have not yet undertaken these strategic actions indicate that 2012 will be the year in which they do so.

Plans to Outsource Service Parts Logistics
The pressures on service organizations with respect to managing service parts logistics operations are significant — and not getting any easier. The ability to cut costs internally is diminishing, and organizations can ill afford to have their overall customer relationships suffer as a result of ineffective logistics management. As a result, a growing number of firms either have outsourced or are considering outsourcing their service parts logistics operations to companies that specialize in parts planning, inventory management, and reverse logistics. In fact, 67% of those presently supporting their parts logistics operations through the use of outsourcers report the need for two or more outsourcers to handle key portions of their reverse logistics processes.

Choosing the right outsourcer can greatly impact both customer relationships and the bottom line, so the evaluation process used to select the appropriate outsourcer(s) is critical. At 69% response, industry expertise is the number one factor used in evaluating outsourcing firms, far eclipsing other factors such as anticipated outsourcing costs (48%).

The results of the survey also clearly indicate that, while some of the processes and technologies required to manage service parts and reverse logistics operations can be developed and executed internally, many organizations still opt for the strategic use of highly vetted supply chain partners to manage these critical activities. However, regardless of which processes are developed and managed internally vs. outsourced, one thing remains entirely clear — simply delivering basic or core capabilities is not enough to succeed in an increasingly sophisticated global marketplace. To truly impact the bottom line, enhance the overall customer experience, and stake out a competitive advantage, service organizations need to provide the value-added capabilities desired by customers and supported through the use of established, well-managed service parts logistics organizations.