Keys to Managing the Service Parts Supply Chain

Keys to Managing the Service Parts Supply Chain

In our modern, on-demand economy, service parts and aftermarket supply chains aren’t just costs of doing business. They’re actually rich with opportunities for generating profits through proper execution, keeping customers’ lines up and running, and consumers’ lives moving. Providing the expected service, or getting the service you expect, is difficult to execute due to the unforeseen and uneven distribution of demand for post-sale parts and services; if the supplier struggles to maintain service levels, the customer will too.

Common Challenges with Service & Aftermarket Parts

Forecasting is a common challenge for the service supply chain, post-sale, for both the supplier and customer. No one can pinpoint exactly when a product will need service, and even if they could, defining how much of the service or which parts are required would be severely difficult. Service parts turn slower than production parts and are therefore more sensitive to abrupt spikes in demand, resulting in long lead times and extreme downtime risk.

Deploying resources to alleviate these risks is a challenge as well. The service may not only require a part or set of parts, but also the technical expertise of a representative in the field. This representative, or group of representatives, must be able to respond to a variety of different problems and customers, typically from a single location.

Less inventory doesn’t equal fewer products, either. The service parts supply chain includes a proliferation of SKUs that would make managing the inventory of a given production operation extremely complex, but this comes with the territory when guaranteeing service on the products sold, which depending on the lifetime of the product could span well over a decade.

The upstream to downstream flow of parts in the service or aftermarket supply chain is difficult as it is, but part of being a service provider is being able to accept failed or damaged parts in the opposite direction. The difficulty is felt on both sides because buyers don’t expect to need to return products and sellers don’t expect to receive returns.

Ensuring the customer is satisfied with their post sales service, or ensuring your own company is satisfied, means remaining dynamic and addressing these challenges.

Overcoming Challenges

To take on these obstacles, the service parts supply chain must have a clear distribution structure and strategy to respond dynamically to uneven demand. It must identify the risk of potential downtime and function not as a collection of individual commodities, but as one.

Remaining versatile can be done a variety of ways. A simple, but inefficient solution is to carry enough inventory to service every part ever sold, but doing so raises inventory costs and wastes a profitable opportunity. It’s better to treat the parts like a bank; have a plan to address runs of supply, but acknowledge that, most of the time, not every customer will need service at the same time. It’s also important to prioritize customers, ensuring that preferred customers are receiving the service they pay for. On the other side of that equation, if you’re the customer, it’s important to understand where you fall in that prioritization.

Strategy decisions regarding inventory levels or access to a supplier’s inventory must all be made to address the risk of downtime. Nobody wants to leave their car in the shop for weeks waiting for parts, and companies lose a lot of money when equipment is down for too long. Even software or internet access must have a backup plan, especially in the current economy.

It’s also important to not sell or source service or aftermarket parts like a variety of commodity groups. Doing so reduces potential synergies between human resources across different products.

A Profitable Opportunity

Understanding the upstream supply challenges is important to both supplier and customer. Just as a quality supplier will tailor their supply chain to reduce customers’ downtimes, so must each customer downstream. Finding a service parts or aftermarket supplier that fits the desired need is paramount to mitigating risk, and for suppliers, understanding the required prioritization and service level of the customer makes all the difference.

-Justin