Spare parts supply chain model as a differentiator in the market
In various industries, the spare parts supply chain often is an important differentiator towards the competition. The spare parts business is considered as one of the main drivers to enhance customer satisfaction and generate repurchase opportunities: Spare parts operations are one of the key factors in ensuring favorable service for customers.
And while this makes the spare parts business an important and lucrative activity in a lot of companies, managing it from a supply chain perspective is far from an easy job. The complexity of the parts business is generated by its own unique attributes.
The life cycle of spare parts is typically longer than that of end-products and the total number of SKUs is very huge. Additionally, the demand for parts is relatively unstable and difficult to forecast. All posing enormous challenges to parts planning, purchasing, ordering, and logistics, among other operations.
There is no supply chain, where time is more critical than the spare parts supply chain. Response time and availability of spare parts become a critical component and are often more important than overall supply chain cost. Typically, important high value spare parts must be made available in a nearby warehousing location and logistical arrangements are required to reach the ship to site in the fastest and quickest reach time.
A spare parts supply chain manager must always trade-off the risk of downtime with high stock levels and fast, but expensive distribution channels. Hence, a thorough strategic design of the network is critical when answering these types of questions. Do I need regional warehouses, and what goods do I need to store there? Are there any spare parts that I can only source or produce in certain areas of the world? Do I keep more stock for these and where do I keep it? How will I transport and how do I make sure machine downtime in my factories is at a minimum?
Business case: Optimization of the spare parts distribution network
- Urgency to increase spare parts availability, global reach without increasing transport costs
- No balance between transport & inventory costs
- Massive amount of spare part SKUs, some IP protected
- No cost-efficient balance between sea-, air- & road freight
- AS-IS model: visibility on current situation + detection of opportunities
- TO BE model: sourcing & modal shift optimization
- Simulation model: full customer cost-to-serve optimization
- Implementation road map with milestones
- Full visibility on the gaps in the network
- Savings on transport costs of 12%
- Savings on inventory costs of 16%
- A powerful tool to optimize network on a recurring basis
- Powerful tool to justify change management