Back to Basics: The Fundamentals of Inventory Optimization Part One

As manufacturers around the world navigate the ‘new normal,’ optimized after-sales service operations are becoming more important than ever. In fact, according to a recent Deloitte report, after-sales service continues to be a “consistent revenue source and profit stabilizer” and the manufacturers that place an increased focus on service have “outperformed their peers and exited past crisis stronger than before.”

In Syncron’s ‘Back to Basics’ series, we are highlighting the fundamentals of after-sales service operations and how a focus on the basics can lead to sustained success. (Check out the first post in the series, “Back to Basics: The Fundamentals of Price Optimization”).

In this post, we’ll specifically focus on inventory optimization. Check out our service parts inventory management tips below and stay tuned for additional posts in the series!

Common Challenges

Managing parts across the service supply chain faces many unique challenges, including:

  • Managing customer expectations. When a customer’s product or equipment breaks, the expectation is that it will be back up and running as soon as possible. Manufacturers must be able to support a high service level of a very long product lifecycle with complex parts.
  • Purchasing and inventory for after-sales service. As production volumes increase, suppliers are less interested in lower volume after-sales parts of highly engineered products. There are only a small number of suppliers that may be able to meet manufacturers’ needs and produce specific components.
  • Long lead times and slow-moving parts. This can lead to issues with forecasting and demand planning.
  • Volume of parts. With products that can have lifecycles up to 30 years, using Excel or Access to manage spare parts for such a significant length of time can be difficult.
  • Repairable parts. Parts that go out of stock, are refurbished or repaired, and then come back into stock as an alternative to new parts adds complexity.
Performance Monitoring and KPIs

The first thing manufacturers need to manage and measure at all times is a fill rate or availability metric. Typical things to focus on include fill numbers for single echelon networks and system or network level fills for multinational networks. Service leaders should also keep a close eye on cost and constantly measure investment to determine ROI.

Additional performance metrics include segmentation, backorders, forecast accuracy and planner metrics. 

Forecasting and Demand Planning

When thinking about forecasting and planning, it’s important to consider what it takes to keep demand stable and consistent throughout a product’s lifecycle.

The most stable demand is typically in the middle of a product’s lifecycle, and oftentimes basic tools like spreadsheets will suffice to manage spare parts. However, the areas where forecasting and demand planning can have the biggest impact are beginning and end-of-life. This, coupled with macro-level factors like seasonality, is when a more sophisticated spare parts planning solution is beneficial.

For example, in the agriculture industry, there is a very defined planting and harvesting season, which leads to seasonal spikes for certain products. These spikes can be consistent based on time, but can also be erratic based on weather or other independent factors. So, being able to plan for and understand these patterns is critically important.

In dealer or distributor situations, the OEM sees demand as dealer or distributor demand, not always end-customer demand. This can create challenges when not using a solution that can integrate dealer and distributor data as part of forecast planning.

Check out part two of this post, where we discuss stock strategy, optimization and obsolescence policies. If you need help with service part inventory optimization, learn more about the value Syncron InventoryTM can bring to your business today.