High Velocity, High-Tech Service Parts Logistics: Inventory Management

Best practices in inventory management support mission-critical equipment.

Imagine a scenario where a data center becomes inoperable due to malfunctioning equipment. When downtime equates to crippling the operations of a financial enterprise, a communications network, or a hospital’s MRI testing capability, there are significant ramifications that impact outcomes. Having this equipment consistently operational is of utmost importance, and time is of the essence.

As such, high-tech manufacturers, system integrators and service providers that develop and support complex data storage, networking, point-of-sale and other high-availability equipment, need a reliable pool of service parts available to make necessary repairs at a moment’s notice. These organizations are committed to aggressive service level agreements (SLAs) that guarantee consistent uptime. When there is a failure, they are obligated to have these systems operational in a matter of hours. Otherwise, stiff financial penalties, jeopardized customer relationships, or worse, loss of business can occur.

A supply chain that can ensure parts are available to field engineers, or directly to end users, as quickly as possible is imperative. This is facilitated by mission-critical service parts logistics: a unique specialization that necessitates a combination of velocity, precision and accuracy to guarantee that service parts will be in place and installed within two to four hours.

In most cases, high-availability service parts logistics is not the core competency of high-tech companies and service providers. They do not possess the resources and personnel necessary to fulfill these challenging demands. To be effective, service parts management requires a global footprint of strategically located stocking and distribution facilities, supported by advanced technology systems and controlled by an experienced workforce.

Manufacturers and service providers are focused on developing new technology, supporting a customer base and acquiring new business. A third-party logistics (3PL) specialist solely focused on service parts can allow them to continue to concentrate on these important areas without compromising service levels.

IT Platform

The basis of a mission-critical service parts logistics operation is a reliable IT platform that can exchange inventory information between a 3PL partner and its client seamlessly. This real-time, global inventory management system offers the visibility necessary to provide a complete picture of parts in stock at each forward stocking location (including substitutes), quantities and bin locations.

Every service part must be meticulously tracked and accounted. Data must be regularly synced between the two entities to ensure consistent accuracy. To accomplish this, the flow of parts must be monitored and information exchanged automatically without delay.

Uniform access, regardless of location, is also key, so that, no matter where transactions are conducted or data uploaded, all information is held on one comprehensive platform. By using EDI and/or XML, the system can indicate what parts are available and where, so they can be located and distributed in a matter of minutes. To complete repairs within two to four hours, an operation must receive parts almost instantly.

Inventory Accuracy

To maintain mission-critical SLAs for a global install base, forward stocking locations strategically positioned worldwide must be available. These locations should hold adequate levels of service parts that correspond with the unique needs of each client and their end users. The amount and types of parts in stock are based on an understanding of the install base of equipment, demand history, failure rates, repair cycle and usage levels for each unit. There is a p

lanning element to make these determinations, which is based on data supplied by the mission-critical 3PL partner that manages the parts. To be effective, any technology, service or OEM organization must use this information to dictate which parts need to be where and how often replenishment should take place.

It is impractical and cost prohibitive to carry a full arsenal of service parts in each stocking location. A specialized 3PL can help determine the level of parts needed by location so that assets can be maximized. Money is wasted when too much inventory is stocked; conversely, service obligations can’t be met in a timely fashion if there are too few parts available. It is extremely important to manage this delicate balance to control costs, and this is an area where a service parts expert provides a competitive advantage.

Regular cycle counts of on-hand inventory at forward stocking locations will ensure items in stock correspond with the inventory management system. For mission-critical urgency, it is advisable to conduct these counts at least weekly to ensure parts are available when needed, before the pressure of expedited fulfillment becomes reality.

Physical Inventories

The more parts held and the more frequently they move, the greater the opportunity for human and/or system error. Accordingly, tight controls are required. In addition to regular cycle counts, which are a component of day-to-day operations, physical inventories should take place at least annually for additional validation.

Physical on-hand part checks act as another layer of quality control and serve as a baseline for routine cycle counts. They are also significant for financial operations to determine exactly what assets are on hand for accounting and compliance purposes. This is of particular importance to publicly held companies that must adhere to Sarbanes-Oxley regulations.

Although the process can be labor intensive and expensive, performing a physical count is essential to correct misalignment between on-hand inventory and the records of the inventory management system. They are extremely important when inventory is constantly moving at an accelerated pace.

With this in mind, physical inventories should take place as quickly and efficiently as possible when there is minimal inventory movement, such as during off hours, to help avoid the need for additional reconciliation. For the count to be as credible and efficient as possible, sound preparation and detailed processes are pivotal.

Consider the following tips to ensure thorough physical inventories:

• Counts should take place at least once per year;
• Each unit should be stored in a bin according to size and type;
• Items should be individually tagged for either manual confirmation or barcode scan;
• Organization is fundamental. Make sure all bins and tags are facing forward and clearly visible to speed the process.

It is essential to determine the root cause of any discrepancies and make necessary adjustments to processes accordingly. There must be a willingness to collaborate between the 3PL and client for ongoing improvement. Technology organizations should be open for critique, and 3PLs should be expected to provide objective information for the benefit of both parties.

Inventory Control

When managing high-tech service parts, careful consideration of storage duration is needed. Most parts are under warranty, requiring close attention to the amount of time they are on the shelf to avoid expiration before an order is executed.

To prevent this, a first part in, first part out (FIFO) approach is recommended. This means the part that has been on the shelf the longest should be the first to be distributed. This strategy keeps parts within warranty and helps avoid additional expense for repairs.

If there are only a limited number of service parts to manage, the FIFO process can potentially be handled manually. However, large volumes of parts require an automated process. Using a dedicated serial number control method for each device allows them to be tracked from initial storage to final distribution, which streamlines operations. Serialization can either be implemented by a client or 3PL. Regardless, it offers a tangible benefit to inventory control that is well worth the time and investment.

Mission-critical service parts logistics is based on the same sound principles of any effective supply chain network. The unique difference lies in the speed in which processes must occur. Any miscalculations or missteps will contribute to delays in repairs that can cost untold millions of dollars in a small fraction of time.

As with air traffic control, where there is also little margin for error, effective mission-critical service parts logistics requires precise management and complete visibility. Without these components, companies and their customers can suffer extended downtime and even serious penalties.


Doug Magnan is vice president of logistics operations for Choice Logistics, an outsourced service parts logistics provider for missioncritical, high-tech service organizations.

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