Logisitca

5 Steps to Service Supply Chain Excellence


By Dirk de Waart and Steve Kemper -- Supply Chain Management Review, 1/1/2004

For decades, companies have struggled with the seemingly competing forces of excellent customer service and best-in-class operational cost. The prevailing view dictated that customer satisfaction required a high price and aftermarket service was a necessary evil.
Onlyrecently have companies realized that they can run their service business as a profit center, making both their customers and their shareholders happy. The advantages of achieving excellence in service supply chain management—which includes those repair, planning, sourcing, and logistics activities associated with servicing the equipment-installed base—can be compelling. They include increasedcustomer satisfaction and retention, product sales, and service contract revenue as well as higher margins.
A recent PRTM service supply chain benchmarking study (2003 Service Supply Chain Scorecard) revealed some of the performance benefits achieved by best-in-class companies. These leaders enjoyed many advantages over the median performers, including 75 percent lower inventory per dollar of installedbase and 15 percent higher fill rates and on-time spare-parts deliveries.
Given the scope of the potential benefits, why haven't more companies capitalized on the opportunity to dramatically improve their service supply chain? There are six main reasons:
Lack of understanding of core processes and their effect on overall performance.
Service supply chain strategies and practices across and withinindustries are not standardized. As an example, consider the differences within the wireless industry. One major wireless carrier's returns strategy seeks to maximize the velocity of returned inventory and get the repaired product back on the shelf quickly. The company maintains swap stock (used product) at local stores and will provide a customer with a substitute before trying to fix theproblematic phone. By comparison, another major carrier attempts to minimize returns and does not allow customers to obtain a substitute phone from a store. The company asks the customer to work through the problem over the phone or on the Web with a live customer-service agent and uses an advanced exchange model for support. (The customer sends the phone directly to the carrier for repair and receives atemporary replacement phone. Once the phone is repaired and returned, the customer is expected to send back the "loaner" phone; if not, he or she is charged for it.) Although these strategies may be viewed as only subtly different, they result in significantly different operating processes, philosophies, and systems. The net outcome is a lack of common language or framework for comparingperformance.
Lack of operations management attention to the service supply chain.
Operations management traditionally has concentrated on optimizing the performance of the company's forward supply chain (planning, sourcing, making, and delivering new products) and not of its service supply chain (also known as the reverse supply chain). This focus is understandable given the level of goods and cost in theforward supply chain. But because operations managers have paid scant attention to the service supply chain, they have only limited understanding of this process and have accepted suboptimal performance To achieve breakthrough improvements, however, manufacturers need to transition from optimized factories to optimized supply chains. Accomplishing this requires a comprehensive understanding of theservice supply chain among all operational managers.
Failure to understand the cost leakages associated with suboptimal performance.
The inventory accounting practices for service parts vary significantly from company to company. Some expense their parts when they are moved into service inventory; others amortize parts over their useful life. Further, these practices ripple through how...