What is so strategic about spare parts?

By Pamela Wiseman, TFI Senior Operations/Supply-Chain Consultant

Until now many tech companies approached the warranty and product service parts of their business as a functional necessity –- far less glamorous than new-product development or even supply-chain management. But today’s industry leaders are finding new business reasons to strategically approach global service depots:

- profit
- competitive differentiation
- cost-effective logistics
- shorter response times
- environmental compliance
- reduction of cost of goods sold through reuse
- lower inventory levels

Better service is a path to higher revenues
I had a first-hand view of the significant business value of a top-notch service business in 1998 when, as Director of Field Service Operations for a company supporting printed-circuit-board assembly equipment, I observed that whereas customers interact closely with the sales team in the beginning of the relationship, the lasting impressions and loyal relationships are formed after the sale. Customer service is tantamount to gaining repeat sales and generating customer satisfaction. Even when faced with a significant quality issue, customers will remember how responsive the service was and how the issue was handled –- that is what makes the lasting impression.

Just how strategic was the service business? During the bubble of the late 1990s, my company’s reputation as premier provider of service had tangible value prompting customers to choose our products, often regardless of price and without sacrificing margin on spare parts. Other equipment providers made significantly less investment in 7×24 2-hour parts availability and quick-turn repairs, and their sales suffered.

Cross-functional, life-cycle strategies
Servicing equipment is yet another area where operations, manufacturing, supply chain, logistics, and environmental strategies come together into one strategic whole. Companies that are truly optimizing value across products’ life cycle incorporate design for service (DfS) in their new-product-development processes, requiring an intense cross-functional team approach and consideration of the business and marketing drivers throughout the product life cycle. Strategies deployed across the life cycle can match parts availability and even encourage customers to purchase the newest technology!

How You Can Engage
Currently, we at TFI are analyzing tech companies’ service-depot strategies and measures of success. We are documenting how companies determine and establish KPIs (key performance indicators) for service depots and the effectiveness of these measurements. We are weighing the relative merits of using numerous customer-focused depots, 3PL (third-party logistics) services, profit-and-loss or cost-center business models, service offerings (same day, 4-hour, etc.), and geographical preferences. Some metrics are related to inventory, turn-around time, customer satisfaction, and repair success.

If you are involved at a mid-sized electronics company in the areas of Customer Service, Spare Parts/Aftermarket and/or Support, then please talk to us. We will interview you by telephone (ensuring that your comments are not linked to your company) and send you a complimentary summary of aggregate positions and trends. Contact us today to schedule an interview.

Posted by Pamela J. Gordon, April 9th, 2010