Services Parts Inventories, Operations Costing Industry Billions

Aberdeen: Despite high profit opportunities, few companies have dedicated necessary resources and strategies to maximize services parts operations

Aberdeen: Despite high profit opportunities, few companies have dedicated necessary resources and strategies to maximize services parts operations

Boston — October 1, 2003 — A new study published jointly by Aberdeen Group and IndustryWeek magazine's custom media group has identified services parts management as a chief driver of revenue, profits and customer retention.

Service parts management is the process of planning and aligning service parts inventories, resources and processes to ensure optimal customer service and response with minimal risk and cost. However, the study, which examined aftermarket service operations of 115 enterprises, found that these operations are under-funded and under-performing at most companies.

"The aftermarket has become a key lever for competitive differentiation and profits," said Tim Minahan, vice president, Supply Chain Research, and author of the report. "The typical company provides support services and parts for an average of more than seven years after the initial sale. Quality post-sale service can not only contribute to an enterprise's top-line revenue, but is the key to securing customer loyalty, fostering the company brand and maintaining competitive differentiation."

The "Services Parts Management Benchmark Report" demonstrated that aftermarket parts and service have profit margins as much as 10 times those for initial product sales. And, aftermarket services account for 20 to 30 percent of revenues and about 40 percent of profits for most manufacturers.

Yet, the study revealed that companies invest less than 10 percent of revenues in service parts operations. As a result of this under-funding, study participants reported deficiencies in service parts inventory planning and forecasting, controlling excess inventories, maintaining required service levels and curbing unnecessary expediting.

Such factors lead Aberdeen to estimate that industry is missing out on billions of dollars in potential savings, sales and profits each year through inefficient management of service parts operations.

What can be done to turn lagging services parts management into a competitive advantage?

  • Aberdeen suggested corporations align and coordinate service parts planning and operations across and extended service network. Companies that did this were able to reduce inventory levels by 10 to 15 percent. These enterprises also reported half the number of stockouts of those coordinating service parts planning and execution activities at the local level.

  • Aberdeen also identified outsourcing of service parts management activities to logistics service providers as a successful strategy to drive improvements in service chain operations. While only 20 percent of respondents currently use logistics service providers to support their operations, those that do use them reported better service parts management than their peers. Specifically, they were able to increase inventory turns, reduce stockouts, improve fill rates and have 90 percent on-time delivery.

  • Next, the study recommended companies aggregate, classify and enhance their service parts data. Data should be cleansed and validated for accuracy and completeness. Then it must be normalized and mapped to a common classification scheme. "A company cannot begin to effectively mine and analyze service parts information for planning activities until such classification is complete," Aberdeen warned.

  • Finally, companies should automate service parts planning and execution with service parts management solutions. Such solutions can incorporate network visibility and event management capabilities with analytics and service-specific planning algorithms. They can also provide role-based access and alerts for stakeholders with the ability to make plans and decisions.