Measuring the Value of Optimized Inventory in Service Parts
The spare parts market is big business, with the global automotive spare parts market valued at US $160.69 billion in 2021 and projected to grow to US $264.68 billion by 2030. It is a complicated, availability-driven industry, but the prize for getting inventory distribution right is significant.
In a well-known study by behavioral scientist Peter Kriss entitled ‘The Value of Customer Experience Quantified’, he concludes that higher customer satisfaction from a better fulfilment experience can increase revenue by 1.4 times per customer. Simply improving the availability of A class parts by 3% directly contributes over 1%–2% to your top line. It also increases the chances of keeping that customer when they go back into the market for a replacement model by up to 21%.
“Logility has helped us achieve remarkable results including improved service levels, greater visibility and faster inventory turns.”
Lars Blomberg, VP Planning and Control, Sandvik
Plan Strategically Across All Spare Parts Planning Horizons for Improved Outcomes
Planning and managing service parts inventory is challenging as it requires keeping a small quantity of many unique items at any given time, creating a long tail across all product lifecycle stages. Low volumes and lumpy demand mean a standardized forecasting approach is inadequate; overstocking can lead to high carrying costs and obsolescence, and understocking can lead to stock-outs, spot buys and expediting charges.
And the complexities of coordinating multiple systems, DCs and suppliers across broad geographies is made more difficult without a single, integrated system that provides visibility across the extended spare parts supply chain.
For effective service parts planning across different horizons, you must understand the level of customer service you want to achieve, how much inventory that will take, and how you can minimize costs. This can be achieved through forecast-driven stocking strategies and a supply chain designed and configured for efficiency.
In their parts logistics division for example, Logility customer British Petroleum (BP) “fixed customer service” by improving forecast accuracy by 10%, in turn reducing back orders by 150%.
When planning for the short term, an allocation engine that already understands product and customer priorities can apply that information to inventory available and in transit. For delayed and constrained supply, scenario planning enables manufacturers to explore how various constraints will impact customer service.
“Covid-19 had a huge impact in the automotive industry. Together with Logility, we were able to quickly assess impacts by creating and reviewing scenarios based on the disruptive market signals. Using the native AI capabilities in Logility, we were able to offset the impact of the disruption and meet the increased demand and prevent reduced service levels.”
Marco Turk, Demand & Inventory Planning Manager, DENSO
When planning for the medium term, an effective sales and operations planning (S&OP) process can minimize gaps between sales orders and shipments. Inventory optimization eliminates stockouts and delays with strategic inventory replenishment at distributors, retailers and service centers. And a better understanding of product behavior can mean your ABC product mix and stocking strategy can better align with how those products behave in the market.
For longer-term spare parts supply chain planning, you need to be able to understand whether your service level goals can even be achieved with your existing supply chain network as designed. Modeling your supply chain to determine how many days customers are waiting for a product can facilitate better decision-making around your suppliers, transport flows and distribution network.
“The greatest single contributor to customer satisfaction – where aftermarket service is a factor – is the availability of the necessary parts to service the product.”
Aly Pinder, Program Director, IDC
Inventory Optimization Solutions That Meet Spare Parts Business Goals
Logility provides a digital supply chain platform that lets you visualize and co-ordinate your supply chain end to end. You get the visibility and data-driven insights you need to optimize your inventory while protecting and preserving your customer relationships and your margins. Contact us today to discuss ways to increase margins and improve service levels with an optimized spare parts supply chain.
Chris Mason is a seasoned growth marketer at Logility who draws on his 20 years of experience helping clients optimize their supply chains. Inspired by innovation, Chris is passionate about empowering sustainability initiatives and helping clients reduce inefficiencies in their complex global supply chains. Chris is a prolific writer on trending supply chain topics and a qualified member of the Marketing Research Society.