The long tail inventory management problem requires using the right demand planning method, and is more challenging in an aftermarket parts and service supply chain than in a high volume manufacturing or distribution supply chain. Demand is lumpier and more intermittent, making it harder to develop accurate forecasts.
Globally, $1.5 trillion is spent each year on aftermarket and spare parts for previously purchased assets, such as automobiles, aircraft and industrial machinery. Aftermarket parts and services account for 8% of the annual gross domestic product in the United States, with U.S. consumers and businesses spending more than $700 billion each year on spare parts and services for previously purchased assets.
Planning and managing service parts inventory is challenging because it requires keeping a small quantity of a large number of unique items at any given time. Overstocked items can lead to obsolescence and under stocked items lead to stock outs, spot buys and expediting charges.
Increasing supply chain complexity from global business trends also aggravates the long tail. Sales that are geographically scattered occur in smaller quantities and require specialized products. However, other trends can affect a long-tail strategy, including:
- New product introductions
- The Amazon effect
- Multi-channel distribution
In this white paper, we will examine the drivers of supply chain complexity and outline recommendations to tame the challenges of optimizing long-tail inventories by using the right demand planning method for inventory planning and optimization, collaborative supply planning and other techniques to increase customer satisfaction and generate repurchase opportunities.