Why you can’t afford to ignore the need for good spare parts optimization in today’s fast-paced manufacturing and distribution environment…and what you can do about it.
In the manufacturing or distribution environment, even a single missing part can wreak havoc on the production line that’s running 12 hours a day in an effort to meet the stringent requirements of the modern-day consumer or B2B buyer. A fork lift that breaks down, a conveyor belt that comes to a grinding halt, or even a dock door that refuses to budge can all impact a company’s ability to get the goods out of the door on time.
And let’s face it, we barely have the patience to wait two days for packages anymore, let alone stand by for hours, days, or weeks while the parts we need to get our machines up and running again are located, procured, and installed.
“No area within maintenance and engineering departments is so essential for success, yet so misunderstood as the inventory of replacement parts and equipment. Without a reliable, accessible supply of these materials, front-line technicians cannot carry out their daily tasks as efficiently and cost-effectively,” writes Dan Hounsell in Challenges of Ensuring Reliable Supply of Spare Parts and Replacement Equipment.
“Unfortunately, many managers do not have control of their organizations’ inventory for maintenance, repair, and operations and, as a result,” he continues, “waste resources and undermine productivity.”
Achieving the Right Balance
The good news is that with the right quantity of parts on hand, organizations can not only get their operations back up and running expeditiously, but they can also get out in front of any issues that might happen. In most cases, achieving that goal requires a solid preventive maintenance program supported by—yep, you guessed it—an ample inventory of spare parts.
“Firms with a well-aligned spare parts logistics strategy can add value for their customers beyond primary product benefits, thus building long-term customer loyalty and achieving high profit margins,” according to A Strategic Framework for Spare Parts Logistics.
“[Companies] across different industries now recognize spare parts supply not only as a legal obligation, but also as a chance to offset stagnating or declining revenues and to increase profits in their primary product markets,” the report continues. “For instance, the after-sales business in the machine and plant construction industry accounts for approximately 25% of total sales (with two-thirds from selling spare parts and one-third from services) and up to 50% of total profits.”
Spare Parts are Big Business
In Keep it Running: The Quintessential Spare Parts Logistics Report, Armstrong & Associates, Inc., estimates that the spare parts logistics network is now $52.7 billion a year, and that managing it represents approximately 6.9% of total third-party logistics (3PL) revenue. In the report, the company says that the major vertical industries in the spare parts logistics network are automotive, industrial, and technology.
“In short, the spare parts logistics market is driven by high-value manufactured products and their maintenance,” Armstrong & Associates reports. “To a smaller extent, the elements and healthcare sectors also play in the spare parts logistics space.”
Geographically, 3PL spare parts logistics revenues follow the distribution of major markets and industrial production. Asia Pacific accounts for $18.2 billion (34.5%), North America for $13.1 billion (24.9%), and Europe for $10.9 billion (20.7%). The rest of the world accounts for $10.5 billion (19.9%), Armstrong & Associates points out.
Finally, in analyzing the distribution of transportation- and warehousing-related costs linked to spare parts, the market research firm estimates that transportation accounts for 70% to 75% and warehousing accounts for 25% to 30%, and notes that the transportation component is higher in North America and Asia than in Europe.
Harnessing the Beast
So you know that a single missing spare part can put a real kink in your supply chain, and that there are hundreds (or even millions) of these vital components floating around in your firm’s ecosystem at any given time. And, you also realize that on-time production and product availability are becoming more critical just when supply chains themselves are getting more complex and global in nature.
Adding to the confusion, demand for spare parts is rarely consistent or predictable. In other words, predicting demand for these items can be somewhat of a crapshoot. And, because the price of a single spare part is disproportionately lower than the actual value that it brings to the table (e.g., a single, missing $5 part can create expensive downtime whose impact isn’t always easy to measure or predict in advance).
So the question becomes, how can you ensure optimal uptime without having to over-invest in spare parts inventory? Aside from allocating more time, money, and human resources to the task, the best approach is often to enlist the help of a competent, experienced logistics provider that can manage the task on your behalf. DB Schenker’s Service & Aftermarket Logistics solutions, for example, support all of your company’s spare parts and reverse logistics needs.
As the drive to improve overall supply chain profitability continues to grow, so too will the need to optimize spare parts inventories and the logistics that drive them.
“Companies need to take the next step in optimizing their spare parts logistics, with the goal of keeping down costs and freeing up working capital, while meeting stringent customer demands,” according to research firm Oliver Wyman. “Such a program requires a more strategic and holistic approach to sustainably aligning spare parts logistics, rather than relying on historically-grown structures and processes.”
With our global coverage, transportation network, and experience in spare parts and reverse logistics, DB Schenker provides valuable solutions that help companies operate better, smarter, and faster. “With our Spares Logistics solutions, we ensure successful maintenance service globally based on our proven integrated spares network,” says Brian Galey, Head of Vertical Markets Electronics & Semicon/ Solar, DB Schenker Americas Region, “Our global warehouse footprint allows us to set up a spares network consisting of central/regional dedicated spares centers and last mile local shared spares depots, dedicated to our customers’ individual after markets.”