How to Improve Inventory Cost Management For After-Sales Supply Chain

The approach to inventory cost management differs dramatically between a sales supply chain and an after-sales supply chain.

Consider this about logistics that support sales: When you’re selling a computer, your inventory is determined by how many products you think you will sell and deliver in a given period of time.

With after-sales logistics, your inventory is determined by which parts you expect to fail, how often you expect those parts to fail, and how urgently the customer will need their computer repaired.

Inventory Cost Management

Effective inventory cost management means that you need to balance many costs. Can a failed component be repaired in the field or returned to a local repair depot? Or does it need to be replaced with a new part? It is far better to fix a failed component in-region than to return it up a reverse supply chain that may cross the globe.

These realities mean that inventory cost management for after-sales logistics is heavily influenced by quality control data, past performance, and how you and your service supply chain partner (i.e., Flash Global) want to handle in-field repairs.

For example, if approximately 20 units sell daily, and 1 percent of those units will experience a part failure in one year, you can forecast an average of 73 units will be needed over the year. Trusting in that forecast, as well as your after-sales service vendor, would equate to keeping 73 units on hand for a year; however, wisdom would dictate we build in a buffer in case of error or delays.

After all, it’s not economically feasible to keep your warehouses full of replacement parts. But, it’s equally undesirable to wait for a part to fail before you ship a replacement, introducing unacceptable delays that kill customer satisfaction.

Where are your warehouses?

Further complicating this scenario, many Flash clients have a Service Level Agreement that guarantees a certain turnaround time. Such response times are possible only with an incredible number of forward stocking locations (FSLs) and a deep commitment to acting as a true partner to the original equipment manufacturer (OEM).

There’s an admitted trade-off. Fewer warehouses devoted to a broader region help your business control inventory costs, but if your parts need to cross international borders, this approach may introduce delays. Generally, though, you want more FSLs, not fewer.

Weighing these inventory management issues and costs means your after-sales supply chain must be guided by solid data on which product components are failing. This means every department within your service supply chain partner needs to communicate to you, the client, about which parts are failing and why, as well as internally.

It’s only with solid information that you can make informed decisions about which parts to stock and in what quantities. Software like FlashTrac can help you make better-informed decisions about inventory.

The three-legged stool for inventory cost management

Like much of business, there’s a three-legged stool in after-sales management and repair that requires equal participation from operations, quality, and engineering. Whether these functions are handled by a service supply chain partner or by an in-house team, if you take away any one function, your stool becomes unsteady.Operations, Quality, EngineeringIf you have a capable, empowered operations staff, they’ll be comfortable speaking up if they feel it’s necessary to stop a shipment because something that doesn’t look right. That’s what makes them good. You want your operations team to feel dedicated to the account and understand they play an important role in quality control — they are the backbone of the account.

Quality comes into play by verifying and certifying every product at every step throughout the process. Just one example of quality control in action: Your QC team takes the time to bundle groups of cables together rather than just tossing a tangled mess into a box. Your quality team should identify even small things like a nick on a box. You want your staff to send up a red flag for issues large and small, and to talk to operations if there’s a recurring issue.

Depending on the field, a third-party logistics provider (3PL) might or might not create an engineering process. For instance, in the medical device field a 3PL like Flash would not get involved in engineering.

However, during configuration, a logistics partner like Flash can act as the first line of testing for your materials and work construction, following testing guidelines set by the client. In these instances, a 3PL engineering team would work through testing and configuration to pass along their findings to the client so any needed modifications can be made.

We often find that engineers from both companies collaborate to get to the root cause of any failures. That’s why any technology hardware manufacturer needs to ensure that their logistic partner’s engineering team is top notch, accessible and responsive.

End users are demanding more customer service from businesses throughout the supply chain. By partnering with a service supply chain company, your organization can deliver truly excellent service that gives your business a competitive edge over those who lack adequate supply chain capabilities or effective management.

Learn more from our series about inventory management:

How to Improve Inventory Control Costs and Management in the Supply Chain

Achieving Customer Service Success with Lower Total Inventory Costs

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