The term “spare parts” may conjure up visions of junkyards, but in the high-tech industry they represent an opportunity worth billions of dollars for companies willing to manage after-market logistics.
The storage and maintenance of spare parts is often a drain on company resources. Holding and maintaining inventory costs money that could be better invested in new-product research and development. However, in industries with long-lifespan equipment, such as military, aerospace, medical and many industrial markets, repairing equipment is infinitely more cost-effective than replacing it. As a result, logistics companies have developed business units dedicated to managing the after-market—part of a broader discipline called reverse logistics.
Reverse logistics is a term that encompasses a variety of services ranging from product return, repair and refurbishment to the recycling and disposal of goods. It also includes managing inventories of spare parts, often on a global basis, and working with local repair specialists. For businesses with global footprints, such as UPS, FedEx and specialized companies such as Encompass Supply Chain Solutions, maintaining inventories of MRO (maintenance, repair and operation) parts is more practical and cost-effective than OEMs doing it themselves. And third-party repair companies, according to the white paper Recovering Lost Profits With Reverse Logistics, represent about $19 billion in annual revenue in the high-tech industry.
Recently, Panasonic Corp. transferred its HVAC and Power Tools spare parts business to Encompass, following an earlier move by Panasonic’s consumer division. Encompass serves as a master distributor of both warranty and non-warranty parts for Panasonic’s consumer electronics, HVAC and power tool lines. Brad Moszkiewicz, Panasonic director of service delivery, said in a release that Panasonic continues to evolve its aftermarket support strategies to streamline operations and improve customer satisfaction.
All high-tech companies, particularly in the consumer market, want to effectively service their customers. However, environmental regulations all over the world are prompting companies to also look at what happens to devices after their useful life is at an end. In addition to logistics companies, several types of businesses are getting in to reverse logistics including electronics distributors and EMS providers. Flextronics and Jabil, for example, have provided after-market services for brands they build equipment for. Although Jabil recently sold its after-market business, that unit managed laptop repair for Lenovo in conjunction with UPS. OEMs increasingly are planning product contingencies from the cradle to the grave.
“Companies define lifecycle management differently, but in general it encompasses the point of manufacturing through the aftermarket and even reclamation,” said Scott Hertel, post sales strategic planning manager for UPS, in an interview. “What we’ve seen is an increase in the adoption of that strategy.”
Customer service is the primary goal of businesses that outsource after-market services. In its annual Change in the Chain survey, UPS found that 72 percent of the high-tech companies it surveyed said their renewed focus on customer-centricity is driven by global competition and the need for better differentiation. Better performance can also drive incremental sales and profits.
Customers engage with UPS at different points in their lifecycle process, said Hertel. “It depends on where a customer is comfortable outsourcing an activity, or how critical the need. In retail, for example, you are talking about managing multiple manufacturers. Do you want to manage the post-sales support and the supply chain for each product line? Can you reduce some redundancy? While many businesses have the same sales and distribution models, each supply chain is unique. So we help focus on each company’s priorities – our job is to communicate how we can help the end-customer reach their goals.”
Customer focus, he said, has shifted from an internal view on how the supply chain is performing to the customer-centric supply chain. For service providers such as UPS, “it’s all about at which point [in the supply chain] you impact the customer,” Hertel said. “Then it becomes about the ability of the supply chain to impact your brand.”
UPS provides logistics management services from the point of planning through manufacturing, distribution, sales, transit, forward and reverse logistics and after-market support. “Some companies use us for sales fulfillment; where we manage shipping and distribution; but we also provide kitting and integration service for our high-tech customers,” Hertel said. “We emphasize flexibility and customer specificity.”
Hertel’s unit came about as UPS looked at services common to most businesses. “We still have segment focused groups,” Hertel said, “but when we looked at our post-sales products and services across the network we saw lots of verticals supported. It seemed like a natural product group – we have the infrastructure – so we looked at the medical market, aerospace, security, and other industries that have a heavy aftermarket need.”
The trick is finding the right level of customization. “There are services across specific markets that require a response within an hour of an order being placed; a warrantee service that needs repairs and returns; five-day service models—we have to provide a customer-centric solution that meets the needs of our customer’s end-users,” Hertel said. “We have to help them execute their strategies to the highest degree, but within that there is always a competing battle between providing service and managing inventory. You have to ensure there is always repair inventory available and accessible. Some of the more recent changes – such as global expansion and emerging markets – make all of these more challenging.”
Since different businesses engage with UPS at different points in their product lifecycle, multiple departments are involved in a customer-centric service strategy. Procurement also plays a role in lifecycle management and corporate positioning, Hertel said. “Based on my experience, within the procurement group, they are charged with and expected to execute corporate strategy, and all organizational strategies are different and unique. Every tier in an organization has to provide value.
“Generally, the value that UPS brings to the market is our quality and performance, which is tied to our brand,” he added. “Our global scale and the ability to execute a high level of service across the network, combined with the breadth and flexibility in the service model, enables us to build a solution that leverages our infrastructure. At the same time, customer needs vary, so we customize those capabilities to our customers’ specific strategy.”
UPS is mindful that its service offerings are executed on behalf of its customers – usually brand owners. “It is important that [service providers] be good stewards,” Hertel explained. “At whatever point you touch the [end] customer you affect the ability of the supply chain to impact a brand. That’s also a key element in customer centricity.”