Spare Parts Inventory Management The Right Stuff at the Right Time

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1 Spare Parts Inventory Management The Right Stuff at the Right Time

2 Contents Spare Parts Inventory and Service Level Agreements... 3 How Service Providers Determine Spare Part Quantities and Locations... 3 Essential Parts Inventory Management and Logistics... 4 Assessing a Service Provider s Parts Strategy and Remediation

3 Spare Parts Inventory and Service Level Agreements Not enough attention is paid to a computer service, provider s spare parts inventory. Often, it is just assumed that a service provider will have the necessary parts to repair a system whenever the need arises. That s a dangerous assumption. Of the estimated 13,213 computer maintenance and repair firms in the United States (Source: U.S. Census Bureau), many do not maintain adequate parts inventory levels. That can be attributed to many factors: the sluggish economy, tightening of credit, the failure of some companies to correctly project demand, and ineffective inventory management systems. According to a recent Aberdeen Group survey: Over 80% of service firms survey respondents find developing accurate plans and forecasts for spare parts consumption challenging or extremely challenging, 80% describe planning spare parts inventories to be challenging, and Nearly 70% said they are more than challenged with curbing excess spare parts inventories and maintaining performance levels agreed to in their service contracts. Regardless of the contributing factors and challenges, not having the right types and quantities of spare parts in the right locations, directly affects a firm s service levels and compromises its ability to perform against its customer Service Level Agreements (SLAs). The most successful computer maintenance firms have established an effective system for maintaining proper parts, inventory, and related logistics. How Service Providers Determine Spare Part Quantities and Locations When determining what quantities of various spare parts they must maintain and where, computer service providers carefully consider such factors: Hardware Services Provided, from Preventive Maintenance, and Predictive Maintenance to Break and Fix Types of Equipment Supported from Computers, Servers, Desktops and Networks to Printers, Storage Equipment, Brands Supported, and where the equipment is located Nature and terms of their Service Level Agreements, (i.e., customized SLAs covering various platforms/ models, standard SLAs, guaranteed response times, penalty clauses, length of contract, etc.) Nature of client base/industries served, such as clients in regulated industries and/or those with mission critical IT applications Geographic territory served (i.e., national, regional, single state or county) 3

4 A service provider will also weigh its own strategy for managing tracking and managing defective parts. Often, these parts will be shipped back to their central depot, repaired and tested, before being placed back into the inventory or returned to the manufacturer in the case of faulty parts still under warranty. All of these factors will drive a service provider s spare parts inventory plan and management program which should be in place. For instance, a company serving as a total service provider offering preventive and predictive maintenance, as well as break and fix services, for a wide range of equipment/platforms/models. Customers located across the nation, will have the need for a much more robust parts in inventory than a local service firm specializing in one or two brands and primarily focused on break and fix services. To remain competitive and perform effectively against their SLAs, national service providers must have ready access to spare parts inventory in several locations, including: A centralized depot, typically at corporate headquarters, Strategically-located regional warehouses or parts banks, and On-site at customer locations, particularly those with mission critical applications. Essential Parts Inventory Management and Logistics In the best case scenario, a service provider would always know what levels of inventory were needed for each spare part carried. However, there are many variables and contingencies which can make required stocking levels for each part challenging. To keep track of spare part usage and inventory levels, service providers carefully monitor demand on a month to month basis and establish safe levels of inventory for various parts. High demand parts, in particular, are watched closely. Often, they are maintained in quantities well above the prior month s usage. Typically the safe level of inventory for these parts is double the prior month s usage. Replenishing stock on all parts is managed on a day-to-day basis across all inventory storage facilities. While the service provider s primary goal is to assure that the right part(s) will be available at the right time and in the right place when needed for a customer, a secondary concern is managing this asset for optimum cash flow and profit margins. Being prudent in maintaining the right inventory and related logistics does not mean over investing in parts or real estate to house them. Careful metrics must be applied by the service provider to strike the right balance between having parts available and supporting cash flow objectives. These metrics take into account factors of inventory carrying costs, parts failure rates, potential obsolete parts, parts transportation costs, and expediting costs for parts that may be out of stock, but needed quickly for a repair. 4

5 To assist service providers in their spare parts inventory management, there are many software programs available. These programs function to control stock, track inventory levels, prompt reorders, and provide reports on parts demand/activity, inspections, restocking orders made and received, vendors used, back order tracking, etc. Many of these programs use bar code technology to promote accurate order entry and reporting. Assessing a Service Provider s Parts Strategy and Remediation For an IT manager, selecting a service provider should include an assessment of the organization s spare parts strategy and commitment to minimize system downtime and related costs. Specifically, the questions that should be asked are: Does the service provider have, an inventory of spare parts to support your equipment and is in close proximity to the customer s location? Does the service provider maintain inventory levels in the right location to expedite a repair? Is the service provider able to maintain an inventory of spare parts on-site at the customer s location to escalate repairs particularly where mission critical systems are involved? Does the service provider have a proven track record of single-call accountability for multi-vendor hardware support, which is backed up by maintaining a spare parts inventory reflecting multiple manufacturers, platforms and equipment models? Does the service provider have a spare parts inventory management strategy which enables the firm to perform effectively against its SLAs? There s an often used term in the service business which is People and Parts. To maintain and repair equipment, you need skilled knowledgeable technicians and field engineers, but you also need parts. These parts need to be on-site at the service provider s location, on-site at the customer s location, or in a nearby parts depot. A service provider needs to be committed to meeting its customers SLAs. That requires having a well-planned and managed spare parts inventory program in place. This assures customers, minimum system downtime and loss of productivity lower costs of service and has a high return on their SLA investments. 5

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