How can OEMs reduce inventory and logistics costs? That was the question being asked at Interlog 2012 (in Dallas) and most presentations focused on either improving logistics or on the importance of customer satisfaction. Unfortunately, these discussions were fairly process oriented, which made them more tactical than strategic. The inventory and logistics conversations revolved around optimizing inventory levels, safety stock and fill rates while the customer satisfaction conversations focused on improving fix first time (FFT) rates (service quality). However, none of the presentations discussed whether or not there is a connection between the two, which raises an interesting question, “Does the pursuit of higher service quality drive up inventory and logistics costs?”

This is not an idle question, it came directly from a conversation I had with a VP of Support Operations. His company partners with various third-parties to service their equipment in the field. To ensure customer satisfaction, technicians get bonuses if they achieve certain FFT levels. However, he’s starting to wonder if FFT bonuses are prompting technicians to order more parts than necessary (driving up returns and re-stocking fees), to perform “pop and swap” maintenance (resulting in more parts with no fault found (NFF)), or to pursue other short-cuts that improve FFT but ultimately drive up costs. To that end, he's been trying to monitor technicians in the field to see if they’re using the proper service procedures before starting a repair.

From our conversation, it’s clear there are three distinct inventory and logistics problems related to field service: ordering the wrong parts; ordering too many parts; replacing “good” parts. Each of these represents a type of misorder. However, none of these misorder problems can be fixed by inventory management systems, which was the primary topic at Interlog. Misorder problems can only be solved by the technicians—giving them better tools that provide accurate service and parts information, configuration-based bills of materials (BOMs), and integrated workflows (tied into ecommerce, inventory and logistics). When service technicians are basing decisions on poor data, or when they have to search for the information they need, is it any wonder that inventory and logistics costs increase?

According to the companies I spoke to, service organizations that focus on quality see a clear pattern emerging:

• Technicians pack more parts than needed to fix a job (over ordering).
• Any extra parts are saved by the technician for future use (trunk spares that can’t be easily tracked as inventory).
• Technicians try to accelerate repairs by replacing different components one after the other until the problem goes away (pop & swap).
• Rather than determine the faulty component, each replaced part is returned to the OEM and tested to identify which one(s) failed (or determine NFF).
• NFF components are processed and returned to inventory (re-stocking fees).

In other words, as OEMs offer FFT incentives technicians are responding by ordering too many parts, stashing them locally, ignoring repair procedures, and replacing perfectly good components…all without any repercussions for their actions.

Enigma believes that improving service quality is critical to our customer’s success however, the methods used to raise quality levels are important. Recognizing that the service and parts business is essential to OEM profits, OEMs need to move beyond customer satisfaction via simple FFT bonuses and start asking better questions. To get an objective view of their aftermarket business, OEMs should be:

• Tracking how many parts are requested for each customer, for each type of equipment, for each service visit, for each service organization, for each service technician.
• Tracking NFF rates for each customer, for each type of equipment, for each service visit, for each service organization, for each service technician.
• Tracking the number of parts requests and service calls where all returned parts were "good" (all NFFs), all returned parts were "bad" (no NFFs), one or more returned parts were NFF (judgment call).
• Tracking which service organizations and service technicians are using approved service procedures.
• Tracking which service procedures or part selections are causing the most difficulty for technicians (without resorting to surveys or feedback from the field).
• Monitoring differences in how technicians approach corrective maintenance vs. preventive maintenance.

These are just a few of the key performance indicators (KPIs) that help uncover problems within aftermarket service and support. OEMs that know some of these numbers can start to ask the next question, which is “what to do about it?” However, capturing an accurate picture of field service doesn’t come from technicians filling out post-service reports and surveys; it comes from monitoring the actual tools that technicians use to perform their jobs.

To maximize customer satisfaction and minimize support costs, OEMs need to continuously improve service quality while simultaneously reducing inventory and logistics costs. New tools are required that not only report on the situation in the field, but also provide an integrated system that improves the technician’s performance as they execute service and support.

If your company is facing service and parts challenges, contact Enigma. We can help.

My team and I just got back a few days ago from Interlog Winter 2009, a conference that’s focused on the aftermarket parts and logistics business for automotive, industrial and aerospace manufacturers. I was pleased to discover that attendees wanted to do more than soak up the sun on Marco Island, Florida (the Sunshine State) and casually browse the booths; most were on a mission to find better ways to improve their corporate bottom line.

The agenda was full of great presentations on a wide range of topics related to customer service, inventory, logistics, outsourcing, procurement and electronic parts catalogs. Of all the messages delivered during the conference, I noticed two major themes:

1. Increased parts sales depend on improving customer satisfaction and dealer relationships
2. There are innovative ways to get more with less in today’s challenging economy

I believe Enigma’s InService EPC (electronic parts catalog) application assists customers in both areas.

First, we’re seeing that companies are renewing their focus on aftermarket parts and service as a way to improve customer/dealer relations. Simplifying business transactions is an easy way for OEMs to gain a competitive advantage for aftermarket parts sales. InService EPC strengthens the OEM-customer/dealer relationship by providing the most recent and relevant parts information at the point of need, and by streamlining part selection and order processes. OEMs that invest in aftermarket technologies (like Enigma) show that they care about the success of their customers/dealers and are positioning themselves to reap the rewards of a long-term relationship.

Second, InService EPC not only improves business transactions but also streamlines and automates internal processes such as catalog creation, update and distribution. So while InService EPC helps increase part sales, it also reduces the cost of catalog production.

Despite—or perhaps because of—the down economy, companies are willing to invest in technology as long as it improves revenue and/or reduces costs (preferably both). I guess that’s why we had so much traffic at our demo booth! If you missed Interlog Winter, I recommend you put it on your calendar for next year.

The aftermarket is not immune to the current economic climate; the slowdown in the automotive sector, for example, is obvious and understandable. But the fact that aftermarket trade shows and conferences such as InterlogWinter and Service Parts Inventory Management & Reverse Logistics Summit are still going strong is a good sign that companies see the importance of the aftermarket to their bottom line.

InterlogWinter, the leading conference for the aerospace, automotive and heavy equipment industry, will be held next week, with approximately 200 attendees. (In case you’re wondering, yes, Enigma will be there, at Booth #13). The agenda is robust, with presentations from companies like Cummins, Pratt & Whitney, and Briggs and Stratton, on topics such as “Multiple Moving Targets: Servicing Different Products At Various Stages In Their Life Cycles To Deliver Top Notch After Market Service.”

The Service Parts Inventory Management & Reverse Logistics Summit is now in its third year, and growing, with an agenda that includes presentations such as “Improving Business Relationships and Customer Support by Streamlining Service Parts into an Online Catalog.”

Even in an economic downturn, companies want to invest in technology that will increase efficiency and cut costs. In the manufacturing aftermarket, most OEMs want to improve relationships with their dealer networks by making it easier for their dealers to do business with them; to do otherwise would be to miss revenue opportunities.

What we are hearing from our customers and prospects is that they cannot afford to keep doing business as is; they need the latest technology solutions to keep pace not only with their competition but with customer expectations.

We are hearing that outsourcing an online catalog to a third party is just not cost-effective anymore, because it costs more than keeping it in-house, and it takes too long to send out catalog updates to their dealer network.

We are seeing that most companies have e-commerce systems, such as Oracle iStore, in place to facilitate parts ordering; but those companies are now seeing the value of integrating their e-commerce system with a compatible electronic parts catalog.

Recessions come and go. But the need to do more, better—to compete—never goes away.