Supply chain challenges continue to vex service leaders. In the 2023 Service Leader’s Agenda survey, Service Council™ found that, when asked what the most significant factor impacting their service business was, supply chain challenges remained in the top 3 for the second year in a row.
In March of 2023, Service Council launched the Service Supply Chain: Service Parts Management survey to gain insight into the challenges, strategies and successes experienced by service leaders in supply chain and parts management. The results signaled that, while organizations are rethinking their strategies to accommodate the continued flux of service supply chains, poor visibility and siloed data continue to hold them back.
Visibility and Overstock Issues Hinder Organizations
Visibility is becoming increasingly more important as service supply chains grow more complex. And yet, nearly half of service leaders say that they don’t know where parts are. 43% of respondents said that poor visibility into available parts across the supply chain was the biggest challenge their service parts business currently faced. Additionally, more than 1 in 3 service leaders are struggling with siloed data, listing poor integration of service parts with the overall service business their second biggest challenge (38%). The lack of visibility into the service parts business is being felt by frontline agents as well. In the 2022 Voice of the Field Service Engineer survey, frontline agents said that spare parts inventory visibility came in second on their wish list of desired capabilities.
Inflation and financial belt-tightening is also taking its toll. In response to an uncertain climate, service organizations are also now facing overstock issues. Increased inventory of obsolete parts and supporting a greater variety of parts needed are service leaders’ third and fourth biggest challenges. As organizations increase inventory to meet demand, overstock is a growing issue. Whether it is a result of acquisitions, rapidly expanding product lines, limited forecasting capabilities or an attempt to prevent outstocking, it presents a financial burden for businesses due to increased storage costs and less working capital. Not to mention, if your organization already has poor visibility into the service parts business, related overstock costs can quickly climb.
Sourcing Strategies are Evolving
Resiliency is a buzzword that service leaders are hearing a lot lately. However, given how fragile and volatile supply chains have grown in recent years, it appears to be a buzzword that service leaders have taken to heart, particularly in the area of procurement. The survey revealed that organizations are rethinking how they are sourcing parts and materials, and are utilizing several different strategies to create an adaptable procurement plan better suited to weather unexpected storms.
When asked what current sourcing strategy their organization utilizes currently, 39% said insourcing, or borrowing within the organization, followed closely by off-shore outsourcing (38%) and on-shore outsourcing (35%). Instead of relying on a single, “tried and true” strategy, companies are evolving towards a combination of strategies for increased flexibility and adaptability to external factors.
The survey also signals that organizations are rethinking their inventory strategies and intend to decrease the proportion of stock held at their own warehouses and manufacturing facilities, while increasing stock held at supplier warehouses, customer sites and service vans or front-line agent locations. The need for better inventory availability is an important one for field service engineers. In the previously mentioned 2022 Voice of the Field Service Engineer survey, tech-to-tech transfer of parts came in at #5 on respondents’ list of capabilities they wish they had access to while in the field.
Fill Rates and Their Effect on the Efficacy of the Business
How are service leaders measuring the health of their parts business? According to the survey, over half look at on-time delivery metrics and part fill rates. There is no doubt that these KPIs are a strong indication of how well organizations are meeting customer demands, and therefore play a critical role in customer experience.
The survey delved further into fill rates, painting an interesting picture in terms of the efficiency of organizations’ service parts business. Previous Service Council research found that top performing service organizations were achieving a 93% service part fill rate. However, the survey found less than half (40%) report their current fill rate on spare parts is over 90%. Even more concerning is that 20% of respondents simply don’t know what their current fill rate is, perhaps due to lack of visibility into their parts business.
Last year, Service Council found that top performers were achieving a 92% first-time fix rate, while average performers were achieving 82% and low performers, 52%. Unfortunately, the survey found that, once again, the majority of organizations were falling short of this goal, with 1 in 5 service leaders reporting that more than 30% of unsuccessful field service visits (i.e. not completed on the first visit) are due to the unavailability of the appropriate part.
These findings are even more troubling when you consider that previous Service Council research discovered that dispatch costs have become the greatest cost to a service organization. (Service Council™ research projects the dispatch costs range from $250-$2,500+ depending on the customer disposition, complexity of asset and the work related to the incident).
Simply put: parts are preventing organizations from being a top performer.
Visibility is the Way Forward
Equipment is growing more complex, and service supply chains with it. It’s promising to see that organizations are becoming more strategic in terms of their sourcing and storage strategies. However, as we consider the continued lack of visibility and persistence of siloes in the service parts business, it’s clear that opportunities are still being missed. Additionally, as organizations begin shifting more inventory out of their own warehouses, this creates the potential for visibility and silo challenges to intensify.
It’s hard to believe, but we’re already halfway through 2023. As service leaders continue to look forward and think about technology investment plans for 2024, it’s crucial that supply chain forecasting, planning and visibility tools are not overlooked, as they may very well be the difference between achieving average and best-in-class service delivery.