A CHOICE LOGISTICSWHITE PAPER

Gaining a Competitive Advantage:Insight for Dynamic Mission-Critical Service Parts Logistics in a Fluctuating Economy

A recent Gartner survey concludes that global IT spending will be “essentially flat” in 2009. One third of respondents stated no change in budget from 2008, while just under half projected only a slight increase, and 21 percent said there would be cuts. Researchers attributed this to global economic conditions that haven’t existed for more than 50 years.

When coupled with numbers from the U.S. Federal Reserve’s index of industrial production citing a full percentage drop in information processing equipment in February 2009, it is clear that the technology sector is continuing to tighten, a sharp contrast to recent years.

As corporate spending drops, capital expenditures on new high tech equipment are significantly impacted. Companies are now investing more on upkeep of existing equipment, placing a greater emphasis on repair and maintenance as opposed to new acquisition.

Compromising the performance of critical business processes supported by technology networks is not an option. This repair versus buy mentality creates a unique opportunity and places increased demand on the resources of high tech manufacturers and service providers. To be competitive, they must be prepared to react accordingly.

To support this demand, a reliable supply of service parts assets to keep mission-critical data networking, storage and telecom systems functioning is needed. This requires a sound supply chain that can guarantee the right part, in the right place, at the right time, to facilitate timely service and repair to fulfill new and existing SLA obligations worldwide. Without the ability to deliver, business is at risk.

To avoid jeopardizing contracts, high tech manufacturers and service providers must adjust to these supply chain challenges with a strategic and nimble approach. Companies that already have internal bandwidth and expertise for this additional demand are outside the norm.

More likely, an outside partner, such as a third party logistics (3PL) provider, should be considered to accelerate the establishment of a flexible supply chain that can react to new end-user requirements with a variable cost model at a moment’s notice. This paper will explain the fundamental components of a successful mission-critical service parts supply chain. It will also detail the benefits that manufacturers, service providers and end-users can realize with this strategic approach.

A powerful mission-critical parts supply chain is based upon a reliable technology infrastructure that can support a global service parts base, with granular visibility to manage assets, and the flexibility to react to evolving end-user demands as quickly as possible.

Introduction

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Companies are now investing more on upkeep of existing equipment, placing a greater emphasis on repair and maintenance.

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To manage service parts inventories, many global businesses tend to conduct control and oversight in silos, with each country or region possessing its own unique IT platform. This is largely due to the enormous investment and resources required to install and maintain a worldwide IT infrastructure. Yet, without a global understanding of where service parts exist and in what quantities, they cannot be accounted for and strategically sourced.

Working in silos is extremely counterproductive in a number of ways. Primarily, the platform cannot be accessed from a single point of entry to review and upload critical data necessary for strategic part oversight and planning. Secondly, it’s impossible to grasp inventory levels from a micro level. For instance, parts just purchased in Brazil may have been in surplus in Texas. Significant resources are unknowingly wasted and spending increased for no reason.

Maintaining multiple databases doesn’t provide a complete view of all available inventory globally which impedes accurate audits and measurements. What’s more, additional cost is incurred from the specialized personnel needed to operate these systems, duplicating overall efforts by region and creating unnecessary overhead.

By contrast, a global technology platform can offer a distinct advantage towards achieving a “big picture” perspective. This platform can provide access to all data in one place, eliminating the need to gather disparate information that, even if available in a timely manner, is not cohesive and uniform. It can also streamline the use and access of accurate data.

The advantages of a single global platform are many, most importantly it allows for consistency of processes and the uniform exchange of information. A sound system should include:

Easy IntegrationA global platform must integrate with existing databases in order to access critical data. Seamless integration also circumvents the need to duplicate efforts when working with multiple databases. It is highly inefficient to manually transfer data from one database to the other to share information, which is often the case for divergent systems. When applied exponentially, countless hours are drained, which is time that can be better spent focusing on the end-user.

Consistent UptimeWhile having a comprehensive and accessible global IT platform in place is critical, it is not as effective without constant uptime and availability. It must be exceptionally consistent and reliable, with 24/7 access to be viable. If a system is down for even a fraction of the time, important updates can be missed and the overall system hindered. This can be detrimental if an end-user has an immediate mission-critical demand.

Web-based AccessIf a system is not easily accessible, it can’t be truly effective. A Web-based system offers convenient login access regardless of location, with instant insight into what can be considered one giant “worldwide” inventory. This can facilitate a much-improved flow of timely data that can be used to streamline the service parts supply network.

Archived DataReadily available access to extensive archived data for detailed historical trend analysis should not be overlooked. Often, historical information from a few years ago is as meaningful as data from the last three minutes, yielding actionable insight that can impact efficiencies. It is not advisable to react to short-term anomalies and alter established processes without analyzing historically. Having long-term data available helps not only see the past, but also “predict” the future.

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Global IT Platform

Global IT Platform continued

Reliable ReportingBeyond order entry and data collection, a global IT platform can be an invaluable reporting tool. Reports can be consolidated and easily summarized to reduce replication and improve accuracy. A prime example is using reporting to assess the frequency of service parts usage. If it is understood that some parts are used more frequently than others, adjustments can be made to trim overall inventory and thereby expense. Creating these reports regionally is not nearly as effective.

Accurate PlanningReal-time access to centralized data for “up-to the second” inventory analytics is essential. As data is entered in one location, it needs to be instantly accessible throughout the entire supply chain network to provide the flexibility necessary to adjust processes as end-user needs fluctuate.

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VisibilityA full arsenal of every imaginable service part for each piece of installed equipment is impractical even under normal conditions. When budgets constrict, accurate visibility can be used to determine exactly how many parts must be in circulation to maintain adequate service levels, without squandering resources.

With one IT platform, a handful of experts can conduct planning, as opposed to duplicating the same effort around the world with multiple individuals focusing on regional reporting. This greatly reduces overhead and wasted man-hours, and is an area where 3PL expertise can help interpret the data and assemble it into an intelligible format to make an immediate impact.

The very basic functionality of visibility provides quantity and location of inventory, but these simple observations are not sufficient for strategic analysis, especially when managing aggressive SLAs. Service providers must also understand exactly how the parts are being used. Lucid data can reveal multiple efficiencies to help optimize inventory levels, resulting in reduced capital expenditures and streamlined supply chain processes.

Granular visibility delivered through a comprehensive IT platform can reveal vital information such as:

Number and frequency of transactions•

Accurate global part movement and storage duration•

Instant, real-time snapshot of current inventory levels•

Inventory management optimization•

Historical trends for detailed analysis•

On time performance for evaluation metrics•

Customized data unique to each company•

Global visibility provides a context to measure performance to ensure processes are being executed according to standard. With solid data in hand, trends can be uncovered to prevent excess and wasted inventory.

Global IT Platform SnapshotThe uniform reliability of a global IT platform has made a tremendous impact on the service operations of one of the world’s best-known providers of IP-based communications systems. With more than one million customers worldwide, the company has the mammoth task of managing approximately 90,000 service parts both domestically and internationally.

By working with a mission-critical 3PL, the company has access to an established global IT platform without the burden and expense normally required for its depth and breadth. The 3PL’s system integrates with the organization’s internal operations offering real-time global visibility, tracking and control to reliably access field inventory, regardless of location. As a result, on-time performance and inventory accuracy is dramatically increased, allowing the organization to maximize assets and significantly control costs.

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Visibility-In-Action Can Include:Macro-level visibility can reveal unused parts in over •abundance in one location that can be diverted to another that consistently needs the same part, avoiding needless restocking.

Legacy parts, which previously went neglected, might •be called into action for servicing an older machine that a company cannot afford to replace, especially in today’s economy. Locating these assets in a vast service parts network might be nearly impossible without accurate visibility.

If a part is considered necessary for “just in case delivery,” •but is seldom used and creating a surplus, the excess can be trimmed to cut costs. To maximize service parts

assets, it must be understood how long a part has been on the shelf to determine if those levels are necessary. If the churn is too slow, money is being wasted.

Comparing current and archived data can identify notable •trends that might otherwise go unnoticed. For instance, when a major manufacturer observed consistent power supply failures of a specific part within a condensed timeframe, a historical analysis revealed that this was occurring almost ten years to the date of installation. With this information, failures were predicted, and proactive replacement was initiated. As a result, end-user satisfaction soared.

Visibility SnapshotGlobal inventory visibility is a valuable asset for a recognized leader in network storage solutions. The company supports equipment for Fortune 500 companies that serve as the “backbone” of vital business operations and regulatory compliance processes. With clients including financial insti-tutions and airlines, consistent uptime is a must.

To reliably fulfill end-user SLA requirements, the company retained the services of a mission-critical 3PL to manage their vast global inventory base of more than 58,000 service parts. The 3PL experts continually collect and carefully analyze network-wide data to identify trends and anticipate demand. This markedly improved visibility allows for rigorous tracking of all parts for maximum control, which consistently results in 99 percent accuracy for worldwide service parts delivery.

The essence of scalability in a mission-critical service parts network is directly related to flexibility. This is where the global IT platform and its comprehensive visibility become invaluable. All of the data generated is only theoretical unless the part can be available where it is required in a matter of hours. To be executable, an expansive physical infrastructure must be in place; extending beyond large centrally located distribution centers.

Whether domestic or international, it is crucial to be wherever required to meet current or future needs. In uncertain economic times, flexibility is paramount. Even if a service parts supply chain is adequate today, the situation can dramatically change tomorrow, prompting immediate action, particularly in an ever-changing economic climate.

To sufficiently support the end-user, a service provider must possess the flexibility to have an infrastructure in place and/or the ability to quickly forge new territory if necessary. It is simply impractical for most companies to have a brick and mortar

presence, and the associated overhead, strategically located throughout the globe.

Only the largest, most established organizations, after investing decades and tens of millions of dollars, possess this capability. For most high tech businesses, this is without question where the global footprint and resources of a dependable 3PL come into play.

A strategically structured 3PL offers the capability to scale-up to meet end-user needs, without the time or investment otherwise required. A quality 3PL should already have the technology and physical framework in place to be active within weeks. This nimbleness and flexibility simply cannot be matched by a vast majority of high tech providers.

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Scalability

Visibility continued

Scalability continued

While the ability to ramp operations holds tremendous merit, a scalable 3PL can also allow operations to shrink just as quickly. If a client wishes to close a market or consolidate in another area, a 3PL can avoid leaving a service provider with the fixed costs of an irrelevant operation. An outside partner has the flexibility to move as needs fluctuate, without lingering expense.

A myriad of complexities are involved in market entry or exit, despite the location. To be fully scalable with the ability to react to evolving mission-critical demands, consider the following:

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Domestic

International

Large-, or medium-sized, end-users will usually •have operations scattered throughout the U.S. One company may require multiple, strategically located stocking sites around the country to support mission-critical execution of service parts within two to four hours.

The need for multiple stocking locations within the •same city is not unusual to support mission-critical needs. This prevents field technicians carrying full set of spares, which is not only inefficient, but also incredibly unsecure. A physical location is a must.

Local culture and customs must be understood •and respected. This goes well-beyond compliance with regulations and the associated licensing, which can take months to obtain. Meeting these requirements takes an extensive amount of time, prohibiting accelerated market entry for an unestablished entity.

Standard shipping processes definitely don’t apply. •Routes that may seem logical on the surface

might be completely impractical. An established partner in the country or region will understand these nuances without a steep learning curve.

Customs compliance varies wildly from country •to country. Complicated export licenses and tax regulations must be strictly followed, or parts can be detained indefinitely. This is not only detrimental for client service, but incurs hefty fines.

Scalability SnapshotThe ability to efficiently scale operations to fulfill end-user demands greatly benefits a global organization specializing in data protection and management solutions. After humble beginnings as a start-up, the company’s customer base rapidly flourished on global scale. To keep pace with demand, they had to expand operations quickly.

To grow its worldwide footprint almost overnight, the company leveraged the resources of a mission-critical 3PL, which possessed a comprehensive network of strategic stocking locations. This facilitated growth, with minimal investment and overhead, from only a handful of forward stocking locations to more than 200 worldwide sites in a span of just three years. This expanded market reach from the U.S. to include all of North America and abroad in EMEA and APAC, with more sites being added weekly.

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A comprehensive global IT platform is the heart of the symbiotic relationship between accurate supply chain visibility and strategic scalability. These three elements combine to create a stable “ecosystem” for mission-critical service parts supply chain management.

Without the fundamental base of a uniform technology infrastructure, a service parts operation can neither be strategic, or ultimately, effective. In the absence of a global understanding of where parts are located, how many are in stock, and most importantly, the resources to get them where they need to be, a company can be at a major disadvantage.

With fluctuating economic times, there is a greater emphasis on maintenance and repair of high tech equipment than ever. Companies who wish to endure must be prepared to react to an end-user’s service parts needs at a moment’s notice, or threaten the existence of the relationship.

Identifying a 3PL with the global scope and sophisticated, accessible infrastructure can help meet these demands without the time consuming and expensive ordeal of establishing an internal infrastructure. Those manufacturers and service parts providers that can read and react to evolving demands will be able to persevere, even in the midst of a difficult economy.

Final Thoughts

Even if a supply chain is thought to be as optimized and lean as possible, a well-versed professional can demonstrate new capabilities to the untrained eye. A 3PL expert can divulge new possibilities for supply chain management, creating valuable money-saving efficiencies.

If this paper has raised concerns about the current state of a mission-critical service parts supply chain, and its capacity to adapt to emerging client needs, now is not the time for complacency. To maintain and potentially increase market share, a skilled 3PL can make an immediate impact, but due diligence is a must. Before moving forward, look for the following attributes from any potential partner:

Going beyond the vendor/client contract to a •true two-way partnership

Willingness to collaborate and share critical •observations

Grasp of unique client needs to offer creative •solutions

Comprehensive global IT platform•

Meticulous reporting capability for highly-•detailed visibility

Proficiency to analyze client’s existing data to •impart new insight

Global scope to match current operations, with •scalability to meet future needs

Non-asset based infrastructure for maximum •flexibility in regards to locations, personnel and transportation modes

Working with aMission-Critical 3PL

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