Inventory Planning Blog

Service Management Software - Part 2

Posted on Mon, Apr 15,2013@09:57 AM

Multi-location planning adds complexity.

Organizations with large service operations work with multiple levels of supply.Single location situation        

In the simple case, there is a single stocking location (stockroom or warehouse) supporting the service organization,

A planner (perhaps the owner or a manager) at this location determines what parts to stock in what quantities and places orders with suppliers to obtain the parts.  Service teams then requisition the parts they need from the stockroom or warehouse.

Most single-location service organizations work with a reorder point/reorder quantity inventory management scheme.  When current inventory dips below the reorder point, they place an order for the amount set by the reorder quantity.  With no tools to set these numbers, they tend to be static. 

Over time the lack of connection between the order points and order quantities with current usage patterns leads to two problems:

  1. Parts with declining usage are over-stocked.  Much more capital is tied up in those parts inventories than needed, and many of the parts will become obsolete.

  2. Parts with increasing usage are under-stocked.  Stock-outs are common, leading to delays in service.

Multi-echelon planning

Organizations with large service operations work with multiple levels of supply.  Central sites purchase and stock most of the parts.  Slow-moving and less important parts can be sent quickly to field sites when needed, while fast-moving parts are stored in the field to enable most service actions to proceed without delay.  In many cases, a second level of warehousing occurs on a regional basis.

Advantages of this “multi-echelon” service parts supply chain include:

  • Consolidating inventory reduces the quantity required

  • Consolidating purchasing gives greater leverage to obtain discounts from suppliers

However, multi-echelon planning brings considerable complication.  How much of a particular part should be stocked at each location?  How should we support transfers of parts from one field location to another?  If a part is on short supply, how should we allocate it down from the central warehouse to field locations?

Service parts have an important life cycle

Figure 1.0 shows the important milestones in a part’s life cycle.  This section examines how those milestones impact parts planning.

Service management software, demand planning, inventory planning, inventory optimization, Valogix

Fig. 1.0  The part life cycle has a high impact on inventory planning.

New part

New parts usually show up when a new demand is recorded by the transaction processing system.  With no history of usage, there is no data to create an automatic forecast.  Someone must decide how to project a usage forecast for at least a few months.  After a few months of experience, usage history should guide an automatic forecast.

Part in use

The period that the part is active and stocked can be very long—perhaps ten to fifty years!  Usually there is a ramp up in usage as more equipment using the part enters the field.  Then, as the equipment ages and more modern parts supersede this one, usage of the part declines.  Usage trends change over time—sometimes rather rapidly—so it is important that part ordering strategies recognize these changes.

Last-time buy

While well into the active period, the part supplier may notify the service organization that the part is being discontinued.  The supplier then indicates the last date that the part can be ordered.  This stimulates an analysis to decide how to handle the problem.  Is there an alternate supplier?  Can parts be cannibalized from other equipment going out of service?  Is repair of failed parts a sufficient source?  If all else fails, the service organization has to order a large number of last-time-buy parts to satisfy anticipated needs for the rest of the period the part will be needed.

service management software, demand planning, inventory planning, inventory optimization, ValogixObsolescent date

There are two ways a part can become obsolete.  There may be an engineering change to the equipment that uses the part, so that another part supersedes this one on a given date.  The other possibility is that all the equipment using this part either goes out of service or goes off vendor support as of a given date.  Obsolete inventory represents wasted investment.  By tracking when there is an excess of parts or when parts are likely to become obsolete, steps can be taken to avoid over-ordering to sell parts while they still have some worth.

Tracking repairs complicates planning.

Expensive parts may be much cheaper to repair than to throw away and buy new.  However, repair adds complications that are important to recognize and deal with:

  • Repaired parts may have a separate item code (sometimes called the “stock keeping unit) to distinguish from the corresponding new part.

  • Need to track how many failed parts are in inventory that could be sent to a repair center.

  • Meet demands with repairs first, only ordering more expensive new parts when no repairable failed parts are available.

  • If demand is low and we have many failed units in stock, wait to repair them until they will be needed.

  • Some failed parts will be too broken to fix, so we need to consider a yield rate with our repair orders.  For example, if we have a 90% yield rate, then we will have to send 10 parts out for repair, on average, to get back 9 good ones.

These repair concerns are difficult to handle manually, so it is important for a parts planning software product to handle them automatically.

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service management software, demand planning, inventory planning, inventory optimization, Valogix


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