Is inventory and parts management finally getting the attention it deserves?

Aug 25, 2017 • Features • Gary Brooks • Syncron • Parts Pricing and Logistics

The management of parts has been for a long time a little unloved in terms of field service technology. Kris Oldland talks to Gary Brooks, CMO, Syncron to find out how and why that is changing...

KO: There finally seems to have been a quite perceptible shift in the number of companies beginning to pay attention to the importance of good parts and inventory management. Are you feeling this?

For example every-time I come across your team at various different events I see you having a lots and lots of conversations at busy, busy booths.

Are you finding that whereas, perhaps a few years ago you were having to evangelise the importance of tools like yours, today people are actively looking for them?

GB: You’re absolutely right. There are so many things going on socially, politically, demographically, economically that are really putting pressure on the field service organisation to not only deliver maximum uptime - we are really moving away from the traditional break/fix aftermarket model, towards moving towards being much more proactive and preventative, and technologies are enabling us to do that.

Manufacturers around the world are waking up to the fact that the market has changes - from the volatility in the orders of durable goods, to millennials taking over the workforce, to the movement to ‘power by the hour’, so a lot of them are looking for low hanging fruit.

They’re asking “what can I do to my service organisation to increase revenue” because a lot of companies now view the product that they sell as something that can they can put in the field to leverage high margin service revenue for an extended period of time - in heavy equipment we’re talking 25 years.

So they are looking at this, they’re saying how can I improve revenue? How can I improve margin? How can I have a more predictable service business and then how can I deliver a wow level of service - or prevent that service call from having to actually take place over time because of the use IOT, machine learning and smart parts.

Our friends at The Service Council established that 50% of service attempts fail because of not having the right part, and even if the right part is available then companies are not maximising the revenue correctly because they are not pricing correctly.

So, for a lot of organisations they are saying lets get the parts side of the business right - because the financial gain that can be harvested is significant.

When you look at the inventory side, we see companies increase service parts revenue by up to fifteen percent, increase gross profit margins up by as much as forty percent and taking forty percent of inventory whilst taking their fill rate up above ninety percent.

So, mathematically, the financial value creation really works and then if those parts are priced appropriately- we are seeing companies take up their service parts revenue by as much as five percent and gross profit margins by as much as seven percent.

If you have several hundreds of millions of dollars, or even close to a billion dollars if you’re in a sector like Aerospace, five percent here and seven percent there suddenly becomes a very sizeable figure.

So in Answer to your initial question, yes we are now seeing a much bigger customer pull, and I think whilst it may be partly due to the Syncron being much more visible in the sector, but it is also a matter of demand from the market - increasingly companies are now coming to us.

KO: You mention outcome based services as a significant shift that is happening within field service across multiple regions and verticals.

What impact is that having on the spare parts/aftermarket and consumables markets - is there a direct adverse impact on this?

GB: Yes, I would think that it is very much having an adverse impact on this side of the market.

Manufacturers will increasingly sell service level agreements much like you would see in high tech.

In high tech there is not a lot of sales of parts. If your servicing a piece of high tech equipment whether it be in medical or whether it be in the IT space, you have a service level agreement and you have certain requirements whereby it needs to be back on line within an hour or two - so there is no buying of parts.

I think as more industries begin to adopt the service level agreement approach rather than buying a part it will have an impact on parts revenue as having that part available to perform that repair or maintenance in advance of the asset failing becomes even more critical.

In my car for example, I have an app that tells me when there is something going wrong with my car.

Today, it doesn’t tell me when a part is about to fail but in the future I imagine that it will and so when I do have to bring the car in for service it will say well this part, this part and this part are all close to failing so why don’t we replace these all now?

It becomes preventative maintenance, we prevent the failure from ever happening. This is changing the way businesses approach the value of parts and indeed service. It is certainly an exciting time to be in the field service business because of all these economic, social and political changes that are driving the attention on the service business but also the emergence of all these new technologies.

KO: Given this new wave of interest in Field Service as a something more than mission critical, but also fundamental to revenue streams - are you seeing more companies you work with getting involved with such conversations from board level?

GB: Yes, I absolutely think field service is really garnering executive level attention now.

I think a lot of that is driven by the demand and the shift that we are seeing amongst the customers. Customer-centricity has always been a bit of a buzz word in the industry but I think it is becoming hot again and I think that’s because by 2030 around 75% of the workforce will be comprised of Millennials.

Their service expectations have been informed by the likes of Amazon, Uber and TaskRabbit. Their mindset is “What do you mean I can’t have it fixed now?” And that is definitely driving the demand side.

[quote]Service expectations have been informed by the likes of Amazon, Uber and TaskRabbit. Their mindset is “What do you mean I can’t have it fixed now?” And that is definitely driving the demand side.

But then also when you look at the margin side and at the revenue side, I think a lot of executives that are in the C-Suite came up from the manufacturing or sales side - so they sometimes have a biased view of their business. I call this the street light effect - they can only see what is in the light and that for them is looking at the product side of the business.

But for many of them, they’re starting to look beyond the street light and are saying wow - this service business is pretty darn exciting.

And in a lot of cases it’s often just held together with bubble gum and banding wire. So the thinking goes “if we make some upstream investments, we can deliver some pretty healthy downstream dividends.”

So I think that executives are just beginning to expand there point of view. For many years it’s been a case of “it’s [service] kicking up great margins, it’s not broke, let’s not fix it.”

But now companies are seeing with declining lures on the product base side of a business. They’re faced with dwindling margins and if they put even more effort on this side of the business they can only get a limited return.

I think companies are starting to see that similar investment in time and resources on the service side now is going to deliver a lot better returns.