Moving from product delivery to managed services - two supply chain caveats to ponder over
Last week I had a wonderful opportunity to spend over an hour with two senior folks from a client of ours who offers imaging solutions. The CFO and program manager who visited us were both from the Europe arm which runs with a certain level of autonomy. The formal discussion topic was WMS, but as it goes in the SCM-world, we did go forwards and backwards quite a bit, into other functions including OMS, visibility, transportation etc. I returned to my desk with two interesting learning points to ponder over.
In the imaging products & services industry, product delivery is a completely different universe compared to spare parts used for delivering services. The strategic input here is the decreasing margins in product business and increasing focus on longer-term relationships via service contracts, which locks the customer into a multi-year commitment. Later on, when we were having lunch with our CEO and the client members, I realized that as organizations we populate different worlds, but share many concerns as well, primarily, that of moving away from a linear revenue model (more product sales or more consultant bodies equaling more revenues) to a non-linear, outcome based pricing model (pay per print for our client or pay per business entity impacted for us – users, warehouses, assets, components delivered etc).
What was going well in their supply chain? Well, most of it. The proven model of a central warehouse supplying to satellite warehouses does help to keep the overall inventory across the supply chain on the lower side. Since number of SKUs in the product business is not very large, core warehouse management was not the top-of-the-mind challenge. Interestingly, one of the core issues was that of dealing with low value item of product manuals. These and a few other similar "peripherals" are must-have components of each shipment, but is locally made by a limited set of vendors for each country, resulting in a fair amout of delivery lead time variances. In their Assemble-To-Order model of delivery, this was a crucial bottleneck in terms of perfect order fulfillment.
The spare parts side of the business had completely different challenges considering the large number of fast moving, low value items spread all over Europe. Here visibility was of concern and the existing ERP systems were struggling with their track n trace capabilities. As I mentioned at the start, this part of the business is set to rise in the coming days as the organization increasingly moves towards a service based model. Getting their act together in terms of ensuring machine uptime at each client site would be a function of spare parts supply chain planning and execution.
What were my key learning points from the discussion? For one, sometimes, the traditional focus areas of WMS (say, labor & machine productivity, ability to do complex fulfillment like merge-in-transit or cross docking or multiple waves in a day) and TMS (eg: lane-based profitability or truck load shipments) may not be what’s critical for you. Eli Goldratt's “fat boy” in the chain may be something innocuous like a product manual being published in a local language.
Secondly, any product company looking at moving to a services based model (imaging, automotive, construction, to quote three) probably need to get their act right on the spare parts side of the supply chain. This is more so, looking at the sheer number of part combinations one may need to carry factoring in current and phased out models, at various levels of sub-assembly. Supply Chain visibility would thus be the key difference between getting the right spare for that old printer out there and fixing it fast vis-à-vis having to replace it with a new printer just to avoid SLA violations.
