Service / Reverse Supply Chain: A Growing Challenge that Presents New Opportunities
Through the years, only a few organizations have put consistent emphasis on improving their service supply chain.
And now the current economic environment has created additional challenges for companies to invest the resources and capital needed for long-term process improvement.
The Tompkins Supply Chain Consortium recently conducted a survey on The Growing Challenge of After-Sales Supply Chain Management, which provided good indication of the poor state of service supply chain practices in companies today.
Several data points from the survey provide further evidence of the challenges that companies and people in service supply chain are experiencing. These include:
- The degree of outsourcing being done in service supply chain functions
- Inadequate management involvement in the process
- Lack of sound forecasting techniques for service parts
- The amount of wasted effort in the company processes
- Inefficient and ill-suited IT systems to manage service supply chain activities
All of this data points to the major challenges and improvement opportunities that exist in service supply chains. With improved practices, companies can achieve tremendous gains that will reduce costs and improve customer service.
The report further reveals some key findings which could help companies review their overall strategies and focus on short, medium and long-term action plans to achieve sustainable improvements.
Below are insights from the report. Use these key findings to see how your company measures up in regards to reverse value network.
- A large number of respondents do not outsource all or part of their service supply chain activities. Depending upon functional areas, the percentage of respondents outsourcing their service supply chain activities ranges between 15% and 40%. Corporations need to make an assessment if service supply chain related functions are part of their core competency or if they’d like to develop them as a core competency. If the answer is no, they need to consider outsourcing these activities instead of using forward supply chain organization for execution.
- All respondents who outsource their service parts planning and forecasting, warranty management, and screening and repair operations, do so with multiple service providers. Corporations need to carefully review their outsourcing strategies, which will allow them to leverage economies of scale while avoiding risks of single sourcing.
- Close to 40% of respondents have a dedicated organization that manages their service supply chain activities. Others have their service supply chain activities performed by multiple internal departments, which are either integrated at a different level or not integrated at all.
- Only 38% of service supply chain organizations are led by vice presidents or above level executives.
- Nearly half the organizations (46%) have director as the highest level to support service supply chain functions.
- The following conclusions can be reached by studying the above mentioned numbers:
- Service supply chain has not received senior executive attention in corporations.
- Most service organizations are considered cost centers instead of profit centers (directors or manager levels head 62% of organizations).
- Customer service and corporate supply chain groups are the most used function for managing companies’ service supply chains.
- Planning and product design are the least involved functions for service supply chain. Clearly, service supply chain is decentralized in most organizations.
- In many industries, parts life-cycle management, a key to service parts management function, works with the gray market to support customer requests. However, 75% of survey respondents say that there is no gray market for service parts in their industry.
- Service parts planning and forecasting is a critical function for service parts management organizations. Following are the survey results, touching upon some of the aspects in service parts planning function:
- 53% of respondents use manual spreadsheets instead of system applications for service parts planning and forecasting.
- Only 31% of respondents say that their service parts planning and forecasting is handled by a separate group. 69% say that it is consolidated with their procurement planning group.
- Screening and repair area, another key function in service supply chain, revealed some interesting responses:
- 77% of respondents do screening and repair of products returned by their customers.
- 80% of survey respondents use dollar-value threshold as a criteria for deciding how to dispose returned products.
- The following tables list various returned product final dispositions and IT systems supporting service supply chain functions:
Percentage of Returned Products by Disposition |
Destroyed |
35.0% |
Returned to vendor for credit |
20.8% |
Discounted for sale through secondary channels or outlet stores |
14.5% |
Resold through primary stores/sales channels with packaging |
13.5% |
Disassembled and sold as component parts/scrap |
5.0% |
Resold through primary stores/sales channels with significant repackaging/reconditioning |
4.0% |
Donated to charity/non-profit |
0.5% |
Types of IT Systems |
Customer Relationship Management systems (CRM) |
42% |
Integrated ERP systems with multiple service modules |
33% |
ERP applications with bolt-on systems |
33% |
In-house developed enterprise systems |
25% |
Stand-alone functional systems (e.g. forecasting, WMS, etc.) |
25% |
Variety of separate systems with manual interfaces |
0% |
Integrated customer service systems |
0% |
Performance measurement systems |
0% |
Overall, the trend toward increased outsourcing of service supply chain function allows companies to focus their limited resources on their core business functions.
As the capabilities of service providers improve, the Consortium expects that companies will consider external partners to manage a wider range of functions, including forecasting, inventory planning, warranty management, asset recovery and administration.
A wealth of opportunity and significant returns exists for companies that invest in service supply chain improvements.
Companies that decide to leave service supply chain functions in-house will need to evaluate their practices and use of technology, or face growing costs and customer concerns.
One further takeaway from this report is the key role that service supply chain has on companies’ green initiatives. Companies that are leaders in sustainability efforts are the same companies that are leaders in the management and execution of service supply chain processes.
Functions – such as product screening, recycling and resale, and remarketing of materials and products – come together to improve a company’s cost competitiveness, as well as benefit the environment.
The full report, The Growing Challenge of After-Sales Supply Chain Management, is available to Consortium members, as well as to "contributing members" who add their data to the Reverse Logistics database.
For more information on the Supply Chain Consortium or membership, contact Bruce Tompkins, Director, Tompkins Supply Chain Consortium
About Tompkins Supply Chain Consortium
Tompkins Supply Chain Consortium is the premier source for supply chain benchmarking and best practices knowledge. With more than 500 participating retail, manufacturing and wholesale/distribution companies, the Consortium sponsors a comprehensive repository of 17,000-plus benchmarks complemented by search capabilities, online analysis tools, topic forums and peer networking for supply chain executives and practitioners. The Consortium is led by the needs of its membership and an Advisory Board that includes executives from Campbell Soup Company, Hallmark Cards, Hewlett Packard, Ingram Micro, Kraft Foods, Limited Brands, Miller-Coors, The Coca-Cola Company and Target. To learn more about how your company can become a member of the Supply Chain Consortium, contact John Foley, 919-855-5461 or visit http://www.supplychainconsortium.com/.
This article is available for re-print with attribution. If you would like more information or an interview, please contact Keri McManus, (919) 855-5516.
See a printable description of the scope of Service Supply Chain consulting services from Tompkins (PDF).
Or learn more by reading the article Returns, Refunds, and Recalls: Reliable Reverse Logistics.
Also see: Frequently Asked Questions about the Service Supply Chain |
Tompkins' Service Supply Chain strategic framework for reverse logistics includes:
Resources
Reverse Logistics Is Not the Reverse of Logistics: See how this has been interpreted many different ways within the industry in this Material Handling & Logistics article.
Article: From Supply Chain Brain: The Right Service Provider Mirrors Your Sustainability Efforts
Article: Returns, Refunds, and Recalls: Reliable Reverse Logistics
Post on the Go!Go!Go! Blog: Service Supply Chain: A Golden Opportunity to Cut Costs and Make Your Customers Happier
Post on the Go!Go!Go! Blog: Pause: Services Supply Chain Is Not the Same as Rewind
Post on the Go!Go!Go! Blog: The Reverse Logistics Conference in Las Vegas
Article: Best Practices for Returns Processing from MultiChannel Merchant
See a printable description of the scope of Service Supply Chain consulting services from Tompkins (PDF).
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