Service supply chains: Supply chain on steroids

When people talk of supply chains, they typically talk about the supply chain of products that form the main business. Cars, computers et al. However, there is another parallel supply chain that runs below the radar but is much more complex and challenging. That is the supply chain that supports after-market services. A brief on the complexities involved in such supply chains:

Product variety: Production supply chains support only the latest products that are in production. Once a product or product model is discontinued, it is not part of a typical production plan. (There are production runs to support after-market demand, but that is not factored here). However, a service supply chain has to support every product ever produced by a company. This is legally binding for products inside warranty periods, and are morally binding for sales outside of these periods. Therefore the number of SKU’s (Stock Keeping Units) are higher in service supply chains than in production supply chains. 

There is also the case of product variations. For a given component, production supply chains deal with the latest version of a component. Service supply chains have to deal with every version of a component ever produced. These components may be interchangeable or may follow strategies such as “use till gone” before switch-over.    

Demand pattern: In the production supply chain, planning is done based on product demand forecasts. I might ruffle some feathers here, but product demands are more predictable and highly supported in terms of demand sensing and organizational support. Service supply chain planning is done based on installed bases. There is also a requirement to provide differentiated service levels to warranty/ extended warranty demand vis-à-vis out-of-warranty demands. Plus, when lucrative out-of-warranty service contracts keep flowing, life of service support can be extended indiscriminately, adding to complexities of demand planning.

Supply sources: As may be understood, this combination of product variety and demand pattern may require service supply chain organizations to augment their supplies from sources such as repair and open market/ broker purchases to make up short falls. This is because principal suppliers of a component type will prioritize demand for production runs rather than demand for service requirements. Line stoppages are viewed much more seriously than service level metrics. When such a sourcing strategy is deployed, regulatory issues regarding supply of refurbished products come from the woodwork.

Business complexities: In industries that are undergoing digital transformation, old supply chain structures will not work with new customer segments requirements. For example, traditional enterprise IT service supply chains are tuned to ship “eaches”. That term means shipping no more than one part. Support centers are encouraged and equipped to analyze every service call so completely that they are measured of how many parts per issue are requested. This number is expected to be close to zero, but no more than one. This structure works for enterprise IT, but suffers when it comes to new markets such as high-density computing installations (data centers). 

There are also issues of customer perception issues. For example, in certain automobile service centers, a part that is replaced is returned to the car owner to prove that they are getting a fair deal. This essentially removes the opportunity to refurbish a potentially repairable part.

Parts markets are notorious for use of spurious parts. Such gray markets have a double impact: They compromise the product quality and they hurt the brand

In all, service supply chains are often the perfect storm of supply chain management. Every time you get your broken phone screen replaced without a fuss, thank a service supply chain person. Every time, you have a tough time getting your broken phone screen replaced, its ok to be annoyed, but just remember that someone tried their best.