August 16, 2010

Site balancing for a supply-chain advantage

I was working with one of Converge’s customers a few weeks ago, analyzing service parts inventory levels across half a dozen of their global sites. The exercise was a valuable reminder of the importance of service parts inventory planning and brought to mind a broader supply-chain management problem concerning dynamic sharing of inventory across multiple sites.

Dynamic sharing is a relatively new concept that allows multiple sites to transfer inventory back and forth as needed. To put this into perspective, let’s take the computing industry as an example and focus on notebook computers. There are many common components across multiple brands of notebooks. These common components are typically categorized under CPU modules, memory modules, hard disk drives, optical drives and liquid crystal displays.

Now, let’s consider a service provider that refurbishes customer-returned notebook computers for more than one manufacturer within the same site or at multiple service locations.

The service provider will typically receive consumption or failure forecasts from each manufacturer, and in turn will procure service spares utilizing the notebook manufacturer’s internal part number for each service part.

While this system works well for meeting service-level requirements that the supplier must adhere to for each notebook manufacturer, it also introduces the risk of overprocurement of the same core part under various internal part numbers – either for the supplier or for the owner of the spare-parts inventory.

When this occurs, Converge is approached by our customers, at the end of each fiscal quarter or fiscal year, to evaluate cross-utilization opportunities of their “internal part number” inventory across multiple sites in an effort to drive down their inventory levels by reducing new procurement.

While periodic site balancing through many-to-many part number translation is a good step in the right direction, continuous linkage among internal part numbers that boil down to the same core part number across all service sites can improve supply-chain efficiencies by inherently altering procurement behavior.

Clearly, this is easier said than done. It requires clean data and a fairly sophisticated application logic that is deeply embedded in the supply-chain DNA of the service provider. However, it also represents a competitive advantage if executed properly. In today’s supply-chain services arena, where inventory ownership is the major source of financial liability, a quantifiable competitive edge such as real-time site balancing can be the winning ingredient.

Does your organization practice site balancing? Let me know what you think in comments or by sending me an email.

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