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Zaragoza Logistics CenterTALENT HUB FOR SUPPLY CHAIN

REPORTS

TM

Handling the Challenges of the After-Sales Supply Chain

August 31, 2016

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Managing the after-sales and spare part supply chain efficiently is beco-ming increasingly vital for businesses for two main reasons: Not only does a well-planned and organized after-sales service increase consumer satis-faction and thus boost future sales, it also leads to immense cost-saving

potentials.

According to a recent survey of Deloitte & Arvato, after-sales su-pply chains represent a sizeable part of a company’s cost

structure, where 7 to 10% of the cost of goods sold is directly or indirectly attributable to the after-sales supply

chain. However, a well-managed after-sales supply chain has the potential to generate on average as much as 32% of the ori-

ginal product value1.

Despite these apparent benefits, the complexity of after-sales supply chain management poses unique challenges to companies, including the coor-dination of operations across multiple locations as well as ensuring the implementation of a well-conceived communication process.

1. Deloitte & Arvato ,The hidden value in Reverse Logistics, 2014.

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One solution that is commonly applied is the creation of control towers meant to integrate information from multiple systems and provide grea-ter visibility for supply chain planners. Control towers, however, are not necessarily up to the task of handling information that is not codified into information systems. For this reason, supply chain planning units need systems that ease the sharing of information accumulated by planners and based on experience or personal interaction with other supply chain referents.

With this idea in mind, ENTERCOMS decided to complement its con-trol tower supply chain planning solution with PULSE, a tool meant to promote knowledge sharing among planners, thus capitalizing on the collective experience of supply chain planning teams and fending off the problem of loss of knowledge associated with planner turnover.

In this report we explore in detail how the unique characteristics of the after-sales supply chain shape the current planning process, and ex-plain how PULSE can vastly improve the performance of the network.

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Challenges of Planning the After-Sales Supply ChainFor the most part, the after-sales process is what occurs after customers return a used product. The process is typically characte-rized by five key stages-acquisition, reverse logistics, inspection, refurbishing and re-marketing.

During the first stage, the company acqui-res the used product from the custo-

mer through the reseller or manu-facturer. In many cases, the

company receives the used products

from multi-ple lo-

cations and offers the customer a variety of return options including direct return to the point of purchase or sending it to the manu-facturer. In the reverse logistics process, the company collects the items and transports them to factories where they are inspected, sorted and eventually disposed of. Compa-nies at this stage opt to make the most eco-nomically viable decision, including direct reuse, repair, remanufacture or recycling. Finally, to generate profit from the after-sa-les supply process the company needs to market products that have been repaired, refurbished or remanufactured. Many of these items cannot be treated as new, and are thus sold in secondary markets. This mi-

ght include using repaired products as spare parts, selling them in brick-

and-mortar outlets or making use of flash sales.

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ACQUISITION

INSPECTIONDISPOSAL

REFURBISHING

REMARKETING

REVERSE LOGISTICS

As is the case for the forward supply chain, the after-sales supply chain requires a ro-bust set of planning processes including those for forecasting of repair demand, dis-tribution, inspection, material requirement, refurbishing and remarketing options. Fi-nally, actions such as order placement and

root cause analysis are performed in case of any deviations from the plan.

While these steps seem at first glance strai-ghtforward, they are actually extremely diffi-cult to undertake in practice.

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Forecasting ReturnsTo begin with, many companies find it di-fficult to forecast returns. This is because such returns may happen sporadically thus are difficult to anticipate. In addition, the product parameters needed to plan accura-tely for product returns (including the avera-ge lifetime of the product, the return quality and product sales versus expected return areas) are manifold and thus make accurate planning tremendously challenging.

SKU-ProliferationIn a forward supply chain, a new product launch tends to overlap with the phase-out stage of earlier models, meaning that the sales cycle of multiple models is typically sequential. The after-sales supply chain, however, often needs the capacity to su-pport several product variants, resulting in the proliferation of SKUs.

Competition with the Forward Supply ChainMany companies have traditionally given priority to the forward supply chain. A greater focus on managing the after-sales supply chain has heightened competition between the two. For example, at the launch of a new model (sharing scarce components with an older version which is still available to consumers), the manufacturer may prioritize the flow of the forward supply chain, which creates temporary shortages in the after-sales supply chain.

FORECAST ACCURACY

SKU PROLIFERATION

COMPETITION

LAST TIME BUY

NETWORK COMPLEXITY

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Last Time Buy (LTB)In contrast to the sequence of events in a forward supply chain, the LTB opportunity may very well occur far in advance of the end of service life. Being a decision with long-term implications for the projected service level, the availability and accuracy of the most up-to-date information su-pporting this decision becomes vital.

Network ComplexityFinally, the after-sales supply chain is composed of many service points distributed throughout re-gions where the product is sold. In addition, many companies, third-party vendors, repair specialists, suppliers and remarketers play a critical role in the success of the after-sales supply chain. FORECAST ACCURACY

SKU PROLIFERATION

COMPETITION

LAST TIME BUY

NETWORK COMPLEXITY

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Problem of Sharing Knowledge among Planners

While a lot of information supporting plan-ning processes in after-sales supply chains is collected and made available throu-gh planning and visibility tools (i.e. control towers), there are many sources of relevant information that remain out of sight and can only be accessed by planners as they inte-ract with other supply chain referents. For example, during forecast generation, com-panies increasingly make use of not only the historic data but also information on promo-tions, market changes and other factors, of-ten outside the forecaster’s remit. This ex-pert knowledge tends to be collected from multiple sources and communicated throu-gh informal channels, especially through phone calls and logbooks. Thus a planner that wants to make use of this information has to rely on memory or personal records. The planners we interviewed estimated that “about 40% of relevant information for plan-ning is only available in reports from custo-

mers, making it difficult and time-consuming to locate and import the information”.

In general, important contextual information tends to be stored in various locations in-cluding emails, logbooks and cloud stora-ge. To be able to retrieve this information (possibly generated by another planner), a planner has to search through and review all the recorded entries related to the parts he is handling at that time. This might include information about business logic modifica-tions from the client transmitted during a meeting where not all planners are present, or the modifications made by a planner in his planning strategy for a part (e.g., a chan-ge in usage rate from 30% to 70% due to expiry reasons); if a different planner hand-les the part, the log book has to be checked to see the history and assess if the changes/settings are still valid (e.g., return usage rate of 30% due to engineering changes).

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In addition, network complexity tends to slow down overall systems performance, resulting in a critical time delay between the generation of the information in one department and its receipt in another. For instance, an engineering change may ren-der a low-quality part obsolete, leading to a new part replacing the old one. A planner that does not receive such information on time may continue ordering the old parts, while the new repair process requires the new components. The planner’s uncertainty about having the latest information on a part (inventory, backorder, forecast) is especially costly when making purchasing decisions

for end-of-life products. For example, during a part’s end-of-life stage where there may be a 1-2 day window to finalize last time buy requirements, missing the window may result in not getting the parts, but the time pressure may also result in a bad decision that creates excess stockpiles of an expen-sive component.

In summary, valuable contextual informa-tion tends to be stored and retrieved in an unstructured way, making it challenging for companies to systematically make use of it. Much potential to improve performance goes to waste.

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ENTERCOMS Solution: PULSE

has identified four main functional requirements of an add-on tool meant to support knowle-dge-sharing among planners:

• Allowing multidimensional real time collaboration: The ability to acquire information from, and transmit information to, organizational groups outside the planning team (e.g., suppliers, clients, repair vendors).

• Providing a closed-loop planning enabler: The information acquired and conclusions reached are based on the integrated analysis of explicit and contextual knowledge. Therefore, storing codified information in one tool increases supply chain visibility.

• Becoming a repository of knowledge that helps improve future deci-sion-making: Storing and transmitting codified information in one system better enables planners to use it in the next iteration of planning analysis and decision-making.

• Allowing data-mining of textual information in pursuit of better-infor-med executives: Integrated storage of codified information enables com-panies to use data-mining techniques not only with explicit but also with codified knowledge.

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With these objectives in mind, ENTERCOMS created PULSE as an add-on to its existing control tower. Planners that receive informa-tion can attach textual knowledge to a cer-tain part number. In this way, the information is made available to all planners in a structu-red way. This allows planners to view histo-rical data on, for instance, not only historical consumption (explicit knowledge), but also codified knowledge such as information on outliers.

To give an example, a planner who is infor-med by a colleague through PULSE that a spike in demand was caused by a bulk or-der from one of its large customers is better able to easily identify this one-time event as an outlier when making his forecast. Equa-lly important, this information will be highly valuable and easily accessible to all plan-ners if a root cause analysis is called for later. Yet without such a system, this infor-mation would be communicated through in-formal channels, thereby increasing the risk of communication errors, a situation likely to arise when planning over thousands of parts.

As well as this, a planner receiving infor-mation through PULSE that a supplier cannot commit to deliver due to short-term quality issues will be better able to find alterna-tive suppliers early on and use this infor-

mation to update supplier’s lead-time.

In addition, allowing planners in multiple lo-cations to communicate freely on a shared platform better enables information-sharing between companies. Finally, giving com-panies the tools to perform textual data analytics on contextual data helps execu-tives to form a comprehensive view of any issues arising in their organizations.

Note that PULSE does not aim to replace any traditional channels of communica-tion. Rather, the idea is to redirect contex-tual knowledge from logbooks, emails and cloud storage to a consolidated storage system where it might be more useful in su-pporting planning activity. In combining the flow of contextual knowledge and con-crete data, PULSE enables the user to have a comprehensive view of all the relevant information on a given part or com-ponent.

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User evaluation of PULSE

For a deeper understanding of how PULSE changes the after-sales planning process, we interviewed users during the testing phase. The most frequent responses given when asked about their first impressions of PULSE can be summarized as follows:

Efficiency gains: Centralizing information with PULSE saves time transmitting and transforming the information, especially when performing root cause analysis, the process of examining any unexpected de-viations from the plan.

Quality improvement of root cause analy-sis (RCA): By having complete visibility in a single place, PULSE makes it easier to understand the root cause of an unexpected event, increa-sing the effectiveness of the analysis;

Moreover, the ability to link the conclusion of the RCA to all relevant elements (e.g., the part, the supplier, and the lead time delay) facilitates collaboration and oversight, as any individual can observe the reasoning and corrective actions made by the planner in charge.

Internal workflow streamlining: Sharing knowledge and obtai-ning information from va-rious repositories on PULSE makes it easy to

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alert companies to an issue as soon as it is noticed, and close the loop with full visibili-ty and minimal coordinating effort. This can also help avoid the issue of different plan-ners having different views of the same part.

Ease of data mining on particular issues: PULSE makes searching for repeated events and patterns far more efficient.

Ability to track actions: High-value effi-ciency of tagging a part on PULSE and as-signing tasks to planners, so that the latter can pursue the task at hand.

Increasedefficiencyoncollaborativetas-ks: Working simultaneously on PULSE, ra-ther than sequentially on multiple versions of the same report, a group of planners can come to a shared conclusion more rapidly.

Freeing up time for critical decision-ma-king: Since the cycle time needed to acquire and/or validate information is reduced with PULSE, there is less time pressure to make critical decisions, e.g., last time buys. This can contribute to the effectiveness of the decision by allowing the planner to spend more time interpreting information before submitting it.

ConclusionThe after-sales supply chain presents enormous opportunities to companies by increasing consumer satisfaction while reducing costs. Companies that want to be market leaders in their field have to not only integrate their IT systems to gain visibility and optimize their inventory, but also improve communication in this challenging environment. ENTERCOMS both helps companies with the integration of data from a number of locations and integra-tes contextual data into its platform. All this by allowing planners to receive information and data from across the globe as soon as it is created. PULSE increases the efficiency and effectiveness of the after-sales planning process.

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ResearchersFabrizio Salvador

Fabrizio Salvador is Adjunct Professor at Za-ragoza Logistics Center, Professor of Ope-rations Management at Instituto de Empresa Business School. He has been Faculty Re-sarch Associate at Arizona State University. He received a PhD in Operations Manage-ment from the University of Padova, where he also graduated in Industrial Engineering.Fabrizio’s research focuses on operations strategy in uncertain environments. He has been researching such topics as mass cus-tomization, concurrent product-process-su-pply chain design and organization design for efficient product configuration. His re-search has been published in Journal of Operations Management, IEEE Transactions on Engineering Management, Production and Operations Management International Journal of Operations and Production Mana-gement, International Journal of Production Research, Production Planning and Control, International Journal of Production Econo-mics, Computers in Industry, Business Ho-rizons, etc. He also published various book chapters. He co-authored the book “Infor-mation Management for Mass Customizai-ton – Connecting Customer, Front-End and Back-End for Fast and Efficient Personaliza-tion”.

Fa-brizio d e s i g -ned and ran many research projects, both on a national and interna-tional scale. He is mem-ber of the “High Performance Manufacturing Research Group,” of the “Global Manufacturing Re-search Group,” is founding member of the “International Mass Customization Re-search Institute” and scientific advisor for the “MIT Smart Customization Lab”. He was awarded multiple research grants from national (governmental) and trans-national (European Commission) institutions, as well as from private companies. In his research he has worked with many companies to ad-dress operational problems associated with customization and product proliferation, in-cluding DHL, IBM, John Deere and Permas-teelisa, among others.

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Laura Wagner

Laura Wagner is a 5th year PhD candidate at MIT-Za-ragoza Logistics Program in Spain and is expected to graduate in summer 2016. Her research interests are in thefieldofsupplychain risks, inparticularthe risks arising from product fraud. She also ca-rried out research during her one-year visit to MIT. PriortoherPhD,LaurareceivedanMBAfromtheUniversity of Sankt Gallen in Switzerland and a Di-ploma of Executive Education from ESADE in Bar-celona as well as a Master in Mechanical Enginee-ring and Economics at Technical University Graz in Austria. Inaddition, shehasgainedbusinessandmanagementexperienceinseveralindustries,ran-ging from logistics consulting and product mana-gement to test and program management at lea-dingcompaniesincludingBoschRexroth,ProtemaLogistics Consulting and ThyssenKrupp Presta AG.

Fabrizio was awarded the 2007 Instituto de Empresa Business School Research Exce-llence Award. He also received the 2004 Production Planning and Control Best Paper Award for the paper “Supply Chain Configu-rations for Mass Customization,” the 2005 Journal of Operations Management Best Paper Award for the paper “TQM Across

Multiple Countries: Convergence Hypothe-sis vs National Specificity Arguments”, the 2006 Outstanding Reviewer Award from the Decision Sciences Journal, and the 2007 AND 2008 Shan Han Best Paper Finalist Award at the Academy Of Management An-nual Meeting – OM Division. He is member of AOM, DSI, INFORMS and POMS.

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Zaragoza Logistics Center (ZLC)A Research & Education Institute established by the Government of Aragon in collaboration with the Massachusetts Institute of Technology (MIT) and the University of Zaragoza (UZ) in 2003.

MIT Center for Transportation & Logistics

The mission of ZLC is to create an international center of excellence for research and education in logistics and supply chain management that actively engages with industry and the public sector to develop and disseminate knowledge.

www.zlc.edu.es

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MIT Global SCALE Network

The MIT Global SCALE Network is an in-ternational alliance of leading research and education centers dedicated to su-pply chain and logistics excellence throu-gh innovation.

The Global SCALE (Supply Chain and Lo-gistics Excellence) Network was initially formed in 2004 with the opening of the Zaragoza Logistics Center (ZLC) in Za-

ragoza, Spain. It expanded in 2008withthe opening of the Center for Latin Ame-rican Logistics Innovation (CLI) in Bogo-tá Colombia and then again in 2011 with the creation of the Malaysia Institute for Supply Chain Innovation (MISI) in Shah Alam,Malaysia. Collectively, the SCALENetwork,which includesMITCenter forTransportationandLogistics (CTL), nowspans four continents.

MIT Center for Transportation and Logistics (CTL)USA

Zaragoza Logistics Center (ZLC) Spain 2003

Luxembourg Centre for LogisticsLuxembourg 2015

Center for Latin American Logistics Innovation (CLI)Colombia 2008

Malaysia Institute for Supply Chain Innovation (MISI)Malaysia 2011

Ningbo Supply Chain Innovation Institute ChinaChina 2016

MIT Center for Transportation and Logistics (CTL)USA

Zaragoza Logistics Center (ZLC) Spain 2003

Center for Latin American Logistics Innovation (CLI)Colombia 2008

Malaysia Institute for Supply Chain Innovation (MISI)Malaysia 2011

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ZARAGOZA LOGISTICS CENTEREdificio Náyade 5, Calle Bari 55 (PLAZA)50197 Zaragoza, SpainTel. +34 976 077 600

www.zlc.edu.esinfo@zlc.edu.es