May 12, 2013 | Written by: Leonard Lee
What if you could get that critical, custom part the same day that you needed it for an urgent warranty repair for a customer? What if you could avoid the cost of carrying expensive, slow-moving service inventory items and eliminate the lead-time associated with procuring replenishment stock from your supplier or your central spare parts? What if you could reduce your service inventory to what you need for the day?
In my last blog post, we explored the benefit case for Digital Supply Chain in the manufacturing scenario. In this installment we will take a look at the benefit hypothesis of Digital Supply Chain as it applies to a company’s service operations, and identify how the Digital Supply Chain and 3D printing can yield value that cannot be realized through “traditional” service models.
Post-sales service is an important part of an electronics company’s business model and value chain. A company’s ability to provide timely and cost-effective support and warranty services for their products is a differentiating competency for companies in the consumer electronics, medical device and network equipment segments of the electronics industry. Service and product support are particularly important for companies competing in market segments in which competition is aggressive and/or when products are used in mission critical, high-performance scenarios.
Electronics companies provide service in two formats:
- Repair Depot Operation – The customer sends in a problematic product to the company to have it repairs or replaced as part of a RMA (return material authorization) process. The problematic unit is repaired and sent back to the customer, or a replacement unit is shipped out.
- Field Service Operation – A company or 3rd party service person is dispatched to the location that the problematic product is installed to render repair services on site.
So, let’s take a look at the first scenario – repair depot operations – and discover the potential value that Digital Supply Chain and 3D printing can offer. We will save the field service scenario for the next blog post.
The “Traditional” Repair Depot
The key challenge for the repair depot operations of an electronics company is to provide competitive service levels to customers on warranty (as well as out-of-warranty) issues while minimizing costs, in particular the cost of service inventory. Not only does an electronics company need to effectively manage a wide range of replacement parts for its repair depot operations. Some companies, such as network equipment manufacturers, must additionally manage an inventory of refurbished SKUs, which are available for as replacement units that can immediately be shipped out to customers as replacements, but cost the company money to stock. SKUs for network equipment can have differing BOMs and be of varying engineering versions, further complicating the management of service inventory. To make things even more challenging, electronics companies with global footprints must manage the complexity and associated cost of a globally distributed inventory of parts and replacement SKUs that must be available at the right time and the right place – all of this, while keeping warranty and overall service operation costs down – not an easy task.
Global electronics companies also face the logistical challenge of providing a consistent, quality level of warranty service over multiple geographies. The relatively high Inventory, capital and labor costs required to provide consistent, quality service coverage across a global market portfolio, and the complexity and cost of distributing replacement parts across a distributed service network put pressure on companies to centralize their service operations. The dilemma companies face with centralized repair depot operations are higher inbound and outbound shipping costs, and the longer transit lead times, which affect service levels and increase warranty costs. As a result, many electronics companies have outsourced to and partnered with 3rd party logistics and service trade partners to gain flexibility and scalability of their service capabilities, which comes with its own set of overhead, risk and management problems that can adversely affect service levels and the company’s bottom line. Even if a company outsources its repair depot operations, in most instances, it still owns and carries the cost of service inventory as a consignment held by the 3rd party service partner.
The Digital Supply Chain & The Repair Depot
In the first of this series of blogs on the topic of Digital Supply Chain we established that the Digital Supply Chain model has three elements that drive the benefit case:
- Locally based 3D manufacturing – provides economy of scope with its ability to fabricate a wide range of parts on demand,
- Advanced robotics – provides labor-less assembly using smart, learning robots that can perform human tasks,
- Open source hardware – provides a standard set of programmable hardware components that can be leveraged across a wide range of applications.
If we consider these three factors, Digital Supply Chain can have the transformative effect of enabling companies to decentralize their service inventory management and their repair depot operations while improving overall service levels and cost-efficiency.
Competitive Advantage – On Demand Parts, On Demand Repairs
The benefit hypothesis for the Digital Supply Chain suggests four key opportunities to reduce cost and risk associated with the “traditional” supply chain model as it relates to repair depot operations. Firstly, the potential for 3D printing to change the inventory mix from finished goods to raw materials can reduce the overall cost of carry throughout the service operation supply chain. In addition, the cost of carrying parts purchased from a supplier as finished goods can be deferred by fabricating a part or component when and where it is demanded using a connected 3D printer in a fashion similar to the manufacturing scenario covered in my previous blog.
Secondly, the Digital Supply Chain has the potential to take out a significant amount of transportation cost from the service operations supply chain of a global electronics company by enabling the cost-effective fabrication of replacement parts at local repair depot locations using locally sourced raw materials. This can be a significant benefit considering that a good portion of replacement parts procured by a service organization is not purchased in bulk (more expensive per unit) and are shipped in smaller lots (higher transport fees) than for a production line. Consequently, 3D printing will reduce lead times associated with sourcing parts and components from disparate geographies or from a centrally located service distribution site, thereby reducing stock outs of service parts. On demand availability can also reduce the quantity of shelved repairs awaiting replacement parts and improve turnaround of repairs resulting in happy customers.
Service organizations will be able to leverage a third benefit of the Digital Supply Chain – economies of scope in the fabrication of a wide range of replacement parts from a set of 3D printers. The ability for a 3D printer to fabricate any variety of objects within its production parameters enables companies to realize relative cost efficiencies and tremendous flexibility in the fabrication of replacement parts versus procuring parts from a portfolio of suppliers.
Finally, companies can further leverage the benefits of additive fabrication (the fabrication technique used by 3D printers) to reduce the cost and waste associated with scrap that would otherwise be incurred by the company or passed on to them by suppliers using non-additive means of fabrication.
The benefit hypothesis for Digital Supply Chain as it pertains to the repair depot scenario shares many of the aspects of the manufacturing scenario, with a few minor differences, primarily related to inventory management and the lighter treatment of advanced robotics in the repair depot scenario versus manufacturing. The benefit hypothesis diagram above provides a comparison of a “traditional” supply chain cost structure for the repair depot scenario with a hypothetical Digital Supply Chain cost structure. The hypothetical net benefit of a Digital Supply Chain comes from the reduction in four cost categories: cost of distribution, cost of repair, cost of carry (inventory cost), and cost of service parts (supplier overhead).
Digital Supply Chain has the potential to improve some aspects of your repair depot operations, especially if your company’s products have a significant amount of mechanical parts that can be fabricated by 3D printing. Given the heavy use of electronic components in electronic devices such as computer chips, which are currently not possible to fabricate cost-effectively using 3D printing techniques, it is probable that electronics companies will need to maintain a portion of their current supply chain practices for a good portion of their product bill of material. You will need to analyze your portfolio of service parts to determine how much value Digital Supply Chain and 3D printing can deliver to your repair depot operations. Regardless, Digital Supply Chain will push the competitive envelope of the service-side of the electronics industry. If leveraged effectively, 3D printing can provide first movers with competitive advantage, especially in competitive market segments for mission-critical electronics products. Medical device companies, are you listening?
In my next blog post I will continue this discussion to address the scenario of field service. In the meantime, please feel free to comment and share your thoughts. I look forward to your discussion and constructive feedback.
For an overview of IBM’s vision for the Digital Supply Chain and 3D printing, check out the presentation entitled “The Software Defined Supply Chain” delivered by Paul Brody, Vice President & Global Industry Leader of Electronics at IBM at the Siemens PLM Innovation Conference in March of 2013.
Also, stay tuned for the Institute for Business Value study on Digital Supply Chain coming in June for exciting insight into how 3D printing is transforming the way companies think of supply chain in the electronics industry.
Read part three of my series on 3D Printing – Transforming The Supply Chain.
By Leonard Lee
April 19, 2013
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