Top 10 Most Costly Critical Inventory Management Mistakes to Avoid

Managing inventory can be a challenge for companies with field service management commitments. Overstocked and slow-moving parts can be costly over the long term. But not having the right item at the right time could mean damaging the customer relationship and incurring SLA penalties. It's a delicate balance that requires constant oversight.

Field service inventory can be particularly difficult to track. A critical part may be stuck on a service truck, while another tech gets the service call and can't find the item. Every item must flow through the system so it can be tracked and billed correctly.

While there's no single best way to manage service parts, some critical mistakes could lead to higher costs and lower customer satisfaction.

Dependence on in-house resources

Many companies attempt to manage field service inventory in-house but soon find out it's a specialty all its own. Outsource to an experienced warehousing or distribution service to save overhead on labor, real estate, and other expenses. The goal should be to reduce or maintain headcount by partnering with a logistics provider. Keep in mind, some internal resources will be necessary to manage the relationship with the provider.

Lack of real-time reporting

It's challenging to monitor and manage decentralized inventory in forward stocking locations (FSL). But it's critical to have an accurate, real-time count of the inventory available at each location. Real-time, automated reporting significantly reduces the impact of the human factor in counting the inventory. Each item should be tracked at each step of the supply chain, from leaving the facility to shipping to the customer site to the end-use. At the end node of the supply chain, there's a critical need to have live reporting of transactions. For a slow-moving inventory, updates once or twice a day are acceptable. But for fast-moving inventory that requires rapid replenishment or one-to-one replacement, real-time reporting is a must-have.

Absence of planning and forecasting

Your service parts logistics and inventory strategy should begin with the SLAs to understand the requirements in terms of location, flexibility and other business requirements. Based on the SLA, forecast which items are a priority for the forward stocking location. Determine which items may have a high failure rate, items that might be inexpensive or have a limited inventory that should be pushed to an FSL. Analyze the cost per part and understand the implication for the business in the future.

Consider upcoming customer trends as well. If SLAs tighten from same-day to four-hour fixes, will the existing facility support that? Having some insights into the future will help find the best provider for the long term.

Poor implementation, lack of training

Lack of training and inadequate implementation can hinder the success of an FSL. It's critical to understand what services the providers are offering and what applications and technology will be required. During implementation, the provider and employees must be trained on the business rules for the central distribution center but also for field deployments. The staff must know how to place orders, which items might be shipped, or which items will be available from will call or self-pickup.

Field training is usually necessary to instruct staff on processes and communication channels. From the launch, the decentralized location must be ready with a warehouse management system to receive inbound items and send confirmations it's available for use.

Not Understanding Provider Limitations

Do your due diligence in selecting a provider and their potential limitations in meeting your requirements. In the fact-finding stage, ask the provider about their scope of services:

• Types of inventory
• Inventory accuracy
• Inbound accuracy
• SLA on-time percentage
• Accessibility percentage
• Transportation capabilities

Understanding the provider's capabilities as well as their limitations is critical because a situation could arise that the provider isn't able to accommodate. Choosing a provider that can't meet your requirements could cost not only in the short-term from moving to a new provider but also in damaging a customer relationship.

Overspending on Expedited Shipments

The cost for expedited deliveries can add up quickly, cutting into margins for service contracts. Move same-day or next-day delivery parts in FLS that can serve multiple field techs or customer sites. Your organization can significantly lower the investment in spare parts, with fewer parts in the right location. You can reduce the need for costly critical shipment service by using more cost-effective delivery options.

Paying for Excess Space

Use existing multi-client warehouses rather than create your own logistics network. You can pay for only the space you need with a third-party provider, compared to leasing space directly. Your FSL can flex in size depending on seasonal or business needs.

Lack of Reverse Logistics

Reverse logistics can recover value otherwise lost in inventory that's been replaced or returned for some reason. Some parts can be repaired, refurbished or sold for scrap. Many parts that have been returned are actually still good. The technician may have misdiagnosed the problem and ended up with another solution. Technicians may use known good parts to diagnose a problem by replacing components they suspect are faulty. Work out reverse logistics to capture value in inventory and avoid the buildup of non-usable parts.

SLA Compliance

Monitor SLA compliance levels such as work order duration, first-time fix rate and wait time to optimize inventory. With some insights, you can ensure stock levels will meet the SLAs without excess inventory expenses. Cost-effective management will improve cash flow by shortening the inventory-to-billing cycle.

Transforming Business Models

More companies are transitioning to providing a service rather than selling hardware and equipment with service contracts. Adopting an outcomes-based business model requires moving beyond break-fix orientation. Instead, service becomes part of or even the primary value proposition. Inventory management moves from a cost center to a profit center, requiring a higher level of investment and management attention.

Partner with an experienced service parts logistics provider committed to your success to avoid costly critical inventory mistakes.

For strategic insights into your spare parts supply chain, contact Warehouse Anywhere today.