Spare Parts Strategy: One of the Three Drivers of Service Satisfaction

Spare Parts Strategy: One of the Three Drivers of Service Satisfaction

This article was written by Sam Klaidman, Founder and Principal Adviser at Middlesex Consulting.  He helps clients grow Service Revenue and Customer Satisfaction by defining service contracts and other services that meet customer’s needs and create value for them and their customers.

Customers buy products or services because they want or need the outcomes they will get from using these products or services. They buy from your company when they believe they will get greater value from your company than any other choice they know about.  The value comes from the difference between outcome and cost, and includes such factors as total cost of ownership, documented outcomes from other customers, and their perceptions about service quality and their expected experiences.

From the support perspective, customers and prospects believe the most critical attributes of a service organization are 1) timely technical support, 2) knowledgeable service technicians, and 3) parts availability.  Of course, each comes with a list of important descriptive modifiers, but these are the big three.

Which of these attributes are the most important? This is a trick question.  All three attributes are necessary, but only all three taken together are sufficient.

Much has been written and discussed about the impact your support and field service teams have on acquiring and retaining customers.  However, until recently, much less has been written about how a spare parts program can enhance or diminish your customer’s perception of the business.

When it comes to spare parts, there are four critical factors that are important to the end users:

• Price
• Availability
• Reliability
• Fitness for use

Price

Let me begin with one of my recent experiences.  As part of a recent consulting engagement with a manufacturer of industrial packaging equipment, I interviewed several their key end users.  While my client generally received positive feedback, the one area where they consistently fell short was in the area of spare parts prices.  Here are three quotes:

“They sell a standard 1 HP motor for $525 and I can, and do, buy the exact same item from Grainger for $150.”

“One of the wear parts (consumables) on the machine is a gripper. There is a left and right one.  Each sell for over $150.  I have them made at a local machine shop for about $35 each.”

“Their parts are very expensive, but I cut them some slack because they do not charge for phone support like all my other suppliers do.”

Using Google, Amazon, and eBay, a smart cost sensitive buyer can find almost anything on-line.  I did a quick search on Amazon for a 1 HP motor; there were over 10,000 results.  eBay only listed 5,662 results and Grainger listed 1,262.  I know that all the results included items other than motors, but the point is that with a few keystrokes, anyone can find multiple sources for standard components and assemblies.  And eBay also lists customer parts for sale.

I did some further research and was able to get a copy of the 2015 “Aftermarket Parts and Services Market Assessment Report” by PMMI, the Association for Packaging and Processing Technologies.”  This was their latest report on these topics and frequently referenced their 2011 report with the same title.  There was some interesting statistics in the parts section, including these:

74% of equipment owners purchased standard parts from a 3^rd party

66% of equipment owners purchased critical (custom) parts from the OEM.

It seems that customers have learned where to buy standard and custom parts at the best price.

Availability

In many cases, when a physical product (as compared to a pure software product) fails, the end user can solve the problem if the correct part is known and available.  In order of preference, end users want to get their spares from:

Parts they stock in their own location

Parts available from a local distributor

Parts that must be shipped by the OEM

The previously references PMMI report states that:

In 2011, 45% of interviewees stocked most standard wear parts recommended by the OEM while in 2015, the number stocking standard wear parts jumped to 67%.

In 2011, 37% of interviewees stocked most critical parts recommended by the OEM while in 2015, the number stocking wear parts jumped to 61%.

The point here is that end users were willing to invest in parts inventory to reduce downtime due to equipment failure.  And obviously, standard wear parts must be replaced more frequently than critical parts and that is why more users stock them.

Reliability

The challenge for small and midsize businesses is improving product reliability.

Failure analysis engineers are expensive and so not many of the smaller OEMs employ one or even routinely engage a consultant.  But that is not the biggest problem, which is finding out when a product fails, what were the circumstances at the time of failure, and what was done to correct the problem.

Think about what happens if the water pump in your 2014 Ford F-150 fails.  You take the truck to your trusted mechanic, who quickly diagnoses the problem, orders a replacement pump from a distributor that specialized in remanufactured parts, fixes the problem, and sends your defective water pump back through the same supply channel to the remanufacturer.  Ford never hears about the failure or the actual root cause of the problem.  Of course, there are enough failures in high volume sales that the OEM will find out about many failures and will be able to get some defects returned and have a reliability engineer tackle the problem.  Buy what if your annual sales for your high-volume products are measured in the 100’s, not the hundred thousands of popular automobiles?

That is why reliability is very low priority for many businesses.

Fitness for use

This one is tricky.  If a company labels its spare parts as “genuine replacement parts,” then end users have a very high confidence that when they install the part it will fit and work at least as well as the original part.  But what happens when someone tries to save some money and buys a knockoff that is labeled as “genuine replacement part?”  When it fails prematurely, or does not even fit when it is installed, the OEM quickly gets blamed.  They investigate and determine it is a counterfeit part and the customer cools off but often, the OEM will still offer a free replacement just to expedite the recovery from the original failure.

This situation does not occur all that often, but the OEM still must police all sources to ensure that none of their customers get stuck with a bad part and blame the OEM.  This is when you should immediately notify the local police department and take their advice about escalating to the correct national criminal justice department.

Conclusion

Spare part management is a critical part of the customer’s total cost of ownership (TCO) and their perception of your company and service business.  And there are many ways to mess things up.  So, just like you have technical support and field service managers, you also need a parts and logistics manager.  These three people must work together like the three legs on a milking stool.