What This Article is About
- What is the relationship between 4Pls and service parts?
- Why are they a natural fit for one another?
- How common are 4PL’s for service parts in reality?
A fourth party logistics providers is a company that holds no physical logistics assets, but coordinates the supply chain though its access to monitoring data and IT. You can read more about this intermediary structure here.
4PLs apply for both finished goods and service parts, however, in this post we will focus on 4PLs for service parts.
4PL for Service Parts
This is a very natural combination for the following reasons:
- Service parts are often held at locations that are owned by different firms that do not pool inventory
- Large companies do a very poor job at implementing service parts systems. This is a bit of a conundrum in the industry and has to do, at least partially, with the fact that service organizations are very under-emphasized by corporations. This means they are lower on the priority list and get far less investment than the finished goods side of the business.
- While big companies generally lack the motivation, the small companies in the service chain – the dealers, lack a web-centric focus, and are too small to develop integrated service based IT systems
- Finished goods forecasting and inventory systems do not work very well for service parts because their forecasting is different, and because service parts systems must habitually reposition inventory to reduce obsolescence.
Because of these factors, service parts IT spending and capability greatly lags the investments made in the finished goods parts of corporations. Because so many companies are generally disinterested in investing in service parts, the net result is that service parts habitually suffers from poor supply chain management. However, what this means, is that the market offers a very good opportunity for 4PLs.
Given the opportunity, one would think 4PLs would have already set their sights on this market. Not so. Performing a search for fourth party logistics providers and service or spare parts brings few results. We found remarkably little published and remarkably little focus on the part of companies attempting to build this market. So whatever the opportunity, it is not anything close to an industry trend as of yet.
It seems pretty obvious that 4PLs and service parts go together, however, a search on Google for “service parts” and “fourth party logistics providers” brings up our blog on 4PLs for the first 4 results. Many of the other results below don’t really cover the issue and are false matches. Why aren’t more companies focused on this?
In the article on auto service parts networks, we describe the problems that plague these networks, and discuss how these networks could be made more efficient. A software vendor saw our article and contacted us to talk about it. After we spoke with John Snow at Enigma (a software firm focused on service part content management and decision support), we learned that he also came up with a similar concept years ago. We have since adopted Enigma’s term which is the “Part Hub” to describe this network design where inventory from non-associated dealers is pooled and co-managed. We won’t go into the description and design in this post, because it is fully explained in the link below.
There is a continuum on which possible solutions for 4PLs focusing on service parts networks would rest.
For instance on one extreme would be a SAP SCM solution combining Service Parts Planning (SPP) + Event Management (EM) + a web front end. However, while a favorite of big companies, we think this solution would be a bit expensive, complex and overall too “heavy” for a small nimble 4PL. On the other side of the continuum would be the Amazon.com solution. The process flow looks like this:
- Dealers would submit their inventory to Amazon by web, or flat file
- Orders are placed on the Amazon.com site and electronically forwarded to dealers
- The package is shipped by UPS or DHL or other and the vendor, taking advantage of Amazon.com’s interface to these carriers, and Amazon displays the transit progress through its website to end customers (as with any normal Amazon.com order).
However, this solution, which is available to use right now by any dealer network interested in doing so, simply by signing up to sell on Amazon.com, is missing some desired functionality. How to Add What is Missing What is missing from the scenario above is forecasting and order management – which accounts for things like supersession / interchangeability. For this, other systems would have to be incorporated that would provide this. However, a 4PL could use the Amazon.com front end and tracking capability – which is free – with a forecasting package and order management decision support system.
Did this article make sense? What are the advantages and disadvantages to the design presented above? If you have any insight on the topic, please comment below.