A stepchild grows up

A stepchild grows up

In the last 15 years, U.S. industry has globalized in a big way. Initially, these efforts were aimed at meeting foreign competition at home. Today, U.S. companies understand that there is a mega-market be-yond our shores. Firms recognize that to move their raw materials and finished products efficiently, they must employ globalized logistics providers with expertise in parts of the world where their corporate ancestors never ventured.

A cadre of third-party logistics providers is rising to the challenge. All aim to expand their service offerings and geographic reach through mergers and acquisitions, organic expansion or partnerships with providers in foreign markets.

Within this increasingly global 3PL community, a niche player has emerged during the last decade. This niche-type 3PL seeks to help manufacturers address an aspect of supply-chain operations previously viewed as a poor stepchild: service parts logistics.

Many companies must support their products in the field for years after the initial sale. Customers who need their product support don't, won't or can't wait days for a part to be delivered. Nor can they afford to maintain spare-parts inventories. More companies with this product-service profile are realizing that service parts and product support can be a powerful revenue generator. They realize that product support has a direct bearing on customer satisfaction and, in many cases, profitability. Poor product support can generate staggering revenue losses. This unsuccessful formula produces customer alienation and loss of business.

Cat Logistics was one of the first 3PLs formed expressly to serve companies that needed to support products in the field. Started in 1987, Cat Logistics evolved from an in-house product and service parts support network for Caterpillar products into a full-blown 3PL, serving more than 50 external customers, such as Ford Motor Co., LandRover and Harley Davidson. It handles more than $10 billion in products annually. Cat Logistics has gone beyond just providing service-parts logistics services. In 2002, with its parent company, Caterpillar Inc., it joined Ford and German software giant SAP to develop supply-chain software for service parts.

Journal of Commerce readers in corporate positions have long recognized that an efficiency-creating supply chain is essential to the bottom line. Whereas the success of yesterday's traffic manager was measured by low freight rates, the success of today's vice presidents of logistics is measured by the impact on overall company performance and resulting increases in profits. Ron Kruse, president of the client services division of Cat Logistics, sees the supply chain as "the next frontier in unlocking shareholder value," and notes that supply-chain activities must be linked to business goals. That's how Cat Logistics measures its value to its customers.

Many other big-name 3PLs have gotten into the business of service-parts logistics. This list includes UPS Supply Chain Solutions, FedEx Supply Chain Services, Kuehne & Nagel and DHL. In February 2004, DHL announced the opening of more than 50 strategic parts centers in the U.S., Canada and Latin America. This expansion doubled the number of centers in North America, and brought the total currently operated by DHL in the Americas to 125.

What do manufacturers have to gain from outsourcing service-parts logistics to a 3PL? Intermec Technologies, which manufactures automated data collection and mobile computing systems, outsourced its U.S. distribution and inventory management for scanner and printer repair and spare parts to UPS Supply Chain Solutions. Previously, Intermec handled its U.S. support activities internally with four multiproduct service centers. Each center independently purchased product and managed depot repair - an expensive process.

UPS's integrated service-parts logistics has helped Intermec reduce its service-repair locations. Intermec centralized distribution with real-time visibility of inventory and repair that minimized processing time for inbound, outbound and reverse logistics. By co-locating distribution with repair and transportation capabilities, Intermec optimized its supply chain, resulting in fewer touch points, improved quality, faster turnarounds, later cutoff times, increased customer satisfaction and savings.

The logistics of the service parts-aftermarket supply chain will continue to develop. Inventory control in the global marketplace is essential to profitability. Partnerships between 3PLs and their manufacturer clients will expand via integration of IT processes. It is essential that manufacturers understand and take advantage of the potential of outsourcing their aftermarket supply-chain solutions.

Richard K. Bank is a partner with the Thompson Coburn law firm in Washington. He can be contacted at rbank@thompsoncoburn.com.