Aftermarket Parts Push

Choice Logistics Inc. and System Design Advantage LLC are going after a bigger chunk of the aftermarket parts and services business. The companies have combined resources to court customers with logistics and parts and repair services through an Inventory Asset Management program they're rolling out on Monday.

Executives said the strategy aims to speed part deliveries to service the aftermarket and ease operational expense for equipment makers.

System Design Advantage will help customers plan and forecast demand as well as manage spare-parts assets, lowering inventories used to maintain the aftermarket repair services for companies like Hewlett-Packard. More important, the program gives distributors, resellers, integrators, and third-party maintenance contractors a logistics and warehouse network where they can access the material to make critical repair part deliveries in hours instead of days.

"The service is geared toward industries where minutes down are critical such as the medical and telecommunications," says Jim Sahli, founder and CEO at System Design, which provides emergency spare parts and inventory asset management services. "People require, in some cases, quick response time to get a system up and running. They pay a premium and expect prompt service."

While System Design brings the financial wherewithal to purchase and hold the service parts inventory, Choice will provide logistics, transportation, delivery, and warehousing at its 160 locations in the United States, 15 in Canada, 20 in Mexico, 40 in Europe, and 10 in Asia.

"The demand from U.S. companies is spreading to Europe and Asia, and we will expand as needed," says Rob Kass, president at Choice Logistics. "The market has become international."

The Aberdeen Group estimates global spending on aftermarket parts and services at more than $1.5 trillion annually.

The Inventory Asset Management program has the potential for System Design and Choice to assist companies maximize fill rates and reduce inventory risk to improve delivery times and retain customer satisfaction, according to Tim Minahan, VP of supply-chain research at Aberdeen Group.

"When it comes to aftermarket service, parts availability and speed are king," says Minahan. "In some industries, service response requirements have shrunk to four hours or less. Inconsistent delivery and frequent stock-outs can put a company out of business."

Servigistics Inc., a service-parts management software company, could become the third spoke in the Inventory Asset Management wheel. Servigistics already has a partnership with Choice Logistics and is in discussions with System Design to finalize the deal. Servigistics would bring its inventory planning and management software to help forecast demand.

Analysts say service-related businesses in the United States have moved into the forefront as manufacturing continues its push to low-cost regions like China and India.

Spare parts and services account for 8% of the annual gross domestic product in the United States, with U.S. consumers and businesses spending more than $700 billion annually on spare parts and services for previously purchased assets such as automobiles, aircraft, and industrial machinery, according to Aberdeen.

Services are starting to take center stage, says Shawn Lane, director of product marketing and business development at Servigistics. "Service parts, for the lack of a better term, have been a red-headed stepchild and basically the portion of the organization thought of as the back end and not a high priority for most companies," says Lane. "But if you look at the revenue and margins an impacted service can drive for a company, it's significant. Often the margins in service are between 40% and 50%, whereas the margins in manufacturing and distribution are between 3% and 8%."