Service-parts logistics can be a cash cow for the increasing number of companies that offer this service to their clients. Achieving flawless execution often on just two hours' notice is a challenge for both shipper and provider.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
In a world where companies bend over backward to give customers what they want, when they want it, perhaps nobody bends farther or faster than those who manage service logistics, the operations that support after-sales service.
That's because customers, be they consumer, retail, or industrial, expect support after they buy a product. Guarantees of good after-sales service, in fact, may even be required to make the initial sale.
Buyers expect to get excellent support quickly—in some industries, within two to four hours of a customer's call. Making that happen, and satisfying customers, requires nearly seamless and flawless execution.
That often means that the seller must set up stocking locations near its customers, something that is a particular challenge for global companies. It also requires good visibility into stocks that are dispersed among both company-owned and third-party distribution centers. And where stocking and delivery are outsourced—as they often are—it requires reliable partners.
Yet for all that, the benefits of providing after-sales service outweigh the challenges. Chief among them: It can be enormously profitable—more profitable, perhaps, than the margin on the product itself. The automotive and high-tech industries have known that for some time. But now, big industrial companies around the globe have begun to pay more attention to what's often referred to as "service-parts logistics."
Service as cash cow
The growing interest in service logistics was evident in the results of a study conducted last year by the consulting giant CapGemini, which took a close look at the growth of service logistics, particularly in the engineering and manufacturing (E&M) sector. E&M includes companies in the aerospace, heavy manufacturing, non-electronic appliance, and similar industries. Among them are large conglomerates like GE, Tyco, and Emerson.
Roy Lenders, a vice president in CapGemini's logistics and fulfillment practice and the lead author of the study report, A New Industrial Service Age: How Industrial Companies Develop the Service Cash Cow, says he's seeing a lot of traditional manufacturing companies setting up dedicated after-sales service units. "Traditionally these industries have had no competition in the aftermarket. They were the only ones able to deliver spare parts," he observes. "What we have seen in automotive and high tech is what is happening now in this industry. There is competition in the aftermarket space."
Paying closer attention to aftermarket service makes great business sense. Lenders says, "One of the things that makes this area hot for a lot of companies is that for most manufacturers, the profit margin in aftermarket sales is much higher than for the sale of new machines."
The numbers bear this out: CapGemini found that E&M companies garner about 16 percent of their revenues—but about 23 to 27 percent of their profits—from service logistics. For high-tech companies, the figures are 13 percent of revenues and 15 to 20 percent of profits. Those numbers may be on the low end of the scale: Steve Guthrie, senior vice president of global sales and marketing for Flash Global Logistics, a service logistics specialist in Pine Brook, N.J., cites the example of one client that gains 65 percent of its margin from service contracts.
The authors of the study, which was sponsored by DHL Exel Supply Chain, note that in some jurisdictions, regulatory changes are opening the door for companies to offer aftermarket service to each other's customers. That in turn is creating pressure to improve service logistics operations.
"We are also seeing more and more manufacturing companies deliberately selling service for their own and for competitive equipment," Lenders says. "There are two reasons for that. The profit margin is very high, and by doing that, they can get a better hold on competitors' accounts and hope in the long term to convert them to their own equipment."
A few good third parties
The service logistics challenges for large industrial companies are very different from those facing the high-tech and automotive industries. For instance, high-tech service parts tend to be more portable and have a shorter shelf life than those in the E&M sector. E&M manufacturers, on the other hand, often have to make parts available for many years after a sale. Additionally, the high-tech industry, which is considered a front runner in service logistics, is five years behind the E&M industry when it comes to globalization, the report says.
Currently, the high-tech sector sees more "mission-critical" service demands than does E&M: 62 percent of all contracted machinery in high tech must be serviced within 24 hours, but only 54 percent of the equipment in the E&M sector has a 24-hour requirement, the report says.
For many companies, though, 24 hours isn't soon enough. The percentage of service contracts that require a response within two to four hours—now 18 percent for high-tech manufacturers and 14 percent in the E&M industry—will rise over the next five years to 20 percent and 21 percent, respectively. That big jump in demand for immediate service, the authors conclude, will require E&M manufacturers to develop a multitiered distribution network that includes both centralized warehousing and a larger number of outlying warehouses positioned close to customers around the world.
As the study notes, however, companies have greatly consolidated their distribution networks over the last 15 years, leading them to operate fewer warehouses. To achieve the necessary multitiered networks, E&M companies may have to rely on outsourcing more than they do now.
Most high-tech companies already outsource most of their transportation activities, and the majority use third parties for at least some warehousing operations. E&M companies also outsource most of their transportation needs, but fewer than half of those who took part in the CapGemini study outsource any warehousing. In both sectors, those that do outsource tend to use only a handful of third-party providers. Of the companies surveyed, 95 percent of the high-tech respondents and 70 percent of the E&M companies use no more than three third parties for warehousing.
Shippers come back for more
Companies that want to farm out more of their service-parts logistics shouldn't have to look too far for help. In addition to UPS, FedEx, and DHL, which include service-parts logistics in their portfolios, a number of other carriers and third parties— including several that specialize in this field—offer aftermarket services.
Their growth reflects the greater focus businesses are placing on service logistics as both a competitive necessity and a profit center. For example, Flash Global Logistics has enjoyed doubledigit growth for the past 15 years, says Guthrie. The company owns seven multi-client DCs and has 570 stocking locations around the world that are operated through partnerships.
Guthrie says his company's customers, which include Cisco Systems, Motorola, and Roche Diagnostics, increasingly believe service logistics is a competitive necessity that may equal or outweigh customer-oriented technology. "They are searching for sustainable competitive advantage and a technological advantage can be fleeting," he notes. In some cases, he adds, good service logistics is "the table stakes to get into the game."
Gary Weiss, executive vice president of global operations for New York City-based Choice Logistics, another specialist in service logistics, says he has seen an evolution in the business as customers have come to rely more on companies like his. Choice operates seven (soon to be eight) DCs in key locations in the United States and around the world, and has 340 stocking locations in 80 countries.
"Ten or 12 years ago, one of the last things a company wanted to do was relinquish control of its assets," Weiss says. Now, he says, Choice and its partners manage the customers' physical inventory at stocking locations. And that's what keeps shippers coming back for more: visibility into inventory and to the execution of orders.
Technology that enables inventory visibility and instant order management is a key ingredient of service-parts success, and Weiss points to proprietary software as one reason why companies turn to third parties for service-parts management." We are as effective as a company could be with its own resources, if not more so," he asserts. "It pays for Choice to develop specialized software," he adds. "In a big company with a large IT department, in-house logistics does not get a high priority."
No downturn in demand
The case for outsourcing service-parts logistics is a strong one, and continued demand for those services seems assured—so much so that some shippers have actually been pushing their logistics providers into that business. Pilot Freight Services (formerly Pilot Air Freight) is a case in point. Pilot, whose roots are in airfreight forwarding, has a client list that includes industry heavyweights like GE, Philips, Merck, and United Technologies. John Hagi, vice president of national accounts, tells of a warehousing customer that asked his company to extend its services to include service-parts logistics. That time-critical service was a natural outgrowth of the company's airfreight business, he says.
What Pilot experienced is not just a domestic phenomenon; globalization has also been a boon for those who offer service-parts logistics. "We're just now opening in Pakistan," says Guthrie of Flash Global Logistics. "Our clients are pushing us into areas that [service logistics] companies have not normally wanted to go into." To meet customers' needs, his company has also launched operations in other parts of Asia, including China, Korea, and the Philippines.
Guthrie argues that the economic downturn won't reduce demand for service logistics. It could even be good for business, he suggests."When things are down a bit,companies find ways to sell more service contracts," he says. "[Customers] buy less hardware, and the need for critical parts goes up."
Even when demand for their services is running high, service logistics providers will still have to work hard to meet their clients' expectations. Weiss, for one, says that his customers' customers keep raising the service bar. For instance, shippers that used to be satisfied with four-hour or even 24-hour service now often demand two-hour delivery of repair parts.
Service providers that can meet such exacting standards stand to win big. Pilot, for instance, was asked by a medical supply company (whose name Hagi was not at liberty to share) to help the company handle critical-parts service at major hospitals and regional clinics. The client needed parts to be available around the clock. Hagi explains: "This is equipment used 24 hours a day, due to its cost and diagnostic nature. The challenge is that equipment does not always fail Monday through Friday from nine to five." Pilot was able to offer the customer two-hour delivery from the origin of an order until the time a technician arrived on site. That was significantly faster than the previous provider's four- to seven-hour guarantee. The result: Pilot now operates 26 stocking centers around the country for the customer.
As you might imagine, performing flawlessly on two hours' notice day in and day out requires every company that provides this type of service to thoroughly master every aspect of logistics operations, no matter how small. In service-parts logistics, Hagi says, transportation is the easy part, whether for a local delivery or one across the country. "The plane is vanilla," he explains. "What is most challenging is what happens on the front end and what happens on the back and the communication that ties it all together."
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”