Teaching the enterprise to share

Following Sept. 11, 2001, many companies beefed up security to the point where it was hard for people to get in and out of their buildings. As a result, IT departments at those companies wanted to keep their lockers for storing service parts on-site, even when the parts inventories were managed by outside maintenance contractors (as is most often the case).

Companies have since eased off on this stringent requirement — due in part, I suspect, to the fact that it meant 100 percent cost to the company, no matter who managed the inventory.

Between cost of money and obsolescence, the carrying charges to maintain your own IT parts inventory can eat up as much as 25 percent to 40 percent of the inventory’s value, according to Tim Minahan, managing director of supply chain research at Aberdeen Group. And judging from the average MTBF (mean time between failures), a typical supply locker must carry parts equal to 15 percent to 20 percent of the inventory in the field to support the installed servers, desktops, and laptops.

About six months ago, Jim Sahli, CEO and founder of service-logistics company System Design Advantage, came up with a unique solution: a model for pooled inventory that he calls Inventory Asset Management. SDA partnered with Choice Logistics, a company with 250 SSLs (strategic stock locations) around the world, as the parts facilitator to bring this model off.

Let’s say Procter and Gamble has 5,000 servers at a location. In the same geographic location, you might also find 3M and a large university.

Without sharing, each of these sites would need its own bucket of inventory at the local Choice SSL, with its own base of Dell, Hewlett-Packard, or IBM servers, at a high cost to both Choice and its customers. Using the SDA model, Choice holds everything in one bucket.

Sahli says that in the shared model each customer gives SDA detailed planning and replenishment information about its exposed base, down to the serial number of each server. This data gives SDA the configuration information it needs to create a parts forecast, using logistics software from vendors such as MCA Solutions that examines the installed base and what failures have occurred in the past.

Armed with the results, SDA suggests how to position a shared inventory to support each customer at the lowest possible cost. If each of the three customers needs five hard drives, for example, SDA will ask if they can live with a shared pool of 10 drives instead of 15. Even with the reduced inventory, SDA guarantees the same level of service, with the caveat that obtaining an 11th drive under unforeseen circumstances might take a bit longer.

Obviously, the parts-forecast analytics gives a company a certain level of comfort. But the major benefit is that SDA owns the inventory and the customer gets to take it off its books. And the maintenance contractor can reduce its inventory, and therefore its costs as well.

The need for shorter and shorter repair and response times, coupled with the need to reduce IT costs, means sharing makes perfect sense. Companies have tried parts-pooling before, but when it came down to actually doing it, no one company would allow the other to manage it. An independent third party is the only reasonable solution.

Remember what your mother always told you? “It’s nice to share.” And when you did, she said, “Now don’t you feel better?” Let’s hope so.