Creating Value with Efficient Spare Parts Management

In the telecommunication industry, the critical importance of spare parts management (SPM) cannot be underestimated. SPM is more a science than an art and involves balancing inventory levels with service level agreements (SLAs). This requires a great deal of high-precision forecasting. Unpredictable demand and infrastructure conditions coupled with exacting SLAs make precision forecasting extremely important.

When managing spare parts, telecom operators must make a strategic choice between repair and return or SPM. With repair and return, the vendor is only responsible for repairing faulty units and delivering them back to the operator. The operator must purchase and store spare parts and is wholly responsible for inventory, testing, cleaning and logistics. However with SPM, the vendor owns and stores the spare parts, undertakes repairs, and handles all related logistics. In most SLAs, the vendor is responsible for maintaining a suitable range of stock at adequate levels. When choosing between the two options, an operator must consider whether they are prepared for the risks of handling spare parts, and whether ownership of spare parts will require overly high CAPEX.

At present, the trend is very clear. Most operators are opting for full turnkey SPM, which requires vendors to provide accurate and cost-effective solutions. As technology evolves and new equipment enters the market more frequently, there are fewer incentives for operators to own and keep spare parts. In an SPM contract for customers, ZTE assures cost efficiency and adheres to the SLA. ZTE’s SPM encompasses spare parts dimensioning, provision, warehousing, inventory management, establishing a distribution chain, repairs, and all associated logistics activities. Before the service is provided, ZTE considers:

• an agreed SLA that varies according to the critical necessity of spare parts
• equipment mean time between failure (MTBF), which is a dynamic factor that changes as a product evolves
• prevalent infrastructure in an area and site accessibility
• required spare parts hubs, service organization, existing and future support systems.  

ZTE produces a plan that includes:

• a bill of quantities (BOQ)  for the spare parts
• distribution plan and proposed logistic channels
• organization and support systems.

The BOQ is adjusted for business continuity and disaster recovery. The distribution strategy is vital to reduce inventory levels. A vertical spare parts distribution plan with several spare parts hubs at the central, regional and local level is not an optimal solution in many cases. Fewer layers in the distribution plan normally lead to higher efficiency and reduced inventories. Geography and accessibility are important factors for the distribution plan structure as is the critical necessity of the spare parts. Hence, different plans are normally implemented in an SPM service. Merging SPM logistics with O&M and sharing facilities reduces the cost of both O&M and SPM. 

Another way to reduce the cost of SPM is to set up fault diagnostics labs in central or regional spare parts centres. A proportion of faulty units do not require comprehensive repair, and certain common or basic faults can be detected at spare parts centres. These faults can then be repaired by service technicians without the equipment being dispatched to a repair centre.

Establishing proper support systems is imperative in SPM. There are numerous inventory and asset management applications for spare parts tracking and ordering. Many of these applications use RFID for greater accuracy and easier management. These support systems have embedded work-flows and procedures that can be customized to match an operator's preferred working processes. Inventory ordering can be also handled through the same system. Advanced inventory management support systems can be integrated into an operator's enterprise resource management (ERP) and operation and support system (OSS) in order to provide a holistic view of the network structure. ZTE has developed its own inventory management system that uses the same data platform as ZTE's OSS, and this enables smooth integration. ZTE's inventory management system also supports several common interface standards that facilitate integration with other suppliers' software platforms.

In an SPM contract, ZTE proposes the most appropriate support systems for an operator with regards to the operator’s defacto platforms. Moreover, ZTE implements, customizes, and integrates the support system so that there is fully functional inventory management supporting SPM. 

ZTE's SPM is vendor-independent and can be applied to all equipment deployed in a network, regardless of the suppliers.

Cost optimization in SPM is an ongoing activity. The aim is to continuously find ways to reduce the inventory level while adhering to SLA. Hence, forecasting and work procedures are always a focus for improvement.