By Greg Miller, CrossCom National
When an IT manager at a retail company proposes to replace outdated technologies because of escalating maintenance costs, his director may say, “Sorry, I need you to squeeze another year out of the system.”
But it’s not that easy.
The IT Manager doesn’t maintain an inventory of spare parts for the event of hardware failure. If a component needs replacement, he must buy a new one, or source from an aftermarket where prices are high and quality is suspect.
Think of it this way. Imagine that your sweet ’69 Camaro requires occasional engine repair and bodywork. What do you do? As any car enthusiast will tell you, the toughest part about maintaining a great machine is obtaining parts. The older the car gets, the more difficult it is to find and buy replacement parts. Savvy backyard mechanics solve this problem by collecting parts and creating a personal inventory of components. They avoid the high costs of aftermarket parts, maintain quality control and minimize downtime.
Retailers face similar issues when it comes to maintaining their point-of-sale (POS), data and voice systems.
But a new strategy is brewing in the field of retail technology repair – one that will change radically the way systems are maintained. This new strategy calls for a customer-centric “storage depot,” or storehouse of refurbished and spare parts. With a strategically-aligned partner to manage inventory, retailers should expect to see reduced hardware maintenance costs and an extended product life cycle.
Deploying a concept called a “closed-loop” inventory model, a retailer can recycle the useable spare parts from his own, retired machines. Harvesting these existing products for parts, instead of replacing the products entirely or relinquishing them to the aftermarket, can extend the support of existing technology and save retailers millions of dollars each year.
The old way: Risk in the aftermarket
When devices break in a store, the service provider, who is often the manufacturer, attempts the most cost-effective field repair. The on-site repair tech is expensive, so if just a single part can’t be fixed economically, the provider declares the product “NER” (not economically repairable) and recommends the entire machine be taken out of service (“TOS”).
After removing the damaged asset, the provider sends it to an aftermarket repair facility. This independent company repairs the device and sells the TOS machine’s useable components at a tidy profit — often to the manufacturer, who resells them as replacement components for its retail customer’s other machines.
Despite these glaring inefficiencies, this “open-loop” inventory model remains the norm. If a faulty part renders a system NER, retailers find themselves trapped in cycles of buying the newest product. If the manufacturer or maintenance provider can replace the component, it will likely be with one from outside his own control. Thus, this open-loop model exposes the manufacturer or maintenance provider to pricing that may be greatly inflated when the time comes to purchase replacement parts. The company must adjust to this high pricing somehow – so it passes along the cost to its retail customers.
The new way: Costs down, efficiency up
Closing the components loop for retail technology assets means closely correlating input and output (and therefore, pricing). Retailers aligned with the right solutions providers can harvest their own parts and keep them within their own system for repair, replacement and repurposing. Like the savvy backyard mechanic, they build and maintain their own supply of replacement parts in a “private storage depot.”
The benefits of this closed-loop “harvest approach” are many. A retailer can extend the lifecycle of its POS systems and IT assets effectively. He can keep assets running today at yesterday’s costs because he does not incur the cost-escalation of aftermarket parts.
Let’s say a retail chain plans to depreciate a technology asset over three years, but recognizes the system’s useful life will likely be five years, or more. If the retailer wants to continue to employ the asset beyond three years, the company must often renegotiate the maintenance agreement with a provider that is also motivated to sell new equipment. Not surprisingly, the retailer will discover quickly that continued maintenance of aging product is expensive — and that replacement parts cost much more than anticipated.
When considering this pricey option, senior IT management often decide to replace the whole asset with new technology that can be maintained with a lower cost contract, instead of replacing just one malfunctioning part. This phenomenon is called “premature obsolescence.” Just as you wouldn’t replace that Camaro because it needs a new carburetor, you wouldn’t replace a register because of a bad power supply.
With the new harvest model, companies can double the useful life of assets. Consider that POS system with a three-year depreciation schedule and five-year expected useful life. That life comfortably extends — with a reasonably-priced replacement part from a company’s closed-loop system — to a 10-year useful life. A company would have to purchase just one POS unit in a decade instead of two. Multiplying this across a retailer with a few thousand technology assets adds up to a significant cost savings opportunity.
The optimal asset management model combines logistics management, spare parts depots, board-level repair facilities, and a well-managed on-site labor force that is a coordinated, measurable entity. The convenience and cost-savings for retailers are enormous. Further, they are confident that replacement parts come from within their own quality-controlled system.
Changing the maintenance culture
Companies can expect this new approach to ruffle some feathers among those motivated to replace antecedent technology with the “latest and greatest.” Additionally, the aftermarket dealers will protest their elimination from the replacement parts process.
Ultimately, it boils down to a company’s ability to harvest its own inventory of parts for technology asset repair, extend the life of technology assets and improve the company’s return on its technology investment.
Operating with the harvest model for maintaining technology assets makes sense for anyone who wants to employ assets to their full useful life and save money while doing it. This cost-efficient strategy offers a simple, concrete advantage in the highly competitive retail space.
Like the owner of the ’69 Camaro, the shrewd retailer should consider the closed-loop harvest model as an effective way to recycle in his own private parts depot — and become a money-saving backyard mechanic.
Greg Miller is CEO of CrossCom National, a leader in retail IT network implementation and maintenance. Founded in 1981, CrossCom National provides national retailers with POS, data and voice communication systems solutions, including technology staging, installation, project rollout, chain-wide implementation, asset management, service and maintenance. CrossCom National is the single source partner retailers depend on for in-store communications networking requirements and comprehensive maintenance solutions. Find out more at CrossComNational.com.