Supply chain design covers a wide range of strategic decisions: network design, supplier footprint, inventory positioning and distribution structures. Each of these decisions influences cost, responsiveness and overall supply chain performance. In this article, we focus specifically on network design: how spare parts are stocked, distributed and managed across a service supply chain. The objective is simple: delivering strong service performance at acceptable costs.
Service organisations support assets throughout their operational lifecycle.
Compared with manufacturing environments, service supply chains operate under different conditions. Manufacturing supply chains primarily support production activities and often benefit from relatively predictable demand patterns. Service supply chains support maintenance and after-sales activities, where demand is more uncertain and often driven by unexpected failures, breakdowns and customer service commitments. This creates a fundamentally different planning challenge.
As a result, availability and responsiveness become critical performance measures. Customers expect spare parts to be available when needed and delivered within agreed response times. For many service organisations, achieving these service levels is just as important as managing costs.
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Several design decisions determine how effectively a service supply chain operates:
Supply chain design starts with the required service performance. Response times and availability targets, sometimes formalised into service level agreements, dictate what the supply chain must be capable of delivering.
Shorter response times require inventory to be positioned closer to customers, reducing centralisation of inventory, increasing both network complexity and costs.
The echelon structure defines the architecture of the supply chain network. Organisations may operate a single-echelon model, where one central warehouse serves all customers directly, or a multi-echelon model with central, regional and local stocking locations.
The appropriate structure depends on customer geography, demand characteristics and service requirements. A more distributed network can improve responsiveness but often requires additional inventory and coordination across locations.
Once the network architecture has been defined, organisations must determine how to configure the network. This includes the number and geographical location of warehouses and distribution centres, the allocation of customers to those locations and the replenishment relationships between locations.
Network optimisation helps to evaluate these decisions quantitatively. Organisations can analyse alternative scenarios, such as opening additional distribution centres, consolidating locations and reallocating customers. The objective is to identify the configuration that provides the required service at the lowest total cost.
After defining the network, organisations must determine how to position inventory within it. Not every part needs to be stocked at every location.
Frequently used or highly critical parts may justify local stocking, while slower-moving items can often be stocked centrally. These decisions should consider the entire network rather than individual locations in isolation. Multi-echelon inventory optimisation is often used to determine the most effective inventory positioning across multiple stocking locations.
Finally, central and local locations must operate as a coordinated network. This requires clear policies governing:
Without alignment, local optimisation can undermine overall network performance. Well-designed supply chains combine strategic network decisions with clear operational agreements that support inventory availability across the entire network.
Service organisations should treat supply chain design as a strategic capability. The structure of the network influences service performance, inventory investment and operating costs for years to come.
At the same time, supply chain networks should not be considered static. Customer demand patterns evolve, installed bases change and transportation costs continue to fluctuate. Periodically reviewing the network helps ensure that it remains aligned with business objectives.
Finally, organisations should recognise that effective supply chain design requires maturity across the network. Decisions on inventory positioning, service levels and replenishment processes require coordination between central and local teams.
A good first step is to assess the maturity of your current spare parts supply chain. Our Spares Supply Chain Check helps organisations identify opportunities for improvement and understand where supply chain design can have the greatest impact.
Gordian helps service organisations design spare parts supply chains that balance availability, response times, inventory investment and operational costs. Contact our specialists to assess your current network and identify practical opportunities to improve its structure and performance.
Wouter Heijnen