Saturn's Supply-Chain Innovation: High Value in After-Sales Service

When it comes to combining a high level of customer service with a lean and efficient supply chain, few companies can match Saturn's after-sales service business. According to the four authors (a Saturn manager, a former manager from parent company General Motors, and supply-chain experts from the Wharton School and from Stanford University), Saturn has a twofold source of strength. It has a service-supply-chain strategy that can match the urgency of its customer's varying needs. And it shares both authority and risk with channel partners -- making them more willing to help execute the strategy.

The company adopted and continues to refine the concept of jointly managed inventory, a variant of vendor-managed inventory that involves sharing inventory risks with Saturn retailers (dealers). The implications extend beyond the automotive industry: Companies that match their parts-supply strategy to the criticality of the customers need for the part can dramatically improve satisfaction in after-sales interactions.

A key difference is Saturn's pull system -- a response to the highly unpredictable nature of parts demand. Saturn does not position inventory in advance on the basis of forecasted consumption but rather replenishes retailer's supplies on a one-for-one basis.

The demand-based approach triggers movement of parts down the supply chain. But although Saturn determines what to stock, retailers may counteract the decision. And if a part sits for more than nine months at the retailer, Saturn buys it back. Saturn shares other costs as well. If a part cannot be found through the local retailer pooling groups (a rare event), Saturn bears the cost of the search.

Managers in other industries can meet customer's needs efficiently if they align their companies service-network strategies with the urgency of a customers need. The authors show how to do that by plotting a company on a matrix that ties the company's service strategy to criticality (most service strategies are somewhere between centralized and distributed).

Saturn's approach has helped it build strong and cooperative retailer relationships that end up benefiting the customer.