Strategic Service Parts Management

Last year in my posts on Strategic Service Management and Tomorrow’s Strategic Service Management Today, I introduced you to service management, which is more than just outsourced services management. At a holistic level, it’s really a form of customer service management (where “customer” means your internal customers as well as your organization’s external customers) with the goals of making the customer efficient and satisfied while making a profit.

One possible definition of this, which I gave in my posts, was through a union of parts management, price management, and workforce management with the ultimate goal of optimizing the workforce to deliver the right part at the right time at the right price. If we analyze this closely, we see that the key is to first optimize the parts management. If the part is not there, it doesn’t matter what it costs, because either your customer is going to go to someone else, or you’re going to violate a performance contract, and whatever additional profit you might make through price optimization is going to disappear in lost sales or penalties. Furthermore, there’s no way to optimize a workforce if you don’t have the parts they need to do their jobs.

So what is service parts management? In my posts I originally defined it as the process of ensuring the right part is available at the right place at the right time. It is the alignment of planning, forecasting, and inventories to make sure you can respond to a customer need as it arises, without costly expedited shipping, unnecessary wait times, or financial losses (that can result from service level guarantees). And I think that’s still a good definition, but it doesn’t convey the complexity that is involved in certain industrial and medical equipment manufacturing, semiconductor, automotive, aerospace & defense operations. Nor does it convey the extremely high costs of doing parts planning poorly in these industries.

Consider aerospace. New commercial aircraft cost hundreds of millions of dollars, and it’s critical that a plane spend as many hours in the air as possible to recover that cost, and even more critical that it not miss a scheduled flight and that all maintenance and repairs are able to be completed during scheduled downtime. Without extremely good parts planning, a plane can be grounded for days and cost a company millions of dollars in losses.

Furthermore, not only are the planes expensive, but so are the parts. Many parts can cost thousands or tens of thousands of dollars. Therefore, you don’t want to be stocking more parts in inventory than you need to because, in a squadron of 15 fighter jets or a fleet of 25 commercial airliners, excess inventory can lock up sufficient funds to literally buy another plane!

Now consider automotive. Production lines cost hundreds of millions of dollars, if not billions of dollars, and an unscheduled line shutdown can easily cost a few million in lost labour, sales, and man-time required to get the line up again. More importantly, some of the equipment is very complicated and in order to get the line up again quickly when it does fail, you have to replace entire assemblies, which can cost hundreds of thousands of dollars. Therefore, it’s important that you not only carefully control your inventory levels, to avoid locking up tens of millions of dollars that could be part of the cash flow, but that you have a good process for servicing and repairing the replaced assembly so that it can be re-used next time the same type of sub-assembly, either in the same line or in a different line, breaks down.

In these industries, the importance of a solution that can model the expected need for each replacement part that may be required over the expected life of each major production line, vehicle, aircraft, or sophisticated high-tech system that has to be kept up and running, as well as the required inventory to statistically meet the target up-time requirements at any point in time, starts to become very clear. Furthermore, since you usually have multiple plants, and storage locations, some of which can quickly service other locations (and if you only expect to replace, on average, one instance of a $50,000 part each year, it’s much cheaper to spend $500 on an express delivery from a central warehouse than to stock the part at each location), you also need a solution that can look at these needs holistically, factor in lead times, and give you an optimal inventory level across your network. This is the only way to design a strategic service parts management plan that will give you a target up-time and / or part availability level at a minimum cost of ownership.

Tomorrow we’ll explore a solution that, depending on your industry, just might help you achieve this goal. Stay tuned.