Category Archives: Services

MCA Solutions – Bringing the Aftermarket Forward, Part I

MCA Solutions, a Philadelphia, PA company that specializes in after market service (and service parts) optimization, is still going strong despite the recent struggles of a few of its direct competitors (namely Click Commerce and Servigistics who were recently acquired by Marlin Equity Partners). If anything, the recession (although it did considerably lengthen the sales cycle) only bolstered the need for after market service (as no one could afford new equipment) and optimization thereof (as everyone is strapped for cash and every penny counts).

As I indicated in my first post on MCA Solutions and their strategic service parts management platform, many large manufacturing, semiconductor, high-tech, aerospace, defense, and oil & gas companies often have tens of millions, if not hundreds of millions, of dollars tied up in inventory in their attempts to meet specified service levels, and every dollar in inventory costs them money in overhead. Since many of these companies typically have 10% to 20% more inventory than they need, they’re tying up tens of millions of dollars in working capital needlessly as well as throwing away millions of dollars in inventory holding costs — a situation which is easily remedied by a service level optimization platform that can optimize your multi-echelon parts inventory storage network such that your contracted service levels are met but your costs are minimized. Furthermore, as per the value of after market service in a down economy, done right, this optimization will also improve cash flow by roughly 10%, reduce inventory by 15% to 50%, and even improve service levels by 5% to 20%.

Since the last time I covered MCA in depth, which was almost two years ago, they’ve made a number of significant enhancements to their platform, the most notable being flex reporting, performance management, and plan analysis. Of these, flex reporting and plan analysis excite me the most, because the former lets you construct any report you can imagine (if you’re willing to write some SQL*) and the latter lets you build, optimize, and compare as many what-if scenarios as you want, which is the (one of the) most powerful feature(s) of any good optimization platform.

Their plan analysis tool not only allows you to define your service parts strategy (fill rates, inventory/investment caps, number of echelons to consider simultaneously in stock planning, etc.) and run an analysis on that strategy (to determine total cost and inventory distribution), and not only allows you to compare one strategy against another (how much do I save by sacrificing 1% of fill rate? how does inventory distribution change? etc.), but also allows you to define a rules-based sanity check that can be run against every model and the resulting inventory solution. For example, if the inventory levels change by more than 20%, the overall investment changes by more than 10%, shortages or excesses at any location exceed pre-defined maximums, etc., the product will immediately warn you that the new model might not be an acceptable replacement over the current one. Also, each of these rules can be defined by location, SKU (or family), or segment (or lane), which gives you a lot of flexibility in your analysis and sanity checks. (Other checks can include replacement rate, forecasting model [parameters], export mode, horizon, manual overrides, time factors, intermittence, thresholds, and other relevant measures tracked and/or computed by the platform.) Furthermore, they’ve also added the ability to generate plans by Average Customer Wait Times, which is becoming important in aerospace and defense, oil and gas, and other sectors where you have equipment that can’t be unavailable for more than a very short amount of time and service (availability) levels aren’t good enough.

While we’re talking analysis, they’ve also added a new multi-period budget report which is a system generated report that is very useful as it not only calculates total forecast, condemnation forecast, repair forecast, overall metrics, TSL, average inventory position, scheduled demand, new buy, and cost across your entire operation to anywhere between 12 and 36 months in the future, but does so using a successive series of automated optimizations where the output of one period is used as the input to the next. It will take anywhere from a few minutes to a few hours to run, but it clearly allows you to see the long term effects of any change to your aftermarket service (parts) strategy.

In the next post, we’ll talk about their new performance management solution.

* Yes, I’ll admit that I’m not your average user but I have to applaud them for acknowledging their expertise is not in the creation of report builders, that no set of canned reports, no matter how extensive, will please everyone, and that the right thing to do is expose the schema and let power users do what they want — which isn’t dangerous when you also give them the ability to make as many copies (partial or full) of the database as they want and to mess around with the copies, and not the production data.

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Opportunities for Transportation and Logistics Operators Part I

In addition to the presentation of 18 theses around the continued scarcity of energy resources, Volume 1 of the Transportation & Logistics 2030 report on “how supply chains will evolve in an energy-constrained, low-carbon world” by PriceWaterhouseCoopers and the Supply Chain Management Institute also identified some (emerging) opportunities for transportation and logistics operations that are worth close scrutiny by any provider looking to differentiate themselves in the marketplace.

The report provided opportunities in four areas:

  • Products & Services
  • Finance & Accounting
  • Processes & Organization
  • Strategy & Policy

Today, we’re going to overview the products, services, finance, and accounting opportunities.

Products & Services

  • Virtual Delivery
    e-Document providers capable of quickly and cost effectively digitizing any type of document (received by any traditional means of communication) and reproducing an exact copy at the destination will gain a short term advantage as companies begin the slow journey to true paperless operations.
  • Eco-Consultants
    Companies who recognize the market for green logistics and SCM early and develop an expertise will have the opportunity to provide eco-consultancy services to their customers.
  • Slow Transport
    Companies that provide slower, but much more energy and cost efficient, transport options might see a booming business as the eco-conscious consumer starts to dominate the market.
  • Co-opetition (Competitive Collaboration)
    Cooperation between competing businesses as a way to cut costs and achieve competitive advantages will gain increasing acceptance. For example, logistics providers have an opportunity to collaborate on “last mile” deliveries and significantly reduce associated costs with network and route planning optimization.
  • Low Cost Logistics
    Going beyond co-opetition and allowing a customer to assemble logistics services according to their needs, which could be limited to the actual transport of goods (where the customer takes over administrative processes and work steps) could be a booming business. (Of course, these providers will need to implement a sophisticated real-time infrastructure with cost transparency to enable this service.)
  • Fabbing Supply Chain
    Fabrication of products using a computer and a 3-D printer could be common by 2030. Providers who offered this service to consumers who bought “blueprints” over the internet could see a booming business.

Finance & Accounting

  • Mobility Account
    Environmentally aware companies may start introducing mobility accounts and monitor the carbon footprint caused by their employees business trips. Providers that offer (SaaS) solutions for mobility account tracking could see a booming business.
  • CO2 Ticker
    Companies tracking carbon emissions will start reporting all carbon emissions associated with product and transport with a CO2 Ticker. Companies who can reduce this number will see a competitive advantage.
  • Green Credits
    Green Credits, a positive incentive system to act in an environmentally friendly way that grants credits to employees who engage in activities to improve environmental conditions, might catch on. Providers who offer such credits to customers who select greener alternatives might gain a competitive advantage.
  • Total Emission Monitoring
    CO2 emission tracking is just the tip of the iceberg. In the future, sulphuric dioxide, nitrogen oxides, noise, and other pollutants will also be monitored. The first to market with Total Emission Monitoring solutions will have a clear advantage.
  • Sustainability Rating Agency
    Third party sustainability ratings will be as important as third party credit ratings in the future. Logistics companies with high sustainability ratings that could improve the ratings of their customers will be looked very favourably upon in the future.

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The Role of Optimization in Strategic Sourcing – Implementation Issues

This series discusses the recent report from CAPS Research on “the role of optimization in strategic sourcing”. The primary goal is to highlight, clarify, and, in some cases, correct parts of the report that are important, confusing, or incorrect to insure that you have the best introduction to strategic sourcing decision optimization that one can have.

The chapter starts out with a list of ten questions designed to help organizations evaluate the appropriateness of optimization for their sourcing event. And while I still contend that every event can benefit, the question list will help you determine how beneficial optimization could be. In short, the questions were:

  1. How complex is the buy?
    The more complex the buy, the more value decision optimization will offer but, unless you are an expert, the more likely you are to need provider support (at least in the beginning).
  2. What prior experience do you have?
    There is a learning curve associated with optimization.
  3. Do you need a suite or will a stand-alone solution suffice?
    If you can get by with a stand-alone solution, you can often get off to a faster start.
  4. Do you have accurate and clean data?
    You need clean data to create historical baselines and accurate models.
  5. What do you expect to get from using optimization?
    Does a more thorough and powerful analysis have a good chance of finding a significantly better solution?
  6. How powerful does the optimization software need to be?
    Will the software you have in mind cut it?
  7. To what extent is training provided?
    Implementing optimization requires trained buyers, trained customers, and trained suppliers.
  8. What is the sourcing strategy?
    Optimization does not establish sourcing strategies, it merely plays a role in them … and it plays a much stronger role in some strategies vs. others.
  9. Are there global suppliers who will require language translation?
    Does the software support the languages of your supplier base or are there resources available to do the necessary translations?
  10. How much creativity can your organization accommodate?
    Optimization allows you, and your suppliers, to get quite creative.

Next it goes on to discuss the resources required. While you will need each of the resources identified in your organization, you won’t necessarily need all of the resources on each team. For small projects, all you will need is a category expert with an intermediate level of optimization knowledge and a support person who can assist the suppliers in entering their bids. For reference, in addition to support personnel from your optimization solution provider who should be available as needed, the resources that need to be available to you in your organization if you are to make full use of sourcing optimization include:

  • team leaders
  • category experts
  • optimization champions
  • optimization power users
  • training and education resources
  • internal IS/IT resource

Then it goes on to discuss the different types of solution models you have to choose from, which basically fall into three categories:

  • Full Service
    The solution provider, working with your category manager, handles the event on your behalf and you never touch the tool.
  • Hybrid Service
    The buying organization uses the tool and runs the event and the solution provider is used for support as needed behind the scenes.
  • Self Service
    You do everything.

It concludes by discussing a number of awareness and training issues and process requirements. Some of the more critical awareness issues include:

  • the fact that optimization can improve sourcing decisions
  • change management is necessary
  • the support of an expert to facilitate implementation is necessary in the beginning
  • there will be a learning curve
  • training will be necessary for anything beyond simple models
  • every project should have a plan that includes the strategy and goals

Finally, the following implementation tips should be heeded:

  • the sourcing process must be established
  • specifications, the statements of work, and the RFX must be clear
  • supplier inquiries need to be responded to in a timely manner
  • any requests for bundled bids must be attractive to a sufficient number of suppliers
  • expectations must be reasonable in light of current market conditions

Next Part V: The Optimization Sourcing Cycle

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So You Think Shared Services Are the Way to Go

Continuing on yesterday’s theme of Service Management Mistakes, the Shared Services & Outsourcing Network also has an article that describes “10 more mistakes made when starting shared services” that points out some questions you should ask before you consider making a move to a shared or outsourced services model.

  1. Will the Service Centre Accurately Estimate Your Needs?
    If you’re a small operation, it’s possible that the needs and requirements of the larger clients of the Shared Services Organization (SSO) might force themselves to the front of the delivery queue. Does the SSO understand what you will need, when you will need it, and what your priority tasks are?
  2. Are its allocation and chargeback models coherent?
    This is crucial to insure that you will be paying a fair price for the services received since you should be charged on actual utilization and not expected utilization.
  3. Does it have sufficient implementation-focussed governance mechanisms to insure success?
    A strong governance team is critical before transition to an SSO, during transition to an SSO, and after transition to the SSO to make sure that services continue to be executed efficiently. Not all issues will rear their ugly head during the prescribed implementation timeframe … some might wait a few more weeks, or a few more months.
  4. Is there an adequate change management architecture?
    Many projects fail due to underestimation of the amount of effort that will be required for change management and the support that will be required. Does the SSO have a well defined change management strategy that they will use to support the transition?
  5. Are interfaces addressed?
    Improved process can lead to great efficiency gains … which can be lost in a sea of disruptions unless you understand where the inputs are coming from, where the outputs are going to, and what other business units will be affected. Make sure that you don’t create more problems in your attempts to fix the ones you know of.
  6. Are you planning to transfer the right processes?
    A good SSO can managed transactional and knowledge processes. While they might not be able to strategically source your direct categories, they might be able to negotiate better savings on your telecommunications and office supplies contracts with greater leverage, or just collect the information faster.
  7. Do you have a clear SLA?
    While sensible SLAs are crucial to success, they have to be clear and comprehensible. According to Dick Locke, who has an entire state on his side, as a contract, they should have a reading ease of at least 40 and be comprehensible to someone with only an 11th grade education.
  8. Have you internalized the wisdom?
    While there’s no shortage of extremely useful guidelines to get you started, there’s no one-size-fits-all methodology for migration to SSO — be sure to have an experienced advisor on your side before attempting a transition.
  9. Have you identified the real constraints?
    While there will always be constraints with respect to finance, space, bandwidth, etc … accepting the constraints put in front of you without at least challenging them (in an effort to overcome them) will mean the difference between a world-class SSO relationship and one that merely gets the job done. Which organization would you rather be associated with?
  10. Have you accurately estimated the working costs?
    Have you costed the relationship to the nearest cent? Are you sure? There are operational costs, usage costs, management costs, oversight costs (which include communication and travel) and change management costs, for starters. Do you have to buy more software? Do you have to do custom integration work? Do you have to do process redesign? etc.

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Service Management Mistakes

A recent article over on the Shared Services & Outsourcing Network addressed the “top 10 mistakes when implementing shared services” pointed out some common services mistakes that you need to avoid if you are considering a move to shared services. And even if you aren’t considering a move, these tips are quite helpful if you want to get your house in order.

  1. Not measuring costs or service levels.
    You can’t manage what you don’t measure and you can’t improve without a baseline to improve against. This is as true for services as it is for products. How long is it taking? How much is it costing? How do you compare to published industry average and best-in-class metrics?
  2. Not documenting processes and work streams.
    If you don’t know how things are supposed to be working, how do you know whether or not they’re even accomplishing their goals? How do you train new employees? How do you identify opportunities for improvement?
  3. Not appointing a full-time head honcho early.
    A services centre needs a strong, solid team with a strong, solid leader. Even if services are a secondary focus for your business, you should still have a senior executive in charge of their execution who is responsible for overall performance and budget expenditures.
  4. Not focussing sufficiently on the transition period.
    Even if you plan to keep all of your services internal, if you want to improve them, you have to include good change management in your planning, which dictates a sufficient amount of training and a sufficient transition period where your employees move off of the old process and onto the new process.
  5. Not having a robust project plan clarifying resource needs.
    You need to understand what’s required to execute your service processes and how many employees will be needed for the volume you need to handle, or something bad will happen. Quality will slide, balls will be dropped, and key filings won’t get made … and all of a sudden customs is seizing your shipment for lack of paperwork.
  6. Fighting yesterday’s battles instead of tomorrow.
    For better or worse, yesterday’s gone … and it’s probably already too late to win the battle today. So focus on what you’re going to need to win tomorrow … and make sure you have it before today ends.
  7. Becoming bogged down standardizing technology and processes pre-implementation.
    While you need to have your processes well defined and your platform needs to be designed before you can start making improvements, you can’t cross every i and dot every t until the e-paper is in front of you. Besides, once the system is implemented, you might find that some processes need to be modified slightly either because of configuration or because of additional improvements you identified during implementation. Remember the 80/20 rule.
  8. Believing that “it’s already centralized – it can’t be better”.
    You can centralize a crappy process just as easy as you can centralize a worthy process. Centralization in-and-of itself does not make something good or efficient. Centralization just means that everything is done in one place. (So if you don’t analyze your processes, instead of creating a Center Of Excellence of Unified Processes, you might be creating a Center of Crap Upwind, or COC-UP.)
  9. Having no, or (woefully) inadequate, risk management and/or monitoring.
    How do you know things are being done right at the right level of efficiency if you don’t monitor? What if the actual efficiency is only 80% of expected and your overworked staff is only processing 80% of purchase orders on time and costing you millions of dollars in negotiated discounts and rebates? What if they don’t notice that an evergreen contract signed 3 years ago at all time market highs is about to automatically renew when you could re-source at 40% less? What if they fail to get the order out on time and your entire (Chapek 9) production line shuts down for want of a lug nut!
  10. Omitting the “make vs. buy” or “in-house vs out-of-house” equation.
    How much is your service (centre) costing you? Would it really be more cost effective to move it out of house? Is the economy of scale really there? Will the savings still be there after you account for the management costs (you will need people to manage the relationship), communication, and travel costs?

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