Spares have never been accorded the importance they deserve in most companies’ supply chain planning. But now, with many manufacturers furiously outsourcing their basic production processes, the spares chain is assuming greater importance. In some cases, firms may hold more inventory for their spares and support operation than they do for production of original equipment.
As John Stephenson, director of CAT Logistics – the logistics arm of the Caterpillar company – puts it, the supply chain requirements for spares are very different from those for whole goods. ‘Supply chains for production may be just in time but for spares it’s often just in case. In the service parts business, perhaps only 20 per cent of the parts sold will be current; in original equipment manufacture, you can take a more deterministic view of the supply chain. With spares, it’s like managing through the rear view mirror.’
While Cat Logistics is now moving more into mainstream supply chain work a large proportion of its current portfolio consists of spares and maintenancetype operations, including those for Caterpillar’s own yellow machinery. This type of support work has allowed growth to 9,000 employees in around 25 years.
Given the proliferation of new model types, and the fact that they may need to hold stocks of spares for ten years or more, companies could find themselves sitting on a spare parts time-bomb, says Stephenson. For this reason, other firms may consider outsourcing this aspect of their supply chain to a specialist like Cat, which can use not only its own resources – like the specialist DCs being built in places like China – but also its expertise. Stephenson cites the specialist system developed with ERP vendor SAP and Ford.
Keeping track of the spares supply chain has always been a headache. Sparesfinder was founded in New Zealand in 1998 on the premise that if different plants within the same company or organisation could share information on who had which spares where, it could make the whole chain more efficient. As CEO David Stroud says: ‘If you look at the supply chain for spares, most are not in the chain as such but are invisible, sitting on shelves at plants.’
Sparesfinder assumed (somewhat prematurely, as it turned out) that each part of the organisation would describe the same spares in the same way and would therefore quickly be able to share this sort of information for the benefit of all concerned. Sparesfinder developed a corporate management tool – Insight – which allowed one to see how much was being spent where, and how stocks of spares might effectively be redeployed within the organisation. In some cases, companies could replenish stock from their own resources rather than externally.
What Sparesfinder then did was ‘build a lot of clever stuff around the back to bridge the gap between the way different parts of an organisation described the same part’. The result was dubbed Masterpiece. This allows legacy data to be loaded and then tells the user what needs to be done to clean the data up to a consistent standard. It uses drop-down menus rather than free text (the source of a lot of the inconsistency in parts description), can work across eight languages and has been used by companies as diverse as tobacco giant Philip Morris, Nestle UK and US gold miner Newmont.
As well as helping to cure that bane of every parts manager’s life, inconsistency, it can also help eprocurement ‘which falls over without good data’, says Stroud.
Spares operations offer tremendous scope for rationalisation. Wordsworth Holdings makes products ranging from lorry trailers to seed drills at a site in Grantham, UK. By consolidating manufacturing operations onto a single site, the company found it could make considerable savings just by having a single spares department and associated IT system.
Items like trailers, if they are well made, tend not to wear out and firms can find themselves supplying spares 20 years after manufacture. David Tallent, managing director of Wordsworth’s trailer manufacturing business, Freuhauf, explains: ‘Parts for trailer bodies are difficult to get so we found the best way of handling spares was to make them ourselves.’ This is an option for a relatively low volume manufacturing business but not for firms that use bought-in components or sub-assemblies.
Mike Landry, founder and CTO of Servigistics, which specialises in helping companies cut their spares inventory costs, says this area of operations has been overlooked in many companies. ‘Service parts are like an insurance policy. You’re trying to predict events and respond within hours or even minutes.’
Add to this the fact that, while seven months is considered a long time for original equipment to remain in equipment, the spares supply chain may need to keep parts in stock for seven years or more. The spares supply chain will probably also need to serve a number of locations.
Even in today’s throwaway society, large numbers of spares, especially in the industrial or medical spheres, are repaired and this in itself needs managing adequately, Landry explains, adding: ‘Some companies still routinely repair everything that comes back to them on a first in, first out basis. One issue Servigistics’ software addresses is prioritisation of repairs – which to deal with immediately, which to postpone and which to scrap.’
Chris Farinacci, vice president, international marketing and strategy at product lifecycle management specialist Agile, says: ‘PLM strategies are having an impact on every part of the supply chain. A problem for a company is knowing whether or not its suppliers are using the correct procedures and materials. Companies today are outsourcing several aspects of their business and relying heavily on support chain activity. It’s becoming difficult to manage and maintain a united front.’
Of course, governmental recycling directives are putting even more strain on the support chain, adding more rules and regulations about what materials can be used in designs.
Technology is playing an increasingly exciting role in the spares and support supply chain, says Giles Cadge, technical services director for EMEA at Dexterra. The company works with a number of organisations to improve field agent responsiveness and customer service with clients in the high tech, medical equipment and other sectors. Dexterra offers its clients applications, a mobility platform to get information to mobile workers and a suite of development tools.
Mobile technology has made great strides in the field service sector in the past few years, says Cadge, and while some technicians still carry sheaves of paper or spend hours on their mobiles, mobile data communications are becoming almost commonplace.
There has also been interest from companies with pan-European servicing or support operations, especially as the technology can overcome language or currency issues.
Mobile data transmission technologies have moved on, says Cadge. ‘Many have gone through the first generation and developments in recent years have made the technology of real commercial use.
These include data networking – initially through GPRS and now 3G – and hardware devices such as PDAs.
One of Dexterra’s customers, UK-based service and maintenance specialist IKON, which has 600 technicians maintaining photocopiers and similar equipment, uses specific applications such as meterreading, for instance.
Dexterra has improved the quality and presentation of data provided to technicians who are often working in less than ideal conditions. Whereas first generation systems tended to dump the contents of the entire company database onto the hapless technician’s mobile device, the information as now presented has been designed from the fieldworker’s standpoint. Meetings involving the workers themselves along with management are an important part of Dexterra’s implementation method. Add-ons like bar code scanners make the process even simpler.
Anything that makes field technicians’ jobs easier could improve customer service or even save lives in the case of activities like aircraft maintenance.
Mobile data can have important supply chain benefits. At the sharp end, holding a list of items an engineer has in his van or car boot can save hours of unproductive rummaging. It may be possible to automate the part-ordering process, again saving hours of expensive phone calls. It also makes it more feasible for engineers to borrow stocks of parts from each other while at the company management level it allows visibility of the supply chain whether the parts are at customer sites, in vans or in the warehouse.
Paul Stam de Jonge, global RFID solutions director at technology firm LogicaCMG, is looking at how RFID tags might be used to make the aircraft maintenance engineer’s job easier. A lot of the technical data that is currently held on paper documentation could be contained on an RFID tag. Aircraft spares and tools spend a surprising amount of time sitting on shelves waiting for the accompanying paperwork to catch up with them, while engineers waste much time and energy running around looking for documents.
Airlines have a problem with anything that emits radio waves – as anyone who has forgotten to switch off their mobile in flight will testify – but in its work for Airbus, LogicaCMG uses a very short reading distance and they and Boeing have tested UHF tags with up to 67k of data.
While the aircraft project is to do with improving the engineering process itself, RFID tags have a role to play in helping supply chain managers track and manage inventory more efficiently. ‘From an administrative point of view that is feasible,’ says Stam de Jonge, ‘But technically it could be difficult because the frequencies you can use in an airport are limited.’
This obstacle is not insurmountable. There are signs that the airlines are beginning to relent over the mobile phone “menace” but there is also the sheer size of the task of getting enough items tagged to create a useable supply chain management tool to consider. Meanwhile, an airline would have to operate a split RFID/non-RFID supply chain, which could be inconvenient. But that’s not to say it could never happen.
Another environment where RFID tags may not be welcome is the hospital ward but interestingly, LogicaCMG has looked into the issue in Singapore where a lot of new technology is going into hospitals.
Could the development of self-monitoring machinery have an effect on the supply of spare parts? Gordon Fleming, VP of vertical marketing at supply chain sequencing specialist QAD thinks so. ‘Already, sophisticated items like aero engines – or even less exalted equipment like ticket machines on trams – use machine-initiated diagnostics to continually monitor themselves and alert engineers before parts and components fail in service. This could make demand for spares more predictable. If the technician knows machine A is due for a service at Bay B in four weeks’ time and that items X, Y and Z will be needed to carry it out, that information is useful to a supply chain manager,’ he says.
While QAD works with customers throughout the manufacturing sector, it has a strong focus on after sales. In automotive spares, for example, ‘one of the key challenges has been predictive demand forecasting’, explains Fleming. ‘While there is still a significant amount of stock held in this supply chain, the goal is to move towards more of a pull system.’
Contrary to what many people think, demand for auto spares can be predicted to some extent. Much is weather-dependent – snow and ice tends to increase demand for replacement body panels, for instance – and OEMs can produce demand forecasts reasonably successfully. QAD can also deliver the ability to communicate in real-time and to provide visibility up and down the supply chain.
Servigistics’ Landry adds that forecasting models can also be refined over time, using information that has already been learned to improve forecasting in the future.
The TREAD Act (Transportation Recall Enhancement Accountability and Documentation), introduced in the US after a large number of Ford Explorer SUVs suffered tyre blowouts, has also increased traceability of parts. While the initial impetus for this was safety, there have proved to be big supply chain benefits as well.
Keeping track of spares and service parts is important in other areas, too, such as medical devices. One of the biggest problems here is that the anonymous green circuit board swapped out by an engineer might be worth a lot of money to someone. One of the functions QAS’s Q-Mobile system offers is traceability. The problem is that some of these parts don’t look as if they’re worth that much and once they’re removed they may be of no interest to a technician who might have them rattling around in his bits box for months. Given the increasing complexity and sophistication of much equipment these days, it is also vital to know which bits have gone into which machine.
Traceability is also a boon where spares and servicing is carried out by a third party, leading to a fragmented supply chain. In fact, this is one of the selling points of the spares logistics system offered by RelayStar, now a part of Cat Logistics. RelayStar, explains marketing director Liesbeth Theeuws, specialises in the last mile of the spares flow and offers pick-up, drop-off (pudo) points throughout the UK, France and, to a lesser extent, Benelux and Italy.
By grouping together the last requirements of different customers major efficiency savings can be made, says Theeuws. RelayStar offers an overnight service based on pudo locations or, for really urgent requirements, a service that can deliver in hours or even less than an hour depending on field service locations. It can also deliver to the boots of technicians’ cars if required.
Major users are in IT, telecoms and business machines. ‘The criteria,’ says Theeuws, ‘are that spares need to be time-sensitive and have a certain value.’
The IT system is also ‘intelligent’, highlighting scheduled events that fail to occur – for example, if a part isn’t scanned when it is picked up. The system cuts out the paper-chase that can swallow up huge amounts of technicians’ and management’s time.
Supply chain specialist Exel has won a two-year contract with Aftermarket (UK) Limited, a wholly owned subsidiary of General Motors to support the sales and distribution of AC Delco products in the UK, based at Exel’s automotive facility in Luton.
Aftermarket UK director Nigel Cole says that, given his ‘aggressive introduction strategy’, he wanted to outsource his complete supply chain to a partner such as Exel in order to focus on sales.
Some spares supply chains are more fragmented than others. It has historically been a characteristic of the commercial vehicle (CV) spares supply chain in the UK, says Andrew Dickinson, managing director of buying group United Aftermarket Network (UAN), which is launching in the CV aftermarket following the recruitment of eight CV motor factors. Dickinson says the CV aftermarket requires a different approach to the car industry and that there are opportunities in the sector for a dedicated CV buying group. ‘A common problem for independent CV factors is that they feel out of touch with their suppliers. UAN exists to bring the supply chain together and work with both suppliers and factors.’
Service operations can be awkward to manage on the ground and telematics specialist Cybit finds that a significant proportion of its customers are fleets of engineers in vans. A typical example, says Cybit’s group sales and marketing director John Wisdom, is DJ Hewer with its Corgi-approved engineers repairing customer’s boilers. Telematics makes it easier for managers to see exactly where their engineers are, allows them to allocate engineers more efficiently and cuts out the endless ‘Where are you?’ phone calls that constantly pass between control centres and mobile workers.
Synchronisation of product information is a priority in the spares sector; to create a single version of the truth and ensure the right component for the right piece of machinery arrives in the right place at the right time. If they can crack that nut, it will really spark the aftermarket.
We are also seeing the first signs of the adoption of RFID in automotive spares. Nissan said a few months ago that it would pursue individual piece part identification using RFID. This might sound a bit like saying you’re going to boil the ocean but if Nissan has the right relationship with its supplier base, it could probably put it in place.
The supply chain scenery in the spares and support sector is changing radically, says Jon Blake, managing consultant at IBM Consulting Group. Companies are seeing it as less as a cash cow. There is greater emphasis on extended warranties and mechanical devices like cars, aircraft engines and even domestic central heating boilers are becoming ever more complex. ‘A modern car could have 30 ECUs (electronic control unit) inside it,’ says Blake. ‘Manufacturers have made manful efforts to try and rationalise parts by using common platforms or making new component designs capable of fitting into older generation equipment but there are powerful forces pulling in the opposite direction as firms try to differentiate their products or make them more sophisticated.’
All of this presents a challenge to the logistics supply chain, especially now OEMs are taking on an increasing amount of the support and warranty burden. ‘Power by the hour’ deals are also pushing pressure on makers of aero engines or railway locomotives.
Quality of service
Holding inventory can be expensive but there are service issues to consider. Blake adds: ‘The issue with most spares operations is that five per cent of the part numbers can account for 80 per cent of the value.’ But real quality of service might be delivered through these thousands of rarely requested but occasionally vitally important parts.
The service parts supply chain needs segmenting, as it often has been in the general supply chain, but few firms have taken this approach until recently. For instance, for rarely required items the decision might be made to keep one or two in stock and hold them centrally; for others, it might be possible to forecast demand and manage it on more of a just in time basis. The trouble is, to do accurate forecasting you need at least two years’ data and most companies haven’t got that. But IBM is now offering Advanced Inventory Manager which helps users decide how to categorise spares and segment the spares supply chain.
The new generation of self monitoring machinery could also improve forecasting by, for instance, building up a historical picture of part failures. This can help engineers tweak out problem areas in subsequent designs. RFID could enormously increase the amount of information that can be gleaned about when a product was fitted or modified and how it interacts with the rest of the machine.
Blake concludes: ‘There’s an enormous amount of information out there but so far it’s been used mainly by the engineering department. The problem is that firms lack the organisation and processes to get the information out of the machinery and use it in their supply chains.’
Online exchanges could also have a part to play. In the UK, eparts is designed specifically for the requirements of the automotive aftermarket, allowing buyers and suppliers to trade through a single connection with multiple partners. Business documents such as stock enquiries, order acknowledgements and invoices are transformed into electronic messages. A recent recruit to eparts is spring supplier Lesjöfors, whose UK managing director, Robert Glynn, says: ‘Parts proliferation continues and motor factors are under pressure to stock more. Through the eparts trading exchange, many of a distributor’s business practices are automated, making it easier to trade with suppliers despite ever increasing ranges.’