More than an afterthought
Manufacturers finding solutions for managing profitable services operations
By Sidney Hill, Jr., executive editor -- Manufacturing Business Technology, 6/1/2006 6:00:00 AM
Anyone who has paid to have an appliance repaired after the warranty expired would not be shocked to learn that the after-sales parts and service business has become a profitable endeavor for many manufacturers. What might be surprising, however, is how difficult it can be for a manufacturer to turn those after-sales profits.
Consider the situation at Universal Instruments, a Binghamton, N.Y.-based manufacturer of equipment used in the production of semiconductors and other electronic components.
"About 30 percent of our revenue comes from aftermarket sales, and the profit margins are higher [than those on new products]," says John Shearer, materials manager for the aftermarket division of Universal Instruments. Keeping those high-margin sales flowing requires managing an extremely complex supply chain—a task that Shearer says Universal finally is mastering, thanks to functionality embedded in its recently installed SAP ERP suite.
SAP is on a short list of software vendors offering tools to manage the aftermarket supply chain. The others include specialty vendors like Servigistics, Access Commerce, and MCA Solutions.
The major problem for Universal Instruments—and most other manufacturers running aftermarket businesses—is forecasting the demand for parts and services. "We know that demand for aftermarket parts increases whenever new product sales decrease," Shearer says. But that bit of obvious logic does not help pinpoint exactly which parts customers will need, or to which parts of the world they will need them delivered.
Synchronization strategy
The way Universal Instruments was structured—both from an organizational and IT perspective—intensified its supply chain management issues. "There are 12 plants in the aftermarket distribution network," Shearer explains. "Before we adopted SAP, we had a separate inventory control system for every country we do business in, with manual interfaces to a MAPICS ERP system in Binghamton."
This setup meant inventory movements could not be synchronized. As Shearer puts it, "Our inventory management was awful. We often would ship goods and not know what happened to them after that."
This was one of many issues that forced Universal to look for a single enterprise system to support the entire business. Ultimately, Shearer says, SAP was chosen for its ability to handle large numbers of users, and accommodating multiple modes of manufacturing.
Today, the entire Universal Instruments workforce is connected to a single instance of SAP running in Binghamton. On the organizational side, each distribution center (DC) has been designated the default location for filling orders in the part of the world in which it's located. If a warehouse doesn't have the parts on hand to fill an order, it can tap into the SAP inventory management system and find out which other locations can supply the parts. "[Workers in] the Singapore or Hong Kong DCs can fill orders by looking for the nearest, lowest-cost location," Shearer says. "They can fill a single order from 10 locations, if they wish."
With this type of connectivity, items required for any order routinely are picked and ready to ship within 24 hours of request. Those items also have been subtracted from available inventory, and, as Shearer indicates, "We can look into the system from anywhere in the world and see exactly what inventory is available."
Projections of future demand also are more reliable, as both historical and current sales data from each location is fed to a central SAP forecasting module. Forecasts are used to generate MRP runs, which in turn populate delivery schedules that suppliers can view at designated Web sites.
All this has resulted, says Shearer, in "huge reductions in inventory and other overhead, and dramatic improvements in customer service."
Projecting value
InFocus, a Wilsonville, Ore.-based maker of digital projection systems, got similar results after connecting a specialty spare-parts management application to its Oracle ERP system. The specialty package, Parts Planner from Servigistics, gave InFocus deep parts-management functionality, such as the ability to let service people know when older parts that are still in inventory could be used on newer versions of a product. InFocus also established a process for determining the most cost-effective method of obtaining out-of-stock parts. Options include pulling them from another InFocus location, repairing existing parts, building new ones, or purchasing them from an outside vendor.
David Grant, service planning supervisor at InFocus, says this application was chosen because it promised to free InFocus personnel from having to constantly mine the Oracle database and create their own reports to manage the flow of spare parts. "The Oracle system was created for a production environment," he says.
Following a 12-week implementation—which included mapping the InFocus services supply chain and entering information about safety-stock levels and reorder points for each part and stocking location—the Servigistics package was programmed to track the movement of a limited number of InFocus products.
InFocus has three main stocking locations—one each in Europe, Asia, and the U.S. They feed information about their inventories into the Oracle system, and Servigistics takes it from there. "As long as an order is entered into Oracle and involves one of the parts we asked Servigistics to watch, it will trigger an alarm," says Grant.
That alarm shows up on a dashboard of the InFocus' inventory planner responsible for that part. The system gives the planner recommendations for how to treat the alarm, suggesting part repair, procurement, or replenishment from existing stock.
"We know we're taking better care of customers," says Grant. "We have minimal back orders and parts supplies. Even though our installed base has increased almost two times over the past two years, inventory levels have stayed flat."
Aftermarket presentations
Access Commerce, known primarily as a supplier of product configuration software, has added service-parts management functionality to its application suite after recognizing that many of its customers could use the functionality.
"Access Commerce is known as a product configurator supplier targeting order-driven manufacturing," says Kurt Haller, executive VP at Access Commerce. "Last year, we really began to think about our solution and how customers implemented it. We realized customers use it to support things like product catalogs, call centers, and order management. We concluded that our customers need to be able to present aftermarket parts in an easy-to-use format."
That led to a partnership with a German software house called Docware that allowed Access Commerce to embed Docware's application into Access Commerce's Cameleon software suite.
"The result is we've added the functionality our customers require to what appears to be a uniform solution," Haller says. "It's very easy to use, integration is seamless, and customers can get it up and running in a few weeks without additional programming or IT support. Adding spare-parts management to the Cameleon Suite enables customers to optimize the lead-to-order-to-after-sales process."
Management at ACS Industries envisions strategic use of the solution. The Kent, Ohio-based company designs and builds couplers and attachments for construction equipment such as wheel loaders, backhoes, excavators, bulldozers, and graders.
"Access Commerce is developing the functionality for error-free parts orders, which wouldn't require the customer to speak with a sales or service rep if the database is built correctly," says Joseph Zeno, president and CEO of ACS. "That capability should have a significant positive impact on customer satisfaction."
Using the Cameleon Suite, ACS could link a discrete number such as a part's serial number to a bill of material. Consequently, a customer with a discrete part number could pull up a semi-specific parts diagram online, which then pulls up an as-built service-parts bill of material, Zeno says, adding, "We see that functionality as an additional sales tool.
"Customers typically experience machine downtime—and often have to stop work on critical jobs—due to broken parts," Zeno continues. "So the faster they can order a replacement part and receive it, the better off they'll be. Alleviating that pain for customers is one way for us to differentiate ourselves from competitors."
