1. Service Parts Management:
Enabling Organizations to Reach Peak Efficiency
Integrating Systems for Real-time Information
Exchange and Enhanced Parts Visibility
White Paper
Author:
Shishir Choudhary CSCP, PMP
Manager, Service Parts Solutions
YASH Technologies
2. Table of Contents
Why the business outlook is changing towards after-sales............................
Problems the Industry is facing today.....................................................
Need for integration.........................................................................
Why generic supply chain solutions are not enough for service parts...............
Service parts management aligned with diverse business focus......................
Conclusion: Significance of service parts in SLM and after-sales solutions..........
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3. Why the business outlook is changing towards after-sales:
With bigger, better, and higher quality machines, original equipment manufacturers (OEM) face continually increasing
challenges. OEMs need to figure out ways to boost overall revenue to encompass more than only the sales of new machines.
Barring few high-tech industries and consumer electronics, a majority of the industrial and commercial equipment sales
are constantly associated with business expansions. With economies saturated in developed countries and decelerating
in developing nations, OEMs will not be able to survive on new machine sales alone.
Consumer analysis shows a steep decline on new equipment spending of consumers over the last 50 years in matured
global markets, but experienced an exponential increase for services. It’s not a secret that with larger, more expensive
equipment and machines, there is more money in helping the buyer with post-purchase services.
This trend of end consumer spending more on service will grow even larger, due to the ease of development using new
technologies like IOT, Telematics, Big Data and cloud.
For survival, OEMs have shifted to being service focused and changed the overall business outlook towards after-sales
and Service Lifecycle Management.
Problems the Industry is Facing Today:
• Parts planning, parts adoption, warehousing, order
fulfilment, parts marketing, and parts pricing are not
threaded together in common processes
• Planning and forecasting based on generic,
manufacturing based principles, not suited for service
parts
• Disjoint from engineering processes and systems with
fragmented technical documentation for parts
• Siloed and poor parts pricing strategies, based mostly
on cost and competition
• Lack of end-to-end service parts inventory visibility
across all levels
• Competition from low value aftermarket part
distributors
• Service parts may not generate profits
• Inflexible, inefficient and slow warehousing operations
• High transportation costs due to inability to optimize
inbound stock and meet emergency demand
• Lack of structure for tracking parts from birth to
obsolescence
• Limited tools for parts customer support
• Velocity to meet rapid turnarounds due to high SLA
expectations
• Direct correlation with customer service levels and
satisfaction
• Service parts can be categorized in a small number
of groups with an endless list of categorizations for
various processes, which can be a challenge to handle.
Weight, volume, dimensions, hazardous, criticality
indicator, returnable, substitution, manufactured
versus procured, ABC classification, profitability,
application age (how old or new is the model), and
competitive factors
• Challenges in keeping associations between machine
and parts over extended timeframes when models
undergo various changes
• Difficulty in correlation with external factors, such
as warranty and part needs for regular preventive
maintenance on machines
• Forecasting miscalculations leading to unnecessary
safety stock and large investments in inventory
• Multiple touch-points - Many organizational processes
need to integrate parts processes, directly or
indirectly, which includes warranty, service shop
operations, customer/technical support, technical
manuals, maintenance schedules, part needs, and
engineering/catalog authoring processes
• With diverse IT tools and systems suppliers, OEMs,
3PLs/4PLs, dealers, and service shops all need to
create a complex end-to-end parts supply chain to
stay profitable and achieve customer service levels
4. Need for Integration:
Process experts would say that every process and system in an organization needs to be interconnected, but that need
is even higher within the service parts industry. Service parts needs to be connected with many systems for almost real-
time information exchange, due to:
• Availability and routing ability
• Frequency of sale and usage in service shops of service
parts can be much higher than machine sales
• Expediting or backorder processing with suppliers
• Dealer business systems for complex order placement
ENGINEERING AND DESIGN Order
Management
Return
Management
Parts Retail
Sale
Invoicing
Forecasting
Back Order
WAREHOUSE MANAGEMENT
CUSTOMERMANAGEMENT
SUPPLIERMANAGEMENT
Outbound
Inbound
Layout designing
Distribution
Requirement
Planning
Inventory
Management
Store
Management
Picking
Procurement
Shipping
Equipment handling Monitoring, Analysis and
Reporting
Technical Manuals/
maintenance Schedules
Parts Catalog Authoring and
Publishing Processes
• Parts of new Model
• New Parts of old Model
• Parts Substitution
• Phasing Out Models
• Non-Moving. Slow
Moving Items
Product Design and
Development
Vendor
Development
Accounts
Payable
Account
Receivable
Marketing
Credit
Check
Catalog
Supplier
Relationship
Management
Customer
Relationship
Management
Approved
Vendor List
Obsolescence,
Salvage and Scrap
Parts Adoption
Process
5. Why Generic Supply Chain Solutions are not enough for Service Parts:
Most OEMs make the mistake of applying generic supply chain solutions for Service Parts. Service parts management
needs to have a completely different focus and hence it demands a different approach. Following are a few
key differences to consider:
• While manufacturing supply chains are more focused on Bill of Materials (BOM) based demands, parts needs to
utilize a probabilistic approach and 100’s of unique parameters to decide stocking levels and availability
• Generic supply chain solutions are more focused on the production side of the operation and not to the
services side
• Planning algorithms within generic Supply Chain Solutions are tailored for high-volume, replenishment-driven
production environments. This is in direct contrast with aftermarket service operations in which low-volumes of
service parts are consumed at multiple, disparate stocking locations across the service chain. Planning in such a
distributed, low-volume environment requires solutions that provide unique service-specific algorithms tailored to
address these dynamics
• Manufacturing supply chain solutions:
• Cannot support Trigger-Based Replenishment
• Cannot allocate inventory Fair Share, and
allocates first-come-first-serve instead
• Cannot automatically balance field inventory
• Does not have a multi-echelon optimization
or planning capability
Service Parts Management Aligned with Diverse Business Focus:
Generally, OEMs fail to tailor its supply chain for service parts to the needs of the end-users. Service Parts planning and
logistics can be very different for asset-focused needs versus the retail availability of a part at a local all-makes shop.
A general trend in the industry is to re-apply manufacturing supply chain processes and solutions on service parts, which
can create much inefficiency. Eventually, the system will not operate at its peak efficiency.
• Distribution to service shops
• OEMs selling repair services
along with providing service
parts required
• High Field Inventory
• OEMs selling repair services
along with providing service
parts required
• Distribution of low to medium
complex parts in large volumes
• High number of stocking
locations
• For OEMs Services handled by
dealers
Distribution Focused
Ensure target fill rate at
lowest supply chain costs
• Distribution of large, complex
and expensive parts
• Services generally handled by
OEMs
• Remanufacturing/Reverse
Logistics
Asset Focused
Achieve target asset availability
within financial targets
Field Focused
Ensure agreed service
levels and maximize profits
Repair Depot Focused
Fulfil agreed service levels
within financial targets
Agriculture, Construction,
Mining, Forestry Machines
Chemicals, Oil & Gas, Metal
Aerospace & Defence
High Tech
Industrial Machinery
Automotive
Consumer Appliances
Medical Equipment
Transportation
Telecom
Utilities
