Striking the Perfect Balance between Service Parts Planning and SLA Performance White Paper (A Baxter Knowledge Leadership Library Publication)

1. Austin, Texas
2008
Striking the
Perfect Balance
between Service
Parts Planning
and SLA
Performance
White Paper
A Knowledge Leadership
Library Publication
By Baxter Planning Systems Inc.

2. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Table of Contents
SUPPLIER WEB PORTAL . . . STRATEGICALLY EXTENDING ……………………… 2
ESTABLISHING THE LINK BETWEEN PLANNING AND EXECUTION ……………. 3
REAL-WORLD UNDERSTANDING ……………………………………………………….. 5
A POINT OF CONTEXT …………………………………………………………………….. 5
THE END RESULT …………………………………………………………………………... 6
THE BAXTER WEB PORTAL ……………………………………………………………... 7
CALCULATING THE IMPACT ……………………………………………………………. 8
ABOUT BAXTER PLANNING SYSTEMS ………………………………………………… 9
Appendices
APPENDIX A …………………………………………………………………………………. 10
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3. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Supplier Web Portal . . . Strategically Extending Enterprise
Process Excellence
“Supplier Web Portal (SWP) provides an electronic link between purchasing
and any number or size of suppliers. This new module enables supplier and
purchaser communication, captures detailed audit trails of pricing/delivery
negotiations and delivers productivity and quality improvements in the
supply chain operation. Confidence in supplier commitments and a
reduction in supply lead-time variability is key to the planning organization
that wishes to reduce inventory. Supplier Web Portal also incorporates
supplier metric performance reporting, further driving continual process
improvement.”
New Year, New Modules, Same Leadership Position – Baxter Sets Pace,
Exceeds Industry Expectations
BNET Article
January 29, 2007
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4. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Establishing the Link between Optimum Planning and
Flawless Execution
The demands associated with servicing a diverse installation base can be
both complex and challenging.
Striking an effective balance between optimal service parts planning and
meeting clients Service Level Agreement (SLA) requirements demand the
right tools and expertise.
Far too often however, service organizations vacillate between a belt and
suspenders approach whereby excessive inventory levels are maintained as
a means of ensuring parts availability, or conversely rely on an ineffective
strategic sourcing process which requires significant increases in personnel.
With the former, the over-reliance on inventory usually creates several
problems including SKU duplication leading to excess inventory build-up
and mismanagement, costly write downs, and a phenomenon know as
creeping margins. In the latter, an increased payroll rarely if ever
overcomes the inherent inefficiencies of having to manually manage
changes in delivery dates, quantities and pricing fluctuations in which
supplier engagement is reduced to a reactionary versus proactive exercise in
managing fulfillment. The negative impact on a service organization’s
bottom line at either end of this pendulum’s swing is significant.
This white paper will focus on the critical elements of effective inventory
planning and management, including the tools that should be used to
effectively manage the important collaborative relationship between key
stakeholders such as buyers and suppliers in meeting the SLA performance
requirements of an increasingly complex and demanding market.
Is Ready Access Enough?
A multinational IT services organization made the decision to rationalize
their supply base down to 100 suppliers through whom they would receive
volume discounts on the purchase of service parts, as well as streamline the
repair and return to inventory process. The acquired service parts were to
be maintained in a central warehouse, which in turn would act as a
fulfillment clearing house for all service call transactions.
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5. Striking the Perfect Balance between Service Parts Planning and SLA Performance
The logic behind this decision was multi-faceted in that the company
viewed the strategy as a means of reducing the administrative costs
associated with managing what they considered to be an unwieldy and
expanding supply base, while simultaneously ensuring “best pricing” and
“certain availability” re the right part, at the right time.
Unfortunately, effective spare parts planning and management extends
beyond the simple process of inventory counts and leveraging volume
savings. It also includes managing key relationships with stakeholders such
as suppliers. In essence creating a collaborative platform through which the
real-time exchange of information facilitates performance in critical areas
including but not limited to part availability and delivery certainty.
By focusing on a single and somewhat myopic supplier rationalization
strategy, communication between the company and its dramatically reduced
supply base was limited to managing pre-established min-max levels.
The challenge associated with relying predominantly on a traditional min-
max approach is that it usually reflects an artificially established set of
metrics that is more conducive to a static production versus dynamic service
environment. In essence, the buyer and supplier relationship is set in
accordance with a contract’s projected or “scheduled” product requirements
in which real-world real-time interaction is limited to managing exceptions.
True service parts planning and management is not confined to these
hermetic variables, but is instead driven by requirements that are
characteristically more random, in which SLA commitments usually call for
a resolution within a matter of hours. In short it is not a production line
environment and therefore requires a higher more advanced degree of
managing the relationship between key partners.
And while there are a number of forecasting models utilized in service parts
planning, the most effective solutions recognize the ongoing need to
proactively manage these critical relationships on an adaptive basis.
This important element of a sound service parts planning and management
program was notably absent from the company’s strategy which led to
inflated, slow turning inventory levels, and an actual increase in the Cost of
Goods (CoG) relative to then current market conditions.
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6. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Real-World Understanding . . .
“The ability to comprehend the complexity of service parts procurement in
which a balance between satisfying client service level requirements and
bottom line financial considerations extends beyond the mere provision of a
traditional warehouse management technology.
What is required is a holistic approach that is only possible through a
combination of unparalleled insight, proven expertise, and an ability to think
and act outside of the framework of “accepted” practices to collaboratively
leverage superior technological breakthroughs.”
A Point of Context
A major metropolitan transit authority contract established a target SLA for
service call resolution of 98 per cent same day (on-site, 3-hours) to support
their critical IT infrastructure. It is important to note that at 98 per cent,
current SLA contractual requirements place an even greater demand on
process efficiency and system reliability.
Utilizing a consumption forecast model (Part Requirement Rate Formula or
PRRF) an analyses was able to accurately forecast the frequency of usage or
demand for specific parts for a particular device type based on the current
install base.
Once consumption rates were established by device type, a Product
Compression Function (PCF) was employed to substantially compress
inventory by reducing the quantities of individual SKU’s without negatively
impacting contracting performance. (Note: as referenced earlier, inventory
levels usually grow as a result of inefficient sourcing practices and
ineffective collaboration between stakeholders versus an actual increase in
service demand.)
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7. Striking the Perfect Balance between Service Parts Planning and SLA Performance
The PRRF and PCF methods mentioned above were clearly focused on part
normalization and inventory reduction. However, organizations determined
to provide optimized best-in-class service should consider advanced
planning capabilities that include additional factors such as part, product,
location and customer criticality in a “lowest total cost” model that balances
inventory cost versus stock out cost. The result is a service inventory-
stocking plan that meets customer expectations at the lowest possible total
cost.
This ability to intelligently align inventory levels to ensure optimal service
parts inventory while satisfying SLA performance requirements generated
significant savings as the client was able to; a) lower their investment in
slow or sporadic moving inventory, b) reduce warehousing and associated
costs, c) establish a more proficient product life cycle management process.
A global service parts planning suite was deployed to ensure prompt and
easy access to the right inventory, at the lowest cost, from the right location
at the right time. Future client demand, determined by historical part usage
and up-to-date install base/service contract requirements was used to
calculate optimal target stocking levels throughout a main hub (distribution
center) and Strategic Stocking Locations (SSL) network. The centralized
planning team was empowered to plan and procure central distribution
center inventory sufficient to meet the ongoing demand on this critical
location.
The End Result
By leveraging the advanced features of a supplier web portal, the buyer and
supplier were proactive in their collective efforts to strategically
communicate, manage and utilize inventory to fulfill even the most
demanding SLA requirement through multiple warehousing sites.
This meant that the transit authority was able to achieve a balance between
efficient, cost savings processes and demanding service level requirements
to deliver results in terms of customer satisfaction and an increase in bottom
line profitability.
The collaborative process between buyer and supplier(s) which was
essential to the program’s success was facilitated by a centrally managed
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8. Striking the Perfect Balance between Service Parts Planning and SLA Performance
intelligent solution suite of which the supplier web portal was the critical
component.
This capability is one of the primary benefits provided by Baxter’s Web
Portal.
The Baxter Web Portal: The Gateway to Shared
Commitment?
Collaboration in real-time is a cornerstone of the Baxter SWP. This is due
to the fact that unlike the manufacturing process which is driven by
managing suppliers in relation to long-range forecasts with periodic
adjustments, service parts planning is far more dynamic in nature.
Specifically, SWP is not a forecast management tool, but is instead a
proactive solution that allows the planning group and suppliers to adapt to
shifting client requirements on a real-time basis thereby reducing an
organization’s reliance on building unnecessary safety stock inventory to
meet future or anticipated SLA commitments.
As a component of the total Prophet-by Baxter Planning Solution, SWP is
an intelligence conduit between the buyer and the supply base confirming
the capability of the suppliers’ ability to deliver sustainable results on an on-
going basis.
Baxter’s suite of “industry leading planning solutions,” which includes the
SWP is a reflection of the company’s conscious and proactive effort to
extend planning system knowledge to the actual service delivery process.
This is a natural evolution of the intuitive solution development that is a
reflection of Baxter’s unique and unparalleled understanding of the diverse
and at times complex elements of effective supply chain execution.
And Baxter’s strategic footprint is the most proficient in terms of
simultaneously and seamlessly linking these elements through a single web-
based platform that establishes multiple points of correlation between
inventory planning and utilization as well as strategic sourcing.
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9. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Calculating the Impact
Far too often savings claimed in one area of an enterprise are not necessarily
recognized or at least given the same degree of importance or priority when
it comes to an organization’s bottom line.
Given the above, a strategic industry survey was conducted by Procurement
Insights which asked the following question: “How does the CFO calculate
the bottom line contribution associated with effective inventory control and
superior customer service?”
Specifically, how are savings in terms of effective inventory management
(which could mean reductions in inventory levels, more frequent turns and
avoidance of costly write downs) and superior customer service such as
SLA Performance applied by the CFO to an organization’s balance sheet in
the following five key areas; a) Return on Invested Capital (ROIC), b) Cost
of Capital, c) Economic Value Add (EVA), d) Earnings Per Share (EPS),
and e) P/E/ Ratio.
While a fair percentage of responses reflected a continuing disconnect
between the respondents’ areas of operations and those of the finance
department’s, it was generally felt that the role of the finance department “is
to facilitate the creation of tools needed to measure improvement.” It was
further suggested that finance should also be “an impartial scorekeeper, as it
is up to operations to actually make things work.”
In terms of importance, the level of priority placed on effective inventory
management and achieving and maintaining customer service levels was
generally viewed as “originating at the top,” with the emphasis that “a good
CFO will recognize the value of tools,” such as the ones offered by Baxter.
What were particularly noteworthy were the responses received from
finance executives themselves. One head of finance for a major U.S.
healthcare organization made the following observation:
“The level of inventory plays an important role on the bottom line.
However, depending on the industry you are looking at, the level of
importance and the recognition might be different:
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10. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Example 1: A manufacturer of Medical Equipment spare parts for
equipment, e.g. the tube for an x-ray machine, has to be at the customer’s
site within 24-hours. If not, penalties from a service contract apply.
Example 2: Internet bookstore customers order books using the internet.
The usual time a customer accepts as a standard delivery in this instance is
is 6 to 10 days.
In Example 1, the primary goal of the company must be an on-time delivery
rate (on time meaning installed within 24-hours) of 95%. All other
measures, like the total amount of money tied into inventory, have to be
secondary and the higher levels of inventory have to be accepted. Ways of
fine tuning in this case are systems that allow the company to minimize the
time of ownership of the parts. In addition, when selecting a supplier,
quality and on-time delivery must take precedence over price. If parts are
made in-house, then production planning also becomes a key area of focus.
In example 2, the acceptable delivery time is somewhat more flexible, so the
company has an opportunity to balance delivery performance with inventory
levels.
Lower levels of inventory make it into all of the five measures (re ROIC,
EVA etc.) listed in the survey question, however the ultimate impact might
be marginal depending on the actual decrease in inventory or on how well it
is managed on an overall basis.
As a result, these metrics might not be the best ratios to show appreciation
for any one particular area of an organization, but they do measure the
common effort of everybody. And as a company is only as good as the sum
of its parts, the inventory and/or service manager’s role should be
recognized as an important part of the overall equation.”
Taking into account the results of the survey as well as the changing
economic conditions, the collaborative approach of the Baxter organization
will address the unique interests of all stakeholders both within and external
to the enterprise through an active engagement mechanism that encourages
participation from key areas including finance, service and logistics.
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11. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Working closing with your team, the Baxter team will identify, clarify and
achieve the bottom line results that will resonate throughout the
organization, delivering unsurpassed value.
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12. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Baxter Planning Systems offers a unique mix of software applications and parts planning
services that are designed to help turn your service parts organization into a profit center.
Software Applications
Prophet-by Baxter™, (http://www.bybaxter.com/solutions_prophet.html), a 100% web-architected software
suite, is a service supply chain solution focused on the unique complexities of the after-market, service, repair,
and spare parts industries.
Distribution Center Planning (http://www.bybaxter.com/solutions_distribution.html)
Field Planning (http://www.bybaxter.com/solutions_field.html)
Supply Chain Execution (http://www.bybaxter.com/solutions_supplychain.html)
Supply Order Management (http://www.bybaxter.com/solutions_supplychain_order.html)
Supplier Web Portal: Regardless of the size of the company, reducing cost and improving control
of the supply chain is critical to overall service delivery and financial performance. Planning and
purchasing systems must work seamlessly to ensure that the service part supply chain is operating
at an optimal level. Too often the purchase and repair order supply chain process involves a
manually intensive, seemingly endless maze of phone calls, faxes and e-mails.
Baxter’s Supplier Web Portal replaces the inefficiency of common supplier/purchaser
communication processes. The real-time Supplier Web Portal captures a detailed audit trail of
pricing, quantity and delivery negotiations and delivers productivity and quality improvements in
the supply chain operation.
Parts Planning Services
Baxter’s On-Demand Planning, (http://www.bybaxter.com/solutions_services.html), ensures that you will have
an experienced, knowledgeable partner who will work side-by-side with you to lower costs, improve service,
and build your business. Our global On-Demand Planning capabilities include regional planning hubs and
proven track record that has become a critical component of managing and controlling our client’s service
supply chain infrastructure.
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13. Striking the Perfect Balance between Service Parts Planning and SLA Performance
About Baxter Planning Systems
Since 1993, Baxter has pioneered the development of Web-based solutions
to meet the unique demands of after-market, service, repair, and spare parts
industries. The Prophet-by Baxter™ suite of integrated forecasting and
planning applications enables Baxter’s clients to achieve industry-leading
customer service levels while significantly increasing profitability. Global
2000 and Fortune 500 enterprises deploying Baxter solutions include
Agilent Technologies, Silicon Graphics, Enterasys Networks, Alcatel-
Lucent Technologies, NetApp, Kodak and Philips Medical Systems. For
more information, visit Baxter on the Internet at www.bybaxter.com, or call
(866) 323-5959.
© Baxter Planning Systems Inc. 2008
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14. Striking the Perfect Balance between Service Parts Planning and SLA Performance
Striking the Perfect
Balance between
Service Parts Planning
and SLA Performance
White Paper
Appendices
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15. Striking the Perfect Balance between Service Parts Planning and SLA Performance
APPENDIX A
Bibliography
New Year, New Modules, Same Leadership Position – Baxter Sets Pace,
Exceeds Industry Expectations.
BNET Article (January 29, 2007).
http://findarticles.com/p/articles/mi_m0EIN/is_2007_Jan_29/ai_n17155680)
(Pg. 2)
Select Customers, Baxter Web Site
http://www.bybaxter.com/customers_customers.html
Success Stories, Baxter Web Site
http://www.bybaxter.com/customers_success.html
Warehouse Intelligence versus Warehouse Management: The Baxter
Advantage
Procurement Insights Article (September 18, 2008)
http://procureinsights.wordpress.com/2008/09/18/warehouse-intelligence-
versus-warehouse-management-the-baxter-advantage-baxter-planning-
systems-profile/
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