Improving Visibility into Aftermarket Spare Parts Shipments
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This presentation provides an overview of the aftermarket or service parts supply chain and discusses the issues and challenges that many companies are facing, across different industries, with improving visibility into their spare parts shipments. This video also provides a brief overview of GXS Service Parts Visibility Solution. Updated April 2013
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Improving Visibility into Aftermarket Spare Parts Shipments
- 1. Mark Morley, Industry Marketing Director Improving Visibility into Aftermarket Spare Parts Shipments
- 2. Slide 2 | © 2013 GXS, Inc. Service Revolution in Manufacturing “Manufacturers are looking for growth and profits in all corners of the globe, but they often neglect the very large opportunities much closer to home – in their own service business” “The costs of missing out on the service revolution can be enormous” “A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large” Henry Ford
- 3. Slide 3 | © 2013 GXS, Inc. Improving the Visibility of Spare Parts Shipments is a Cross Industry Challenge... Many different companies rely on the efficient delivery of spare parts in order to maximise the uptime of their customers’ products.......
- 4. Slide 4 | © 2013 GXS, Inc. Revenue from Services and Parts Why Focus on Services? – Customer Expectations for Mission Critical Processes – Resistant to Low-Cost Competitive Threats and Economic Downturns – More Profitable over the Lifecycle of the Product – New Revenue Stream Source: Deloitte Research, Global Service and Parts Management Benchmark Survey Revenue Share of Services and Parts Business in Overall Sales Industry Sector Average Top 90th Percentile Aerospace & Defence 47% Over 50% Automotive & Commercial Vehicles 37% Over 50% Diversified Manufacturing 20% Over 50% High Tech & Telecom Equipment 19% Over 50% Life Sciences & Medical Devices 21% Over 50% In 2001 General Motors made more profit on $9billion of aftermarket parts related sales than they did on $150billion of OEM car related sales.... Source: Accenture
- 5. Slide 5 | © 2013 GXS, Inc. Service Parts Requirements Across Different Industries Aerospace Defence 30 Years20 Years10 Years5 Years Typical Service Life Requirement AutomotiveHigh Tech • Relatively low value parts supplied as modules allowing quick replacement • Parts are distributed by both retail stores and specialist service centres • Typical replacement warranties last 1 year • Parts typically supplied direct from manufacturer to dealer network • Parts ordered as and when required to replace faulty parts • Typical manufacturer warranty lasts 3 years, however some OEMs offer 7 year warranties • Relatively high value, high quality and high performance parts • Preventative maintenance programs to maximise product uptime and reliability • Service package sold as part of initial product sale and often very profitable • High value parts delivered to frontline operations anywhere around the world • Typically maintained by defence industry’s own personnel • Parts are often stockpiled in regional parts depots to ensure availability any time
- 6. Slide 6 | © 2013 GXS, Inc. Typical Visibility Issues Include • Many trading partners use EDI internally and then resort to paper when conducting transportation or government business • Paper based documents result in substantial delays in moving freight • End to end shipment visibility is limited to numerous proprietary systems, many of these are not real time and do not cover all events end to end • Split shipments, changing modes and other disruptions are very difficult to manage
- 7. Slide 7 | © 2013 GXS, Inc. These Issues Lead to... • Increased costs due to a need to hold more buffer stocks • Costs associated with increased expedites • Costs associated with follow-up – Human interventions in normal processing – Human interventions in problem shipments • Reduced customer satisfaction due to increased equipment downtime waiting for service parts to be delivered
- 8. Slide 8 | © 2013 GXS, Inc. Improved Visibility Helps to Counter the Counterfeiters.... • The counterfeit parts market has grown to be worth $16Billion per year • PSA in France estimate they lose 5-10% of their revenue to counterfeiting operations • China is the leading counterfeiting ‘hub’ • Counterfeit parts are normally inferior in both quality and performance • Parts are often transported with forged shipping documents • Electronic documents and RFID technology, combined with a global visibility platform can all contribute to reducing the trade in these parts
- 9. Slide 9 | © 2013 GXS, Inc. Implement Global Supply Chain Visibility • Due to the global nature of today’s service supply chains, companies are looking for a visibility solution which: – Provides a platform which allows common, web based view of logistics information – Has visibility into cross border, logistics and distribution related information – Allows for the monitoring of critical supply signals thus improving inventory visibility, cash flow and overall supply chain performance – Provides a means to measure the performance of key 3PL providers
- 10. Slide 10 | © 2013 GXS, Inc. Service Parts Solution Overview Track and Trace for Multi-Modal International Shipments GXS Managed Services Service Parts Visibility Solution Dealers / Service Centres Customs / Border Controls 3PL Carriers Spare Parts Manufacturer OEMProvides real- time visibility of inventory levels across the supply chain Ability to integrate with dealer management systems Pre-configured connections to many customs and border control agencies Pre-configured connections to many of the world’s freight transportation carriers
- 11. Slide 11 | © 2013 GXS, Inc. Thank You Phones US: 1-800-334-2255, option 3 EMEA: +44 (0) 1932 776047 GXS web sites US: www.gxs.com EMEA: www.gxs.eu
Editor's Notes
- Over the last couple of years a number of analyst firms have undertaken research into the service parts supply chain. One analyst firm has named the process involved with managing a service parts supply chain as Service Lifecycle Management.Many companies realise that they can achieve more profits in the aftermarket side of their business than the sale of new machinery or equipment. Therefore many companies are starting to invest in growing the service side of their business in order to service their existing customers and ensure that equipment that is already in service can be maintained and kept in service for as long as possible.
- Improving the visibility of spare parts shipments is a cross industry problem.For example ensuring that jet engines can have spare parts delivered to any maintenance hangar at any airport around the world, through to PCs or servers that need to have key components replaced as soon as a fault occurs through to carrying out regular services on cars, each industry has a different spare parts supply requirement, but they all share one common goal, to ensure that spare parts get delivered on time, to the correct location.
- One of the key reasons that companies are placing more emphasis on the service supply chain is the high margin and profitability that this part of a business can generate. As an example, in 2001 a survey conducted by Accenture found that General Motors made more profit on $9Billion worth of aftermarket parts related sales than they did on $150 billion worth of OEM car related sales. This example alone helps to illustrate the profitability of the service parts sector and why companies see the importance of it.The chart on this slide illustrates the average profitability by different industry sectors, with aerospace and defence topping the list with an average of 47% profitability and contributes to an average 25% of annual revenues. This level of profitability is achieved due to the fact that a company such as Rolls-Royce aerospace will make more profit over the 20 year period that an engine is in service, than they make on the initial sale of the engine. In fact Rolls-Royce will sell an airline a complete package which will include the engine and accompanying parts to keep it in service for many years.The interesting thing is that many of these companies see the service sector as being relatively recession proof as many companies need to keep equipment and machinery in service, even during an economic downturn.
- This slide provides an interesting comparison of the service parts supply requirements of different industry sectors, for example: In the high tech sector, computers or servers will typically be in service for between three and five years, parts are relatively low value and are supplied in a modular format to aid quick and easy replacement. Parts are distributed by both retail stores and specialist service centres. Many PCs, as with other consumer electronics goods have 12 month warranty periods for replacement parts In the automotive sector, parts are typically supplied from the manufacturer or OEM dealer network. Parts are normally replaced as part of a pre-defined service programme or warranty claim. A typical car warranty today lasts for three years and some car manufacturers such as Hyundai are offering seven year warranty periods. So manufacturers need to be able to provide parts for these entire warranty periods. In the aerospace sector, parts are relatively high value. Parts for an aircraft or jet engine will follow a strict preventative maintenance replacement routines to maximise uptime and reliability. As explained earlier, complete service packages are sold with the initial product sale as they are very profitable Finally , in the defence sector parts must be delivered to the frontline, anywhere around the world. Parts are normally so sensitive or of high value, that normal freight carriers such as DHL for example are not used and instead the Army will use their own internal logistics operations to distribute spare parts. To ensure availability, 24/7, parts are stockpiled in regional parts depots.
- Today, due to a large amount of paper based documents being used in the shipping process, substantial delays can be expected with the movement of spare parts shipments. Many service providers are faxing, emailing, and even carrying paper documents. Faxes in particular will often have unreadable or missing information Many trading partners use EDI internally and then resort to paper when conducting transportation or government business End to end shipment visibility is limited to numerous proprietary software systems, many of these are not real time and do not cover all events from one end of a supply chain to the other. Quite often, re-keying in of data can lead to errors being made in shipping paperwork. Split shipments, changing modes and other disruptions are also very difficult to manage
- The visibility issues mentioned on the previous slide lead to a number of downstream problems, for example: Delays in shipment arrivals, for example a container could take three weeks to arrive from the Far East by sea, so many companies may need to hold buffer stocks until their shipments arrive If there is going to be a long delay with parts arriving then there could be a need to arrange for shipments to be expedited via air freight to allow important or critical service parts to arrive in a timely manner If there are errors in paperwork then the documents have to be either updated or re-created If there is a delay with parts arriving then it means that equipment could be out of service or experience downtime until the parts arrive. This downtime can be frustrating and can often lead to a reduction in customer satisfaction levels
- The service parts industry is very lucrative for many manufacturing based companies, however their profits are being eroded away by counterfeit parts entering their respective service supply chains.Now with part marking, RFID and B2B visibility solutions available on the market, the only reason why OEMs have been reluctant to do anything about this problem is the cost, it would cost millions of dollars to get a truly global parts tracking RFID infrastructure in place. PSA in France is one of the first car companies to try and tackle this problem head on and they will be working with the Odette automotive industry association in France to try and find a way to minimise spare parts related revenue losses which they estimate to be between 5 and 10% of their spare parts related revenue.
- GXS Active Logistics is at the core of GXS’ Service Parts Visibility solution. Combined with GXS Managed Services, it allows virtually any interested party across the extended enterprise to be connected to the service. In this automotive example, the Service Parts Visibility solution forms the communications hub between the OEM, the spare parts manufacturers, the 3PL providers and customs agencies. There is also a possibility to integrate the service parts visibility platform to a dealer management system thus providing a truly global view of inventory levels across a dealer network. The solution also provides a more accurate view of inventory level for goods in transit across a supply chain.GXS has pre-configured connections to many of the customs and border control agencies around the world and many of the world’s freight companies are already connected to the service as well. The cloud based, fully hosted nature of this platform allows companies to deploy this solution very quickly, in any region of the world and at a relatively low cost when compared to an equivalent proprietary software based offering.