In this new article for Field Service News, Michael Blumberg, President of Blumberg Advisory Group, discusses the strategic value of Spare Parts Management in product service businesses.
INTRODUCTIONSpare parts represent the single largest investment and second-largest expense when running a product service business. This is true regardless of whether Aftermarket Service operates as a cost center, revenue center, or profit center. Additionally, several industry trends, including Servitization, Circular Economy, and a tsunami of technological innovations, have placed even greater pressure on Service Leaders and Supply Chain Managers to be as effective as possible when itforecasting, managing, and ordering spare parts. Spare Parts Management (SPM) is the process that companies use to ensure that the right spare parts are available at the right place and at the right time.. However, operating a successful SPM function creates a few challenges. As mentioned above, the goal is to have the parts available at the right place at the right time. But carrying too much inventory will hurt the income statement and alance sheet, as well as KPIs such asreturn on assets and return on invested inventory. Another challenge is that service parts are not the same as any other inventory like finished goods. This is because they can be repaired and reused, thereby being a great revenue source and solution for any service issues. To sum up, SPM has unique characteristics that make it complicated. Therefore, there is a need for industry-specific software to meet such complexities.
SPM State of the Art
Blumberg Advisory Group published a report that aims to educate Service Supply Chain Executives on the strategic value of SPM to their company’s financial and operational performance. It also contains independent benchmark evaluation and profiling of selected SPM vendors and their key capabilities.
The objectives of the Blumberg Advisory Group report:
- To educate Service Supply Chain Executives on the strategic value of SPM to their company’s financial and operational performance.
- To provide an independent benchmark evaluation and profiling of vendors based on the following criteria – feature functionality, vertical market focus, core competencies, use cases, current and planned innovations.
The report relied on Blumberg’s knowledge of the SPM market and a wide array of data sources when profiling vendors. This includes whitepapers, publicly available information and literature, structured discussions, data collection processes with said vendors, interviews with industry leaders, consultants and end-users.
IMPACT OF KEY TRENDS ON SPM
There are three major trends that have a significant impact on SPM. These are:
- The Servitization of Products. This trend places greater attention on generating additional revenue through the sale of spare parts. It is the main drive for companies to become proficient in planning, forecasting, and managing spare parts.
- The emergence of the Circular economy. Here, companies create value by repurposing, reusing, and recycling products. This allows supply chain managers to replenish their spare parts inventory by simply repairing and refurbishing defective parts.
- The tsunami of new technologies in recent years. The rise of modern technology in helping companies improve customer satisfaction and experience has shaped SPM into a more accurate and effective technological solution.
CORE FEATURES OF SPARE PARTS MANAGEMENT SOLUTIONS
Below are the core features to look out for when investing in Spare Parts Management (SPM) Solutions:
- User Interface
- Parts Management and Grouping
- Inventory Planning and Optimization
- Supply Planning (Order Plan)
- Reporting and Analytics
CORE FEATURES OF SPARE PARTS MANAGEMENT SOLUTIONS
Here are other aspects to consider in your choice of SPM solution:
- First, make sure that the solution is specifically designed for managing the Aftermarket Service Supply Chain.
- Second, research the vendor’s experience and expertise within your vertical market.
- Third, check if there are any independent organizations that validated the math behind the inventory planning and which organizations. This adds credibility to the vendor’s ability to meet organizational requirements regarding SPM.
- Fourth, find out what planning objectives are met or optimized through their SPM system and what their application is trying to accomplish. Finally, investigate the SPM solution’s ability to keep with the new technological development and how they incorporate them in various optimization and planning scenarios.
Oracle is a $39 Billion company. Its Supply Chain practice accounts for approximately 3.8% of total corporate revenue. Its Oracle Spares Management (SM) is a complete solution covering key processes and functionality required to manage serviced parts within a service supply chain.
Although it presents many features, it is recommended that manufacturers only consider Oracle Service Parts Planning (SPP) - an Oracle SM component, when they are already a part of the Oracle Platform.
To meet the need of SPM solutions in the market, various vendors have emerged offering their own set of features and capabilities. In fact, the Blumberg Report has successfully profiled each vendor according to certain functionalities including Reporting and Analytics, Parts Management, Supply Planning, Forecasting, and Inventory Optimization. However, it is important to note that choosing an SPM solution depends on your company’s objectives and goals. It is through these sets of goals that you can determine what features you need, and which vendor offers the best solution according to those requirements.
Download Blumberg’s report to gain new perspectives and insights on the SPM State of the Art.
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