Service Matters from MCA Solutions

The week of October 3rd, MCA held its annual international user conference in Dallas, Texas, with the theme "The Agile Service Business."   The conference included over 130 attendees from leading service businesses around the world, sharing best practices, updates on success in their service business, and learning about the latest solutions from MCA.

MCA welcomed 8 new customers since last years conference and highlighted 14 go-lives or new implementations from our customer base.  Feedback from the customers was overwhelmingly positive, and in addition to learning a great deal, our customers had a lot of fun, as this video depicting candid photos from the conference and the welcome dinner at the Dallas aquarium makes clear.

 Some highlights from the 3-day conference included:

• Morris Cohen keynote address on "The Agile Service Business."  Morris Cohen, Wharton Professor and MCA Chair, presented on the changing service landscape in increased economic uncertainty, and the increasing adoption of product-service based competitive strategies.  Morris reviewed some ideas from Harvard Business Review article "The Triple-A Supply Chain," by Stanford Professor Hau Lee (who was Dr. Cohen's PhD student), and how its 3 core elements, “Agility, Alignment, and Adaptability,” are particularly relevant to the aftermarket business.   We will write on this theme more in future blogs, and the presentation can be found here.
• Customer Success Stories:  Customers from industries including aerospace, oil & gas, medical equipment, and complex capital equipment described how their service businesses have adapted and thrived in the changing economy by servicization of their product.  Examples included drilling services in oil & gas, hospital managed services in medical equipment and the continuing evolution of Performance-Based Logistics in Aerospace & Defense.
• MCA Product Update:  MCA Director of Product Management Aseem Chandawarkar and CTO Chad Ross reviewed the capability of MCA’s new 8.0 release with a focus on how the MCA Solution Suite enables the agile service business.  This will also be covered in a future blog, but some highlights are flexible workflow definition, richer inventory optimization combined with flexible business rules, user-driven supply planning, and extensive business analytics.  Detailed breakouts covered these capabilities in more detail.
• SIG (Significant Interest Groups):  Commercial & Aerospace and Defense user-driven groups shared learnings and prioritized required capability for future releases.  While there were some requirements such as "Color of Money" which is specific to defense government spending, it was interesting that there were common ground between the two groups, and both are using the same version of the MCA software with configuration to their needs and very little customization.

The most gratifying element for the MCA team was the fantastic feedback we received from the customer teams, highlighting our focus on 100% customer success.  Some tidbits picked up during the customer presentations and off-line included:

"With our ERP system it took a week to 10 days to optimize our inventory, now it takes 10 minutes"

"Our management team loves the what-if scenarios and ability to rapidly analyze our service business"

"We had our initial implementation and running in 9 weeks, which was right on schedule"

"The MCA team was amazing- a dream team!"

"We broke the SAP / Oracle mentality of our IT team - you don't have to take what they give you.."

We at MCA are very proud of our customers and the success they have delivered to their service business and are looking forward to sharing another successful year together.

Best-of-breed application companies, like MCA Solutions, have seen demand climb over the past, year and were fortunate to see a 25% increase in our customer base in 2010. But the recurring question is who’s driving the decision and budget for leveraging best-of-breed solutions for focused enterprise applications?  Is it the user community or IT?

In Gartner’s February First Thing Monday newsletter (registration required), Jim Shepherd has written a series of articles about the the role of IT in business applications, writing: “The balance of power regarding IT decisions is rapidly shifting from the IT ‘professionals’ to the business user.”  This shift is driven by reduced IT budgets in the downturn, increasing pressure to reduce costs and increasing influence of business users who are able to fund projects if they can show “a direct and rapid payback or build a compelling case for growth and innovation.”

In Bob Ferrari’s Supply Chain Matters Blog, Bob comments that this trend in more business- and functional-driven investment actually began in supply chain circles.   

At MCA, we’ve seen a strong push from business teams in the service supply chain, as the planning problem is more complex than in the production supply chain.  ERP solutions have attempted to solve every problem but there are significant gaps in functionality.  Because of the diverse systems in the aftermarket service world, it’s typically necessary to pull data from a number of disparate systems.  The decision support nature of best-of-breed solutions makes them better suited than ERP systems for these kinds of deployments.  

While the business team (which in the case of service parts planning solutions is the service business) is vetting and recommending new solutions, the CIO typically is involved in the decision process.  Several factors are making it easier for IT departments to adopt best-of-breed solutions like MCA’s over ERP solutions:

• Rapid ROI:  Best-of-breed service parts planning implementations typically go live in one to four months, with a significant return in fewer than six months from project start date.   ERP-driven implementations for service parts planning can take years, require a great deal of customization, and often end up with limited return, or even worse, discarded.  Shaun Snapp in his outspoken SCM Focus blog does a detailed comparison of the cost of implementing SAP's solutions for service parts planning to the cost of implementing a best-of-breed solution and it provides excellent reading for the CIO and the IT team.  Shaun provides a number of compelling reasons that the Total Cost of Ownership of implementing the SAP solution is astronomically higher than a best-of-breed solution.
• Ease of Integration:  Through open architectures and partner certification programs such as SAP Partner Edge, integration of best-of-breed solutions is becoming standardized and repeatable.  In fact, as Shaun Snapp writes in his SCM Focus blog, he has had more success integrating 3^rd party planning systems to SAP than in integrating SAP APO to SAP ERP through the complex SAP Core Interface (CIF).
• Business Process Change:  Service organizations are implementing innovative business processes such as Sales & Operations Planning (S&OP) for service, managed service offerings and rapid contract quoting and analysis.  Configurable solutions developed for the service space can enable these processes, where ERP-based solutions are difficult to adapt.

As Bob encourages in his blog, "the fact that Gartner has acknowledged the revolt should embolden those business teams who have not taken on such leadership thus far to get cracking and join those who already have.” 

We expect that instead of showing resistance, enlightened CIOs will be ready to jump on board and to help the business drive value.  Tell us what you’re seeing in organization – is IT open to applications outside of the ERP suite that add value? 

Conferences are an excellent means for service executives and practioners to network, share information on best practices, and learn about the latest technology trends and solutions in the industry. 

Over the past year, the MCA team has attended a number of events (and missed a few) focused on service and service parts management.   In this blog we will provide a summary of the conferences we have attended along with a link to conference information. The events focus on a number of different industries and topics.

The list includes service management conferences that have some focus on service parts planning, and includes the latest conference link, although these change frequently. Please comment if there are some missing that should be included.

• Interlog Winter (January - Florida), Industry Focus: Aerospace, long life cycle products. This was a getaway from winter cold, a smaller WBR conference that will be folded into Interlog Summer in 2012.
• Reverse Logistics (February - Las Vegas), Industry Focus: High Tech reverse logistics. Over 1000 attendees and close to 50 vendors with most of the focus on repair, returns and recycles, with a spare parts committee that sponsors a small number of sessions on spares planning.
• Wharton Service Supply Chain Thought Leaders Forum (March - California), Industry Focus: General.  Co-sponsored by MCA, the forum combines academic thought leaders from Wharton, Stanford, Harvard, and other academic institutions with service executives discussing trends in service from a theoretical perspective with a practical view from practitioners as well.
• Aircraft IT MRO Conference (March - US, July - Europe, October - Asia), Industry Focus: Aerospace MRO. Focusing specifically on IT solutions for aerospace MRO and includes both technical and functional executives.
• NDIA National Logistics Conference (March - US), Industry Focus: Defense sustainment, PBL across the services. Panel format with top brass military / senior industry discussion on the most pressing issues for sustainment and logistics.
• Field Service (April), Industry Focus: Field service intensive industries. Primarily focused on workforce management with a big concentration in mobile solutions, typically includes senior service executives as well as field service managers. 
• Aviation Week MRO (April - US, September - Europe, November - Asia), Industry focus: Commercial and Defense Aerospace. Largest MRO conference, with hundreds of vendors exhibiting a wide range of aerospace products and services from nuts and bolts to outsource maintenance.  
• AIA Product Support Conference (May - East Coast), Industry Focus: Defense aerospace and PBL. Smaller practitioner-driven conference with a number of aerospace military attendees with major OEM's and service providers. 
• Aftemarket Europe (May & November - Scandinavia), Industry Focus: High Tech, Complex Equipment. Originally focused on the Scandinavian market, this has become a pan-European event with a high delegate to vendor ratio and an interactive approach to discussing industry issues.
• Interlog Summer (June - West Coast), Industry Focus: High tech, short lifecycle products. From WBR, the largest and longest running conference focused on service parts planning. Attendance is down from a peak of over 400, and it primarily focused on the service supply chain and will expand to include the interlog winter industries as well.
• CSCMP (October - Philadelphia), Industry Focus: All supply chain. A huge conference focused on all aspects of supply chain, it typically includes just a few sessions on the service supply chain. 
• Technology Services World (October - Las Vegas), Industry Focus: High Tech. This evolved from the old AFSMI conference to become less field-service focused and more focused on general customer support and call center issues, but still attracts a senior level service executive crowd.
• Chief Service Officer Summit (October - Boston), Industry Focus: General. This Aberdeen event is vendor-sponsored, free for top service executives and focuses on service business growth and revenue generation with some sessions on service parts planning.

• Logistics Officers Association (October- Texas) Industry Focus:  Logistics, primarily US Airforce event with DOD participation and access to USAF top brass, senior executives from OEMs and some solution providers.

• DOD Maintenance Symposium (November- Texas) Industry Focus:  Maintenance and some logistics.  A DOD event focused on maintenance practitioners from the US Armed forces and their OEM partners as well as solution providers.  Access to military leaders and OEM senior executives 

• Defense Logistics (December - DC), Industry Focus: Defense sustainment, PBL primarily aerospace, some land vehicles. The largest event focused on US military sustainment with top brass from military and top management from OEMs leading consulting firms.

This list is long but by no means exhaustive, please comment if there are events missing and provide additional information on what you find valuable from the conferences that you have attended.

MCA sponsored the recent Aberdeen Benchmark Study on Service Parts Logistics which you can download by clicking here, and below we have links to several other benchmark reports that we have collected.

The Aberdeen survey incorporated responses from over 200 service parts and logistics organizations from industries including industrial equipment, computer equipment, medical devices, automotive, consumer electronics, and aerospace & defense.  In summary, firms classified as enjoying "best-in-class" performance share some common characteristics including:

• 41% more likely to have a senior executive with oversight of service parts management
• 28% more likely to capture and analyze customer and product service parts data to aid forecasting of service parts demand
• 35% more likely to integrate service parts management with overall logistics functions

The results help to provide guidance in best practices and an understanding of qualitative attributes of high performing organizations. As we pointed out in the Service Matters blog "Is benchmarking your service business useless?" although comparing quantitative characteristics is challenging,   benchmarking specific performance parameters of service organizations can yield beneficial direction.

Over the years MCA has collected a number of the studies related to service parts that might be of interest, and below is a link to some of these along with a brief description of each:

• PwC Commercial Aviation Spares Forecasting Study (2011), Industries:  Commercial Aviation (OEMs, airlines, MRO's) - 100+ participants.  This study is the most focused we have seen on the aerospace industry and while it doesn't have specific performance measurements, it highlights the value of improved forecasting and planning.  A strong takeaway is the value of improving collaboration and data sharing across organizations to drive a better forecasting process.

• Interlog Service Supply Chain Benchmark Study (2010), Industries:  Multiple.  This study was conducted on-site at Interlog 2010 and includes reporting on key service parts performance metrics.  This version does not break down by industry, but Steve Blaz & Associates who ran the study will be producing a more comprehensive report based on a survey performed at Interlog 2011.

• Blumberg Medical Device Aftermarket Benchmark (2009), Industries:  Medical Equipment, Telecom, Information Technology.   Compares key metrics for service logistics performance and cost across industries, with a focus on demonstrating some of the unique needs of medical equpment service with a recommendation for business process outsourcing.

• Deloitte Service Revolution Study (2007), Industries:  A&D, automotive, industrial equipmment, high tech, life sciences - 120 companies.    This multi-year Deloitte study focused on understanding the service businesses contribution to revenue and summarizes important service trends by industry - no specific performance metrics are included.

• Service Edge Benchmarking for Capital Equipment (2004), Industries:  Semiconductor Equipment, Medical Equipment, Aircraft Engines.   Service Edge (now disbanded) did a well organized report on actual performance metrics (margins & revenue, turns, fill rates, etc.) by industry, and made som interesting conclusions to support an approach to analyzing maturity of the service business.

• Barkawi on Using Benchmarks in Service Operations (2004), Industries:  Multiple.  Presented by Karim Barkawi at Interlog Europe 2004, this presentation does not contain specific benchmark data, but provides excellent guidance on things to watch out for in leveraging benchmark data in service.

• Bearing Point / APICS Service Parts Managment (2004), Industries:  Transportation, life sciences, high tech, consumer goods, natural resources, capital equipment - 1,116 responses.  The Bearing Point (acquired primarily by Deloitte after bankruptcy) study did not focus on reporting actual performance metrics, instead on service management practices, organizations, and which metrics are important by industry.

• Aberdeen Service Parts Benchmark* (2003), Industries:  A&D, automotive, high tech, and industrial industries -115 organizations.  This study included benchmarking of key performance metrics such as turns and fill rates for service parts organizations, and reported on them by industry, although did not differentiate on type of service business as the Wharton study did.
  *link to purchase from Aberdeen

• Wharton Service Parts Logistics Study (1999), Industries:  Computer Manufacturers.  This study was performed by MCA founders Morris Cohen & Vipul Agarwal and was rigorous in its definition of inventory valuation and also differentiated between types of supply chain - e.g. those with enterprise same day support versus next day support.

Please let us know if you have questions about these studies or need any additional information.   As we have emphasized, benchmarks are useful in comparisons, but a very specific analysis tailored to the parameters of your service business is necessary to understand the potential performance that you can deliver.

Traditional Supplier collaboration is transaction-based.  As the article "Enabling Collaboration," in Aviation Week describes, supplier collaboration in its basic form is a valuable tool for communicating orders and forecasts to suppliers and receiving a commitment, shipment notification or exception back from the supplier.  However in the aftermarket supply chain space, are traditional collaboration tools sufficient to meet the unique challenges of collaborative planning in this environment which is much more challenging than finished good production planning?

What are the critical attributes of collaboration platform for the aftermarket supply chain? 
Some of the challenging characteristics of the service supply chain to be addressed by a prime service provider and its suppliers include: demanding contracts with performance-based service level commitments, large numbers of parts with intermittent demand driven by unpredictable product failures, and global supply networks that must be highly responsive to restore product uptime. 

In response to the needs of key aftermarket service leaders, MCA has developed a process and next generation platform for customer collaboration that addresses these challenges.  Here are some key elements of a successful aftermarket collaboration framework:

• Shared incentives:  Aftermarket service contracts may specify a demanding customer-focused metric such as part fill rate, response time to repair, or equipment uptime.   If the prime's supplier has incentives for performance that are aligned with the objectives of both the prime service provider and the end customer, it is possible to create a "win-win" outcome where the supply chain moves towards an optimal solution.
• Secure information sharing: Information to enable advanced collaboration goes beyond orders and shipments and must include detailed product information such as failure rate observed in the field, supersession data, , customer forecast and causal data  that can help achieve mutual objectives.  Maintaining security and partitioning data to the appropriate suppliers is critical to a successful relationship.
• Coordinated decision making:  When each supplier optimizes its sub-set of the supply chain in isolation there are material flow and information lags which lead to a "bullwhip effect" across the supply chain.  To help alleviate this, the prime supplier must coordinate optimization across all of the suppliers and allocate metrics, appropriate service levels, and planning priorities through a global view of the supply chain and with the end customer objectives in mind.
• Supplier asset ownership:   The trend of Performance Based Logistics contracts has been to shift ownership away from the end customer and closer to the service provider and, by extension, onto its suppliers.  Determining who should own what level of inventory and providing the appropriate information to facilitate effective management of this is a critical decision that requires cooperation and trust.
• Closed loop performance management:  Appropriate performance metrics that monitor compliance to the contract terms are required across the extended supply chain.  The mechanism not only to monitor exceptions to performance, but to act upon and correct them on a real time basis, must be tightly integrated with the planning process.

Going from "combative" to "super collaboration" requires more than a "transaction-focused" collaborative IT tool.  MCA's planning and collaboration solution includes a consistent set of models to support planning, allocation, and execution decisions.   This platform allows sharing of information that includes the product structure and location hierarchy; and coordinated decision making across a complex network in different planning horizons, ranging from long term strategic and medium term tactical to short term event planning.

To ensure success, the collaborative process and platform must share risks and rewards across all of the parties to create a "win-win," with clearly defined outcomes for performance with a long-term view that generates an atmosphere of trust among all of the parties.

Last week, Supply Chain Brain featured an insightful article titled "Service Parts Management-Delivering Value in a Topsy-Turvy Market," by Will McNeill, an AMR Research (now a division of Gartner) analyst who does great coverage of service lifecycle management topics.  The article was bullish on the potential of the market, stating "We continue to see companies adopting service parts management software successfully, saving millions of dollars in inventory costs."

AMR says that the service parts management market weathered the storm better than most software markets in 2009, but still saw a 6 percent to 8 percent downturn.  MCA actually did see an upturn in revenue in 2009 and an increasing interest in aftermarket service and suspect the market downturn may be due to consolidation of some of the players in the market.  We do agree with the AMR statement that the industry suffered the downturn better than most because of the "quantifiable benefits delivered through the use of service parts management software." 

McNeill highlights two notable trends in the market.  The first is tighter integration of service parts management functionality with order management. As spares forecasting is driven by an understanding of customer demands, it's certainly true that a service parts planning solution must be tightly integrated with order management..  Equally important from our perspective,  is that customer service and order fulfillment strategies are aligned with service parts planning as follows:

• The expectations set in customer contracts for service levels may vary by customer, location and product group and should drive the stocking levels in the planning process
• The logic for fulfillment of customer orders and for positioning parts must share a common view of the customer.  This means that the assignment of the customer forecast in the planning process must use the same information as in the fulfillment process, both for the primary assignment, and for the emergency fulfillment in case of stockout.

This approach to customer-driven planning was described in our recent Service Matters entry "Inventory Optimization and Service Level Planning from SP Plan"

The second trend is the incorporation of service parts management into performance-based logistics.  McNeill notes that the incorporation of service parts logistics into performance-based contracting is extending past its origin of A&D into automotive, high tech, medical devices, and other verticals where contracts that sell the use or uptime of a product are increasingly common.  MCA has been working with Boeing Integrated Defense Systems since 2002 and Lockheed Martin Aeronautics since 2004 and is helping to support some of the largest military PBL programs.  Capabilities developed specifically for MCA's A&D customers are now being used by our customers in a broad range of industries. These capabilities include:

• The ability to optimize inventory to product uptime, fill rate, customer wait time, and budget constrained objectives
• The ability to perform rapid what-if scenario planning to understand the cost to support a new contract, and to test the impact of changing service level, lead time, and product reliability on inventory level and support cost

While many manufacturers have incorporated performance-based contracting (PBC) into their support offering, the results have been kept confidential and the benefits are often anecdotal.   As discussed in another Service Matters post, research done by MCA founder Morris Cohen at Wharton has helped to demonstrate the positive impact of PBC and the shared benefits for support providers and their customers.

Investment in service parts management solutions has shown tremendous return. As thought leaders such as AMR publicize the opportunity for saving and better customer service in articles like this one, we will likely see acceleration in the adoption by corporate executives who are increasingly recognizing the potential of aftermarket service. 

The week of February 7^th, I attended the Reverse Logistics Association (RLA) conference in Las Vegas.  As Mike Blumberg reported in his Reverse Logistics Today blog, the RLA conference is a key industry event for Reverse Logistics and Aftermarket Service Professionals.  With over one thousand attendees the conference provides a tremendous opportunity to share ideas and make contacts, and the enthusiastic participation and interaction are testaments to the value that businesses are placing on aftermarket service.

The chart below from RLA illustrates the key characteristics of reverse logistics and the differences from forward logistics. RLA further defines "reverse logistics" as:

"all activity associated with a product/service after the point of sale, the ultimate goal to optimize or make more efficient aftermarket activity, thus saving money and environmental resources."

The conference included interesting discussions in all of the inter-related areas defined in the chart, and a key focus for me were those around service parts management.  I participate in the Service Parts Management Committee and participated in or attended all of the service parts related panels and presentations.

One of the most interesting discussions was in the panel led by Mike Blumberg on "Service Supply Chain Challenges and Best Practices for High Value and Long Life Cycle Requirements." The panel included participants from Applied Materials, Motorola, and LTX/Credence, and their discussion centered on both the importance and difficulty of planning aftermarket service for long life cycle products. 

As products extend beyond the production lifecycle and the ready internal source of supply is removed, determining adequate stocking levels and end-of-life buys require consideration of multiple factors which include:

• Length of service support
• Introduction of new products that replace the old ones
• Upgrades and retrofits
• Failure and return rates of products in the field
• Coordination of engineering changes
• Cost of small lot cycle production
• Alternate part supplies which vary depending on the proprietary nature of the part

One of the conclusions of the panel was that planning effectively is critical not only in managing costs but also in customer service and requires an effective planning tool as well as coordinated processes that extend beyond service into sales, engineering, and supply management.

I recommend participation in Reverse Logistics events to those who are in aftermarket service.  You can learn more about the organization and upcoming events here and to learn more about the service parts management committee, contact Roy Steele, committee chair at rjsteele@rosharassociates.com.

We are very pleased to have completed MCA's 10^th year since our founding in 1999 by Drs Morris Cohen & Vipul Agrawal.   As service has become a major priority for many companies, especially during the economic downturn, we were fortunate to increase our customer base by 20% and achieve record revenues.  However, what MCA is most proud of achieving in the past 10 years has been the developement of innovative new functionality that helps deliver service value while enabling customer success.  

At our annual user conference held in November, we reflected on this, and as usual, had updates from a number of customers.  What became clear is that our focus has been driven by our customers with their emphasis on service best practices.  This in turn has sparked the continued innovation of product development from MCA.   It is illustrative and of value to highlight some of the best practices that were discussed during the conference:

• Better management of inventory reserves:  Management of inventory reserves is extremely challenging and is a critical financial function.  An MCA customer is using their planning tool to not only reduce the risk of excess & obsolescence but also to more accurately forecast the financial risk.  The process was approved by external auditors and has been recognized at the C-level as a best practice within the company.
• S&OP Integrated with Service Planning:  Especially in the dynamic ups and downs of the recent economy, historical forecasting approaches may not be responsive enough to rapid demand shifts.   Service businesses have developed a collaborative sales and operations planning (S&OP) process to gather market data from the sales team to better understand demand trends and apply that appropriately to product groups and regions.  When a well defined S&OP  process is integrated with robust casual based forecasting, it provides the ability to more quickly react to changes in business conditions
• PBL Management:   MCA customers have over 15 major platform Performance-Based Logistics (PBL) programs under management and a much larger number of component level PBL's.  These companies are now managing the entire lifecycle from initial quoting of PBL's to end-of-life, ensuring consistency and accuracy of plan. 
• "Closed Loop" Service Performance Management:   There is a high demand for visualization of real time information of the service supply chain, along with the ability to respond rapidly to correct and ensure compliance to the plan.  An MCA customer has created a command center to provide global visibility to issues & alerts by region and planner, with a drill down to corrective action.  The command center not only measures but also improves performance in what Gartner calls "Closed Loop Performance Management." 

In upcoming blogs, we will continue to report on best practices in service both within and outside the MCA customer base - we look forward to hearing from our readers on what they see as best practices also.

In our posting on "Blogs About Service" one of the blogs we mention is Shaun Snapp's SPPlan, covering Service Parts Planning and Service Management software. Shaun is an independent consultant formerly of Deloitte who has done a number of implementations of service parts planning software. 

In his post titled "Inventory Optimization or Service Level Planning Software," notes that the term "inventory optimization" has been "generalized" or diluted to mean "basically any inventory method which improves inventory."   We completely agree with Shaun's comment that "whether the functionality is actually capable of performing optimization is somewhat of an afterthought to a number of supply chain vendors." It has been interesting to see many vendors use "inventory optimization" to draw readers to their site, only to find them using traditional DRP and inventory management approaches.

The post introduces the alternate and what might be a more approachable term of "service level planning." As shown in the diagram at the left from SPPlan, "service level planning" means that the service level is driven by the contractual entitlements which have been committed to the customer.  The planning organization should not over or under invest in the ability to deliver in a way that does not match the customer contract.  The service level is an objective rather than a result.

Some other attributes of service level planning that are important include:

• The ability to set service level objectives at any location or level in the supply network and for different segments of product or part
• An interactive interface that allows what-if scenario analysis to quantify in $'s and visualize the inventory impact of different service level scenarios
• Multi-echelon Optimization approach that determines the optimal mix of inventory within a location and across locations, and accurately models the mullt-echelon interactions and determine appropriate inventory levels

In addition to requiring an appropriate planning tool, the article notes that service level planning must be driven by effective communication between sales and planning in an Sales & Operations Planning (S&OP) process.   We have seen an increasing use of a Service S&OP process from our customers, especially to respond more quickly in today's dynamic economic downturns and upturns.   

This is a critical topic for any company who hopes to improve their inventory management and customer service levels, and you can expect to see some more posts on how MCA uses service level planning and how it plays a role in a successful S&OP process to promote better service.

Bob Bowman of Supply Chain Brain recently did a great write-up of his interview with MCA's CEO Robert Salvucci to discuss our executive survey on how service businesses are faring in the recession.  (See Morris Cohen's blog entry, "Will Aftermarket Service Save the Manufacturing Industry?")

Bob reported on the importance of service revenue for companies who are seeing a decline in new equipment sales.  As was noted, extremely cyclical industries such as semiconductor equipment have seen the most impact, with service accounting for over 50% of sales for some companies, and other industries, such as medical equipment, have been affected but not as severely.

In a related article in GSA (Global Semiconductor Alliance) Forum, titled "Semiconductor Equipment Service Supply Chain - Anticipating the Upturn," John Nunes of MCA reports on data that shows that the semiconductor industry may be seeing an upturn, and provides some suggestions on how service businesses should be preparing for it.

Based on interviews with semiconductor equipment service executives and leading companies in other industries, John defines four focus areas that will help equipment manufacturers position their service supply chain for short-term flexibility and build capabilities for long-term aftermarket revenue growth as the semiconductor business moves into an upturn.

• Use leading indicators and causal-based forecasting tools to react to changes in business.
• Assess the service supply chain to understand risks and develop contingency plans.
• Develop new service products that are suited to the changing business cycle.
• Develop performance-based contracts as a way to redefine your relationship with both customers and suppliers.

While focused on the semiconductor equipment industry, the advice is applicable to any service business that has to be able to respond quickly to changes in the market.