Service Matters from MCA Solutions

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.