Wednesday, December 16, 2009

Parts Proliferation and Inventory – Part 2

Or, Give Me a Lever Long Enough and a Fulcrum On Which to Place It, and I Shall Move the World – by Paul Gurizzian


Last week I made the case that if Archimedes (an ancient Greek mathematician, physicist, engineer, inventor, and astronomer) were a modern day motor vehicle service-parts inventory manager; his lever would be eliminating parts proliferation. This means working with product engineering to reuse existing parts rather than releasing new or superseded parts into the catalog when new and modified vehicles are introduced. I then went on to show, with lots of facts and data, that by reducing the number of parts released for new vehicles, from industry laggard to best-in-class, an OEM can:
  • Reduce parts inventory by up to 30%
  • Reduce operating costs by $50 million over the duration of each vehicle’s life
  • Improve and sustain system fill at over 98%
Well, this week we are on the same topic, but this time the focus is on how you can achieve these results. To provide this insight, I present best practices from our European Aftersales Conference (EAC) and North American Service Parts Conference (NASPC) from the past several years. These best practices are broadly put into areas of focus: 1) Stopping the creation of new parts, and 2) Eliminating unneeded existing parts.

Focus #1: Stop the Creation of New Parts

“An ounce of prevention is worth a pound of cure” is a well know idiom. Preventing parts from being born is much more powerful than subsequently eliminating unneeded parts (the second focus). Below are some of the best practices implemented by OEMs over the past few years that may well be relevant for you.

Release Engineering Organization Integrated With Service Parts – Organizational silos between vehicle product engineering and service parts are a key driver of proliferation. This is particularly a problem for service parts business units that provide supply chain support to multiple vehicle business units, when each has their own product engineering function. To address this issue at one OEM, the engineering release staff that was formerly fragmented in each business unit was realigned into the parts division. This group now has responsibility for parts reuse and creating data, tools, and standards to mitigate unnecessary parts across the entire company.

Product Development Process That Includes Parts Reuse Gates – OEMs have documented and prescriptive product development processes with specific gates for cost, quality, and other product attributes. However, at many of these companies, service parts is not a stakeholder in the product development process. As you would expect, there has not been an effective engineering incentive to reuse parts. To change this, parts reuse has been added into the product delivery process at a leading OEM and is reviewed at each gate in the process. The parts organization now has a voice in the product development process.

Metrics and Incentives to Encourage Reuse at the Point Parts Are Created – You know the old business adage, “what you do not measure, you cannot manage”. For one OEM, the parts division worked with executive management to incorporate a part reuse metric into each of their vehicle business units’ key measurements. Parts reuse is now a key metric reviewed by the senior management of each vehicle business unit and the performance on this measure impacts compensation for executives outside of the aftersales group.

Systems and Data to Make Finding Similar Parts Easy – As another preventive measure, one OEM enhanced the functionality of its product development system to allow engineers to easily search for existing and similar parts. The system and the data structure allows for sophisticated searches based on combinations of part function, name, dimensions, weights, materials and other key attributes. The point being is that it’s as easy, or easier, to reuse a part than it is to create a new part.

Training to Create Awareness – Most people want to do the right thing. They just need to know what the right thing is. At one OEM, ongoing training is provided to all stakeholders in vehicle development and service parts who create parts. The purpose of the training is to teach the business case of why everyone should be concerned about service parts and reuse. This training is emphasized by executive management and attendance is tracked.

Focus #2: Eliminate Unneeded Existing Parts

Who doesn’t love prevention? But the simple reality is that many of you have a current parts proliferation problem and the time and support to create change outside of your organization is daunting. Given this, what have OEMs done to eliminate existing parts?

The Special Case of Mergers & Acquisitions – Acquisitions bring special challenges to parts supply chain executives. In a matter of months a new set of several hundred thousand parts can be added to the catalog. In many cases, these parts are common to existing parts at the parent company, but the time and cost to identify these are a challenge. Aftersales is involved in the acquisition process at one OEM. In fact, they have gone so far as to have specific contract language in place authorizing the review and substitution of parts, plus access to drawings and supplier data during the due diligence and subsequent integration stages.

Common Systems to Support Parts Standardization – Let’s discuss mergers some more. Without common systems at merged and acquired companies, parts are eliminated via the brute force method: one engineer and one part at a time. A key enabler for parts reuse at companies that are formed from acquisitions is the development of common service parts systems that include the purchasing, materials, and warehouse management functions. One OEM reports that parts standardization was one of the “low hanging fruit” opportunities afforded by common systems. This made it possible to identify multiple part numbers en masse with common supplier reference numbers.

OEM Original Parts Brand to Cover Multiple Vehicle Brands – One of the causes of high part count for companies is unique packaging and part numbers for each part-brand combination. To minimize part count, while at the same time maintaining their commitment to a multi-brand business model, one OEM created an “OEM Original Parts” brand. This common package brand covers about 90% of the part count and 65% of the revenue. The remaining 10% of parts that are of the highest visibility with the end user, representing 35% of revenue, still maintain the individual brand identity. So, in most cases several parts are now covered by the OEM Original Parts brand and compressed to one part.

Releasing Serviceable Assemblies Rather Than Components – A way to reduce part count complexity is by bundling component parts into subassemblies and kits. One OEM has pursued this philosophy aggressively. Take a radiator fan assembly for example. Rather than releasing 16 unique component part numbers, this OEM releases a single part; the radiator fan assembly. Combining parts to take out proliferation complexity is easy. Striking the right balance with the customer’s cost of repair needs is the challenge. This OEM has developed a set of business rules to guide rational decision making.

Bottom Line

Last week I made the case, with the help of Archimedes, that reducing parts proliferation can have a profound positive impact on inventory, operating costs and service. This week I discussed a series of best practices from a diverse set of OEMs, highlighting leading practices on how results were achieved.

Some practices were focused on stopping the creation of new parts and these include:
  • Release engineering organization integrated with service parts
  • Product development process that includes parts reuse gates
  • Metrics and incentives to encourage reuse at the point parts are created
  • Systems and data to make finding similar parts easy
  • Training to create awareness
Other practices were focused on eliminating unneeded existing parts:
  • The special case of mergers & acquisitions
  • Common systems to support parts standardization
  • OEM original parts brand to cover multiple vehicle brands
  • Releasing serviceable assemblies rather than components

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