Wednesday, March 3, 2010

Slow-Moving Parts – They Define Our Industry

Slow moving parts are a vital part of the motor-vehicle industry. This fact sets the motor-vehicle industry apart from other high-capital-cost consumer-goods industries. Take, for example, a company that sells $1,000 dishwashers. Dishwashers fit into a standard 24” hole under your kitchen counters and last about 5-7 years. They run perfectly and, after about 5-7 years, they break. A technician comes to your house for $85 an hour and tells you that you need a new part that costs $300 and that it will take a week to come in. The guy says he’ll be back to fix the machine while your eyeballs lift up to your brain as you calculate “many-x hours times $85 an hour plus many-Y days I’ve got to wash the dishes by hand.” Like Spock, you make the logical conclusion to junk it and get a new one.

It’s not the same with motor vehicle companies. Car owners tend not to junk their cars. As such, slow moving genuine parts have a distinct market, largely because of the complexity, increasing quality, longevity of the product, the cost of the whole goods, the nature of the competition, and the temperament of the customer demographics. Unlike with dishwashers, the motor vehicle customer expects you to have the part to fix their vehicle, regardless of the age of the vehicle.

What does this all mean? It means that we in the motor vehicle industry must excel at managing slow moving inventory. It’s a requirement that sets this industry apart. So let’s take a look at slow moving inventory:

Basically, there are three circumstances that cause slow moving parts:
  1. Part is slow moving at the beginning of the whole-goods production cycle because of supply-side constraints; most of the volume is going to the assembly line.
  2. Part is slow-er moving during most of the whole-goods production run because of lengthy mean-time-between-failure characteristics.
  3. Part is slow moving at end-of-life because whole-goods populations are dwindling and being replaced and/or idled by newer product. Production suppliers are on to other parts and many OEMs decide to live off their last buy.
Let’s simplify this mess. Managing Type A slow moving new model parts is like choreographing a story ballet – there’s lots of complexity and it takes a long time. Since service failures here can really tick off new customers, OEMs have been improving over time. OEMs need to directly manage this complexity so the issue is not in-stock vs. out; rather, it’s where and how much. The NASPC has focused here several times over the past 19 years.

The supply chain challenges are with Type B&C slow moving parts. When we asked OEMs how they determined “slow-moving” we got back a variety pack of definitions and break-even points. Several OEMs use “pieces” sold to define lower-limit boundaries for slow-moving parts. The cut-off ranges from 1 piece sold per year to 100 pieces sold per year. Both ends of this spectrum were from Heavy Equipment OEMs. High volume auto OEMs were on the low side. Go figure.

Generally, what we found was:
  • Limited consistency in defining a slow moving part
  • Wide variety of toolsets for forecasting slow moving parts sales – use of re-order points, Croston’s algorithm, less reactive
  • Tendency to centralize slow moving stockpiles
  • Typically horrific labor, space, and transportation efficiencies
OK, at the bottom line OEMs are of two minds about the older slow-moving stuff. The brand folks love knowing that the stuff exists in some big box somewhere because broad genuine parts coverage is a real selling point. The supply chain folks hate it because it’s just too different from all the other parts that move in and out of the warehouses with a respectable velocity. Slow-moving parts represent a “purgatory” of sorts for the parts themselves, the facilities that hold them, and the people who manage them. In a single word, excitement-not.

I grew up on a farm. One of the secrets to success in farming is liking what you are doing. For example, if you don’t like cows, you might not be very good at dairy farming. If you hate onions, you’d be a pretty bad muck farmer. There’s a certain consistency to this. Maybe if you don’t like slow moving parts, you aren’t too good at managing a bunch of acres full of them? Maybe there’s a better way?
  • Why not collaborate on slow moving parts management?
  • Why not jointly manage these with a single brain trust?
  • Why not have common slow-moving Ts & Cs?
  • Why not have a single organization manage the forecasting, materials management, and maybe even the non-current-model parts supplier purchasing?
  • Why not design unique slow-moving parts operations based on best-in-class versus worst-in-house?
  • Why not go out and find who is best-in-class in slow-moving and design a collaborative operation based on what you learn?
Finally, let’s look into our crystal ball. 3D manufacturing is coming, with the promise of lot sizes of 1 and inventories of zero. Granted, this may be 10 years away, but why wait? This is the perfect opportunity for collaboration – prototype tooling, common design, and cooperative manufacturing centers are all targets for shared resources. This is a chance for our industry to set the benchmark, rather than chase it.

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