SAP has placed significant new development behind SPP as of the last few versions. What must be frustrating is how this is not translating into many new implementations. We think part of the reason is the inherent lack of interest in service management on the part of corporate America (sorry corporate America, but lets be frank, there are close to zero companies where the production side of the house does not run the service side of the house’s show politically). This combines with the economic crisis that is pushing off new product implementations. Finally, companies still don’t seem to get that service parts planning is different from finished goods planning, and the same planning tools should not be used for both. An analysis of their service parts inventory position is the type of thing few companies would want made public. It would be much like a trip to the periodontist for a person with gum problems. This is because company after company would show massive amounts of inventory in the wrong place, stock outs, dead inventory taking up space, etc..
Where Are the Great American Service Parts Companies?

The sad fact is most the really excellent service parts organizations (Honda, Lexus, Rolls, nope – Dell no longer rates as an excellent parts management or service management organization) are foreign not domestic companies. Of course it’s very difficult to be focused on service when the executive ranks are dominated by marketing, finance and even lawyers. That is anyone except operational types have access to the executive suite. One company that has not gotten the message that service parts are not to be focused on is SAP. SAP has placed tremendous emphasis on developing its SPP modules over the past few years. With 7.0 a number of new capabilities have been introduced and the product may be read for broad scale implementations.

New Things in SCM 7.0

So, what are a few of the things we see focused on in 7.0?

1. The ability to perform service level planning at the product location (but not the customer)
2. Many monitoring improvements
3. Worklists or sequence of actions for internal planners and for customer or partner planners alike
4. A large focus on integrating customers into the planning process
5. Mass forecast modification
6. Enhancement of the already excellent DRP Matrix (think planning book replacement)
7. Kitting planning

Conclusion

There is of course much more, but these are some of the things that really stand out. We think SPP is the best product in the SCM suite; however, it is one of the lightest installed. It by no means replaces a true optimizer like MCA (which does other things that are discussed in this blog), but it brings a new planning concept to the planners, that makes the rest of the older parts of SCM look pretty quaint. When will corporate America discover service parts planning (it’s costing you money folks), and when will SPP begin to take off?

For more detail on the major functionality in SPP see this link

http://sapplanning.org/2009/05/02/major-functionality-in-spp-2/

New Information

In a previous post we wrote about the inefficiency of automotive service parts networks.

http://spplan.wordpress.com/2009/05/15/auto-service-part-networks-are-a-mess/

The line of reasoning of the article was that manufacturers were unnecessarily outsourcing the management of service parts too low in the supply chain – at the dealer level and the auto service parts could be greatly improved in their management through a national and regional system of service parts management. Furthermore, that dealers were incapable of creating effective service parts websites and that this function should be centralized as well.

Structure of Auto Industry

What we learned from the book Who Really Made Your Car, by Thomas H Klier and James Rubenstein, is the following:

• 70% of the parts of automobiles are made by suppliers
• Manufacturers are actually now primarily assemblers
• Much of the intellectual property and complex component manufacturing is owned and provided by the supplier / component manufacturers

Suppliers Actually “Make” the Car

Suppliers are producing most of the car and providing many different manufacturers with similar items. This is explained in the graphic below which provides a great insight into the many different places that the car’s major components are coming from. The sourcing pattern seems identical to, although far more complex than that of laptop manufacturers. (although laptop manufacturing is even more outsourced, with contract manufacturers producing HP and a number of other major brands out of the same factory and sometimes the same production line.

From Automotive Weekly

We took the example of one vendor called Dura. A visit to their website demonstrates that they make numerous automotive components, which they sell to many different manufacturers.

Dura’s Part Distribution Model

Dura does not sell parts directly to retail customers, but they do to dealers and independent shops. (however, dealers do have a stranglehold on the industry, and many parts are carried only by dealers) This is one of a number of areas where business are opposed to “free markets,” and instead select tying agreements and monopolistic competition.

______________________________________

Why Doesn’t eBay Own the Auto Aftermarket?

eBay is the largest service parts database in the world. However, for some reason, eBay is not prominent in automotive service parts. The fact that automotive service parts are expensive, yet only a modest service part market has developed on eBay is an indication that there are significant restrictions to who can get access to parts, and that there are in all likely strong restrictions on part suppliers, as part of their agreements with manufacturers as to who they may sell parts to in the aftermarket. No such restriction exists for computer components, where anything can be found and purchased on eBay.

Even the most esoteric service parts for computers are available at low cost on eBay. For more on eBay and their success in service parts see the link below.

http://spplan.wordpress.com/2007/07/22/parts-databases-and-ebay/

______________________________________

What This Means For Service Parts Network Design

What this means is that the dealer system for distribution is even less efficient then we originally thought. People are going to dealers to get parts they think are made by manufacturers (Honda, Toyota, etc.), that are actually made by suppliers. All of these middlemen could be eliminated from the system and actually should be. These suppliers are the creators of these components and they should not be controlled by manufacturers, much less have to go through dealers – so dealers or independent repair shops can add an extra markup with no value add – to service parts.

References

Who Really Made Your Car,Thomas H Klier and James Rubenstein, W. E. Upj0hn Institute, 2008

The degree to which dealers are “taking it easy” is evident in the latest Consumer Reports survey where despite the overwhelming advantages of being part of a dealer network, dealers on average provide a customer experience that is 7% lower than that of independent maintenance shops. However it gets a lot worse when actual repairs are needed. For those that required repairs, only 57% of customers were satisfied with dealers vs. 75% who were satisfied with independents.

The consumer reports survey is a stark condemnation of automotive dealers.

Why Do Dealers Perform So Badly?

So the natural question is why are dealers performing so badly. The traditional concept is that dealers provide better, although more expensive service, and that they provide better service because of the following:

• They are trained by the manufacturer
• They have information available from the manufacturer
• They are more expensive
• They know the cars better because they work on the same make over and over again.

Clearly the outcome (service performance) does not match the bullet points above, and in fact, a number of the bullet points above are dated. For instance, Honda stopped sending its mechanics to its own internal training program several years ago, which by most accounts was excellent, and has instead outsourced its mechanic training to a trade school in Arizona, which is nowhere near as good, and which does not specialize in Honda. Knowing little, mechanics are now increasingly reliant upon Honda’s remote service technicians that are available by phone out of Honda’s Southern California main office. Honda at one time had a sterling reputation in service maintenance, and it now no longer does. If you bring your Honda into a dealer now, you can expect a technician trained by a generic trade school which was a low cost bidder to Honda.

The Monopoly Explanation

Most likely, automotive dealers are not better because they do not need to be to survive. This is the best explanation, when everything else is tilted in the dealer’s favor, and they still cannot perform in a manner competitive with companies with far fewer advantages. Of course, this does not even include the cost of dealers charge, which is widely known to be exorbitant and far more than independent stops.

Service Parts Website Incompetence

We first found how bad dealers performance was when we tried to find service parts on their website for online purchase.

See this link for the full article:

http://spplan.wordpress.com/2009/05/15/auto-service-part-networks-are-a-mess/

As we recount in the article, we had a devil of a time finding a very simple part (the right interior door handle cover to a 97 Honda Accord), and after visiting many sites for hours, we can state with confidence that dealers have no idea how to put together a service parts transaction website. Furthermore, we question the logic of having manufacturer’s outsource their parts management to dealers, when manufacturers are much more capable of doing themselves or outsourcing it to companies that actually know how to manage large service parts inventories, (Amazon.com is extremely capable of creating a service parts shopping site.) Is this a strategy designed around enhancing the customer service, or a compromise thrown out to the dealers to enhance dealer profits?

Additionally, since cars should be built to order items, and ordered online, our out of small showrooms that just stock test models, combined with the fact that dealers can neither maintain websites nor provide service superior to independent shops, the dealers value-add to the car buying and maintenance cycle is not apparent.

Dealerships typically have very nice buildings. However, aside from architectural flair, dealers are not a value added part of the purchasing or service chain. Wise automobile manufacturers of the future will offer their cars direct from their website (or from a small retail outlet with test models) – saving tremendous money in reduced inventory (not having cars sitting around on lots), and allow independent shops to flourish though both providing a top notch service parts website (for both dealers and customers), and through offering extensive service documentation with the creation of a service parts portal which publishes and builds on maintenance information by allowing mechanics in the field to contribute to its content. (see our example of just such a portal below)

http://www.servicepartsportal.com/

The New Dealer-less Model

Any car company that were to operate under the dealer-less model, would be extremely cost competitive with the current manufacturers running the cost heavy and inefficient dealer model that have to base many of their decisions not on what is right for the customer but what makes dealer happy. In fact, they could not be effectively competed against on the basis of either cost or service parts management or overall service level.

Conclusion

Dealers appear to be cruising on their monopoly position and the fact that customers come to them without considering all of the alternatives. The evidence for this is their very poor showing in terms of customer satisfaction for repairs, and in their inability to create or maintain service parts websites. Given the technological development of the web, dealerships are no longer necessary and should be done away with.

References

This is actually a very good blog on autmotive dealers. However, this article is symptomatic of the problem in terms of thinking about dealers.

http://wardsdealer.com/ar/auto_whoopee_bankrupt/

In it the author, who seems to know a  good deal about dealers bemoans the closing of dealerships by the large American automotive manufacturers. However, the analysis seems misplaced. While the author is focusing on the number of lost jobs, what he is not focusing on is how little value the existing dealer structure adds to the process and to the consumer. Jobs that do not add value in an economy do not deserve to be saved (of course this applies to those with degrees from Harvard and Wharton who work on Wall Street over people that work for dealers of course). Still,  why is there no mention in these articles of the atrocious behavior on the part of dealers, and how dealers perform far worse than independent repair facilities, or how their inventory heavy push model of distribution is completely archaic? For us the question is not why the current dealers being closed are being closed but rather other dealers are even in business.

The first time we heard of Target Stocking Level was on an MCA project. This is the actual output of the Strategy module of MCA SPO. We have listed a short definition from MCA’s SPO Glossary.

“TSL is the quantity available to meet demand within the lead time and thus becomes the basis for computing the customer service levels. The TSL for each Location part is determined on the impact of what the TSL will have on the service level.” – MCA Glossary

TSL in Common Usage

A search through the web shows that this term is not very common. However, it is not hard to find it listed in books through Google Book Search.

We found a formula for it in the book Best Practices in Inventory Management by Tony Wild which we have listed below.

TSL in SAP

We had never run into the concept of TSLs in SAP until we did a search for it in SAP Help. We found it in the following area:

• SAP ERP SOP
• SAP ERP – The concept exists as a “range” within purchasing
• SAP SCM Forecasting and Replenishment
• SAP SCM SNP

TSL in Dead Modules or Functionality

Interestingly, of the four areas we found it, two of the areas – SOP and SAP Forecasting and Replenishment are “dead” areas within SAP, in that they are only extremely rarely implemented in companies (see our next post for more details). The range concept of TSL in purchasing is infrequently implemented and instead the vast majority of clients we would guess use the requirements plus lot size to drive replenishment.

TSL in SNC

The one area where TSL is both used and used in a module that is actually alive is in Supply Network Collaboration or SNC. Interestingly, it is not called a TSL but instead is called minimum and maximum stock levels. We quote from the book Supplier Collaboration with SAP SNC..

“The projected stock and actual stock on hand are compared with the minimum and maximum stock levels agreed upon by customer and supplier for a location product. If the threshold values are not reached, or are exceeded, alerts are generated.” – Mohamed Hamedy and Antia Leitz

SNC is not a planning engine like SAP SNP or MCA SPO. Instead it is a collaborative software add-on to SAP SCM that communicates, in this case, inventory information between SAP SNC (in most cases) and suppliers or customers. Most likely SNP (Supply Network Planning) is producing the TSL range, while SNC is gathering actual inventory levels, and then comparing the two to send our requests for bringing in more inventory on specific dates.

Conclusion

Target stocking level is not yet a common term in industry, but does have a number books which both cover it and work with the concept. The concept is a powerful one in that is manifests all of the complex inputs of stock determination into a single number, or a number range. This number(s) can be then compared to actual stock values, in order to develop stock transfers, unserviceable item repairs (for service parts) or can be communicated to suppliers or customers using a collaboration tool like SAP SNC.

In our previous post we discussed the problems with how automotive service parts websites are dominated by dealers. We also discussed how this is inefficient and why these web sites should be centralized and either managed by the manufacturer, or simply outsourced to a company that has this as a focus.

http://spplan.wordpress.com/2009/05/14/auto-service-parts-websites-a-problem/

However, after further research it turns out automotive service networks have even bigger problems than this. When consultants for service parts planning software company MCA goes into an account and uses its SPO software to perform inventory re-balancing, they often find that parts are kept too low in the supply network. This is often because fill rates are only being locally managed and and local managers are attempting to move parts to where they will eventually be consumed. The problem with this is that transferring parts from a forward location to another forward location is less efficient than moving parts from the parts depot to the forward location. Secondly, there is no reason to move a part to a forward location unless there is a high probability of consumption, or unless transportation lead times are particularly long. This analysis of where parts in the field should be located goes by a number of names including multi-echelon inventory optimization, redistribution and inventory re-balancing.

See the diagram below.

See these posts for more on part redistribution.

http://spplan.wordpress.com/2008/04/23/drp-vs-multiechelon-planning/

http://sapplanning.wordpress.com/2009/04/23/inventory-balancing-in-spp/

Generally, the independent dealer model has worked against, and appears to be working against rational inventory pooling. AMR Research (who we are not big fans of because they are so frequently wrong on their forecasts) does have a good point when they bring up this point in their paper Service Parts Planning and Optimization.

During the course of this research, we found SPP applications tended to be very tactical in nature, solving specifc inventory, fll rate, or service-level goals. Oftentimes service is still being viewed as a cost center, and SPP applications are not necessarily viewed as the keys to a greater world of service nirvana.

One explanation is that the buyers of SPP software tend to be planning managers or director-level planners who have no jurisdiction over service and repair or other areas of the SLM model. Other reasons include outsourcing, where OEMs have outsourced the service process but retain the planning aspects, or the fact that the company was never in charge of service in the frst place—think of an auto OEM and the dealers that actually provide the service.

During the course of this research, we found SPP applications tended to be very tactical in nature, solving specifc inventory, fll rate, or service-level goals. Oftentimes service is still being viewed as a cost center, and SPP applications are not necessarily viewed as the keys to a greater world of service nirvana. One explanation is that the buyers of SPP software tend to be planning managers or director-level planners who have no jurisdiction over service and repair or other areas of the SLM model. Other reasons include outsourcing, where OEMs have outsourced the service process but retain the planning aspects, or the fact that the company was never in charge of service in the frst place—think of an auto OEM and the dealers that actu-ally provide the service. – AMR Research

Better Service Parts Planning Begins with Cooperative Planning

Rather than having every dealer attempt to manage its inventory, a much more rational and effective setup is for the dealers to pool their parts at a local depot and for the depot to manage the parts for them. Daily local “milk runs” would ensure part flow to the dealers, and would reduce the poor inventory turn of parts at the dealer location. A series of these depots can then be large enough to be electronically connected and to have their inventory represented in a web order fulfillment system that can better match supply and demand than can a series of disconnected dealers all trying to manage a smaller amount of inventory locally. Honda (for instance) could manage this themselves, or instead could outsource the management to a company like Amazon.com, that really knows how to produce transactional web sites and knows how to match supply and demand. This solution would be vastly superior to the current one where small dealers attempt to manage their own service parts websites (and where it took us 2 hours searching various dealer sites to find that we would have to call in to order a part)

What is happening in the dealerships is a disinterest in making changes or becoming more flexible in order to adopt new technologies. Companies can make a lot of money in the short term by simply living off of monopoly power. GM was the poster child for inept management, inward thinking, abusive supplier relations and unresponsiveness to customers. A good catchphrase for management consultants could be “Don’t be Like GM.” While Honda quality is much much better than GM’s ever was, Honda’s dealer network with respect to their service parts management is not all that much different. In fact most manufacturers seem to employ the same inefficient system. This demonstrates the restrictive influence of the dealership system that no matter how good the car company, the dealer system remains anachronistic.

Conclusion

The current dealer centric automotive service distribution system is an anachronism and is probably one of the reasons that dealerships have such high costs. Instead of attempting to reduce these costs, dealers are simply passing on their inefficiency to the consumer. However, dealers should be wary. While they have used political finagling to prevent web based car purchases, this will eventually come to pass. The only thing that the dealers are really necessary for is for providing local service. They should do what they can to make their service operations, which includes service parts planning and management as efficient as it can be. A big part of the answer to this is to begin cooperatively or centrally planning and pooling inventory.

Parts Hub

The parts hub concept has also been proposed by John Snow, at Enigma, which is a software company focused on parts procurement decision support. The post on this topic can be found here.

http://www.uptimeblog.com/aftermarket/how-fewer-dealers-can-sell-more-parts/2009/05/

Reference

Service Parts Planning and Optimization, ARM Research 2007

Post-Reference

After this post was published, we found that auto dealers have a considerably poorer track record on customer service for repairs than independent shops. This promoted us to write this article that questions the validity of dealerships generally and proposes a dealer-less model.

http://spplan.wordpress.com/2009/05/18/automotive-dealers-mostly-useles/

John Snow has some interesting things to say about this concept at the link below.

http://www.uptimeblog.com/electronic-parts-catalogs/simplifying-parts-sales-make-it-easy-for-the-customer/2009/05/

http://supplychainconcepts.wordpress.com/2009/11/15/apics-is-selling-an-illusion/

It is always amazing to come upon a technology that is so amazingly underutilized. This would be the case for service parts online databases.

The Story

We needed a door handle assembly part for a 1997 Honda Accord. First we started with eBay, which really had a pretty small inventory. We could only find the door handle assembly for a four door, not for a two door. This was a dealer only item. The trouble began when we started looking through dealer websites for the item. The experience began to get us thinking that the dealer value-add is seriously in question. Dealers are not necessary to buy cars (they could be bought online, but tested at a manufacturer sponsored center in a mall that had just a few models). The care could then be either transshipped from a different location, or simply build to order. However, instead of this we have this medieval auto dealer system that holds massive amounts of inventory so buyers will make impulse purchases “that day.”

Service Databases

When looking through the websites of dealers, it was absolutely maddening to try to navigate them. Most the sites are caught in a time warp and exhibit the worst of web navigation and design. Some of them ask for contact information so they can treat the desire to purchase parts as a “lead.”

San Francisco Honda, like 99% of the dealerships, seem to seriously misunderstand what the web can do, and how it can help automate transactions. Now we will be calling to the dealer, just like we would have back in 1940.

Why Has Online Parts Supply Demand Matching Been Decentralized to Dealers?

Why does Honda allow dealers, who lack the interest or size to develop competent transactional websites to sell auto-parts on-line? Why are Honda, and other major manufacturers, not managing this with a single website and a national network. It appears as if the dealer network (a way for manufacturers to sell franchises and not have to worry about retail, is interfering with the new realities and efficiencies of the web. Automobiles may have to be serviced locally, but there is no reason, with our fast shipping network, for parts to be managed at dealer locations. And especially when a customer wants to order a part, there is absolutely no reason they should have to a dealer to do so.

Its does not have to be this way. The fulfillment could be performed by dealers, but Honda could manage the front-end, much like Amazon.com.

Learning from Amazon.com

The lesson from Amazon is that the web based supply demand matching no longer needs to be performed by the same organization that performs fulfillment. See this article on Amazon.com and how they serve as a supply demand matcher.

http://sapplanning.wordpress.com/2009/05/07/gatp-atp-trees-and-amazon-com/

IT and Monitoring Competence and Fourth Party Logistics Providers

The concept of multi-partner coordination enabled by monitoring tools is a concept in logistics called fourth party logistics and is covered in this post.

http://fourthpartylogistics.wordpress.com/2009/05/23/fourth-party-logistics-providers/

It’s a sad fact that there is simply not a lot of thinking going on in the management of service parts.

For some time SAP has been promoting its product lifecycle management (PLM) solution. We should say at the outset that we don’t find the term PLM very useful. Yes there are lifecycle implications to the software, however this category of software could more accurately be described as bill of material management software. However, there is no fighting city hall, so PLM it will continue to be known as.

Analyzing SAP PLM

When we did an analysis of SAP PLM for a client, we learned that PLM was not an actual product, but was in fact a “solution.” What his means is that various pre-existing modules have been Jerry-rigged around the material master in order to meet PLM requirements. This is much like SAP’s non-existent digital asset management solution – where digital media are entered as materials into SAP. Actually digital asset management and PLM have a lot in common because both solutions require a lot of functionality in terms of multi-media files. For PLM these files take the form of images and schematics, while in digital asset management the files take the form of images, music and video. However, the material master functionality in SAP is not designed to manage these files, or make them easy to find or reference. There is no big surprise why. The material management functionality was first and foremost designed to hold textural data on products for the purposes of accounting and supply chain management. Changing this functionality around to meet the needs of asset and document management is no easy task.

Lifecycle Planning in SCM

SAP lifecycle planning exists in the supply chain planning suite offered by SAP. For instance, in Demand Planner, which is the forecasting module of SAP SCM, lifecycle planning exists. DP allows you to introduce an existing product at a different location – using profiles to base historical data from current locations. Phase in profiles allows the reduction of the forecast for the period of introduction. We describe this more fully here:

http://sapplanning.wordpress.com/2009/04/21/plm-and-lifecycle-planning-in-scm-dp/

However, this capability in DP, and the product interchangeability functionality that is available in other modules of the SCM suite (notably SNP, CTM, PPDS and GATP) is quite a bit different from the integrated PLM solution that SAP pitches to clients. Again, this gets back to the problem we have with the term “PLM.” PLM functionality can exist in different areas of supply chain applications, however, it does not mean that the solution is offering advanced bill of material management functionality which includes:

• Multimedia file management
• Document management
• Engineering change management
• Collaboration management (between marketing, engineering and production)

SAP Has Had Its Shot in PLM

SAP PLM has not taken off, and it does not appear to be an area they have or intend to put real development effort behind. However, they still make their white papers available on the topic, but the white papers and literature ring a bit hollow at this late date. SAP entry into the PLM market’s main effect has been to discourage companies from implementing real PLM solutions and hurting PLM’s image more generally.

Here you can see one of the main graphics for SAP PLM (listed under Life-Cycle Data Management at the top). However the flaw in this diagram is apparent. PLM is based upon document management, but SAP does not have any serious document management capability. The best evidence of this is the state of SAP Solution Manager that is causing project heartburn on SAP projects globally as we write this. We have first hand experience with Solution Manager and consider only Microsoft SharePoint to be a worse document management solution. (see this link for details)

http://infoknowledge.wordpress.com/2008/12/17/why-sharepoint-for-rss/

This is a market SAP would be wise to cede to other vendors and strengthen their core offerings which more development attention. Our recommendations for how to do this are listed here.

http://sapplanning.wordpress.com/2009/04/10/sap-should-stabalize-functionality-focus-on-quality/

PLM and Service Parts

PLM is of course extremely important for service parts. Many of the service parts planning applications have built in control fields in the form of things like shelf life; and of course supersession is a manifestation of product life cycle needs (out with the old – in with the new). While doing some research on PLM for service parts we came upon a company called Arena Solutions and we have tested their software extensively. We think its time many other companies gave it a try. It is extremely easy to use, offers hosted solutions and just has tons of PLM functionality.

SAP’s Approach

As for SAP PLM, its time to give up on it if you have significant PLM needs. It is dysfunctional for these different software verticals for SAP to use marketing literature and personal relationships with executives and major consulting companies to push their way into software areas for which you really have either no product, or a vastly inferior product to offer. Our view is if many companies had adopted Arena Solutions several years ago they would be way ahead of the game and would have a real solution for their BOM management and life-cycle issues. If these companies are concerned about integration issues with SAP ERP, it is most definitely worth the extra effort given all of the functionality your gain.

For more details on Arena Solutions see this post.

http://spplan.wordpress.com/2008/12/12/arena-solutions-and-where-used-view/

References

http://www.amazon.com/Sales-Inventory-Planning-SAP-APO/dp/1592291236

Lets start off by discussing what we originally intended to do in this post. We thought we would do some Internet research and easily find some of the best service parts management companies and describe what they were doing that set them apart. However, because of the lack of data we were not able to do this. Thus we have another topic to discuss; namely, where are the listings for service parts management or at least service management?

History of Business Ratings

Lets discuss the history of business ratings. The concept of rating a business’s performance in a formalized manner is while not that new, still not all that widely practiced. The pre-eminent rater of products in the US is Consumer Union, which publishes Consumer Reports.

Consumer Reports provides initial ratings or reviews of products and services. This in itself is not that rare except for the fact that Consumer Reports has set itself apart from other rating companies (such as Epinions and JD Power and Associates) for buffering itself form company influence. The way this is done is by being subscriber supported and not accepting advertising or allowing the use of Consumer Reports results to be used in advertising. Another thing that is relatively unique to Consumer Reports is their tracking of long term reliability of automobiles and the brand reliability of things like washers and dryers and computers. These ratings influence purchases and were and continue to be critical of lower quality products. Before this rating system existed every car company could claim to make a high quality product, but the ratings showed otherwise. The Consumer Reports rating system in addition to word of mouth was instrumental in bringing down the US car industry, which was and continues to make inferior products, and promoting the Japanese car industry for the opposite reason.

The Consumer Reports reliability rating for a Saab.

Service Ratings

Manufacturing ratings are relatively common, as any search on Google will demonstrate. IndustryWeek maintains a prominent one here..

http://www.industryweek.com/articles/the_iw_50_best_manufacturing_companies_corporate_gold_mines_16355.aspx?SectionID=42

However, we did not find a rating for excellent service parts firms. Recently JD Power and Associates has begun tracking excellent service organizations, a list of which was recently published in Business Week. However, if you look at the list, only seven are manufacturing operations.

• Cadillac
• Toyota
• Porche
• Apple
• Lexus
• Buick
• Lincoln

The majority are services (i.e. banking, hotels) which do not have service parts operations. And of the top list in customer service, Buick, Porsche and Cadillac do not make reliable cars according to Consumer Reports, so the rating must be for the customer experience in sales and service. Alternatively, these three care makers may excel at service parts management. However, because the rating is so broad, it is difficult to tell. This is not to say the ratings looks illegitimate. In fact, we have had personal experience with many of the companies on the list and the ratings check out with our personal experiences. One final point is that the ratings are all consumer brands, however what about industrial brands like John Deere, we see no industrial brands on the list. Industrial brands should be pitted head to head against consumer brands. In our optimal rating system, Raytheon would be on the same list, and competing against Acura.

A Service Parts Management Rating Index

What is really needed is a service management index, which would include service parts. Tracking this would go a long way towards bringing more focus on the topic. Things like initial price are easy to compare, but without a service management rating, products with a low initial cost, but high long -term maintenance cost can become more popular. This gives companies less of an incentive to build serviceable items, and to invest in their service infrastructure. This is the present situation that many US firms find themselves. One of the great positives of the Japanese culture is that it focuses on quality and assumes good things will flow from this. US culture is different. We will produce quality if we believe we can earn an ROI on it. This is a very different approach.

Measuring ROI From Quality

However, measuring ROI on quality is not something that is a very well developed capability. However, this brings up a topic that we can’t resist discussing, although it is a slight digression. In the 1980’s Japanese manufacturing was all the rage, and a number of books came out and consultants supported the notion that conventional inventory management formulas were incorrect. This was because, they said, the benefits of inventory decreases did not show in the numbers. Therefore inventory should essentially be slashed willy-nilly and then good things would follow. This proved to be completely false, yet companies to this day are obsessed with inventory reduction.  However, the formulas for inventory management were correct and company after company that we see carries too little inventory, which negatively affects their service fill and their manufacturing efficiency. However, the relationship between quality and ROI exists, it is difficult to measure. This is because of the existence of monopoly power. Microsoft has terrible software quality. However, their monopoly position protects them from the effects of poor quality. What is interesting is the message that was really taken from Japan was its low inventory levels (also a consequence of having manufacturers and suppliers close to one another, which is not the case in the US) even though there was zero evidence the inventory formulas were calculating excess inventory. However, this message was appealing because it meant less investment – at least in the short term, which is what executives want to hear. Quality requires more investment up-front, and provides long term benefits which executives are less interested in because of how US executives are compensated with stock options. What this case study indicates is that some messages, while false, become popular, because they dovetail with organizational and personal incentives. Other messages, which while true, fall on deaf ears, because they do not dovetail with incentives.

When selling concepts to US executives, the truthfulness of a course of action takes a back seat to the personal incentives of the individual.

Benefits of a Ranking System

So US industry needs to be put on the spot – or exposed through a ranking system – in order to have the proper incentive to invest in service. There is an old saying that goes something to the effect of “there is no reason to improve something if no one is measuring it.”

Book Availability

We have written a number of times about how under-emphasized both service management and service parts planning in particular is and continues to be in companies. However, what surprised us to an equal degree was a recent search for books on this topic. We stopped by Amazon.com and performed a search for “service parts planning” and received this result.

For those that do not search Amazon.com very frequently, we can tell you how unusual this result is. By the third result, we are already getting into books that are so unpopular, there is no image posted. Also notice that this third listing has nothing at all to do with service parts, but came into the results in any case because there are so few books on this topic. One of the books is completely dedicated to service parts planning in SAP. However, what if you are a company that does not use SAP? This book will probably not cover what you need then. The second book is related to algorithms for service parts supply chain. This would probably answer a few questions for the technically inclined, but it can not be considered a book for business people trying to understand service parts planning and does not cover the topic generally. In other words, it is a very niche and academic book. If we change the search to “spare parts planning” we get similar results, so the terminology used does not change the results much.

You can do the search yourself and see the full results. However, of the next few pages of results, we only found the following book to be applicable.

And this is not a book specialized on service parts planning per say, but simply service parts.

Best Books and Articles

This is a listing of the top books and articles in the field. The list can certainly grow. If you have any recommendations please contact us at spplan@gmail.com.

Books

1. Analysis and Algorithms for Service Parts Supply Chains – John A. Muckstadt – http://www.amazon.com/Analysis-Algorithms-Operations-Financial-Engineering/dp/0387227156/ref=sr_1_1/105-0952385-1563663?ie=UTF8&s=books&qid=1185121839&sr=1-1

2. Service Parts Planning with mySAP SCM: Processes, Structures, and Functions – Jörg T. Dickersbach – http://www.amazon.com/Service-Parts-Planning-mySAP-SCM/dp/3540326502/ref=sr_1_1/105-0952385-1563663?ie=UTF8&s=books&qid=1185125847&sr=8-1

Articles

1. Winning in the Aftermarket – HBR June 1006 – Cohen, Agrawal, Agrawal

Conclusion

How are the next generation of service parts planners and consultants to be trained if there is not literature commonly available on the topic? Our conclusion is that considering the size of the service market, this is quite unusual. If anyone knows of any good books on the topic, please feel free to recommend them by posing a comment.