How SAP’s TCO Compares for SAP APO Service Parts Planning

Background and Motivation for the Research

When I am often told about the reasons for decisions to go with software that I am familiar with, the logic often does not seem to make sense. In fact the entire process for repeatedly selecting expensive and lower functionality software from the major monopoly vendors turns out not to be based on the main comparison points of software. The main comparison points of enterprise software are the TCO and the application’s functionality. However, companies primarily look for solutions from vendors that they are already working with, and then allow the issue of integration to play a primary decision-making role. Therefore, they primarily ignore TCO (most tend to make decisions without knowing the estimated TCO), focusing more on initial software acquisition cost, and de-emphasize the functionality comparison between applications. A primary way this is done is by having executives, who don’t work with enterprise applications perform the functionality observation through a controlled demo environment and by marginalizing the users, removing them from the decision-making process. This allows applications that are weak or have unreliable functionality to compete with vendors that have excellent and reliable functionality.

The Basis for Estimation

I visit clients often post go-live on SAP APO and have developed a good sample of companies. I know the typical length of an APO implementation, as well the costs of maintaining APO. I also work with a number of best-of-breed vendors. Because I had access to information from several necessary sources, and was able to make times estimations based upon personal experience, I decided to perform a total cost analysis between SPP and a best-of-breed service parts planning vendor. This is just the service parts planning analysis. Here are links to the others.

http://www.scmfocus.com/productionplanningandscheduling/2011/08/09/what-if-you-paid-nothing-for-sap-software-how-saps-tco-compares-for-production-planning/

The Scope of the Analysis

This analysis is limited to the major planning applications. I have developed estimates for costs of APO modules versus best-of-breed applications for the areas which I have first-hand knowledge, which is demand planning, supply planning, service parts planning and production planning and scheduling. I do not perform any similar analysis for other popular enterprise areas such as ERP or analytics.

Why the Best of  Breed Vendor is Not Named

I am not trying to recommend any one vendor in this analysis, so naming the vendor I used would be a distraction. The main point is that SAP’s TCO is in an entirely different cost category. Essentially any best-of-breed vendor I selected would generally compare similarly. Some will be a bit more expensive and some a bit less so, but no best of breed vendor will come anywhere close to SAP’s TCO.

Why SAP License Costs are Set to Zero

SAP license costs are difficult to determine. There is little doubt they have some of the highest average license costs in the enterprise market, but their price fluctuates greatly. In addition, the costs may be bundled with other software. In terms of publicly available rates, SAP has a government price sheet. However, the price sheet is based on an arcane point system that is clearly designed to not allow anyone to independently calculate a price, while meeting the US government requirement that they have a price sheet. I worked with this sheet for around an hour and a half, and then realized, it was not meant to be deciphered. SAP license costs are shrouded in mystery.

However, when I performed the analysis, even without SAP license costs, I found SAP TCO costs to be so high that even without any license costs or SAP support costs (which are based upon the license costs) the best of breed vendors were still easily beating SAP in TCO in all the application areas. Secondly, any article which does not rank SAP as #1 in whatever it is being compared with is open to immediate criticism. (In fact, the easiest way to have a soft life in IT is to skip any analysis and declare SAP the victor. In doing this, you generally are not required to provide any evidence, but simply say something like “SAP support best practices.”) So something that shows SAP’s TCO being higher than anything else will be considered biased. Therefore, to counteract this concern, I decided to tilt the playing field in SAP’s direction by making all of the license costs free. So this analysis assumes you never had to pay anything for SAP’s software or their support.

Doing this does one other thing, it emphasizes the point that the license cost should not be the main focus of the comparison and that other costs predominated in the TCO. Therefore, free software can end up being not the best decision.

Analysis Assumptions

There are a number of assumptions in this analysis. One of the most important is the duration of the implementation. This is one of the trickier things to set. Software companies tend to deemphasize this number, which is why I had to use my experience to adjust the results to what I have seen. SAP implementations take the longest of any enterprise vendor, and there are very good reasons for this, which I get into later in this post. However, for both SAP and the best-of-breed vendor, I have included a range, and the estimated TCO for each in terms of implementation is based upon an average. There is no perfect analysis of this type that can be created because of all the different variables. However, not being able to attain perfection should not get in the way of attempting estimation. One way or another, these types of analyses must be performed and I always think it’s better to take a shot at estimation rather than to throw one’s hands up and say its unknowable.

Total Cost of Ownership

According to this estimate, SAP has a higher total cost of ownership than the best of breed application I compared it against. Having worked in SAP as long as I have, I intuitively I knew it would be higher, but even I was surprised by how much higher it was. Here are some of the reasons.

SAP’s Implementations take Significantly Longer than Best of Breed Implementations

  1. SAP’s software is very difficult to understand and is highly encapsulated. SAP has so many settings which allow the system to behave in different ways that extensive time must be spend in both understanding the settings and understanding the interactions between the settings. The statement that SAP is filled with “best practices,” is actually incorrect, because a best practice approach prescribes that the system define specific ways of doing things, when in fact SAP follows the “comprehensive approach.” This includes a seemingly unlimited number of ways of configuring the system.
  2. Of all the applications I work with, none approach SAP in the number of areas of their applications that don’t work. This includes functionality that never worked, beta functionality that is still listed in the release notes as functional, and functionality that did work at one time but was broken by an upgrade or other cross application factor. In fact no one is even comes close. SAP’s marketing strategy is to cover functionality as broadly as possible so they can always say “we have it.” This same development approach spans across applications, as I observe the same thing in different product lines such as SAP BW. This is one reason SAP’s TCO is probably headed further up in the future. However, this results in product management writing checks that development cannot cash. Testing each area of functionality to ensure (part of what I do by the way) imposes more work and more time on the implementation.
  3. The large consulting companies have built their business model around SAP and extend the time of SAP implementations to maximizes their billing hours. SAP made a strategic decision quite some time ago to let the consulting companies control the speed of implementation in order to be recommended by the major consulting firms, regardless of the fit between the application and the client need.

SAP Resources Are Some of the Most Expensive in IT

  1. There is nothing controversial about this statement, it is well known in IT circles.

SAP Has the Highest Manpower Support Requirement

  1. Getting back to the topic of application complexity and fragility, SAP simply takes more resources to maintain. Something I recently had to work with was one method which was part of functionality that did work, but stopped working as of the release SCM 7.0. First the problem that cropped up due to this needed to be diagnosed and explained (we did not find out about the broken functionality but perceived it through system problems. Once discovered, this functionality had to be change to a method that did work, and the business had to invest time creating a new policy to work with the changed functionality. This was course expensive and time-consuming.

SPP in Particular

Of the four different planning areas that I have created TCO comparisons for, SPP is a special case as it is an immature product with significant needs for on site development. For this reason I have given it the longest implementation timeline of any SAP planning product. It also estimate its support load to be higher than the other SAP planning products because of maturity issues combined with the extra effort to support the custom development that must accompany any SPP project.

Secondly, SPP projects are very risky due to SPP’s lack of maturity. Therefore, the long timeline included here does not include the likelihood of walking away from the implementation at any time during the project.

Integration is Overrated as a Cost

The cost differences between SAP and a best of breed application are enormous, and the frequently used argument, that the company wants an integrated solution, cannot reasonably be used to justify a decision to select SAP. I have not broken out the integration separately, as it is built into the consulting costs, but an adapter of even a few hundred thousand dollars would not tip the TCO in SAP favor. Also, the maintenance of the SAP CIF (the middleware that connects R/3 to APO) is vastly underrated. My experience and with developing custom adapters for connecting best of breed planning applications to SAP, I have become firmly convinced that the cost of maintaining the CIF is more than the cost of developing and maintaining a custom adapter. The CIF, which connects up APO to SAP ERP is unacceptably problematic. For more on the CIF, see this post.

http://www.scmfocus.com/sapplanning/2011/05/19/why-i-no-longer-recommend-using-the-cif/

Implication for ROI

According to most publicly available studies, around 1/2 of projects have a positive return on investment. However, this greatly depends upon the TCO of the solution and the functionality within the application that can be leveraged. SAP planning modules are so expensive compared to alternative solutions, and deliver a lower functionality level than best-of-breed solution, that as a natural consequence they have a lower ROI, and a lower percentage of positive ROI projects. However, the incorrect perception in industry is just the opposite, that SAP is the safe vendor to choose.

Outsourced Support to Reduce Costs?

Companies now often outsource a portion of their support to India, so one might imagine that the support costs listed here could be reduced. This is another frequently held assumption, but does not prove out in reality. A good rule of thumb is that while India based resource are about 1/4rth as expensive it takes more than twice as many individuals to get close to the same amount of support work done. Secondly, there must always be at least one in country resource. Thirdly, this is a mess to manage. There are not only language and time barriers, but it appears some of the companies providing these resources are actually double book the same resource on multiple clients. I have been dealing with this issue for several years now and I end up having to read notes from the support team which are not spelled properly because of language barriers. Outsource operations lack good professional management, and the client resources end up having to take over support organization tasks.

Generally, I am not sure outsourced support works for any area very well, but it particularly unsuited to complex systems such as planning applications. Generally, when support is outsourced, the quality of support drops precipitously, and anyone in IT knows this.

Conclusion

If you confront SAP and large consulting firms to require a good TCO analysis, be prepared for a dispute on the true cost of their software and time required to go live. However, its critical to make your decisions based on actual observations at multiple account, as I have in this article, and not based on hypothetically sales estimates from their sales team on how fast a solution can be brought live. I have done the best job possible here to bring the real world data to my estimates, and I even stacked the deck for SAP by removing all license costs, but SAP still came up with a much higher TCO.

By the way, this was also true in the other application areas I analyzed. The real world data shows across the board that SAP is significantly more expensive in total costs of ownership than best-of-breed solutions.

 

 

 

Advertisements

Deloitte Writes “Ok” Paper on Service Parts But Would You Want to Hire Them?

Background

The paper The Service Revolution by Deloitte “research” is an average white paper which has some interesting numbers about service parts along with quite a lot of fluff to reach its 13 pages. I would recommend it to skim rather than read. It reminded me that I recently wrote an article on the low quality white papers that seem to fill the internet that are primarily focused on gaining business rather than imparting any knowledge.

http://www.scmfocus.com/supplychaininnovation/2011/09/fake-innovation-writing-marketing-driven-white-papers-to-get-business/

However, while Deloitte was able to put together a middling white paper, are they the right consulting company to use for your service part solution needs? This is Doubtful. Aside from some strategy consultants who “dabble” in service parts and (can give good presentation), and a number of consultants who have been working on Cat and Ford on SPP, it’s very difficult to see how Deloitte, a company that fakes an aftermarket presence with a few white papers every few years, should be selected over consulting firms that really focus on the aftermarket. There are quite a few reasons why I came to this conclusion.

How Many Times Can a Company Bomb?

The answer for large monopoly consulting companies like Deloitte is unlimited. Deloitte has bombed on 100% of the projects that I have followed them on, which is now around five, including one where I worked with them while they were still on the project and getting close to rolling off. Not only do they bomb, but after they leave, the workers at the client tend to have developed a number of terms for them that include one swear word or another, followed by the name “Deloitte.” Another client had basically banned the use of the work Deloitte, and would insert some other word to describe them.

I used to have to deal with this animosity when I worked for them, and its nice to no longer have to deal with it now that I am independent. Often I was put in the position of having to  compensate for the fact that the Deloitte had been failing to meet expectations for quite some time before I would show up on an account. I noticed the higher-ups at Deloitte never thought very much about this, but would usually tell me that the client “was their own worst enemy.”

But at Deloitte, there is a simple rule, everything rolls downhill. The partner is never to blame, they blame the Sr. Managers, the Sr. Managers blame the Managers, and so on. The vast majority of the Sr. Managers and Partners at Deloitte have these tremendous egos and extreme type A personalities, however, what they can’t explain is if they are so talented and know how to staff and manage projects well, why is it that the majority of their projects are in the ditch? The Sr. Managers and Partners are also deeply deluded about the lack of corruption that exists in the major accounting/consulting firms. I was once told by two Sr. Managers out of the Cleveland office that the Andersen Consulting involvement with Enron was “built up” by the media, and what Andersen did there was “not a big deal.”

How to Misconfigure the Wrong Solution

At the client where I worked with them Deloitte had chosen the wrong solution for them, and then had not taken down requirements properly, and right before go-live the Deloitte consultant’s answer to the problem was to leave the project and then to leave Deloitte. Interestingly, the software selected never had a chance of supporting the business requirement, but Deloitte recommended it anyway.

Obvious Failures with SPP

Deloitte is associated with not only failing on projects generally, but has failed specifically on at least three SPP implementations that both Deloitte, SAP and the clients are hiding from the public. These are at Cat Logistics, Ford, and the US Navy. Part of the reason is that Deloitte is the implementation partner. However another reason is that the SPP solution is not yet ready to implement. There are many obvious things that Deloitte could have done to bring those projects live. One would have been to understand the weaknesses of SPP, that it was a beta product with functionality that did not work, and to blend it with a best of breed solution. However, they did not do this because they have no independence from SAP. I discuss SPP’s implementation mistakes in this post.

http://www.scmfocus.com/servicepartsplanning/2010/03/29/spp-continues-to-have-implementation-problems/

It makes little sense to hire a consulting company that is simply controlled by a major vendor. The entire concept behind hiring a consulting firm is that you are buying independent advice in addition to the bodies. The fact that SPP, a beta product, has been recommended by the large consulting firms without describing SPP’s limitations to their “clients,” is a clear demonstration that Deloitte puts itself before its clients. To see how SAP remotely controls the advice given by the major consulting companies see this post.

http://www.scmfocus.com/sapprojectmanagement/2011/09/how-sap-remotely-controls-implementation-partners/

Inability to Partner with Best of Breed Vendors

The problem for clients with bringing in Deloitte to implement even a best of breed solution is that you will end up paying for Deloitte consultants that the vendor is then required to train and have on the project. Secondly, no best of breed service parts planning vendors requires or wants Deloitte or any other consulting firm for that matter to implement their solution. They all maintain consulting practices and they can implement far better independently. The main things a consultant can do is perform a software selection, and other activities during the project such as business process work, training and integration to ERP applications. However, neither Deloitte nor the other major consulting firms will be satisfied with this role. Vendors would always prefer a direction relationship with clients rather than being controlled by some corrupt major consulting firm. Unless it is a major vendor like SAP or Oracle, major consulting companies will strongly tend to abuse the relationship with any best of breed vendor to benefit the consulting company over the client or the vendor. Secondly, this control will take place behind the scenes and will not be apparent to the client. As all of the real service parts planning solutions are best of breed, this of course is a serious problem for selecting any major consulting, including Deloitte company to manage your service parts project.

Conclusion

So do yourself a favor if the Deloitte white paper on the service business, skim the paper for the data that is presented. The rest of the paper is mostly filler, designed to get business. It has some useful statistics, although Deloitte is not above faking statistics to make a case, so I am not sure how reliable they are. However, skip contacting them, because they are not suitable to help you select or implement service parts solutions. There are however plenty of good boutique firms that are better choices.

Understanding SAP’s Service Parts Maintenance Solution


Service Parts Maintenance is an SAP Multi Module Solution

Background

I had heard the term Service Parts Maintenance (SPM) in relation to SPP, however, I never paid it very much attention. However, upon re-reading the SPP training documentation I found a very detailed explanation as to what it is. According to the SAP documentation SPM is a combination of SPP, BW, SRM, SNP and EWM. Also the documentation is that this is the template that was selected and used by Cat and Ford. In the documentation which is clearly direct from SAP product management they are very strongly encouraging the use of this SPM design and set of components for other clients. At one point in the documentation, the article notes that some modules can be removed, but then the implementing company “will lose functionality.” This seems like a strange thing to point out, as it is axiomatic that when one does not implement a software component that functionality is reduced.

High Risk Strategy?

Generally SPP has not found a big following in industry. I believe that the design and approach of SAP with regards to SPM is one very big reason. There are a bunch of problems with promoting the implementation of so many modules. First and most obvious is it reduces the likelihood of success of the project. Second, there is no way that these modules would work together as simply as proposed, that is proposed as an integrated solution. A much more logical approach would have been (and can be, because there is no reason this strategy can’t be changed) to focus on targeted SPP implementations and getting a sold base of SPP installs before rolling out the “master plan” for a multi component integrated service parts solution. If I had any involvement with SAP product management in SPP I would push for this approach to be reversed. I get a certain amount of deja-vu with this specific topic. I personally dealt with product solutions that were promoted before they were ready when I worked for i2. Looking back on that time now, I seriously question the sanity of many of the people I used to work with. We had development teams that would continually fail to meet their development deadlines, but continue to grow the future promised functionality. Due to the stock bubble of the time it was considered de rigueur to “think big.” Well it all came crashing down, and everyone of those sales people and developers who told me I needed to “get with the vision” of the company owes me a nice apology (no one ever calls unfortunately, they must be too busy building more sand castles in the sky and reducing value from the economy to call me.)

Should SAP Have Control of Your Entire Solution Design For Service Parts

I would say they shouldn’t. There is nothing particularly “service partsy” about BW. While service parts planning requires specialized software, reporting certainly does not. Possible the best fit for the company may be Teradata or some other smaller innovative vendors in the BI space. Who knows? This is a decision for the data warehousing team, and in case SAP is unaware, the service organization at most companies does not exactly draw a lot of water with the data warehousing team. How about the other recommended tools? Just because a company wants to use SPP, should it use SAP SRM? There is no reason to think so. This same logic applies to each all the modules. Each needs to be evaluated on the basis of the fit with requirements, not with its fit with SPP. I have been working with planning solutions for some time, different planning applications to SAP and non SAP systems. I generally do not consider integrating different systems a big deal and non-fancy flat file interfaces held together by Unix batch jobs and Awk scripts (for data manipulation) work perfectly fine. I never needed fancy integration tools to get the job done.

Conclusion

While I like SPP and service parts planning in general, I would never say that my expertise in service parts planning enables me to propose what other software components that are completely unrelated to planning should be. I don’t think there is anyway around each company performing a detailed evaluation of every module it purchases to ensure it will add the maximum business value. I have always thought that software selection is the most important part of the project. I would recommend not short circuiting that process in order to buy into a vision.

SAP SPP Continues to Have Implementation Problems


The pathway is not clearing for SPP as the successes have been few and far between. However, there is a solution.

Bringing Up SPP in the Market

SPP has been a long haul for SAP. First of all, this product was an attempt to bring service parts planning into the mainstream. Rightly so, SAP identified service parts planning as a key underinvested in area in the enterprise. SAP thought it could grow this business and combined part of the code bases of SAP Demand Planning, SAP Supply Network Planning and then added service specific capability that had been sitting in other best of breed applications for a number of years. These include:

  1. Inventory Rebalancing
  2. Leading Indicator Forecasting
  3. Repair Buy Functionality
  4. Partial Service Level Planning (planning low on the service level hierarchy)

More details on the service level hierarchy at the post category link below.

http://www.scmfocus.com/inventoryoptimizationmultiechelon/category/service-level-hierarchy/

SAP even surprised me by coming up with in my opinion the best interface for planning in all of SAP SCM, the DRP Matrix. This helped address a historical weakness in the SCM modules, (at least for one module). However, the initial problems began when SAP approached clients and explained the SPP solution to them. Instead of focusing on just SPP, instead clients were shown a demo that included a smorgasbord of SCM functionality which brought many different modules into the solution (such as GATP) and even the SAP Portal. This was a mistake because even the biggest service organizations have a lot less money to spend on software, so getting them just to purchase SPP would have been a success. Furthermore, service organizations are far further down the capability totem pole than the finished goods side of the business, so their ability to even implement the solution that SAP presented to them would have been unlikely. I have spoken to SAP product management about this, and they have re-stated that this is their strategy and that they think it is gaining purchase with clients.

The Partnership with MCA

A second part of their strategy was to partner with best of breed service parts planning company MCA Solutions and created a “xApp” which combined the forecasting functionality of MCA SPO with the supply planning portion of SPP. I have written previously that I am very much opposed these types of arrangements for a number of reasons.

There are several thorny issues with these partnerships.

  • It’s unclear that vendors should be selecting vendors of clients. The large vendor many not select the smaller vendor that is best for clients vs. best for the larger vendors
  • These partnerships allow SAP to say they have functionality that they did not originate and are claiming extraordinary IP rights vis-a-vis the smaller software company
  • SAP’s partnership agreements require that the smaller vendor declare their IP and that IP that is undeclared can be taken by SAP. This was rather shocking and I think shameful that such an agreement would even be drafted.
  • Unequal partnerships like this are inherently inconsistent with the type of economy that a lot of Americans say they believe in. The Federal Trade Commission has a role, which they don’t seem to take very seriously anymore to prevent over concentrations of power in any industry, and that includes software.

I describe this more fully in this post

http://www.scmfocus.com/inventoryoptimizationmultiechelon/2010/01/its-time-for-the-sap-xapps-program-to-die/

However, as luck would have it, the xApp program is currently dying or dead (the xApp program includes something like 140 different applications vendors that SAP has “partnered with”) and by in large they have not caught on. MCA and SAP’s contract for the xApp program was not renewed.

Project Problems

Despite their missteps, SAP was able to get several companies to buy and implement SPP. However, two of the biggest implementation sites of SPP, which are Caterpillar Logistics and the US Navy, are after a number of years and significant expense not anywhere. Navy is not live with SPP, and unlikely to ever go live. This is something the folks over at Navy don’t like to talk about much, as a whole lot of US taxpayer dollars went to Deloitte and IBM for very little output. The blame does not squarely lie with SAP even though SPP does not work properly. I plan to write a future article entitled “I follow Deloitte,” which describes how every post Deloitte SAP SCM project I seem to work on is barely functional. However, Deloitte continues to get accounts somehow due to the fact that too many corporate decision makers are not performing their research. You can read more about the problems in hiring Deloitte to manage services parts projects here:

http://www.scmfocus.com/servicepartsplanning/2010/11/13/deloitte-writes-ok-paper-on-service-parts-but-would-you-want-to-hire-them/

How About Ford?

Another major implementation for SPP is Ford, but they have seen little value from their SPP implementation. The best predictions I receive from those that have worked on the project is that Ford will eventually walk away from SPP. However, they cannot publicly do this because they have invested at least 9 years and very large amounts of money into the implementation. Therefore, SPP now has no large reference accounts for SPP. A hybrid of SPP has been implemented at Bombardier, however this is the old SIO architecture where MCA Solutions performs most the heavy lifting. Therefore, it can also not be considered a live SPP implementation. None of this surprises me, as after working with SPP, it is not possible to take the application live without custom development work or combining with a functional service parts planning applications. This solution turns SPP into a shell, which can make some executives happy, as it means they are using SAP, but the work is done by a different application.

Reference Accounts?

This is a problem because they were to be used as the major reference accounts to selling into other accounts. The problems at Caterpillar are particularly galling as SPP was actually developed at Caterpillar. Caterpillar Logistics is plastered all over a large amount of SAP marketing literature and is the gold reference account for the solution. Here there is not much to reference, unless as a potential client you are willing to wait that long to bring a system live. And secondly, the degree to which Cat is live is a matter for dispute. Cat will do what it can to continue the impression that they have at least some functionality live, because to walk away would mean a PR problem for them. What would be interesting is to see if SPP can be implemented without a large consulting firm as neither IBM nor Deloitte have had success with SPP. SAP should consider backing a smaller firm or doing it themselves as they need a success in the SPP space. At this point the biggest reference-able account for SPP is Ford.

Where Do We Go From Here?: The Blended Approach

SAP’s Product Management Approach with SPP

Some decisions that have been made by SPP product management are very poor. I think the major consulting companies are out of their depth in implementing SPP, and it needs to be radically improved in order to make more if its functionality effective. A significant amount of functionality that is in the release notes simply is broken or does not work properly.

I have performed SPP consulting and would like to see the module, and service parts planning in general to become more popular and widely implemented than it is. However, its important to consider that SPP only introduced some of the functionality that brings it partially up to par with other best of breed solutions in the current version (7.0) (prior to 7.0, SPP was not really competitive) and it can take several versions for SAP’s newest functionality to work correctly. For this reason, including my personal experiences configuring SPP, it would be difficult for me to recommend relying upon SPP exclusively. I think the experiences at Caterpillar Logistics,Ford and the US Navy lend credence to the idea that going 100% with SPP is a tad on the risky side.

To fill in the areas of SPP that are lacking I would recommend a best of breed solution. Some things like leading indicator forecasting really need to be improved. Furthermore, if you want to perform service parts planning with service level agreements (SLAs) there is no way around a best of breed solution. There are a number of very competitive solutions to choose from, and it all comes down to matching the way they operate vs. the company needs.

Simulation Capability Enhanced with Best of Breed

I will never be a fan of performing simulation in SCM entirely. The parameters in SAP SCM are too time consuming to change and the system lacks transparency. However, several of the best of breed service parts planning solutions are very good at simulation. While it may be conforming to use a single tool, it’s generally a bad idea to try to get software to do something it’s not good at. For simulation I would recommend going with a hosted solution and a best of breed service parts planning vendor. (for those looking for an excellent prototype environment for finished goods, I recently have had a lot of success with Smoothie by Demand Works)

http://www.scmfocus.com/demandplanning/2010/07/using-demandworks-smoothie-for-forecast-prototyping/

As few companies want to make the investment to staff a full-time simulation department (planners are often too busy, and lack the training to perform simulation), it makes a lot of sense to have the application with the vendor. As they are experts in the application, they can make small tweaks to the system and provide long-term support to the planning organization. All of this can be built in at a reasonable rate to the hosted contract.

________________________________________

Conclusion

It only makes sense to use the history of an application to adjust future implementations. In doing so, it is most advisable to pair SPP with a best of breed vendor that best meets the client requirements. The additional benefit of this approach is that you get access to consultants who have brought numerous service parts projects live. And those consultants primarily reside in the best of breed vendors. We were recently contacted by a major consulting company to support them in a client which is looking at SPP (we don’t work for consulting companies), and the consulting company was simply focused on getting the client to implement SPP, so knowing the company, it is not difficult to imagine the stories that were told, and what was covered up to get the client to sign on the dotted line. Companies interested in the full story on SPP’s functionality and how it compares to what else is available can contact us by selecting the button below.

References

My service parts planning consulting offering.

http://www.scmfocus.com/consulting/areas-of-specialty/service-parts-planning/

Discussing the underinvestment in parts.

http://www.servigistics.com/solutions/parts.html

On the precise date the SPP initiative was kicked off at Catepillar Logistics.

http://logistics.cat.com/cda/components/fullArticle?m=115228&x=7&id=382143

 

Repair Pal for Repair Costing


Transparency Improved by Repair Pal

On many occasions in this blog we have have decried the lack of transparency in service parts and service repair operations. Recently we found an interesting web site which addresses this for the automotive repair market. It is called Repair Pal. It provides both repair costing – estimation, as well as repair locations that can provide the intended service.

We performed a search for our Honda Accord for a repair we had performed several years ago. This is what the report looks like.


As you can see, it differentiates between dealers and independent shops, with the dealers being more expensive. It also breaks down the labor vs. part cost.

After receiving a “quote” one can look towards the right side of the screen where possible locations are listed to have the work done.


All we can say is, what a great service. We think this is Repair Pal is the first place to check before getting any repair done. Try it out for yourself at the link below.

http://www.repairpal.com Further Capabilities Repair pal allows you to search specifically for the service you need. It also provides a range. We recently needed to find timing belt replacement for our Honda. You can perform a search…


..or you can select.


Advice

RepairPal also provides advice as to when to perform repairs. Our car is 12 years old, yet it does not have enough miles to justify a timing belt replacement. However, RepairPal recommends the belt be replaced every 6 years, which is a great insight and shows that we are completely due for a replacement.


The Saturn Service Parts System

SaturnPlusServiceParts.jpg
In the article Why Auto Service Parts Networks are a Mess…

http://www.scmfocus.com/servicepartsplanning/2009/05/16/auto-service-part-networks-are-a-mess/

I describe why automotive service parts networks are in such a terrible state. However, I was recently forwarded an article that described one service part network that appeared to be functional. It is with an auto company that was willing to try new ways of business, something that many other auto manufacturers and dealers have not been willing to do. As described in the article at Knowledge at Wharton..

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2366

GM dealers have always had to compete not just with other brands like Ford or Toyota, but also with one another. The competition created a boiler-room environment of price-haggling, which turned off many customers but thrilled others. Saturn, on the other hand, had a “no haggling” policy that it backed up with what may have been its most significant innovation: exclusive market areas for dealers. “That was the huge difference,” says Lokey. In a Saturn store, the sticker price was the final price. And Saturn retailers could confidently adhere to the policy because they knew the customer wasn’t going to find the same new car for $100 less a few blocks or miles away. The exclusive market areas combined with the efficient parts supply chain also allowed Saturn dealers to pay the same price for repair parts. Other GM dealers had to compete with one another to keep their supply bins full, and they often had to buy parts from their rivals. At Saturn, the bins were almost always stocked thanks to a computerized system that automatically sent orders to a distribution center. What this indicates is that beyond creating a multi-echelon system (where stocking decisions are shared using true multi-echelon software) a number of other factors such as how dealers are placed into competition with one another is also important. However, the system relied upon inventory pooling between dealers and the automotive company regional warehouse. This lead to a service part turn-over of on average more than 7 times year (which is quite high for service parts).

The design of the system is explained below from the article in the Sloan Management Review

Saturn’s Supply Chain Innovation: High Value in After Sales Service

Retailers review Saturn target level recommendations at the end of each day, then Saturn automatically replenishes to the agreed on target level. Replenishment orders are received at the central distribution center and are shipped out according to the delivery schedule, leading to a three a shorter response time if the ordered part is in stock at the DC. Otherwise the part is either put on back order or sourced from the production inventory stock. Note that a pull system such as Saturn’s is based on target levels. Using one for one replenishment means that Saturn does not position inventory in advance based upon forecast consumption. The shipped part also is replaced automatically within 3 days (assuming availability at the DC). Saturn essentially tells retailers what to stock. If a part does not sell after nine months, Saturn takes it back and repays the retailer. Each retailer (dealer) inventory system is linked directly to Saturn management system. What is happening here is what few automotive companies use, a centralized service parts planning system. However as described by this article from Sloan Management. Although central inventory resources can be shared, companies often make planning decisions for retail locations independently, looking at forecasts of local demand and lead times from the central depot orsuppliers. Unfortunately, this parts system, which was recommended by Morris Cohen and Hau Lee, is at risk as Saturn is looking for a buyer, and their possible arrangement with Penske has fallen through.

Saturn owners will now be serviced by GM dealerships, which is definitely not what Saturn owners bargained for when they purchased a Saturn. They will now have to work with a considerably lower capability service network. It unfortunate because the Saturn system, if it persisted, could be extensively studied and perhaps copied. Currently, this is not very much written on the Saturn system, and if Saturn dies or dissipates, there will be less opportunity to gain insight into what they did that made them so different.

Postscript:

After this article was written Saturn did in fact go out of business. It is unfortunate that one of the best service parts systems went away with Saturn ceasing to exist. It does not appear as if GM took any of the key learnings from the work described above, as GM still scores poorly in service parts management. Saturn is now only an aftermarket business which will continue until Saturn cars fall out of use.

References

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2366 http://sloanreview.mit.edu/the-magazine/articles/2000/summer/4147/saturns-supplychain-innovation-high-value-in-aftersales-service/


Using Box.net As a Service Database

ServiceInformationBox.net_.jpg
Information Management

We maintain a separate blog dedicated to information management. On this blog we have written about a service that is set to change file management as currently practiced.

http://infoknowledge.wordpress.com/2009/06/15/data-management-easier-on-the-web/

There are many implications to file management for Box.net, however the one we want to discuss here is the capability with respect to service parts information.

Box.net

Box.net allows you to easily keep documents, and then to link these documents to web pages and to send these links through email. Service parts have many files such as specifications or user manuals. The question is how to best manage these documents. Our previous idea was to simply integrate the documents into the actual web page. See an example at our Service Parts Portal website.

http://www.servicepartsportal.com/?page_id=255

However, now we are not so sure that this is the best approach. A better approach may be to host the files at Box.net and then simply profile links to the page that lead to Box.net. Box.net has an excellent interface for managing large numbers of files, in fact we think it currently the best on the web. Systems like SAP and others are trying to maintain the content in a central repository, the fact is ERP systems are not very good at this.


Service Parts Management by Halliburton in Iraq Beyond Belief

IOS

A License to Steal

The story behind Halliburton is well known and has been documented in many articles, books and movies as a company that constantly defrauds the US government. The behavior of Halliburton regarding service management and planning, as documented in the move Iraq for Sale, in Iraq is absolutely shocking.

[tube]6cJlJudDtVE[/tube]

This movie shows Halliburton and KBR deliberately not repairing items in order to charge the government for purchasing new items. This is because of how the contract with the government is structured. It is “cost-plus,” and therefore, Halliburton and KBR have every incentive to increase the cost, as their profits increase in a linear fashion. Secondly, neither Halliburton nor KBR appear to have any business ethics, and therefore, they are doing what they can to increase the costs as much as possible. There are many examples of this, but one that really resonates is the fact that Halliburton will have semi-tractor trucks that break down on the side of the road in Iraq because they either do not change the oil, or check the tires, or even order or stock spare tires. When this happens, Halliburton simply sets fire to the truck, destroying them (so the insurgents can’t use it.) They then charge the government for a new truck, plus their cost-plus margin. They are motivated to not repair even the most expensive items because they make more money this way.

That Halliburton is simply destroying large capital equipment items is amazing, but it is supported by multiple sources. Another form of fraud is related to how equipment is leased, but that gets into a divergent area of malfeasance, and I want to keep this article focused on service topics.

Service Parts and Maintenance: Making the Effort in Service

Organizations and service parts management are in a poor state in the US. The official explanation for this is the philosophy of neglect. The standard The line of reasoning goes something like this:

“Companies want to improve in service parts planning because its good for their customers, the only issue is an issue of education.”

For some time, we personally believed this. However, the Halliburton example demonstrates this is not always the case, and not the only explanation. Other examples of service incapability are stretching the credibility of the lack of education argument.

The Math of Destruction

If Halliburton can charge the government $90,000 + its cost-plus contract for a new truck, they would rather do that then charge the government for a new tire plus the margin. When will this change? No time soon. The Pentagon is now highly dependent upon Halliburton and KBR for all types of essential functions. Secondly, Halliburton continues to contribute mighty to the political process and have hired a number of influential ex-Pentagon officials, that mean Halliburton will continue to get contracts into the foreseeable future no matter what they do and how much fraud they commit, they have a blank check to rip of the government.

Incentives

This is an example of two companies that operate in this manner. However, there are more. The assumption that every company cares about service parts needs to questioned in light of their institutional incentives. If a company can make more forcing a customer to buy a new product, they may prefer this over servicing an old item. Automotive repair shops are known to replace parts that are not necessary to replace. If service management is to be understood then its underlying assumptions must be questioned. It also helps determine what companies and areas to focus upon. For instance, if I were a consulting or service software company I would not bother offering consulting or software services to Halliburton in Iraq. Lets just say, they prefer to buy new….or in fact for the taxpayer to buy new. The whole movie may be seen here. It’s a few years old now, but not much has changed, so it is still quite valid.

http://video.google.com/videoplay?docid=-6621486727392146155

References

http://www.publicintegrity.org/projects/entry/297/bio.aspx

Accenture Writes a Childlike Paper on Service Management


Everyone knows that Accenture hires inexperiences resources, but who is actually writing Accenture’s white papers?

Articles can be motivated by inspiration, or frustration. Neither motivation is more or less valid than the other. This post is definitely motivated by the later. I thought I might learn something by reading a white paper on service management that was produced by Accenture back in 2003. Guess again. Nine pages of content-free PDF later, and what felt like the equivalent of a literary Diet Pepsi, we learned the following:

  1. Accenture is focused on service management
  2. Saturn is focused on service parts
  3. There are software companies that focus on service parts
  4. Accenture has a nice graphics department

Any Information in That White Paper Partner?

Is there an interest in actually communicating any information in white papers or are they purely promotional items to Accenture? This phenomena is not restricted to Accenture, there is simply far too much promotional literature that is disguised as white papers. This is one of the reasons why the “research” departments at the large consulting companies don’t produce very much of value. Other reasons are that these departments don’t employ people with an understanding of research, but most importantly, these firms lack integrity, and the research departments are really just cover operations for marketing and business development. No paper is written, and no effort is undertaken at large consulting companies without the concept of a direct payoff in the marketplace. As a result, many white papers simply designed to hook the reader into contacting the consulting firm.

The promotional white paper format goes something like this:

  1. Come up with white paper title
  2. Create a beautiful cover page
  3. List two partners on the second page
  4. Come up with a few examples of companies that are doing something similar to what the white paper is discussing
  5. Talk about how technology is important
  6. Put a few graphics in the white paper, the simple the better (three circles is apparently white paper nirvana)
  7. List the obligatory 30% improvement in whatever (30% seems to be the magic number — all improvements return 30%)
  8. List contact details

Material for Retarded Executives?

The quality of many of  these papers provide a glimpse into how simple-minded are executives that assign their names to these papers? For instance, what we learned from Accenture’s white paper is that Accenture either knows extremely little about service parts, or did not leverage any of its external expertise on the topic. (In a white paper on inventory optimization, I learned that Booz Allen Hamilton does not actually understand what the term means.) If I were an executive I would not be overly interested in having Accenture come and visit my service organization, since a quality white paper on the topic is apparently beyond them.

Sell Sell Sell…

Everyone wants to sell business, but the implied agreement is that white papers are actually going to contain information that could be valuable to the reader. If white papers continue to be so promotional, fewer people will read them. For those consulting companies looking to learn how to write a white paper, check out the Ciber website and see how its done. (BTW, we have no affiliation with Ciber, we just like their documentation.) Here is Accenture’s promotional brochure…err, we mean white paper. http://www.accenture.com/NR/rdonlyres/6BBEC529-3EE0-491F-B6BF-A19F2750E6EB/0/profit_after_sales.pdf

You could spend time reading it, but what is the point?


How Dell Shows Parts Connections Online

Dell’s Website and Intel Linkage

Something we found interesting while writing an article on assembly to order in SAP SCM and Dell.

http://www.scmfocus.com/sapplanning/2009/07/04/assemble-to-order-and-dell-and-apple/

This relates to how websites from different companies can be used to interoperate with each other to add functionality for the consumer and maintainability for the involved sites. We were on the Dell website, when we noticed they have a link to the right that states:

“Compare processors to find what’s the best for you.”

Here is the site, notice the orange circle to the right under livechat.

Dell Intel 1

Where the Link Goes

What we found interesting about this was that the link takes you to Intel’s site, where an explanation is laid out for the consumer between the different microprocessors Intel offers in Dell models.

Intel

Who Benefits?

What is even more interesting about this is how Dell benefits. First, they provide valuable information to their consumers. Second, they no longer have to maintain information on their own site about a product that they do not make. We could see links like this for all the components. What this does is demonstrate and make transparent the contribution of suppliers to the end manufactured product.

Extending the Concept to Service Management

This concept can be extended to service parts management. For instance, if a hard drive needs to be repaired, or a microprocessor needs to be switched out, it is the supplier, not the assembly firm (in this case Dell) that has the intellectual property and knowledge of the components. Too often the main brand that performs final assembly has attempted to both present the concept that they “manufactured” the entire item, and that they were the specialists in servicing sub-components that they did not manufacturer. The web provides the ability to show the interconnections with suppliers that made the sub-components and to integrate product and service information in a way that has not been done before. Manuals in the future would be both on-line and integrated. Thus the overall guide to say…the Dell Inspiron 14 could be partially on Dell’s website, but then integrated with Intel’s and Western Digital’s and Corsair’s (etc..) websites. This is all accomplished through linking. Furthermore, each supplier only need write the manual and guide for its components once, and this can be linked to by Apple, Dell, and any other manufacturer that uses that component in their products. This both reduces the costs of maintaining this information, and improves its quality.