Service Labels for Repair Time Transparency

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Government mandated nutrition labels were critical to improving the transparency of information as to what is in food. We are proposing a similar level of transparency for serviceable items.

A Common Sense Proposal

After spending some time researching the topic of service-ability of parts, I learned that items are in more cases than not becoming less serviceable, and that most companies are hiding their reliability information (See these posts for background information)…

http://www.scmfocus.com/servicepartsplanning/2009/06/22/public-mtbf-statistics-for-hard-drives/

http://www.scmfocus.com/servicepartsplanning/2009/06/16/items-becoming-less-serviceable/

Clearly what is happening is many companies are not placing sufficient emphasis on serviceability. Other issues such as the marketability and consumer design priorities are increasingly taking precedence in design decisions. Furthermore, without some increase in transparency, this misallocation of resources and continuation of manufacturing items with little concern for service-ability will continue. Interestingly, in the environmental discussion, what is more often that not left out is how service-able products are. More serviceable products means longer product lifespans, less energy spend in making and transporting new products to stores and customers, and less space taken up in landfills.

Because of this I am proposing a labeling system for serviceable products. This label would state the following:

  1. The amount of time to initially setup an item
  2. The amount of time required to service an item through the item’s lifespan
  3. The total estimated time = item 1 + item 2 above

This could be printed as a large number with an identify-able label.This could be placed on all product packaging for items that require assembly or service. This label would not be on all products, but some likely candidates would be the following:

  • Computers and sub-components
  • Automotive Parts
  • Appliances
  • Housing items such as lights fans, furniture
  • Industrial products

How the Estimates Would be Generated

The estimation of the time required would come from a government testing body, this would be very similar to Underwriters Labratories (electric items come with a UL sticked in the US, and can not be sold without testing for safety). Testing would be performed by using laypeople — not experts in maintenance, to assemble and repair items. Sufficient quantity of people would be necessary to ensure that the times developed had statistical relevancy. The testers would only be provided with the manuals and instructional materials that came with the product, thus the test could also test the manufacturer’s instructional material.

What Would the Label Look Like

The label would be very simple. It should be large and easily recognizable and only needs to provide a three numbers. Here is a mockup.

ServiceLabel.jpg
The Industry Response

Business would fight this initiative as being too expensive and invasive. However, there is nothing new here. Business has fought every single initiative that has improved consumer health and safety. Areas they have fought in the past include:

  • Safety belts
  • Air bags
  • Food labeling
  • Cigarette warnings
  • Drug testing

At the time these concepts were deemed by industry as unnecessary and onerous, however, now they are simply part of how we live. Who can now imagine a world without drug testing or seat belts? Progress is made by deciding what type of system is desirable within the larger context, and then pushing for it.

Where Will The Money Come From?

There is plenty of money is the US to do this. There are trillions of dollars to give to corrupt banks, so there is plenty of money for a small program like this. We have spent around a hundred billion to develop a military fighter jet that is so delicate and specialized, it can not even be used by the military in combat (the F-22), and is considered completely unnecessary by independent military experts. So there is certainly plenty of money to setup a lab to perform laboratory testing for service and maintenance. The expense of doing this would not be all that onerous. Products could be tested quickly, and would only have to be tested when a new product comes out or a change is made to an existing product by the manufacturer. If not every item could be tested, the most widely sold items could be tested, resulting in the highest common good per dollar spent.

How Would This Change Things?

The result would be a significant change in how companies build their products which would make them more durable, and easier to service. Right now companies are banking on the fact that consumers will never know the long term service time and costs of items. Therefore, new product development produces items that have great packaging, compete well on price, but have very little invested in them in terms of ease of assembly, maintenance and service. By placing the Service Label right on product packaging, and on product website, companies will no longer be able to ignore this issue, and consumers will be able to make informed decisions. It will punish companies that release poorly designed and difficult to service items onto the marketplace.

Service to Business

While this would be opposed by many OEMs and their suppliers, not every business would oppose this. Service organizations of business would be in favor of this government testing center as it would allow them to know the lifelong service effort of different items that they buy and maintain. Thus the government testing center would offer a service not only to consumers, but to businesses also.


Public MTBF Statistics for Hard Drives

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Can I Get An MTBF Please?

In one of my previous posts I described how unusual it was for companies to maintain causal information (such as aircraft landings, or installed base) that could be used to perform causal forecasting. After the hard drive in our iMac went out, and I was performing a search for the most reliable model to replace it with, we learned that MTBF (mean time between failure) figures are not available for even the most commonly purchased item by companies and by individuals.

Two pieces of data are necessary to perform causal forecasting, which is very important for service parts planning:

  1. MTBF of the causal value
  2. Installed base or other causal value

With just the MTBF consumers and organizations can make informed purchase decisions. However, with both these values companies can use service parts planning software to drive our forecast and stocking. (to read more about this, see these posts)

http://www.scmfocus.com/servicepartsplanning/2008/01/13/service-parts-and-mtbf-forecasting-2/

At this point, it is well-known that the official MTBF statistics published by vendors are unreliable and pure fantasy. Because there is no objective third-party that does drive comparisons across vendors and publishes the results, there is no reliable source for failure information (if anyone knowns of one please comment on this post). Although I know that companies, especially companies that purchase and deploy large numbers of disks may keep their own private statistics. When asked questions about this topic, vendor spokesperson move into a degree of doublespeak that would make Henry Kissinger green with envy.

Where Are The Failure Stats?

According to a white paper by Wiebetech – a drive enclosure maker Manufacturers are loath to give out real world statistical information.

All of the drive vendors do what they can to obscure any differences between their drives in terms of quality or MTBF. This allows them to compete on the basis of retail box design and marketing, as well as personal business to business relationships, which appears to be their preference. A quote from a recent article on this topic in PC World reinforces how much OEMs like to dance around the issue of reliability and failure. Several drive vendors declined to be interviewed.

“The conditions that surround true drive failures are complicated and require a detailed failure analysis to determine what the failure mechanisms were.”

..said a spokesperson for Seagate Technology in Scotts Valley, Calif., in an e-mail.

“It is important to not only understand the kind of drive being used, but the system or environment in which it was placed and its workload.”

This is hilarious. Apparently hard drives are the only thing for which MTBF statistics cannot be developed. Interestingly, companies like Google or any company with a large number of servers has this information because they have many drives and their drives fail as time passes, and as they are all in servers in the same building, the usage is similar, and therefore comparable.

http://www.pcworld.com/article/1295582/studyharddrivefailureratesmuchhigherthanmakers_estimate.html

Vendor Studies from Russia

One of the few vendor studies on the failure rate of hard drives was performed by a company in Russia. The results are documented at this article link.

http://www.tomshardware.com/reviews/hdd-reliability-storelab,2681-2.html

This image shows the most reliable drives with Hitachi leading all producers.


The drives I use most often are by Western Digital, but it is interesting that I can expect around 3.5 years of life from them, which squares with my experience after owning many Western Digital drives. This statement is of great interest, as it cautions against buying very high-capacity drives.

The remaining 41% exceeded 500 GB. Due to their construction and additional platters, these larger models are less durable, exhibiting an average lifespan of only 1.5 years. – Tom’s Hardware

The Costs of Publishing the Truth

It’s easy to publish positive information about vendors, but a huge headache to publish negative information. I know. I tested backup software several years ago and published my results online. My general finding was that PC backup software was very unreliable and difficult to use. Also that Norton Ghost, but in particular Acronis True Image never actually recovered a computer image properly after 10 attempts. After publishing this, I was contacted by a representative from Acronis who told us I did not know the software and that my findings were wrong. They then offered to send us the newest software,….which I took a lot of time to test…and which also failed. Publishing negative information like this, if you take advertising is even more difficult. This is one of the reason so few companies do it. CNET will publish on the different merits of products, but won’t touch the issue of reliability, nor will 98% of other publications. Consumer Reports is one of the few that does. While their publication is trailblazer in the area of reliability studies, have to have a legal team ready because they are often sued. However they do not publish at the level of detail of MTBF or other failure statistics. Something more is needed.

References

Article on how vendors refuse to provide real MTBF values.

http://www.eweek.com/c/a/Data-Storage/Hard-Disk-MTBF-Wheres-the-Reliable-Reliability-Data/

It turns that it is not just the disk that is important, but the configuration as well. If a person is using an external multidrive enclosure, it appears that mirroring is the best and most reliable. This is of course because of the 100% redundancy. Redundancy does come at a cost, but with the highest quality drives now costing roughly $75 — depending upon the make, redunancy is affordable. This also brings up the topic of whether all computers should have two drives internally, so that mirroring can be accomplished. Since the iMac and most laptops do not offer mirroring, they can be seen as less reliable designs than mirrored disk computers. Mac offers the ability to boot off of external disks, which does offer the capability of mirroring. This is only one reason why online data tends to be so much better maintained than off-line data stored personal computers and exernal disks. Almost all servers use a high degree of redunancy, which includes mirroring of disks. To read more about this see this post on Box.net.

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

See the article here:

http://www.wiebetech.com/whitepapers/StorageEnclosureReliability.pdf


Why OEMs Should Stop Controlling Service

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The desire to control is not an attractive feature in individuals or companies. Too many OEMs follow a control model for their service parts and maintenance information which is anti-market, and it should be understood and opposed.

A Trend Observed

It has come to our attention after reviewing several of our previous articles that the less control OEMs (original equipment manufacturers = companies like Ford, Apple, Cisco, etc..) and service organizations have, the better it is for consumers.

Automotive Service Restrictions to Competition

In our article, Why Automotive Parts Networks Area a Mess, I cover how automotive dealers are retarding the development of service parts businesses through their monopoly over many “dealer only parts.” These parts are not even made by the manufacturers, but instead by the manufacturer’s supplier base (on average 70% of a car is not made by the name on the car). The only reason this situation exists is because OEMs compel parts manufacturers to sign exclusive contracts with the OEM that restricts the selling of parts to the OEM or to the dealer network. This is bad for consumers in a couple of different ways.

  • Dealers lack the competence or interest to create service part websites, and thus most dealer parts cannot be purchased online in any way.
  • Consumers have to pay a significant premium for their parts because of the control exerted by dealers and their antiquated supply chain and inventory systems.

Unprincipled Tying Agreements

There is something ethically wrong with these type of agreements. If a company is not making an item, its hard to see how they have the right to determine how that item is sold and distributed. Not only is the item not made by the OEM, but the technical knowledge and intellectual property is not theirs either, that also resides with the parts supplier. There are laws in the US against what is referred to as “tying agreements.” It is typically applied to an OEM pressuring a retailer to sell one of the OEM’s new or less popular items in exchange for gaining access to the right to sell another more established item. I don’t see why the tying arrangement law could not be applied by the Federal Trade Commission to break up exclusive OEM distribution arrangements with their parts suppliers.

Wouldn’t This Be Anti-Market?

This is a very common concern brought up people when exposed to this idea. There is a severe misunderstanding generally about what makes an dynamic and innovative economy…and it have very little to do with moving interest rates around or bailing out Wells Fargo. It has much more to do with structuring the rules of the economy so they provide the right incentives to business to operate openly and transparently. If we really want the dynamic and innovative economy, that according to the business publications we say we want, then we need to collectively show some backbone and begin standing against uncompetitive and regressive legal contracts that enrich non-value added actors at the expense of consumers and market efficiency. There are already all types of laws on the books that break up trusts and uncompetitive, anti-consumer activities. It’s time to start using them again.

Video Repair Guides and Information Exchange

In our article, Using Online Videos for Service and Repair, I discuss how, in the case of repair guides and repair information, OEMs have historically restricted information to users, and how it is the user community that is actually doing the OEM’s work for them by making repair videos available on YouTube.

OEMs have done remarkably little innovating, and placed little effort towards creating quality instructional material for the servicing of their items. Their manuals are belabored, sleep inducing to read and unnecessarily expensive to produce compared to the benefit obtained by consumers. OEMs may find this topic incidental or a non-issue but it is wasting a lot of consumer time. If a regulatory body appeared and placed a label which listed the average number of hours required to assemble or repair items right on product packaging, OEMs would start taking this issue of repair information a lot more seriously. Again, many would call this an unnecessary restriction of the market. However, they would be basing this on a flawed understanding of what makes an efficient market. A market cannot develop without information. Here is an example.

Market Information Example

Lets say a consumer is looking at two items in a store. They have identical features and both from reputable manufacturers, but one is $15 less. It would make economic sense for the consumer to buy the lower cost item correct? Not necessarily. What if the lower priced item, because of a bad manual or bad design takes an hour longer to assemble, and 2 more hours to maintain over the life of the item. Furthermore let us say the consumer values his time at $20 per hour. In this example, the buyer would be in actuality paying $45 more by buying the less expensive item ($15 – (3 x $ 20 / hour) = $45. However, if the consumer is not made aware of this information, they will not be able to make a rational choice. Thus the current information model – which is no information about long term service costs promotes manufacturers to complete on price, to not invest in designing effective instructional material and to make less serviceable items. This results in a less efficient market.


The Place of Regulation in Maintaining Markets

This misunderstood feature is primarily because it has been heavily lobbied against by business through extensive public relations campaigns and influencing educational curriculum and economics research with money. An efficient market requires regulation, just as a fair football game requires officiating. If anyone doubts this, simply try a little test. For one week in the NFL, have all the games played with no officiating, and see what happens to the quality of the game. Thus, regulations that increase transparency and information enhance the market, not the other way around.

*This is the nice thing about blogging, if I worked at a university, I would probably get a lot of pressure from corporate donors for writing this, and our head of department would be angry at us for reducing the department’s fund raising opportunities. (businesses only fund business friendly research) However, since I do not report to any institution, I can present what is well known, but which is career limiting in academics to discuss or publish.


Dumping Manuals

The ineffectiveness of manuals is well researched. The vast majority of users never read them. They also lack effectiveness because, unlike a video, they cannot show the manipulation of items in a 3 dimensional space. Several YouTube videos for each product could probably replace most of the instruction manuals for products that are sold. More complex products would require more videos, which is fine. They are cheap to produce and take less skill to produce than written manuals. To write a good manual, one has to be a good writer in addition to reproducing technical knowledge. However, to make a good instructional video one only needs to know very basic video filming, and simply perform the activity on camera. Videos can show an entire assembly and dis-assembly of an item, providing maximum reproducibility.

Unapproved Uses

Service organization and OEMs are losing control over the information of their products. While they controlled this information in the past, this information was never theirs to begin with. In a free society, anyone can publish whatever they like about whatever product or service they use. History shows that users will come up with many shortcuts and extra uses that OEMs never thought of. In a way, this is similar to the benefits of open source software.

While threats like “voiding warranties” have been used to limit the user’s customization of products, a person has a right to do whatever they like to products that they buy. Users are posting videos for doing unapproved things (such as replacing iMac hard drives) to their items. What has changed is that users now have the distribution mechanism – YouTube specifically, but the web more generally, to provide their own content. Much of this content is of very good quality, and this demonstrates that content like this is not that difficult to produce, and of great benefit to users.

Conclusion

The trend here is clear, the less control OEMs have over the servicing of their items, the better that market will be for consumers and the more dynamic the overall market will be generally. OEMs seem to have little interest in investing in innovation, IT or service generally, so it makes sense to open them up and allow user communities to do the work they don’t want to do, so they can just work on new product design and marketing.

Forward looking OEMs will embrace this and even support the growth of online user communities on their websites. These developments can be incorporated into their own service organizations.

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Reference

After researching this area, I found it goes back further than I thought. This excerpt is from the book The Waster Makers published way back in 1960. Manufacturers often failed to provide in provide information that would facilitate repairs. Recently The Boston Globe protested that appliance manufacturers were getting so “cozy” with service manuals that customers seeking them got the impression they were “censored as if they contained obscene material.” The Electric Appliance Service News likewise expressed indignation on behalf of servicemen, or at least independent servicemen. It said, “Our mail is loaded with gripes daily from servicemen throughout the country lamenting their inability to obtain service manuals from certain manufacturers.” Often this coziness has sprung from the desire of the manufacturer to keep the repair business to itself and out f the hands of independents. The News charged that “some manufacturers do not make service manuals available to all independent repairmen and therefore it is almost impossible to make repairs easily and properly—and at a time-saving expense.


Using Online Video for Service and Repair

YouTube
Videos for iMac Repair

As we described in our previous post, we recently had a hard drive in our iMac crash. After learning of the $420 dollar charge, and the inability of the Apple Store to put in the model that we wanted.


Reliability vs. Capacity

We wanted to downgrade to the higher reliability and lower heat smaller drives, and have opted for a Hitachi Deskstar 320 GB disk. We took out the 500 GB disk that came with the iMac and ran it in an enclosure and were disturbed by the heat it created. Little discussed is a univeral feature of new items. The newer a technology, often the less reliable the technology.


We decided to repair the iMac ourselves. One of the best sources of information on this is not from Apple (they do not endorse users to perform this replacement as they consider it too complicated) but from YouTube. Several users have posted how to remove the front integrated display to get to the drive bay. We have assembled several computers ourselves, and replaced numberous hard drives and this is the first computer we have seen that has its hard drive so difficult to reach that it requires a special approach.

[tube]2YsCTNVEYt8[/tube]

[tube]eBAawbp2GUE[/tube]

youtube=http://www.youtube.com/watch?v=2YsCTNVEYt8

youtube=http://www.youtube.com/watch?v=eBAawbp2GUE

These people posted this video for no profit, and it has helped probably many Mac owners do internal work themselves. Since Apple does not want people opening the case of iMacs, without user created guides, the information of how to open the iMac case would never be made available. Kudos to the YouTube community.

What We Learned from the YouTube iMac “Service Video”

  • What tools we needed to buy before we attempt the replacement (allowing us to order the tools along with the new drive so they all arrived at roughly the same time)
  • How to perform the case opening in a fine level of detail.

Videos are amazingly good tools for learning how to perform complex multi-step activities — and thus are perfect for service parts repair operations.

The Use of Video

Video is popping up here and there in service management. For instance there are DVDs that deal with service management that can be purchased. Below are a few examples that are available on Amazon.com, but the titles are not very numerous, nor all that specific.

Maytag Repair

Motocycle Repair
There are several reasons why DVDs are not the best medium for repair videos.

  • Many people have a small video to contribute and will not go through the effort to produce an entire DVD
  • DVD’s tend to represent the interests and perogatives of the OEM. However, a number of unapproved techniques can be posted by users that the OEM would never publish.
  • YouTube and web video in general is far more convenient for the user
  • The cost is much lower
  • YouTube serves as a central online library for thousands of online videos

YouTube As a Service Video Library

The largest repository of service and repair videos in the world is no doubt on YouTube. However, it is not manufacturers or their service organizations that are leading the way, but individuals who are posting videos out of personal interest and in their spare time. This is yet another example of innovation not coming from inside of companies, but from outside, and from the general public.


Parts Databases and eBay

eBay has created the largest service parts database in the world, and it was not created by any one company (eBay only created the platform), but by the collective efforts of many individuals and companies simply through the listing of items. To read about this, see this post.

http://www.scmfocus.com/servicepartsplanning/2007/07/22/service-parts-databases-and-ebay/


Using YouTube As a Video Server

Posting videos to YouTube is beneficial for several reasons. Once a video is uploaded to YouTube, it can be presented on any blog, as we have presented videos within the post of this blog. Therefore, the video can be both available to those searching YouTube and those searching the company’s service site. A series of service videos could be created for the most common repair items for a company’s products, posted on YouTube, and then also posted on a service parts repair site. Here is an example of what we are describing.

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

Conclusion

Companies focused on service should begin taking advantage of video, integrated into blogging software to improve the quality of their service capabilities and to distribute this information to the public.


Why Auto Parts Distribution is So Inefficient



Big Problems in Automotive Service Parts Networks

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://www.scmfocus.com/servicepartsplanning/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. This quote is from the HBR article called Winning in the Aftermarket:

Some years ago, when we studied the after sales network of one of America’s biggest automobile manufacturers, we found little coordination between the company’s spare parts warehouses and its dealers. Roughly 50% of consumers with problems faced unnecessary delays in getting vehicles repaired because dealers didn’t have the right parts to fix them. Although original equipment manufacturers carry, on average 10% of annual sales as spares, most don’t get the best out of those assets. People and facilities are often idle, inventory turns of just one to two times annually are common and a whopping 23% of parts become obsolete every year. – HBR

Improper Parts Planning

When consultants for service parts planning software company MCA Solutions 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 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://www.scmfocus.com/servicepartsplanning/2008/04/23/drp-vs-multiechelon-planning/

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

Generally, the independent dealer model continues to work against rational inventory pooling. AMR Research (now part of Gartner) 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 tacticalin nature, solving specific inventory, fill 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 ordirector-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 first 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, fill 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 first place—think of an auto OEM and the dealers that actually 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)

Rick_Wagoner_GM_Looking_Sad
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 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.

It seems often that the large American car companies have little interest in their service operations. Instead they prefer to spend their money on advertising. They have lost the battle for the aftermarket, and this reflects in their new sales, although they are unable to make the connection.

To quote again from the HBR article Winning in the Aftermarket:

In the automobile industry, for example, there’s a distinct correlation between the quality of after sales service and customer intent to repurchase. Brands like Lexus and Saturn inspire repeat purchases by providing superior service, and, consequently, they have overtaken well established rivals like Ford and Chrysler. – HBR

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://www.scmfocus.com/servicepartsplanning/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/


Service Parts by Industry

ServicePartsByIndustry.jpg
Industry Differences

Different industries have very different focuses in terms of service parts. Much of it has to do with the attributes of the products themselves. Some of these attributes are listed below:

  1. The length of life of the supported product (i.e. heavy equipment has much longer service part lifetimes over consumer electronics)
  2. The expense of the supported product
  3. The complexity of the supported product

Generally the larger, longer lived, more complex and more expensive the product the large percentage of overall revenues are derived from service parts. Airplanes are an example of where revenues in the form of service parts can come 25 years or more after the initial sale. The major industries for service parts are the following:

  1. Automotive:
  2. Aerospace:
  3. High Tech: (primarily for the manufacturing machines, such as semiconductor equipment)
  4. Construction and Industrial Earth Moving Equipment: (the largest service part organization and now service part third party, Cat Logistics, was originally an internal organization to Caterpillar, which was setup to service Caterpillar tractors and other earthmoving equipment)
  5. Consumer Durable Goods: Many consumer items are long lived such as washers, heaters and refrigerators.

The Challenging Environment of Service Parts

These features combine to create a very challenging environment for service parts planning. The emphasis here is planning. The execution of the plan is not very much different from the execution of original production items. This is why the requirements (planned production, transport and new buy orders) can be effectively executed through and ERP system, but can not be effective planned by most ERP vendor planning systems. However, regardless of this fact, most companies are still planning their service parts with a combination of ERP system with external planning spreadsheets.

One of the best articles on the importance of service parts planning is (Winning in the Aftermarket, HBR May 2006, Cohen, Agrawal, Agrawal.). In this article the following are mentioned.

According to a 1999 AMR Research report, businesses earn 45% of gross profits from the aftermarket, although it accounts for only 24% of revenues.”

“On average whopping 23% of parts become obsolete every year.”

“Indeed, third-party vendors have become so price competitive that OEMs lose most of the aftermarket the moment the initial warranty period ends.””Each generation has different parts and vendors, so the service network often has to cope with 20 times the number of SKUs that the manufacturing function deals with.”

“Aircraft manufacturers, for instance, can reap additional revenues for as long as 25 years after a sale. The longer the life of the asset, the more opportunities companies will find down the line. Each generation has different parts and vendors, so the service network often has to cope with 20 times the number of SKUs that the manufacturing function deals with.” – AMR

Chicken or Egg?

The question of whether purchasing companies or software companies were what retarded the market is an interesting question and could be the topic of a separate article. This shortage of systems for service parts management has left the majority of service parts networks managed by manual means. Paradoxically, due to the more complex nature of service part planning, it is even more difficult for a human planner to compete with a computerized solution than for a human planning to approach the quality of original product planning. While more complex planning systems are required for service planning, the desire of companies to spend money on service parts infrastructure and software is lower. What results is a seriously sub-optimized sector of the economy. This is why we have proposed a 4PL model for service parts management, which is described in this post.

http://www.scmfocus.com/servicepartsplanning/2009/06/10/service-parts-are-a-perfect-market-for-4pl/