Pure-play providers beside Xelux, such as Servigistics, Baxter Planning, and MCA Solutions have focused exclusively on the requirements of service parts inventory management and optimization, and have gained recognition in some market segments for their deep spare parts management expertise and scalable technical solutions. Servigistics has carved niches in medical devices and commercial electronics and MCA in telecommunications and industrial equipment; while Baxter often competes with MCA in telecommunications, and with Servigistics in high-tech/electronics. The enterprise resource planning (ERP) (and possibly SCP too) leader SAP has long been dabbling with delivering a spare parts and MRO solutions, via a longstanding alliance with Caterpillar-Ford Motor, but a solid, commercially available solution is yet to come. International Business Systems (IBS) has capabilities in determining part criticality measures and optimum service levels, as a result of its acquisition of Stratman Software. Yet, today's ERP systems generally do not contain adequate, let alone advanced spare parts planning functionality.
The spare parts planning market thus seems a prosperous area, as seen by Click Commerce's interest through acquiring Xelus. Click Commerce started out as one of several up-and-coming SCM vendors focused on coordinating and optimizing supply chain processes across multiple channels of suppliers, customers, and partners. It features leading-edge technology that is based on open Internet standards and a component-based architecture. Also, over the past few years, the vendor has rapidly corralled its partner relationship management (PRM), and moved beyond product portfolio by acquiring several niche providers, such as
* ChannelWave, a former PRM peer's channel management and service automation software assets in 2005,
* Optum, a warehouse management vendor, in 2005, which had previously acquired V3 Systems and WorldChain, respective providers of software for supplier management and vendor managed inventory (VMI), in 2004,
* bTrade, a specialist in connectivity and Internet-based electronic data interchange (EDI) for trading partner management, in 2004,
* Webridge, a provider of secure extranet portal solutions, in 2004, and
* Allegis, a data center and hosting PRM provider, in 2003 (see Click Commerce Acquires Allegis).
In addition to Xelus' forays in leveraging radio frequency identification (RFID) in tracking and analyzing service parts, Click Commerce hopes to hereby broaden its footprint with the service parts planning and reverse logistics expertise of Xelus. Xelus should eventually manage the entire gamut of operations, from ordering, moving and fulfillment of parts, including raw materials, via subassemblies and finished goods to aftermarket, spare parts. But, the acquisition also points out that the spare parts market is also challenging one even for pioneers like Xelus or former Slimstock Systems (now offered by Railpart UK Ltd.). Namely, Xelus has been in business for over twenty-five years, and with solid functional products that are, unfortunately, based on older technology. Therefore, it has lately struggled to compete with the likes of MCA Solutions, which provides solutions for service parts management that may not necessarily have all the functional "bells and whistles" or the largest install base, but is based on modern Java 2 Enterprise Edition (J2EE) technology.
Although Click Commerce has good technology, an intriguing product roadmap, and an outstanding list of customers, such as Microsoft, Delphi, Honda, Citibank, FedEx, Carrier, Samsung, Hitachi, and Ryder, one should wait and see how the company, with no prior expertise in planning, will enhance the product. Also, the footprint has now become indisputably large and ambiguous, and one that will involve some notable integration work.
Discussing the results of risk-based service part planning solutions deployments with multiple vendors shows a consensus. Those manufacturing enterprises that have not produced effective strategies for managing spare parts (including parts for field service and plant maintenance) will likely leave significant amounts of money on the table in terms of excess inventory carrying costs or missed potential sales opportunities. On average, spare parts planning systems lower inventory levels by up to 35 percent while simultaneously improving customer service levels, decreasing expediting costs and increasing field service technicians productivity, for example, increasing first-time fix rates. Some enterprises implementing these systems have reportedly seen payback times of six to nine months, while some have subsequently found out that as much as 40 percent of their parts inventory is obsolete.
According to Baxter, the result is the right product in the right place at the right time from the right source, while Xelus' inventory optimization customer, Delta Air Lines, reported an eleven percent maintenance cost reductions in 2002, which is a no small chunk of change for a financially embattled company.
MCA's management, related the success of Cisco, whose service business has over 100,000 supported service parts, over 700 stocking locations, and multiple classes of support contracts with 10 million assets to be maintained. Many of Cisco's larger customers have different service contracts for specific sets of products or locations, while other customers are not covered by any service contract, but still require service parts and support. Despite employing a variety of ERP, SCM, and CRM systems, Cisco found that none of the existing software met its requirements for service parts forecasting and inventory positioning. Thus, in 2001, Cisco implemented MCA's Service Planning and Optimization (SPO) software product, and within five months, Cisco had rolled out SPO worldwide, with over 1,000 users. The results included service level increases from 94 percent to 97 percent, while spare parts inventory was reduced by 21 percent.
Servigistics' customer Cray Computer objectives were reducing inventory without compromising parts availability, and Cray has 14,000 service parts and with sites in 30 countries. Cray reported a 27 percent inventory reduction without compromising service part availability or customer service. The like case study list could go on—while these vendors might have nascent install bases, some of them like MCA tout 100 percent customer success and availability for references.
Why should prospective user companies care about spare and replacement parts SCM solutions? Well, they might have customer commitments to maintain, but the service parts and accompanying services revenue (tapping into the value of the aftermarket) is a key element of their financial success. According to Brian Albright of Frontline Solutions, "Aftermarket parts and services have a profit margin as much as 10 times that of initial product sales and account for 20 percent to 30 percent of revenues, and 40 percent of profits for most manufacturers".
Improved service management boosts revenue from both service offerings and new product sales, while improved customer service and enhanced offerings increase customer retention, and draw new service business, providing an additional, low risk and likely repeated revenue stream over a long period of ownership. Increased customer satisfaction rates, in turn, aid new product sales. Further, some advanced risk-based service planning offerings allow service organizations to move from a focus on simply selling parts, to comprehensive offerings tailored to the needs of individual customers, including premium and differentiated service offerings as well as multi-supplier support.
Asset intensive industries such as A&D, automotive, computer, data storage, medical equipment, semi-conductor, telecommunications, with large investments in spare and replacement parts inventories, high parts, field personnel availability, and SLA requirements, have limited options to lower inventory while increasing parts availability. Implementing well-suited service parts planning can cut inventory levels up to 50 percent, resulting in reduced inventory carrying costs, lower new purchase expenditures, and fewer parts becoming obsolete. Network rationalization, more effective planning, and less need for expedited shipping provides further savings.
Prospective users should evaluate the value of these solutions in their business in terms of increased service revenue, decreased cost, and increased customer satisfaction. They should define their overall SLM strategy to achieve a tangible return on investment (ROI) from the holistic initiative, while determining their service management requirements based on real business needs. They should look for integration of the SLM business processes from the viewpoint of their customers, as to integrate the service requests with the activity in the field.
Enterprises should look at vendors with deep products and experience in managing service operations in their industry, bearing in mind the suitability of a particular product for their real life problems, and with reasonably fast runtimes (i.e., quick "number crunching" capabilities for a vast number of service part numbers and supply chain echelons). They should also look for mobile and multi-platform solutions. Although these features may not be needed today, they will be requirement in the long term. Enterprises that offer MRO services or are looking to incorporate part criticality and failure rates into their replenishment strategies should consider offerings from the specialized spare-parts planning vendors described in this article, while other prospective users might want to consider offerings from general SCP/demand planning vendors.
Typical and necessary software components (and accompanying master data models) that are in place for these add-on solutions to work, include
* a sound supply chain model (from ERP, SCM, or legacy enterprise systems);
* a robust model of inventory impacct on service;
* forecasted demand and lead time probability distributions; and
* optimized reorder points and order-up-to (minimum/maximum) levels for the items/item groups.
Nevertheless, one should try to avoid overlaps with existing enterprise applications, such as ERP and SCM systems, to reduce integration needs. These systems should be able to conduct inventory optimization across items, what-if scenario capabilities, and ideally a seamless handoff to execution systems. Prospective users should certainly consider a pilot implementation to prove the value proposition of the chosen solution.
The spare parts planning market thus seems a prosperous area, as seen by Click Commerce's interest through acquiring Xelus. Click Commerce started out as one of several up-and-coming SCM vendors focused on coordinating and optimizing supply chain processes across multiple channels of suppliers, customers, and partners. It features leading-edge technology that is based on open Internet standards and a component-based architecture. Also, over the past few years, the vendor has rapidly corralled its partner relationship management (PRM), and moved beyond product portfolio by acquiring several niche providers, such as
* ChannelWave, a former PRM peer's channel management and service automation software assets in 2005,
* Optum, a warehouse management vendor, in 2005, which had previously acquired V3 Systems and WorldChain, respective providers of software for supplier management and vendor managed inventory (VMI), in 2004,
* bTrade, a specialist in connectivity and Internet-based electronic data interchange (EDI) for trading partner management, in 2004,
* Webridge, a provider of secure extranet portal solutions, in 2004, and
* Allegis, a data center and hosting PRM provider, in 2003 (see Click Commerce Acquires Allegis).
In addition to Xelus' forays in leveraging radio frequency identification (RFID) in tracking and analyzing service parts, Click Commerce hopes to hereby broaden its footprint with the service parts planning and reverse logistics expertise of Xelus. Xelus should eventually manage the entire gamut of operations, from ordering, moving and fulfillment of parts, including raw materials, via subassemblies and finished goods to aftermarket, spare parts. But, the acquisition also points out that the spare parts market is also challenging one even for pioneers like Xelus or former Slimstock Systems (now offered by Railpart UK Ltd.). Namely, Xelus has been in business for over twenty-five years, and with solid functional products that are, unfortunately, based on older technology. Therefore, it has lately struggled to compete with the likes of MCA Solutions, which provides solutions for service parts management that may not necessarily have all the functional "bells and whistles" or the largest install base, but is based on modern Java 2 Enterprise Edition (J2EE) technology.
Although Click Commerce has good technology, an intriguing product roadmap, and an outstanding list of customers, such as Microsoft, Delphi, Honda, Citibank, FedEx, Carrier, Samsung, Hitachi, and Ryder, one should wait and see how the company, with no prior expertise in planning, will enhance the product. Also, the footprint has now become indisputably large and ambiguous, and one that will involve some notable integration work.
Discussing the results of risk-based service part planning solutions deployments with multiple vendors shows a consensus. Those manufacturing enterprises that have not produced effective strategies for managing spare parts (including parts for field service and plant maintenance) will likely leave significant amounts of money on the table in terms of excess inventory carrying costs or missed potential sales opportunities. On average, spare parts planning systems lower inventory levels by up to 35 percent while simultaneously improving customer service levels, decreasing expediting costs and increasing field service technicians productivity, for example, increasing first-time fix rates. Some enterprises implementing these systems have reportedly seen payback times of six to nine months, while some have subsequently found out that as much as 40 percent of their parts inventory is obsolete.
According to Baxter, the result is the right product in the right place at the right time from the right source, while Xelus' inventory optimization customer, Delta Air Lines, reported an eleven percent maintenance cost reductions in 2002, which is a no small chunk of change for a financially embattled company.
MCA's management, related the success of Cisco, whose service business has over 100,000 supported service parts, over 700 stocking locations, and multiple classes of support contracts with 10 million assets to be maintained. Many of Cisco's larger customers have different service contracts for specific sets of products or locations, while other customers are not covered by any service contract, but still require service parts and support. Despite employing a variety of ERP, SCM, and CRM systems, Cisco found that none of the existing software met its requirements for service parts forecasting and inventory positioning. Thus, in 2001, Cisco implemented MCA's Service Planning and Optimization (SPO) software product, and within five months, Cisco had rolled out SPO worldwide, with over 1,000 users. The results included service level increases from 94 percent to 97 percent, while spare parts inventory was reduced by 21 percent.
Servigistics' customer Cray Computer objectives were reducing inventory without compromising parts availability, and Cray has 14,000 service parts and with sites in 30 countries. Cray reported a 27 percent inventory reduction without compromising service part availability or customer service. The like case study list could go on—while these vendors might have nascent install bases, some of them like MCA tout 100 percent customer success and availability for references.
Why should prospective user companies care about spare and replacement parts SCM solutions? Well, they might have customer commitments to maintain, but the service parts and accompanying services revenue (tapping into the value of the aftermarket) is a key element of their financial success. According to Brian Albright of Frontline Solutions, "Aftermarket parts and services have a profit margin as much as 10 times that of initial product sales and account for 20 percent to 30 percent of revenues, and 40 percent of profits for most manufacturers".
Improved service management boosts revenue from both service offerings and new product sales, while improved customer service and enhanced offerings increase customer retention, and draw new service business, providing an additional, low risk and likely repeated revenue stream over a long period of ownership. Increased customer satisfaction rates, in turn, aid new product sales. Further, some advanced risk-based service planning offerings allow service organizations to move from a focus on simply selling parts, to comprehensive offerings tailored to the needs of individual customers, including premium and differentiated service offerings as well as multi-supplier support.
Asset intensive industries such as A&D, automotive, computer, data storage, medical equipment, semi-conductor, telecommunications, with large investments in spare and replacement parts inventories, high parts, field personnel availability, and SLA requirements, have limited options to lower inventory while increasing parts availability. Implementing well-suited service parts planning can cut inventory levels up to 50 percent, resulting in reduced inventory carrying costs, lower new purchase expenditures, and fewer parts becoming obsolete. Network rationalization, more effective planning, and less need for expedited shipping provides further savings.
Prospective users should evaluate the value of these solutions in their business in terms of increased service revenue, decreased cost, and increased customer satisfaction. They should define their overall SLM strategy to achieve a tangible return on investment (ROI) from the holistic initiative, while determining their service management requirements based on real business needs. They should look for integration of the SLM business processes from the viewpoint of their customers, as to integrate the service requests with the activity in the field.
Enterprises should look at vendors with deep products and experience in managing service operations in their industry, bearing in mind the suitability of a particular product for their real life problems, and with reasonably fast runtimes (i.e., quick "number crunching" capabilities for a vast number of service part numbers and supply chain echelons). They should also look for mobile and multi-platform solutions. Although these features may not be needed today, they will be requirement in the long term. Enterprises that offer MRO services or are looking to incorporate part criticality and failure rates into their replenishment strategies should consider offerings from the specialized spare-parts planning vendors described in this article, while other prospective users might want to consider offerings from general SCP/demand planning vendors.
Typical and necessary software components (and accompanying master data models) that are in place for these add-on solutions to work, include
* a sound supply chain model (from ERP, SCM, or legacy enterprise systems);
* a robust model of inventory impacct on service;
* forecasted demand and lead time probability distributions; and
* optimized reorder points and order-up-to (minimum/maximum) levels for the items/item groups.
Nevertheless, one should try to avoid overlaps with existing enterprise applications, such as ERP and SCM systems, to reduce integration needs. These systems should be able to conduct inventory optimization across items, what-if scenario capabilities, and ideally a seamless handoff to execution systems. Prospective users should certainly consider a pilot implementation to prove the value proposition of the chosen solution.
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