2007 Articles
October 30, 2007
Logistics for Enterprises: "Service Parts Management in the Fast Lane"
Subaru of New England optimized its spare part distribution center using Servigistics’ service parts management
The automobile industry is confronted with decreasing sales of vehicles. A Dealer makes only 35 percent profit. The Service business contributes more to the whole sum with 48 percent profit[1]. The optimization of service business with integrated service parts management (SPM) will increase customer satisfaction.
There are almost 250,000,000 registered motor vehicles in the US alone[2], each built out of more than 10,000 single parts. Thus, there are more than 2.5 billion parts, each exposed to stress and will have to be replaced sooner or later. To guarantee each vehicle’s functionality, a reliable spare part distribution network is required that suits the dealer’s and garage’s demands regarding availability of the parts. Subaru of New England decided to use Servigistics service parts management solution.
Subaru of New England delivers to 62 franchise customers in the US and manages more than 11,000 parts for 32 Subaru-models. The dealers find themselves in a complex supply chain with thousands of parts, starting from small electronic parts to big body parts and up to whole motors. This vast number of components confronts the dealers with a problem because they can not possibly store all those parts. To keep storage costs low and service levels high requires a smart service parts management solution to guarantee quick access to the necessary parts.
Subaru of America worked with a service parts management system called Subaru National Parts Locator (SNPL). A dealer has access to a list of distributors who have the relevant service part in store. For Subaru this system was not reliable enough because it didn’t guarantee fast access to the needed part. SNPL provided only the information about the location and availability of one part; it didn’t improve the overall availability of spare parts because it did not interact with the inventory management of the part. Expectations of an efficient and flexible service organization were not fulfilled. Therefore, they decided to go their own way. Since 2000 Subaru has worked with Servigistics to forecast the need for parts and the efficiency of their own spare part distribution system.
The initial problem
The rate of service requests that were fulfilled immediately (First-Time Fill Rate) was only 70 percent, despite a 14 million dollar storage value. Subaru observed customers switching to competitors because of low parts availability. This caused a big loss of profit and a decrease in customer satisfaction. Subaru needed a solution to expedite service requests while decreasing inventory costs at the same time. That way overstock and high costs of storage reorganization could be avoided as well as delays in delivery of parts. The process of planning and parts forecasting became automatic at all central and local storage locations. Servigistics service parts management took all the requirements into regard and delivered a solution without competing with the existing SNPL.
Servigistics SPM-Solutions help ensure the sucess of the service business
While Supply Chain Management, Enterprise Resource Planning and Customer Relation Management couldn’t optimize the service specific procedure regarding the spare part management, the Servigistics solution did by combining all the systems and analysis of resulting data into service relevant information. By combining customer data with market data and with historic order data, the optimal number and place of each single part was determined. To put all the data of different systems together, the exchange of data is done using XML meta-language. With a module for parts forecasting, wrong part listings can be discovered. Built on that, the system provides active and automatic strategic tactic and operative recommendations that are the basis for storage planning – distribution and order. The solution is adjustable to increasing market demands and changing business models and is, therefore, useful for future business and market developments. The solution is easily integrated into existing web-based Java-architecture and does not require extra hardware.
Short Impementation time
First, Servigistics analyzed Subaru’s order data and the storage process and identified under and over stock. Based on the acquired data and view into historic need data, Servigistics adjusted the orders at Subaru and OEM-deliverers. That caused positive outcomes for inventory and regulatory costs as well as improved First-Time Fill Rates after a short time period. The system didn’t require much learning and, therefore, enabled a seamless system change. Sean Perry, Inventory Control/Parts Administration Manager at Subaru acknowledge the good collaboration: The implementation was very quick with Servigistics and there were almost no interruptions in our daily business.
After the system was implemented in central storage, Subaru of New England offered it to its 62 franchise companies. Ninety-seven percent of those dealers decided to use this system.
Less inventory, more profit, increased customer satisfaction
Shortly after the 12 week implementation of the Servigistics solution at Subaru of New England, significant improvements of the service business were noticed. The inventory was reduced by about 40 percent, which saved 8 million dollars. The waiting time for a part dropped from one week to less than a day. Therefore, the First-Time Fill Rate improved from low 70 percent to 98 percent followed by a significant increase in customer satisfaction. This increases part-sales and prevents the loss of customers to competitors; therefore, the profit in the service business increased by 8.5 percent. Together with the significant savings for storage and buying service parts, all connected stores could achieve a strong profit plus from about 20 percent. “Servigistic’s ability to discover on stock levels for all parts at any location and to reveal overstock and shortage resulted in significant savings for us and our dealers. Because the necessary part was available in a shorter time, we were able to increase our customer’s satisfaction with Servigistics,” Sean Perry said.
Improvement of the relationship between company, distributor and dealer
The combined use of SNPL and Servigistics-SPM was a strategic competitive advantage and improved the relationship between company, distributor and dealer. Subaru can predict the needs weeks in advance using Servigistics Forecasting-Module and it can order the needed parts, avoiding shortage in national storage. In case a very rare part is needed that is not in Subaru’s stock, the SNPL dealer network can be used.
The SPM of Subaru of New England strengthens the dealer connection by providing a system of more value to the dealer. The system displays only OEM-parts, but it secures the availability of OEM-parts for the dealer. Therefore, it stops the flow of customers to third parties and free dealerships by offering none or short waiting times and a part of great quality. In order to keep accuracy of the prediction system, the dealer should order its parts through the SPM-system and not from third parties because the system won’t know about it.
A System for Germany?
There are 55.511.373 cars on Germany’s streets[3], thus 555 Milliard parts. This means a huge unused profit potential for the auto industry. Because of the liberal spare parts market in principal, it is possible to get equal quality parts through third party distributors, but very few of them do that. Customers trust free dealerships because they are much cheaper. The contract dealerships lose many service requests, which equals profit loss. This can be prevented by a progressive spare parts management solution. The Servigistics Service Parts Management solution provides better care of dealers through forecasting and planning of parts. With shorter waiting times, the customer loyalty and satisfaction is markedly increased.
In connection with the Servigistics’ solution for Parts Pricing, the price difference between OEM and third parties can be decreased. That way the service parts business can become a profitable and solid base in the overall business strategy.