Contribution by Vijay Baweja – Senior Supply Chain Consultant at Bristlecone
“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large,” Henry Ford, founder of Ford Motor Corporation once said. As it turns out, any business which has tried to follow this principle has been a success to some extent. After Sales and Spare Parts management has become critical success factors for businesses today. However management of the same is difficult to say the least. We as supply chain consultants, always keep an eye open for any peculiarities which have implications on the way business is run. Spare Parts management has intrigued me for some time now and in this post I have penned down the unique challenges of spare parts and why it is difficult to manage its supply chain.
1 Demand Forecasting: Forecasting for spare parts is challenging because unlike other businesses, it is not only about “How Much” but also about “When”. A spare part might be required by the end of business day in some cases or it may not be required till a very long time in future. Thus it is very important to forecast this sporadic behavior of spare parts along with the quantity they will be required in. Just look at the example below; it shows the demand in the past 5 months for 2 different products. Which product do you think would be more difficult to forecast?
Definitely Product A, and below is the simple mathematics to support that. Even though both products have the same total demand in past 5 months, one of them is highly variable with significant gaps in demand. The greater the coefficient of variation the greater the variability.
However this situation is difficult to answer when we talk about spares. Most businesses procure spares from their vendors which at many places is a multi-tier structure and given the huge number of spare parts and equally huge number of plant locations, finding the right answer to above the question becomes increasingly difficult. Couple this with high cost of obsolescence of spare parts, it remains not only difficult but becomes strategically important to find right answers to the above questions.
With profit margins of spare parts and their impact on customer service, it is abundantly clear that businesses cannot ignore parts planning in this global manufacturing environment. For most businesses, it is now a question of how effectively they can achieve their goals of spare parts planning. I would like to end this post with another quote from Mr. Henry Ford – “Don’t find fault, find a remedy”. I have listed all the challenges in this post, for all of us to find the remedies.