• Ron Giuntini

35 processes to repurpose aftermarket parts investment for advanced service agreements

For B2B OEMs moving from the legacy build-and-sell concept to that of an as-a-service business model, they often experience a multi-stage journey. These efforts usually start with a small scope, such as pilot projects; with an objective of finding the best models when it comes to risk/benefit optimization, as well as the evaluation of the requirements of the marketplace.

One of the common models deployed by OEMs in the early stages of their journey is to design and deploy aftermarket servitized contracts; where the OEM assures the availability of parts employed in a variety of maintenance, restoration, and improvement events during the life of the contract.

In the context of fixed-fee advanced-services agreements, there is a fundamental change in how aftermarket activities contribute to the profitability of an OEM business. Instead of the aftermarket being a transaction-based revenue source, where more-is-more profits, advanced-services profitability are focused upon engaging in the efficient and effective employment of aftermarket parts…or less-is-more.

While in the long-term, as OEMs migrate to advanced services, they will be designing and manufacturing more robust and easier to maintain machines; e.g., OEMs will be applying higher levels of hardware and firmware modularization and improvements, as well as the use of application software in self-maintenance and remote maintenance; but in the short-term, OEMs need to tactically optimize the processes that support their aftermarket parts investment.

Below are 35 processes that can be employed by a B2B OEM in managing the asset valuation and availability of its aftermarket parts balance sheet investment in support of an advanced-services agreement. Not all the processes are applicable to all sectors, but most processes are applicable to most sectors.

1. Improve an in-stock part’s original capability and employability attributes

(i.e., install the most current in-production hardware and/or firmware releases)

2. Restore a previously employed in-stock part to its original design’s attributes

(i.e., remanufacture/overhaul/rebuild to meet agreement requirements)

3. Maintain the current attributes of a staged physically impaired part

(i.e., repair wear and tear of the returned part from an Exchange/Swap transaction, a major cost element for the agreement owner)

4. De-rate an in-stock part’s capability

(i.e., repurpose below current capabilities to prolong life due to a cold supply chain)

5. Unitize the unit-of-measure of a currently in-stock Part Number [PN]

(i.e., issue only as a minimum quantity/package)

6. Protect in-stock parts

(i.e., waterproof packaging of parts)

7. Test in-stock parts to assure employability

(i.e., periodic requirements for regulatory conformance)

8. Calibrate in-stock parts

(i.e., calendar time-driven requirements)

9. Triage parts upon an in-stock accident

(i.e., separate for insurance claims; that can be returned to stock, inducted in a process, as well as those to be disposed)

10. Preserve in-stock parts physical condition

(i.e., long-term agreement strategic storage of out-of-production surplus transferred from manufacturing)

11. Kit the in-stock supply of multiple PNs for an agreement event

(i.e., combined children parts employed to remanufacture a parent component)

12. Follow the history of the in-stock supply of parts

(i.e., on-hold until ‘birth’ traceability requirements are established)

13. Trace the in-stock part source of raw material

(i.e., on-hold until a determination that source is not illegal rare minerals)

14. Monitor in-stock part country of origin

(i.e., on-hold to confirm meets manufacturing agreement requirements)

15. Enforce regulations of in-stock parts supply

(i.e., on-hold until Material Safety Data Sheets (MSDS) documentation is available)

16. Certify in-stock parts supply

(i.e., on-hold until required inspection documentation is obtained)

17. Clean in-stock parts packaging

(i.e., provide cosmetically acceptable product)

18. Validate the in-stock authenticity of parts

(i.e., on-hold until counterfeits/non-conforming parts are culled from directive)

19. Study in-stock parts supply impairment

(i.e., root cause analysis of failed part with No Defect Found [NDF])

20. Quarantine the in-stock supply of parts

(i.e., hold for recall)

21. Comply to governmental control of selective in-stock supply of parts

(i.e., on-hold for documents applied to commercial parts that may be subjected to International Traffic in Arms Regulations (ITAR) control of the export and import of defense-related parts)

22. Retire the in-stock parts supply

(i.e., no future demand due to substituted part, economic life expired; performed disposition ‘responsibly’)

23. Expunge in-stock expired shelf-life parts

(i.e., stage for disposition and replace)

24. Upload firmware data sets to in-stock parts

(i.e., data sets updated to improved machine capability)

25. Consolidate disparaged in-stock items

(i.e., combine the supply of empty reusable containers for the storage and shipment of parts)

26. Return agreement owner’s parts no longer employed at customer’s site

(i.e., review of received parts, end of agreement reconciliation)

27. Repackage damaged in-stock items

(i.e., new packing materials for restocked items)

28. Review the parts returned from a customer in which is transferred to the agreement owner

(i.e., the customer sells entire parts investment to agreement provider; receipts are inspected)

29. Sale/Leaseback the customer’s owned parts

(i.e., acquire exchange pool and then lease them for agreement access)

30. Repurpose in-stock parts

(i.e., disassemble items to be employed for another process)

31. Reclaim in-stock parts

(i.e., disassemble permanently impaired component for piece parts employed in a repair process)

32. Recycle in-stock parts

(i.e., ability to return to raw material level)

33. Degauss data from electronic parts

(i.e., destroy all data elements for customer privacy issues)

34. Remediate hazmat in-stock supply

(i.e., remove to the authorized site)

35. Redistribute intra-agreement parts supply

(i.e., move from one warehouse to another warehouse to meet agreement support requirements)

For OEMs with global operations, it is crucial to be able to identify parts locations and their status to include them in a process and/ or create an impairment reserve that should be accounted for on the balance sheet of the agreement owner.

The processes identified above are the behind-the-scenes of aftermarket parts management employed in an advanced services agreement. The impact of one process is often not operationally or financially material for the effectiveness and/or efficiency of an agreement, except for the restoration, improvement, and maintenance of an Exchange/Swap part, but several processes combined can be indeed of significance for the agreement owner.

What other processes can you name for aftermarket parts management of advance service contracts?

#OEM #advancedservices #servitization #aftermarket