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A flexible strategy to migrate from parts distributor to Whole Fleet Management service provider.
The Situation
An Original Equipment Manufacturer (OEM) of armoured fighting vehicles (AFV) wanted to develop the capability to provide Whole Fleet Management (WFM) solutions for the UK Ministry of Defence (MOD).
In addition to its Original Equipment (OE) business, the company ran an aftermarket parts business that generated sales of up to £20 million in a good year. The company wanted to transform this parts business from the traditional parts distributor model into an aftermarket services provider model.
The company had been trying for some time to develop the WFM opportunity with UK MOD but the poor delivery performance of its parts business was proving to be an obstacle.
The Problem
Parts purchase orders were placed with suppliers only when firm orders were received from the MOD customer; a process known as back to back ordering. This meant that delivery lead times were relatively long. Also if a supplier delivered late, the customer would receive its delivery late.
No demand forecasting or inventory management capability existed, as it was the operational strategy to minimise costs by not holding stock. Thus an ex-stock service was not provided. As a result, the parts availability provided to the customer was as low as 70%. This was damaging the credibility of the company with its MOD customer and probably restricting sales opportunities.
The parts business operated from a single store that was shared with its manufacturing facility. The parts business used this store to process supplier receipts prior to onward shipment to the customer. However, manufacturing would regularly consume the stock for its own manufacturing needs and/or move the stock around in the store. This resulted in items being lost and customer deliveries falling short.
A new ERP system had been installed recently but this was primarily aimed at satisfying the needs of the manufacturing side of the business. The special needs of the parts business had been overlooked to the extent that the system was inappropriate for its needs.
In summary, as is often the case with OEMs, the parts business was the poor relation. The product engineering mentality of the OE manufacturer was conflicting with the service process mindset required to run a successful service provider business.
The company recognised the need to develop new capabilities but it was not confident that it knew what they were. It needed specialist expertise from someone that was not a competitor but understood its type of business, the needs of its customers and had experience of the same kind of problem. It was time to involve the service parts consultants.
The Solution
Before it could consider developing WFM capabilities, the company first needed to transform its parts business from an under-performing parts distributor into a credible parts aftermarket service provider.
Once that was achieved, the company could then consider broadening its service offering to include asset maintenance and repairs; platform maintenance, repairs and overhaul (MRO) and finally platform availability or Whole Fleet Management (WFM), its goal.
A stepped strategy was therefore devised that could re-establish credibility quickly for the existing parts business but then build on that credibility to reach the intended goal of a full WFM service.
Fixing the parts business would involve development of a complete suite of business processes; new or modified computer systems to provide the enhanced functionality required; development of proper warehousing capabilities, probably within a separate facility; and people recruitment, skills development and probably re-organisation to deliver the increased range of capabilities. This would be a big investment and a major change programme in itself but if done appropriately and successfully would provide a strong foundation on which the additional WFM services could be built.
Alternatively, the company could choose to outsource the parts business to a professional parts aftermarket service provider. This would fix the parts business quicker and avoid the major investment in business processes, systems, facilities and people by using the existing capabilities of the service provider. This would have the additional benefit of providing the company with the time and resources to develop its WFM capabilities sooner. Such capabilities are more closely aligned to the traditional OEM skills as they require deeper product related knowledge and skills and fewer service process skills.
Benefits
The company was provided with the following:
a sound strategy with which it could take its business forward; two distinct options for implementing that strategy; an independent appraisal of its strengths and weaknesses associated with implementing that strategy; short term quick wins that it could implement in the near term.
Learning
Many companies perceive that strategic analysis and planning are best kept internal because the company’s problems are unique and external consultants will only reflect back what the company knows already.
However the converse to having a deep knowledge of its own business is that it has a limited knowledge of other businesses, industries and similar problems. Moreover, directors and managers are primarily decision makers; leaders and managers as distinct from fact finders, analysts and problem solvers.
It has therefore been our experience that provided a good consultant is chosen (and not all consultants are the same) the strategic process can be accelerated and delivers a better quality result with external help. If you agree with us and need to develop a new strategy for your parts business then Servispart Consulting may be able to help. Contact us... now for a confidential, no-obligation discussion regarding your business situation and how we might support you.
Keywords
oem armoured fighting vehicles whole fleet management ministry of defence aftermarket parts parts distributor service provider parts availability capability service parts consultants asset maintenance platform availability business processes systems organisation recruitment outsourcing change programme investment MRO
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