Service Parts Planning

Discussion Document
Pablo Tapia-Chicho Deloitte Consulting LLP July 31st, 2009

Content
Definitions SPP Application Capability SPP Vendors Different SPP Configurations 1 Same-vendor ERP and Planning Engine 2 Hybrid Planning Engine 3 Full Substitute Planning Engine Case Summary

Objectives
Define key terminology used in Supply Chain Management
Define the scope and characteristics of the spares planning

problem
Define software combinations and identify their key differences in

addressing the spares planning problem

Describe a business case

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Definitions
Inventory Planning (IP) IP is part of supply chain planning (SCP), it is a technology used by enterprises to manage inventory levels at every location across a supply chain. Some enterprises manage inventory with simple policies for single locations or for complex multitiered networks of locations
Inventory Strategy Optimization (ISO) A newer breed of more-evolved inventory planning (IP) technology that evolved out of SCP. ISO applications are an emerging class of optimization tools used to determine the total inventory level for all locations simultaneously, taking into account all the various dependencies, constraints and sources of demand/supply variability across the entire network. All policies are modeled and evaluated from storage, sourcing, safety stock, replenishment and other factors. Supply Chain Planning (SCP) In SCM, processes are required that forecast customer demand and plan the supply to satisfy this demand. The technology required to support these demand and supply planning processes is called SCP. Service Parts Planning (SPP) SPP is considered an extension to SCP, targeting the specific needs of service and repair part forecasting/demand planning, inventory planning and replenishment planning. Although sharing similar capabilities with SCP, SPP must model and support the particular features that are required to address the distinctive needs of service parts (see below).
Source: Gartner

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Definitions (2)
Spares or Service Parts Items required to maintain or repair a system to the desired condition. There are two classes: Repairables. Spares that can be fixed if they develop a malfunction Consumables (non-repairables). Spares that are thrown away and replaced with a new or refurbished item
Multi-Echelon Supply Chain Echelons describe how the repairable items and spares supply system is organized. Repairable items are more complicated than consumables because we are typically interested not just in how many spares are needed at each operating base, but how many are needed at the supporting depot . The latter affects the probability distribution that a spare will be on the shelf at the depot to resupply a base. The bases are referred to as the first echelon, and the depots as the second echelon. Multi-Indenture The indenture structure defines the engineering parts hierarchy. A first-indenture item that is removed from the aircraft is called a line-replaceable unit. When the first-indenture item is taken apart in the maintenance shop, second-indenture items are replaced and these are called shopreplaceable units (this continues to lower-indenture parts). Optimal stock levels of different items are not independent because of the substitution effect.

Source: Sheerbroke

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Definitions (3)
Item Approach Traditional inventory theory uses the item approach, where the spares for an item are determined by simple formulas that balance the cost of holding inventory, ordering, and stockout. The disadvantage of this approach is that the availability and total investment in the system of items are uncontrolled outputs of the item decisions. Multi-Echelon Technique for Recoverable Item Control (METRIC) Model that calculates for every item on a system the optimal stock level at each of several bases, which may be different in terms of item demand rates and other characteristics, and the supporting depot.

VARI-METRIC Model for the combined multi-echelon, multi-indenture problem. Calculates the cost-availability of aircraft at operating bases, and the associated stock levels for every item at every location corresponding to each point in the curve. The model is also used to calculate cost availability curves for individual aircraft systems, such as propulsion.

Source: Sheerbroke

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SPP Application Capability

Core SPP Capabilities Specific requirements are universally necessary for planning service parts that must be addressed by SPP applications, such as: Support very large numbers of stock-keeping units, often millions of parts/location combinations Significant item cost variability, from very low (less than $1) to high (more than $1,000) Significant item demand variability, from very low (a few pieces per year) to high (many pieces per week) Low levels of demand predictability Highly sporadic and intermittent demands Need for specialized techniques such as Croston's forecasting to address intermittent demand Address the operational impact of high levels of part obsolescence Where possible, use predictive techniques, such as mean time between failure Support part substitutability and super session Help plan returns and repair (that is, reverse logistics) Support kitting and other forms of dependent demands
Advanced SPP Capabilities Network wide optimization that minimizes total system wide parts cost, while meeting service targets and system wide considerations and constraints Causal forecasting that uses historical predictive metrics (for example, mean time between failures per hours of operation) Better forecasting methodologies, such as Croston's method or variations of this, and techniques, such as fractional forecasting, for addressing highly sporadic, intermittent and low-volume demands Network wide safety stock optimization versus bottom-up (referred to as multiechelon inventory optimization) Flexible and more-robust part segmentation beyond simple ABC classification Sourcing and replenishing parts horizontally across stocking locations, such as depot to depot, versus fixed hierarchical source-destination pairing, such as depots sourced only from regional warehouses that are then supplied by the central warehouse Asset/product bill of material built into planning processes (that is, as used, as configured) Visibility into contractual obligations, such as service lead-time and service-level agreements Ability to forecast material requirements based on asset populations Planning of parts, considering those in use and the erosion of asset populations Ability to model service-level agreements, including a complex array of parts by order/customer/channel across a network (sourced from one or more locations)

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SPP Vendors
Baxter Planning Systems ww.bybaxter.com
Click Commerce www.clickcommerce.com merged with Servigistics www.servigistics.com Infor www.infor.com

Logility www.logility.com
MCA Solutions www.mcasolutions.com Oracle www.oracle.com SAP www.sap.com SAS www.sas.com Syncron www.syncron.com ToolsGroup www.toolsgroup.com GainSystems www.gainsystems.com

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SPP System Configuration (1)

Same-Vendor ERP and

Planning Engine

SAP SPP is limited in parametric forecast, e.g. Op tempo, flight time, fleet size, etc. SAP SPP will not automatically make allocations stocking decisions (stock / non-stock) nor calculate the optimal echelon and geography to stock. Multi-echelon, multi-indenture problem

SAP Service Parts Planning

SAP ECC

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SPP System Configuration (2)

EXAMPLES

Hybrid Planning Engine

SAP-Endorsed

Extends SAP SPP to cover the functionality gap in:

SAP ECC
Parametric forecasting Inventory multi-echelon, multiindenture optimization
GAINSystems
Inventory Policy Optimization

Forecasting

SAP ECC

Servigistics

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SAP ECC

When to Use a Hybrid Configuration

Service Business Characteristics
Industry Service Characteristics Service Commitments

Environments that require SPP plus Inventory Optimization tool

Customer / Contract Centric (B to B) (A&D, Complex High Tech, Industrial Equipment) Same day service commitments, uptime or availability based service contracts. Manufacturer owns service commitment Intermittent demand that may be driven by contract entitlements, installed base, contract provisioning is important Complex assemblies that can be stocked or repaired at different levels of the BOM Complex multi-echelon networks with reverse logistics and internal or external repair operations

Forecasting Approach

Product Characteristics Supply Chain Characteristics

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SPP System Configuration (3)

EXAMPLES

Full Substitute Planning Engine

Service Planning and Optimization by MCA Solutions
Service Business Design
MultiEchelon Optimization Distribution Network Planning Service Performance Management

Forecasting

Provides toolset for spares (repairs and consumables) planning

SAP ECC
Supply Chain Planning Optimization by GAINSystems
Inventory Policy Optimization Supplier Collaboratio n and Portals

Forecasting

Replenishment Optimization

SAP ECC
Servigistics

SAP ECC
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Client XXXX Spare Parts Planning (SPP) The XXXX Wholesale SAP Planning solution consists of:

The XXXX Retail SAP Planning solution consists of:

SAP Global BI as a data Service Parts Planning warehouse as well as (SPP) Integrated Planning (IP) Capture Demand SAP APO Demand Planning Forecasting for Statistical Forecast Distribution SAP Service Parts Planning Requirements (SPP) Planning (DRP) Distribution Reorder Point Requirements Planning Planning (DRP) Deployment Time-Phased Inventory Balancing Planning MCA Service Planning and Deployment Optimization add-on Inventory Balancing MCA Service Planning and Optimization add-on Forecast is not parametric
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Client XXXX: Wholesale

SCM 5.1 ECC 6.0

3 4
Master Data Updates
BI 7.0

Master Data Updates

2 5 10
MCA

Demand History available for forecasting Execute DP Forecast Forecast Release to SPP Updated supply and demand data for RFI and NRFI

Extraction of history from Legacy/ECC

6 7 9

EOQ/SS Levels Calculations

Legacy

Demand History

Transactional Data Updates

11 12 13 14 15

DRP- Order Policy

17
Run DRP Purchase Requisitions

Workload Scheduling

Stock Transfer Requisitions

18
Deployment Inventory Balancing (RFI/NRFI)

16 Approve & Send results to ECC - 14 -

Forecast is not parametric

Summary
The appropriate mix of different indenture spares, and their optimal allocation

between different echelons, is a complicated problem that is best approached with a computer model Service Parts Planning software has been developed over the years to address spares planning requirements The best software combination is the one that addresses the multi-echelon, multi-indenture problem while maintaining the required integration to other components in the supply chain

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